<PAGE>
Registration No. 2-89972
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
POST-EFFECTIVE AMENDMENT NO. 19
To
FORM S-6
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
(Exact Name of Trust)
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
(Name of Depositor)
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
(Complete address of depositor's principal executive offices)
JOHN M. BREMER, Senior Vice President, General Counsel and Secretary
The Northwestern Mutual Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
(Name and complete address of agent for service)
It is proposed that this filing will become effective
immediately upon filing pursuant to paragraph (b)
-----
x on April 30, 1997 pursuant to paragraph (b)
-----
60 days after filing pursuant to paragraph (a)(1)
-----
on (DATE) pursuant to paragraph (a)(1) of Rule 485 this
----- post-effective amendment designates a new effective date
for a previously filed post-effective amendment
-----------------
THE ISSUER HAS REGISTERED AN INDEFINITE AMOUNT OF SECURITIES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO RULE 24f-2 UNDER THE INVESTMENT COMPANY ACT
OF 1940. THE RULE 24f-2 NOTICE FOR THE ISSUER'S MOST RECENT FISCAL YEAR WAS
FILED ON FEBRUARY 18, 1997.
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
CROSS-REFERENCE SHEET
Cross reference sheet showing location in Prospectus of information
required by Form N-8B-2.
ITEM NUMBER HEADING IN PROSPECTUS
------------ ---------------------
1 ................................Cover Page
2 ................................Cover Page; Northwestern Mutual Life
3 ................................Not Applicable
4 ................................Distribution of the Policies
5 ................................The Account
6 ................................The Account
9 ................................Legal Proceedings
10(a) .............................Other Policy Provisions:
OWNER and COLLATERAL ASSIGNMENT
10(b) .............................Annual Dividends
10(c) and (d) .....................Death Benefit, Cash Value, Policy
Loans, Right to Return Policy, Right
to Exchange for a Fixed Benefit
Policy, Payment Plans
10(e) .............................Grace Period, Extended Term and
Paid-Up Insurance, Reinstatement
10(f) .............................Voting Rights
10(g) .............................Voting Rights, Substitution of Fund
Shares and Other Charges
10(h) .............................Voting Rights, Substitution of Fund
Shares and Other Charges
10(i) .............................Premiums, Death Benefit, Annual
Dividends, Other Policy Provisions:
PAYMENT PLANS
11 ................................The Account, The Fund, Index 500
Stock Portfolio, Select Bond
Portfolio, Money Market Portfolio,
Balanced Portfolio, Growth and
Income Stock Portfolio, Growth Stock
Portfolio, Aggressive Growth Stock
Portfolio, High Yield Bond Portfolio
and International Equity Portfolio
12 ................................The Fund
13 ................................The Fund, Deductions and Charges,
Deductions from Premiums for Whole
Life and Extra Ordinary Life
Policies, Deductions for Single
Premium Life Policies, Charges
Against the Account Assets
14 ................................Requirements for Insurance
15 ................................Premiums, Allocations to the Account
16 ................................The Account, The Fund, Allocations
to the Account, Transfers Between
Divisions
i
<PAGE>
17 ................................Same Captions as Items 10(a), (c),
and (d)
18 ................................The Account, Annual Dividends
19 ................................Reports
20 ................................Not Applicable
21 ................................Policy Loans
22 ................................Not Applicable
23 ................................Not Applicable
24 ................................Not Applicable
25 ................................Not Applicable
26 ................................Not Applicable
27 ................................Northwestern Mutual Life
28 ................................Management
29 ................................Not Applicable
30 ................................Not Applicable
31 ................................Not Applicable
32 ................................Not Applicable
33 ................................Not Applicable
34 ................................Not Applicable
35 ................................Northwestern Mutual Life
37 ................................Not Applicable
38 ................................Distribution of the Policies
39 ................................Distribution of the Policies
40 ................................The Fund
41 ................................The Fund, Distribution of the
Policies
42 ................................Not Applicable
43 ................................Not Applicable
44 ................................The Fund, Requirements for
Insurance, Premiums
45 ................................Not Applicable
46 ................................Same Captions as Items 10(c) and (d)
47 ................................Not Applicable
48 ................................Not Applicable
49 ................................Not Applicable
50 ................................The Account
51 ................................Numerous Captions
52 ................................Substitution of Fund Shares and
Other Changes
53 ................................Charges Against the Account Assets
54 ................................Not Applicable
55 ................................Not Applicable
ii
<PAGE>
Prospectus
April 30, 1997
LOGO
The Quiet Company-Registered Trademark-
Northwestern Mutual Variable Life
Whole Life
Extra Ordinary Life
Single Premium Life
(PHOTO)
Northwestern Mutual
Series Fund, Inc.[ql]
The Northwestern Mutual
Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
(414) 271-1444
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus........................ 1
Northwestern Mutual Variable
Life........................... 1
Summary of the Policies........... 2
Variable Life Insurance......... 2
The Account and its Divisions... 2
Deductions and Charges.......... 2
Other Information............... 3
The Northwestern Mutual Life
Insurance Company, Northwestern
Mutual Variable Life Account and
Northwestern Mutual Series Fund,
Inc.............................. 4
Northwestern Mutual Life........ 4
The Account..................... 4
The Fund........................ 4
Index 500 Stock Portfolio..... 4
Select Bond Portfolio......... 4
Money Market Portfolio........ 5
Balanced Portfolio............ 5
Growth and Income Stock
Portfolio.................... 5
Growth Stock Portfolio........ 5
Aggressive Growth Stock
Portfolio.................... 5
High Yield Bond Portfolio..... 5
International Equity
Portfolio.................... 5
Detailed Information about the
Policies......................... 5
Requirements for Insurance...... 5
Premiums........................ 5
Grace Period.................... 7
Allocations to the Account...... 7
Transfers Between Divisions..... 7
Deductions and Charges.......... 7
Deductions from Premiums for
Whole Life and Extra Ordinary
Life Policies................ 7
Deductions for Single Premium
Life Policies................ 8
Charges Against the Account
Assets....................... 9
Guarantee of Premiums,
Deductions and Charges....... 9
Death Benefit................. 9
Variable Insurance Amount... 10
Whole Life Policy and Single
Premium Life Policy........ 10
Extra Ordinary Life
Policy..................... 12
<CAPTION>
Page
----
<S> <C>
Cash Value.................... 13
Annual Dividends.............. 14
Policy Loans.................. 15
Extended Term and Paid-Up
Insurance.................... 15
Reinstatement................. 16
Right to Return Policy........ 16
Right to Exchange for a Fixed
Benefit Policy............... 16
Other Policy Provisions....... 16
Owner....................... 16
Beneficiary................. 16
Incontestability............ 16
Suicide..................... 17
Misstatement of Age or
Sex........................ 17
Collateral Assignment....... 17
Payment Plans............... 17
Deferral of Determination
and Payment................ 17
Voting Rights................. 17
Substitution of Fund Shares
and Other Changes............ 17
Reports....................... 18
Special Policy for
Employers.................... 18
Distribution of the
Policies..................... 18
Tax Treatment of Policy
Benefits..................... 18
Other Information............... 19
Management.................... 19
Regulation.................... 20
Legal Proceedings............. 21
Registration Statement........ 21
Experts....................... 21
Financial Statements.............. 22
Report of Independent
Accountants (for year ended
December 31, 1996)............. 22
Financial Statements of the
Account (for year ended
December 31, 1996)............. 23
Financial Statements of
Northwestern Mutual Life (for
the three years ended December
31, 1996)...................... 29
Report of Independent
Accountants (for the three
years ended December 31,
1996).......................... 41
Appendix.......................... 42
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
<PAGE>
PROSPECTUS
NORTHWESTERN MUTUAL VARIABLE LIFE
- WHOLE LIFE
- EXTRA ORDINARY LIFE
- SINGLE PREMIUM LIFE
This prospectus describes three variable life insurance policies (the
"Policies") issued by The Northwestern Mutual Life Insurance Company: Whole
Life, Extra Ordinary Life and Single Premium Life. Each Policy is designed to
provide lifetime insurance coverage on the insured named in the Policy. A Policy
may also be surrendered for its cash value during the lifetime of the insured.
The death benefit and cash value of a Policy will vary to reflect the investment
experience of Northwestern Mutual Variable Life Account (the "Account").
The owner of a Policy may allocate the net premiums to one or more of the nine
divisions of the Account. The assets of each division will be invested in a
corresponding Portfolio of Northwestern Mutual Series Fund, Inc. (the "Fund").
The prospectus for the Fund, attached to this prospectus, describes the
investment objectives of the nine Portfolios: the Index 500 Stock Portfolio, the
Select Bond Portfolio, the Money Market Portfolio, the Balanced Portfolio, the
Growth and Income Stock Portfolio, the Growth Stock Portfolio, Aggressive Growth
Stock Portfolio, High Yield Bond Portfolio and International Equity Portfolio.
Northwestern Mutual Life guarantees that the death benefit for a Whole Life
Policy will never be less than the face amount of the Policy, regardless of the
Account's investment experience, so long as premiums are paid when due and no
Policy debt is outstanding. For an Extra Ordinary Life Policy, the death benefit
will never be less than the Minimum Death Benefit stated in the Policy, so long
as premiums are paid when due and no Policy debt is outstanding. The Extra
Ordinary Life Policy is designed for purchasers who intend to use all Policy
dividends to purchase paid-up additions. For a Single Premium Life Policy, the
death benefit will never be less than the face amount of the Policy, if no
Policy debt is outstanding. There is no guaranteed minimum cash value for any of
the three Policies.
In the early years of a Policy it is likely that the cash value will be less
than the premium amounts accumulated at interest. This is because of the sales
and issuance costs for a new Policy. For a Whole Life Policy or an Extra
Ordinary Life Policy deductions for sales costs are made from premiums. These
deductions are higher during the early Policy years. For a Single Premium Life
Policy deductions for sales costs are made from the cash values of Policies
surrendered during the early Policy years. Therefore a Policy should be
purchased only if the purchaser intends to keep it in force for a reasonably
long period.
A Policy may be returned for a full refund for a limited period of time. See
"Right to Return Policy", p. 16.
THE POLICIES DESCRIBED IN THIS PROSPECTUS ARE NO LONGER BEING ISSUED. THE
VARIABLE COMPLIFE-REGISTERED TRADEMARK- POLICY CURRENTLY BEING OFFERED BY
NORTHWESTERN MUTUAL LIFE IS DESCRIBED IN A SEPARATE PROSPECTUS.
IT MAY NOT BE ADVANTAGEOUS TO REPLACE EXISTING INSURANCE WITH A VARIABLE LIFE
INSURANCE POLICY. SEE DEDUCTIONS AND CHARGES AND CASH VALUE.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUS FOR
NORTHWESTERN MUTUAL SERIES FUND, INC. WHICH IS ATTACHED HERETO, AND SHOULD BE
RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--
1
<PAGE>
THE PRIMARY PURPOSE OF THESE VARIABLE LIFE INSURANCE POLICIES IS TO PROVIDE
INSURANCE PROTECTION. NO CLAIM IS MADE THAT THE POLICIES ARE IN ANY WAY SIMILAR
OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND.
- --------------------------------------------------------------------------------
SUMMARY OF THE POLICIES
VARIABLE LIFE INSURANCE
Variable life insurance is similar in many ways to traditional fixed-benefit
whole life insurance. There are also significant differences. For both fixed and
variable insurance the owner of the policy pays level premiums for lifetime
insurance coverage on the person insured. Both kinds of insurance provide a cash
value payable upon surrender of the policy during the insured's lifetime. In
each case the cash value during the early years is ordinarily less than the sum
of the premiums paid. Various optional benefits may be added to either kind of
policy (except single premium policies) at extra cost.
The distinctive feature of the variable Policies described in this prospectus is
that the premiums, after certain deductions, are placed in one or more divisions
of Northwestern Mutual Variable Life Account. The death benefit and cash value
of the Policy will increase or decrease to reflect the investment performance of
the division or divisions selected. The death benefit is adjusted annually on
the Policy anniversary. Northwestern Mutual Life guarantees that the death
benefit for a Whole Life Policy will never be less than the face amount of the
Policy, so long as premiums are paid when due and no Policy debt is outstanding.
For an Extra Ordinary Life Policy, Northwestern Mutual Life guarantees that the
death benefit will never be less than the Minimum Death Benefit stated in the
Policy, so long as premiums are paid when due and no Policy debt is outstanding.
The Extra Ordinary Life Policy is designed for purchasers who intend to use all
Policy dividends to purchase paid-up additions. For a Single Premium Life
Policy, Northwestern Mutual Life guarantees that the death benefit will never be
less than the face amount of the Policy, if no policy debt is outstanding. For
all of the Policies, the cash value is adjusted daily. There is no guaranteed
minimum cash value.
THE ACCOUNT AND ITS DIVISIONS
The Account has nine divisions. The owner of the Policy determines how the net
annual premium is to be apportioned. The assets of each division are invested in
a corresponding Portfolio of Northwestern Mutual Series Fund, Inc. The nine
Portfolios are the Index 500 Stock Portfolio, the Select Bond Portfolio, the
Money Market Portfolio, the Balanced Portfolio, the Growth and Income Stock
Portfolio, the Growth Stock Portfolio, the Aggressive Growth Stock Portfolio,
the High Yield Bond Portfolio and the International Equity Portfolio. The
investment objectives of the Portfolios are briefly described herein. See "The
Fund", p. 4. For additional information see the attached prospectus for the
Fund.
DEDUCTIONS AND CHARGES
The net annual premium for a Whole Life Policy and an Extra Ordinary Life Policy
is placed in the Account when the Policy is issued and on the Policy anniversary
each year. This amount is the total premium after deductions for sales and
administrative expenses, state premium taxes and risk charges. For an Extra
Ordinary Life Policy, a deduction is also made for dividends to be paid or
credited in accordance with the dividend scale in effect on the issue date of
the Policy. For the first year there is also a fixed fee for expenses incurred
in issuing the Policy. The net annual premium excludes any extra premium charged
for insureds who do not qualify as select risks and the extra premium for
optional benefits.
For a Single Premium Life Policy an administrative charge of $150 is made when
the Policy is issued. This is the only deduction from the single premium, but if
a Single Premium Policy is surrendered during the first ten policy years the
cash value payable on surrender is reduced by a deduction for sales costs.
The Account pays a charge at the annual rate of .50% of the Account's assets for
the mortality and expense risks assumed by Northwestern Mutual Life and a charge
at the annual rate of .20% of the Account's assets for federal income taxes
incurred by Northwestern Mutual Life. The Fund pays an investment advisory fee,
and other expenses, which vary depending on the Portfolios selected.
--
2
<PAGE>
For additional information, see "Deductions and Charges", p. 7.
For a Whole Life Policy or an Extra Ordinary Life Policy the deductions in the
first year for sales and administrative expenses will often amount to more than
50% of the total annual premium. The percentage varies with the age of the
insured and the size of the Policy. For Whole Life Policies the percentage
ranges from 40% for large Policies at the highest ages to 90% for the smallest
Policies for juveniles. For Extra Ordinary Life Policies the percentage ranges
from 54% for large Policies at the highest ages to 87% for the smallest Policies
for juveniles.
OTHER INFORMATION
For a Whole Life Policy the minimum face amount of insurance for which a Policy
may be issued is $20,000. If the insured is below age 15 or over age 49, the
minimum amount is $10,000. The insured may not be older than age 70 on the date
of issue. For an Extra Ordinary Life Policy the minimum initial amount of
insurance for which a Policy may be issued is $50,000; if the insured is over
age 70, the minimum amount is $25,000. The minimum face amount of insurance for
which a Single Premium Life Policy may be issued is $5,000. For an Extra
Ordinary Life Policy the insured may not be younger than age 15 on the date of
issue. For either an Extra Ordinary Life Policy or a Single Premium Life Policy
the insured may not be older than age 75 on the date of issue.
For a limited time a Policy may be returned for a refund. See "Right to Return
Policy", p. 16.
--
3
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY,
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT AND
NORTHWESTERN MUTUAL SERIES FUND, INC.
NORTHWESTERN MUTUAL LIFE
The Northwestern Mutual Life Insurance Company is a mutual life insurance
company organized by a special act of the Wisconsin Legislature in 1857. It is
the nation's sixth largest life insurance company, based on total assets in
excess of $62 billion on December 31, 1996 and is licensed to conduct a
conventional life insurance business in the District of Columbia and in all
states of the United States. Northwestern Mutual Life sells life and disability
income insurance policies and annuity contracts through its own field force of
approximately 6,000 full time producing agents.
THE ACCOUNT
Northwestern Mutual Variable Life Account was established by the Trustees of
Northwestern Mutual Life on November 23, 1983, in accordance with the provisions
of Wisconsin insurance law. Under Wisconsin law the income, gains and losses,
realized or unrealized, of the Account are credited to or charged against the
assets of the Account without regard to other income, gains or losses of
Northwestern Mutual Life. The Account is used only for the variable life
insurance Policies.
The Account is registered as a unit investment trust under the Investment
Company Act of 1940. Such registration does not involve supervision of
management or investment practices or policies. The Account has nine divisions.
All of the assets of each division are invested in shares of the corresponding
Portfolio of the Fund described below.
THE FUND
Northwestern Mutual Series Fund, Inc. is a mutual fund of the series type
registered under the Investment Company Act of 1940 as an open-end diversified
management investment company. Shares of each Portfolio of the Fund are
purchased by the corresponding division of the Account at their net asset value
without any sales charge.
The investment adviser for the Fund is Northwestern Mutual Investment Services,
Inc. ("NMIS"), a wholly-owned subsidiary of Northwestern Mutual Life. The
investment advisory agreements for the respective Portfolios provide that NMIS
will provide services and bear certain expenses of the Fund. For providing
investment advisory and other services and bearing Fund expenses, the Fund pays
NMIS a fee at an annual rate which ranges from .20% of the aggregate average
daily net assets of the Index 500 Stock Portfolio to a maximum of .67% for the
International Equity Portfolio, based on 1996 asset size. Other expenses borne
by the Portfolios range from 0% for the Select Bond, Money Market and Balanced
Portfolios to .14% for the International Equity Portfolio. Northwestern Mutual
Life provides certain personnel and facilities used by NMIS in performing its
investment advisory functions and is a party to the investment advisory
agreement. J.P. Morgan Investment Management, Inc. and Templeton Investment
Counsel, Inc. have been retained under investment sub-advisory agreements to
provide investment advice to the Growth and Income Stock Portfolio and the
International Equity Portfolio, respectively.
The investment objectives and types of investments for each of the nine
Portfolios of the Fund are set forth below. There can be no assurance that the
objectives of the Portfolios will be realized. For more information about the
investment objectives and policies, the attendant risk factors and expenses see
the Fund prospectus.
INDEX 500 STOCK PORTFOLIO. The investment objective of the Index 500 Stock
Portfolio is to achieve investment results that approximate the performance of
the Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index"). The
Portfolio will attempt to meet this objective by investing in stocks included in
the S&P 500 Index. Stocks are generally more volatile than debt securities and
involve greater investment risks.
SELECT BOND PORTFOLIO. The primary investment objective of the Select Bond
Portfolio is to provide as high a level of long-term total rate of return as is
consistent with prudent investment risk. A secondary objective is to seek
preservation of shareholders' capital. The Select Bond Portfolio will invest
primarily in debt securities. The value of debt securities will tend
--
4
<PAGE>
to rise and fall inversely with the rise and fall of interest rates.
MONEY MARKET PORTFOLIO. The investment objective of the Money Market Portfolio
is to realize maximum current income consistent with liquidity and stability of
capital. The Money Market Portfolio will invest in money market instruments and
other debt securities with maturities generally not exceeding one year. The
return produced by these securities will reflect fluctuations in short-term
interest rates.
BALANCED PORTFOLIO. The investment objective of the Balanced Portfolio is to
realize as high a level of long-term total rate of return as is consistent with
prudent investment risk. The Balanced Portfolio will invest in common stocks and
other equity securities, bonds and money market instruments. Investment in the
Balanced Portfolio necessarily involves the risks inherent in stocks and debt
securities of varying maturities, including the risk that the Portfolio may
invest too much or too little of its assets in each type of security at any
particular time.
GROWTH AND INCOME STOCK PORTFOLIO. The investment objective of the Growth and
Income Stock Portfolio is long-term growth of capital and income. Ordinarily the
Portfolio pursues its investment objectives by investing primarily in
dividend-paying common stock.
GROWTH STOCK PORTFOLIO. The investment objective of the Growth Stock Portfolio
is long-term growth of capital; current income is secondary. The Portfolio will
seek to achieve this objective by selecting investments in companies which have
above average earnings growth potential.
AGGRESSIVE GROWTH STOCK PORTFOLIO. The investment objective of the Aggressive
Growth Stock Portfolio is to achieve long-term appreciation of capital primarily
by investing in the common stocks of companies which can reasonably be expected
to increase their sales and earnings at a pace which will exceed the growth rate
of the nation's economy over an extended period.
HIGH YIELD BOND PORTFOLIO. The investment objective of the High Yield Bond
Portfolio is to achieve high current income and capital appreciation by
investing primarily in fixed income securities that are rated below investment
grade by the major rating agencies.
INTERNATIONAL EQUITY PORTFOLIO. The investment objective of the International
Equity Portfolio is long-term capital growth. It pursues its objective through a
flexible policy of investing in stocks and debt securities of companies and
governments outside the United States.
- --------------------------------------------------------------------------------
DETAILED INFORMATION ABOUT THE POLICIES
REQUIREMENTS FOR INSURANCE
The minimum face amount for which a Whole Life Policy may be issued is $20,000.
If the insured is below age 15 or over age 49 the minimum amount is $10,000. The
insured may not be older than age 70 on the date of issue. For an Extra Ordinary
Life Policy the minimum initial amount of insurance for which a Policy may be
issued is $50,000; if the insured is over age 70, the minimum amount is $25,000.
The minimum face amount of insurance for which a Single Premium Life Policy may
be issued is $5,000. For an Extra Ordinary Life Policy the insured may not be
younger than age 15 on the date of issue. For the Extra Ordinary Life Policy and
the Single Premium Life Policy, the insured may not be older than age 75 on the
date of issue.
Before issuing a Policy, Northwestern Mutual Life will require satisfactory
evidence of insurability. Non-smokers who meet preferred underwriting
requirements are considered select risks. A higher premium is charged for
insureds who do not qualify as select risks. The amount of additional premium
depends on the risk classification in which the insured is placed. Nonsmokers in
the second best classification are considered standard plus risks. The best
class of smokers are considered standard risks.
PREMIUMS
Payment of the first premium is required to put a Whole Life Policy or an Extra
Ordinary Life Policy in effect. Premiums are level, fixed and payable in advance
during the insured's lifetime on a monthly, quarterly, semiannual or annual
basis. The owner of a Policy may change the premium frequency. The change will
be effective when the premium on the new frequency is accepted. Premiums paid
more often than annually include an extra amount to compensate Northwestern
Mutual Life for the extra processing
--
5
<PAGE>
costs and loss of interest because the money is received later. The amount of
the premium depends on the amount of insurance for which the Policy was issued
and the insured's age and risk classification. The amount of the premium also
reflects the sex of the insured except where state or federal law requires that
premiums and other charges and values be determined without regard to sex. A
notice is sent to the owner of a Policy not less than two weeks before each
premium is due. If the monthly premium frequency is selected, Northwestern
Mutual Life may require that premium payments be made by preauthorized check.
The following table for Whole Life Policies shows representative premiums for
male select, standard plus, and standard risks for various face amounts of
insurance.
<TABLE>
<CAPTION>
% EXCESS OF 12
MONTHLY PREMIUMS
FACE ANNUAL MONTHLY OVER ANNUAL
AGE AT ISSUE AMOUNT PREMIUM PREMIUM PREMIUM
- ------------------------------------------------------------------ ---------- ---------- ------------ ---------------------
<S> <C> <C> <C> <C>
SELECT
15................................................................ $ 50,000 $ 382.50 $ 33.60 5.4%
35................................................................ 100,000 1,536.00 135.10 5.5%
55................................................................ 100,000 3,766.00 331.10 5.5%
STANDARD PLUS
15................................................................ 50,000 406.00 35.60 5.2%
35................................................................ 100,000 1,683.00 148.10 5.6%
55................................................................ 100,000 4,125.00 363.10 5.6%
STANDARD
15................................................................ 50,000 491.50 43.10 5.2%
35................................................................ 100,000 1,912.00 168.10 5.5%
55................................................................ 100,000 4,587.00 404.10 5.7%
</TABLE>
The following table for Extra Ordinary Life Policies shows representative annual
premiums for male select and standard risks for various amounts of insurance.
The amounts of insurance shown in the table are the total amounts in effect when
the Extra Ordinary Life Policy is issued, including both the Minimum Death
Benefit which is guaranteed for the lifetime of the insured and the Extra Life
Protection which is guaranteed for a shorter period. See "Death Benefit", p. 9,
and "Extra Ordinary Life Policy", p. 12.
<TABLE>
<CAPTION>
% EXCESS OF 12
MONTHLY PREMIUMS
FACE ANNUAL MONTHLY OVER ANNUAL
AGE AT ISSUE AMOUNT PREMIUM PREMIUM PREMIUM
- ------------------------------------------------------------------ ---------- ---------- ------------ ---------------------
<S> <C> <C> <C> <C>
SELECT
15................................................................ $ 50,000 $ 261.50 $ 23.10 6.0%
35................................................................ 100,000 1,014.00 89.10 5.4%
55................................................................ 100,000 2,612.00 230.10 5.7%
STANDARD PLUS
15................................................................ 50,000 285.00 25.10 5.7%
35................................................................ 100,000 1,161.00 102.10 5.5%
55................................................................ 100,000 2,971.00 261.10 5.5%
STANDARD
15................................................................ 50,000 357.50 31.60 6.1%
35................................................................ 100,000 1,377.00 121.10 5.5%
55................................................................ 100,000 3,425.00 301.10 5.5%
</TABLE>
For a Single Premium Life Policy the purchaser may choose either a face amount
of insurance or the amount which a given amount of premium will provide. The
Single Premium Life Policy is available only for applicants who meet select or
standard plus underwriting criteria as determined by Northwestern Mutual Life.
The premiums for these Policies are the same for both select and standard plus
risks, but it is expected that the dividends will be lower for Policies
--
6
<PAGE>
issued to insureds in the standard plus classification. The following table for
Single Premium Life Policies shows representative gross single premiums for male
select and standard plus risks for various face amounts of Insurance:
<TABLE>
<CAPTION>
FACE AMOUNT GROSS SINGLE
AGE AT ISSUE OF INSURANCE PREMIUM
- ----------------------------- ------------ ---------------
<S> <C> <C>
15........................... $ 10,000 $ 1,498.40
35........................... 25,000 6,443.25
55........................... 50,000 23,502.00
</TABLE>
GRACE PERIOD
For the Whole Life and Extra Ordinary Life Policies there is a grace period of
31 days for any premium that is not paid when due. The Policy remains in force
during this period. If the premium is not paid within the grace period the
Policy will terminate as of the date when the premium was due and will no longer
be in force, unless it is continued as extended term or paid-up insurance. See
"Extended Term and Paid-Up Insurance", p. 15. If a Policy is surrendered, its
cash value will be paid. See "Cash Value", p. 13. If the insured dies during the
grace period any overdue premium will be deducted from the proceeds of the
Policy. If the insured dies after payment of the premium for the period which
includes the date of death, the portion of the premium for the remainder of that
period will be refunded as part of the Policy proceeds.
ALLOCATIONS TO THE ACCOUNT
The net annual premium for a Whole Life Policy or an Extra Ordinary Life Policy
is placed in the Account on the Policy date and on the Policy anniversary each
year. The net annual premium is the annual premium less the deductions described
below.
The owner of a Whole Life or an Extra Ordinary Life Policy determines how the
net annual premium is apportioned among the divisions of the Account. If any
portion of a premium is directed to a division, the division must receive at
least 10% of that premium. The apportionment for future premiums may be changed
upon written request at any time, but the change will be effective only when the
net annual premium is placed in the Account on the next Policy anniversary, even
if premiums are being paid on an other than annual basis.
For a Single Premium Policy the entire single premium, less an administrative
charge of $150, is placed in the Account on the Policy date and apportioned
among the divisions of the Account as determined by the owner of the Policy.
The Account assets supporting a Policy may be apportioned among as many as six
divisions of the Account at any time.
TRANSFERS BETWEEN DIVISIONS
The owner of a Policy may transfer accumulated amounts from one division of the
Account to another as often as four times in a Policy year. Transfers are
effective on the date a written request is received at the Home Office of
Northwestern Mutual Life. Northwestern Mutual Life reserves the right to charge
a fee to cover administrative costs of transfers. No fee is presently charged.
DEDUCTIONS AND CHARGES
The net premiums placed in the Account for Whole Life, Extra Ordinary Life and
Single Premium Life Policies are the gross premiums after the deductions
described in the next two sections below. The net premiums for Whole Life and
Extra Ordinary Life Policies exclude any extra premium charged for insureds who
do not qualify as select risks and the extra premium for any optional benefits.
A charge for mortality and expense risks is made against the assets of the
Account. There is also a charge for taxes. See "Charges Against the Account
Assets", p. 9. In addition, the Fund in which the Account assets are invested
pays an investment advisory fee and certain other expenses. Fund expenses are
briefly described above on page 4, and in more detail in the attached prospectus
for the Fund.
DEDUCTIONS FROM PREMIUMS FOR WHOLE LIFE AND EXTRA ORDINARY LIFE POLICIES The
deductions described in this section are for Whole Life and Extra Ordinary Life
Policies only. The deductions for Single Premium Life Policies are described
under the next caption below.
For the first Policy year there is a one-time deduction of not more than $5 for
each $1,000 of insurance, based on the face amount for Whole Life or the Minimum
Death Benefit stated in the Policy for Extra Ordinary Life. This is for the
costs of processing applications, medical examinations, determining insurability
and establishing records.
There is an annual deduction of $35 for administrative costs to maintain the
Policy. Expenses include costs of premium billing and collection, processing
claims,
--
7
<PAGE>
keeping records and communicating with Policyowners.
There is a deduction each year for sales costs. This amount may be considered a
"sales load". The deduction will be not more than 30% of the basic premium (as
defined below) for the first Policy year, not more than 10% for each of the next
three years and not more than 7% each year thereafter. The basic premium for a
Policy is the gross premium which would be payable if the premium were paid
annually, less the annual deduction of $35 for administrative costs. The basic
premium is based on the cost of insurance for insureds who qualify as select
risks and does not include any extra premium amounts for insureds who are placed
in other risk classifications. The basic premium does not include the extra
premium for any optional benefits. For an Extra Ordinary Life Policy, the basic
premium does not include any extra premium for the Extra Life Protection; the
amount of term insurance included in the Extra Life Protection affects the
dividends payable on the Extra Ordinary Life Policies.
The amount of the deduction for sales costs for any Policy year is not
specifically related to sales costs incurred for that year. Northwestern Mutual
Life expects to recover its total sales expenses from the amounts deducted for
sales costs over the period while the Policies are in force. To the extent that
sales expenses exceed the amounts deducted, Northwestern Mutual Life will pay
the expenses from its other assets. These assets may include, among other
things, any gain realized from the charge against the assets of the Account for
the mortality and expense risks assumed by Northwestern Mutual Life. See
"Charges Against the Account Assets", p. 9. To the extent that the amounts
deducted for sales costs exceed the amounts needed, Northwestern Mutual Life
will realize a gain.
A deduction equal to 2% of each basic premium is made for state premium taxes.
Premium taxes vary from state to state and currently range from .75% to 3.5% of
life insurance premiums. The 2% rate is an average. The tax rate for a
particular state may be lower, higher or equal to the 2% deduction.
Northwestern Mutual Life has guaranteed that the death benefit for a Whole Life
Policy will never be less than the face amount of the Policy, regardless of the
investment experience of the Account. For an Extra Ordinary Life Policy,
Northwestern Mutual Life has guaranteed that the death benefit will never be
less than the Minimum Death Benefit stated in the Policy. For both Policies,
there is a deduction of 1 1/2% from each basic premium to compensate
Northwestern Mutual Life for the risk that the insured may die at a point in
time when the death benefit that would ordinarily be paid is less than this
guaranteed minimum amount.
For an Extra Ordinary Life Policy there is a deduction for dividends to be paid
or credited in accordance with the dividend scale in effect on the issue date of
the Policy. This deduction will vary by age of the insured and duration of the
Policy, and is expected to be in the range of approximately 7-17% of the gross
annual premium.
The following tables illustrate the amount of net annual premium, for select and
standard risks, to be placed in the Account at the beginning of each Policy year
after the deductions described above:
WHOLE LIFE
<TABLE>
<CAPTION>
MALE AGE 35 -- SELECT RISK
ANNUAL PREMIUM
--------------------------------
BEGINNING OF POLICY YEAR $500 $1,000 $5,000
- ----------------------------- --------- --------- ----------
<S> <C> <C> <C>
1............................ $ 154.28 $ 320.16 $ 1,647.28
2 through 4.................. 402.11 834.48 4,293.51
5 and later.................. 416.05 863.41 4,442.36
</TABLE>
<TABLE>
<CAPTION>
MALE AGE 35 -- STANDARD RISK
ANNUAL PREMIUM
--------------------------------
BEGINNING OF POLICY YEAR $500 $1,000 $5,000
- ----------------------------- --------- --------- ----------
<S> <C> <C> <C>
1............................ $ 123.37 $ 256.03 $ 1,317.30
2 through 4.................. 321.57 667.33 3,433.44
5 and later.................. 332.71 690.46 3,552.48
</TABLE>
<TABLE>
<CAPTION>
EXTRA ORDINARY LIFE
MALE AGE 35 -- SELECT RISK
ANNUAL PREMIUM
--------------------------------
BEGINNING OF POLICY YEAR $500 $1,000 $5,000
- ----------------------------- --------- --------- ----------
<S> <C> <C> <C>
1............................ $ 134.23 $ 278.56 $ 1,433.21
2 through 4.................. 369.62 767.07 3,946.64
5 and later.................. 383.58 796.05 4,095.74
</TABLE>
<TABLE>
<CAPTION>
MALE AGE 35 -- STANDARD RISK
ANNUAL PREMIUM
--------------------------------
BEGINNING OF POLICY YEAR $500 $1,000 $5,000
- ----------------------------- --------- --------- ----------
<S> <C> <C> <C>
1............................ $ 97.92 $ 203.21 $ 1,045.54
2 through 4.................. 269.65 559.59 2,879.11
5 and later.................. 279.83 580.73 2,987.88
</TABLE>
DEDUCTIONS FOR SINGLE PREMIUM LIFE POLICIES For a Single Premium Life Policy
the only deduction from
--
8
<PAGE>
the single premium is an administrative charge of $150.00. The administrative
costs for issuing and maintaining a Single Premium Life Policy are similar to
those incurred with a Whole Life Policy or an Extra Ordinary Life Policy, except
for the costs of premium billing and collection. See "Deductions from Premiums
for Whole Life and Extra Ordinary Life Policies", p. 7. The entire premium for a
Single Premium Life Policy, after this deduction of $150, is placed in the
Account when the Policy is issued without any of the other deductions which
apply to premiums for Whole Life and Extra Ordinary Life Policies. There is no
annual fee for a Single Premium Life Policy.
For a Single Premium Life Policy during the first ten Policy years, the cash
value payable on surrender of the Policy is reduced by a deduction for sales
costs. The deduction during the first Policy year is not more than 9% of the
Policy's tabular cash value. See "Cash Value", p. 13. The deduction decreases
over time until it is eliminated at the end of the tenth Policy year. The
deduction is intended to recover the costs incurred by Northwestern Mutual Life
in distributing Single Premium Life Policies which are surrendered in their
early years. The deduction will never be more than 9% of the single premium paid
for the Policy, excluding the administrative charge of $150.00.
The following table illustrates the schedule for the decreasing deduction for
sales costs for a policy surrendered at the end of each of the first ten Policy
years. The illustration is for a Single Premium Life Policy, male age 35. The
schedule varies slightly by age and sex and amount of insurance.
<TABLE>
<CAPTION>
POLICY YEAR END WHEN POLICY IS DEDUCTION AS % OF
SURRENDERED TABULAR CASH VALUE
- ---------------------------------------- -----------------------
<S> <C>
1....................................... 7.9%
2....................................... 7.1
3....................................... 6.3
4....................................... 5.4
5....................................... 4.6
6....................................... 3.7
7....................................... 2.8
8....................................... 1.9
9....................................... 0.9
10 and subsequent years................. 0
</TABLE>
Since the maximum Policy loan limit for a Single Premium Life Policy is based on
the cash value payable on surrender, the amount which may be borrowed during the
first ten years is reduced to reflect the deduction for sales costs which would
be made if the Policy were surrendered on the date of the Policy loan. See
"Policy Loans", p. 15.
CHARGES AGAINST THE ACCOUNT ASSETS There is a daily charge to the Account for
the mortality and expense risks assumed by Northwestern Mutual Life. The charge
is at the annual rate of .50% of the assets of the Account. The mortality risk
is that insureds may not live as long as Northwestern Mutual Life estimated. The
expense risk is that expenses of issuing and administering the Policies may
exceed the estimated costs. Northwestern Mutual Life will realize a gain from
this charge to the extent it is not needed to provide benefits and pay expenses
under the Policies. The actual mortality and expense experience under the
Policies will be the basis for determining dividends. See "Annual Dividends", p.
14.
The Policies provide that a charge for taxes may be made against the assets of
the Account. Currently, a daily charge for federal income taxes incurred by
Northwestern Mutual Life is being made at the annual rate of .20% of the assets
of the Account. The charge for taxes may be increased, decreased or eliminated
in the future. In no event will the charge for taxes exceed that portion of the
actual tax expenses of Northwestern Mutual Life which is fairly allocable to the
Policies.
GUARANTEE OF PREMIUMS, DEDUCTIONS AND CHARGES Northwestern Mutual Life
guarantees and may not increase the premiums, the amounts deducted from premiums
and the charge for mortality and expense risks. These amounts will not increase
regardless of future changes in longevity or increases in expenses. The Extra
Ordinary Life Policy provides an opportunity to pay an additional amount of
premium after the guaranteed period for the Extra Life Protection has expired if
the Total Death Benefit would otherwise fall below the initial amount of
insurance. See "Extra Ordinary Life Policy", p. 12.
DEATH BENEFIT The death benefit for a variable life insurance policy is, in
part, a guaranteed amount which will not be reduced during the lifetime of the
insured so long as premiums are paid when due and no policy debt is outstanding.
The remainder of the death benefit is the variable insurance amount which
fluctuates in response to actual investment results and is not guaranteed. The
amount of any paid-up additions which have been purchased with dividends is also
included in the total death benefit and, in addition, the Extra Ordinary Life
Policy provides some term insurance during the early Policy years. The
--
9
<PAGE>
relationships among the guaranteed and variable amounts and any paid-up
additions and term insurance depend on the design of the particular Policy. See
"Whole Life Policy and Single Premium Life Policy", below, and "Extra Ordinary
Life Policy" p. 12.
VARIABLE INSURANCE AMOUNT. The variable insurance amount reflects, on a
cumulative basis, the investment experience of the Account divisions in which
the Policy has participated. The variable insurance amount is adjusted annually
on each Policy anniversary. For the first Policy year the variable insurance
amount is zero. For any subsequent year it may be either positive or negative.
If the variable insurance amount is positive, subsequent good investment results
will produce a larger variable insurance amount and therefore an increase in the
death benefit. If the variable insurance amount is negative, subsequent good
investment results will first have to offset the negative amount before the
death benefit will increase.
In setting the premium rates for each Policy it has been assumed that investment
results will cause the Account assets supporting the Policy to grow at a net
annual rate of 4%. If the assets grow at a net rate of exactly 4% for a Policy
year, the variable insurance amount will neither increase nor decrease on the
following anniversary. If the net rate of growth exceeds 4%, the variable
insurance amount will increase. If it is less than 4%, the variable insurance
amount will decrease.
The method for calculating the changes in the death benefit is described in the
Policy. The Policy includes a table of net single premiums used to convert the
investment results for a Policy into increases or decreases in the variable
insurance amount. The insurance rates in the table depend on the sex and the
attained age of the insured for each Policy year. For a Whole Life Policy, the
changes in the death benefit will be smaller for a Policy issued with a higher
premium for extra mortality risk. The net single premium for a particular
variable insurance amount is the price for that amount of paid-up whole life
insurance based on the insured's age at the Policy anniversary.
Because the variable insurance amount is adjusted only on the Policy
anniversary, Northwestern Mutual Life bears the risk that the insured may die
before the next anniversary after an interim period of adverse investment
experience. If investment experience during the interim period is favorable, the
owner of the Policy will forego the benefit and Northwestern Mutual Life will
realize a gain, unless the insured survives to the next Policy anniversary.
However, if at the date of death of the insured the value of the Policy,
considered as a net single premium, would buy more death benefit than the amount
otherwise determined under the Policy, this increased death benefit will be
paid.
The cost of life insurance increases with the advancing age of the insured, and
therefore a larger dollar amount of investment earnings is required to produce
the same increase in the death benefit in the later Policy years. In general,
however, the effect of investment results on the death benefit will tend to be
greater in the later Policy years because the amount of assets invested for the
Policy will tend to increase as the Policy remains in force.
The cost of providing insurance protection under a Policy is reflected in the
cash value of the Policy. See "Cash Value", p. 13. The cost is actuarially
computed for each Policy each year, based on the insured's attained age, the
1980 Commissioners Standard Ordinary Mortality Table and the net insurance
amount at risk under the Policy. The net insurance amount at risk is the total
death benefit for the Policy minus the cash value plus any Policy debt. The cost
of insurance differs each year because the probability of death increases as the
insured advances in age and the net insurance amount at risk decreases or
increases from year to year depending on investment experience. The cost assumes
that all insureds are in the select underwriting risk classification. The
differences in the mortality rates of the various underwriting classifications
are reflected in the different premiums (or different dividend scales) for those
underwriting classifications. The cost of insurance is based on the mortality
table identified above and is guaranteed for the life of a Policy regardless of
any future changes in mortality experience.
WHOLE LIFE POLICY AND SINGLE PREMIUM LIFE POLICY. For a Whole Life Policy or a
Single Premium Life Policy the death benefit is the face amount of the Policy
plus any positive variable insurance amount in force. The death benefit is
adjusted on each Policy anniversary when the variable insurance amount is
determined for the following year. The total death benefit also includes the
amount of insurance provided by any paid-up additions which have been purchased
with dividends and is reduced by the amount of any Policy debt outstanding. The
death benefit for a Whole Life Policy will not be less than the face amount so
long as
--
10
<PAGE>
premiums are paid when due and no Policy debt is outstanding. For a Single
Premium Life Policy the death benefit will not be less than the face amount so
long as no Policy debt is outstanding.
Paid-up additions purchased with dividends are not counted for purposes of the
guarantee that the death benefit of a Whole Life Policy or a Single Premium Life
Policy will never be less than the face amount of the Policy. If the variable
insurance amount is negative, the total death benefit will be the guaranteed
face amount plus the amount of insurance provided by any paid-up additions less
any Policy debt. Paid-up additions are amounts of permanent insurance, paid for
with dividends and added to a basic life insurance policy, for which the premium
for the entire lifetime of the insured has been paid. Paid-up additions have
cash surrender value and loan value.
The following example shows how the death benefit for a Whole Life Policy could
vary based on investment results. Using the Policy illustrated on page 43 and
assuming the 12% hypothetical gross investment earnings rate on assets of the
selected Portfolio of the Fund (equivalent to a net rate of 10.83% for the
Account division), and the dividend scale as illustrated, the death benefit
shown at the end of Policy year 5 would change as follows:
<TABLE>
<CAPTION>
GUARANTEED VARIABLE
FACE INSURANCE
AMOUNT + AMOUNT +
------------ -----------
<S> <C> <C> <C> <C>
End of Policy Year 5.................................................... $ 30,979 $ 1,068
Change.................................................................. 0 +505
------------ -----------
End of Policy Year 6.................................................... $ 30,979 $ 1,573
<CAPTION>
TOTAL
PAID-UP DEATH
ADDITIONS = BENEFIT
----------- ---------
<S> <C> <C> <C>
End of Policy Year 5.................................................... $ 637 $ 32,684
Change.................................................................. +216 +721
----------- ---------
End of Policy Year 6.................................................... $ 853 $ 33,405
</TABLE>
If instead the gross earnings rate during the sixth Policy year had been 0%
(equivalent to a net rate of -1.17%) the death benefit at the end of Policy Year
5 would change as follows:
<TABLE>
<CAPTION>
GUARANTEED VARIABLE
FACE INSURANCE
AMOUNT + AMOUNT +
------------ -----------
<S> <C> <C> <C> <C>
End of Policy Year 5.................................................... $ 30,979 $ 1,068
Change.................................................................. 0 -383
------------ -----------
End of Policy Year 6.................................................... $ 30,979 $ 685
<CAPTION>
TOTAL
PAID-UP DEATH
ADDITIONS = BENEFIT
----------- ---------
<S> <C> <C> <C>
End of Policy Year 5.................................................... $ 637 $ 32,684
Change.................................................................. +142 -241
----------- ---------
End of Policy Year 6.................................................... $ 779 $ 32,443
</TABLE>
The following example shows how the death benefit for a Single Premium Life
Policy could vary based on investment results. Using the Policy illustrated on
page 47 and assuming the 12% hypothetical gross annual investment earnings rate
on assets of the selected Portfolio of the Fund (equivalent to a net rate of
10.83% for the Account division), and the dividend scale as illustrated, the
death benefit shown at the end of Policy year 5 would change as follows:
<TABLE>
<CAPTION>
GUARANTEED VARIABLE
FACE INSURANCE
AMOUNT + AMOUNT +
------------ -----------
<S> <C> <C> <C> <C>
End of Policy Year 5..................................................... $ 25,000 $ 9,394
Change................................................................... 0 +2,267
------------ -----------
End of Policy Year 6..................................................... $ 25,000 $ 11,661
<CAPTION>
TOTAL
PAID-UP DEATH
ADDITIONS = BENEFIT
----------- ---------
<S> <C> <C> <C>
End of Policy Year 5..................................................... $ 432 $ 34,826
Change................................................................... +154 +2,421
----------- ---------
End of Policy Year 6..................................................... $ 586 $ 37,247
</TABLE>
If instead the gross earnings rate during the sixth Policy year had been 0%
(equivalent to a net rate of -1.17%) the death benefit at the end of Policy Year
5 would change as follows:
<TABLE>
<CAPTION>
GUARANTEED VARIABLE
FACE INSURANCE
AMOUNT + AMOUNT +
------------ -----------
<S> <C> <C> <C> <C>
End of Policy Year 5..................................................... $ 25,000 $ 9,394
Change................................................................... 0 -1,716
------------ -----------
End of Policy Year 6..................................................... $ 25,000 $ 7,678
<CAPTION>
TOTAL
PAID-UP DEATH
ADDITIONS = BENEFIT
----------- ---------
<S> <C> <C> <C>
End of Policy Year 5..................................................... $ 432 $ 34,826
Change................................................................... +104 -1,612
----------- ---------
End of Policy Year 6..................................................... $ 536 $ 33,214
</TABLE>
--
11
<PAGE>
EXTRA ORDINARY LIFE POLICY. The Total Death Benefit for an Extra Ordinary Life
Policy is the sum of the Minimum Death Benefit plus the amount of Extra Life
Protection in force. The Minimum Death Benefit is 60% of the total amount of
insurance for which the Policy is issued, and is guaranteed for the lifetime of
the insured so long as premiums are paid when due and no Policy debt is
outstanding. The amount of Extra Life Protection is initially 40% of the total
amount of insurance. It may increase but it will not decrease during the
guaranteed period, so long as premiums are paid when due, no Policy debt is
outstanding, all dividends are applied to purchase paid-up additions and no
paid-up additions are surrendered for their cash value.
Extra Life Protection consists of one year term insurance, positive variable
insurance amount and paid-up additions which have been purchased with dividends.
Term insurance is life insurance which pays a death benefit only if the insured
dies during the term for which the insurance has been purchased. Term insurance
is ordinarily purchased on an annual basis at a cost which rises with the
increasing age of the insured. It has no cash surrender value or loan value. The
variable insurance amount and paid-up additions have been described; see
"Variable Insurance Amount", p. 10 and "Whole Life Policy and Single Premium
Life Policy", p. 10.
Initially the entire amount of Extra Life Protection is one year term insurance.
As the Policy remains in force one year term insurance is reduced by any
positive variable insurance amount and paid-up additions, so that the term
insurance is reduced to the amount that will maintain the Total Death Benefit at
the amount for which the Policy was issued. The term insurance is eliminated at
any time when the sum of positive variable insurance amount plus the paid-up
additions equals or exceeds the initial amount of Extra Life Protection.
Northwestern Mutual Life guarantees that the amount of Extra Life Protection
will not be reduced during the guaranteed period, regardless of the Account's
investment experience or the amount of any dividends paid on the Policy, so long
as premiums are paid when due, no Policy debt is outstanding, all dividends are
applied to purchase paid-up additions and no paid-up additions are surrendered
for their cash value. The length of the guaranteed period depends on the age of
the insured when the Policy is issued, and ranges from 37 years at age 15 to 7
years at age 75. At age 35 the guaranteed period is 27 years.
For an insured age 40 or younger, the sum of positive variable insurance amount
plus paid-up additions will exceed the initial amount of Extra Life Protection
at or before the end of the guaranteed period if the assets of the Fund which
support the Policy produce a gross investment rate of return of 8% or better and
dividends are at least equal to those being paid on the current dividend scale.
However, neither the actual investment results nor the dividends to be paid on
the Policy are guaranteed.
After the guaranteed period expires, if the sum of positive variable insurance
amount plus the paid-up additions is less than the initial amount of Extra Life
Protection on any Policy anniversary, Northwestern Mutual Life may reduce the
amount of term insurance for the Policy year. The owner of the Policy will be
given notice of the reduction and an opportunity to pay an additional amount of
premium in order to keep the initial amount of insurance in force. The maximum
premium rate is set forth in the Policy. The owner's right to continue to
purchase term insurance on this basis will terminate as of the first Policy
anniversary when the owner fails to pay the additional premium when due.
The following example shows how the components of the Total Death Benefit for an
Extra Ordinary Life Policy could vary based on investment results. Using the
Policy illustrated on page 46 and the assumed 12% hypothetical gross annual
investment earnings rate on assets of the selected Portfolio of the Fund
(equivalent to a net rate of 10.83% for the Account division), and the dividend
scale as illustrated, the amounts shown at the end of Policy year 5 would change
as follows:
<TABLE>
<CAPTION>
EXTRA LIFE PROTECTION
----------------------------------------------
MINIMUM VARIABLE
DEATH TERM INSURANCE
BENEFIT + INSURANCE + AMOUNT +
----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
End of Policy Year 5....................................... $ 60,000 $ 36,328 $ 2,034
Change..................................................... 0 -1,563 +970
----------- ----------- -----------
End of Policy Year 6....................................... $ 60,000 $ 34,765 $ 3,004
<CAPTION>
TOTAL
PAID-UP DEATH
ADDITIONS = BENEFIT
----------- ----------
<S> <C> <C> <C>
End of Policy Year 5....................................... $ 1,638 $ 100,000
Change..................................................... +593 0
----------- ----------
End of Policy Year 6....................................... $ 2,231 $ 100,000
</TABLE>
--
12
<PAGE>
If instead the gross annual earnings rate during the sixth Policy year had been
0% (equivalent to a net rate of -1.17%) the amounts at the end of Policy year 5
would change as follows:
<TABLE>
<CAPTION>
EXTRA LIFE PROTECTION
----------------------------------------------
MINIMUM VARIABLE
DEATH TERM INSURANCE
BENEFIT + INSURANCE + AMOUNT +
----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
End of Policy Year 5........................................ $ 60,000 $ 36,328 $ 2,034
Change...................................................... 0 +331 -734
----------- ----------- -----------
End of Policy Year 6........................................ $ 60,000 $ 36,659 $ 1,300
<CAPTION>
TOTAL
PAID-UP DEATH
ADDITIONS = BENEFIT
----------- ----------
<S> <C> <C> <C>
End of Policy Year 5........................................ $ 1,638 $ 100,000
Change...................................................... +403 0
----------- ----------
End of Policy Year 6........................................ $ 2,041 $ 100,000
</TABLE>
Note that the Total Death Benefit is not affected by either investment results
or the amount of dividends paid, because the Policy is within the guaranteed
period of Extra Life Protection. But the components of Extra Life Protection are
affected by both factors. Good investment results and increases in dividends
increase the likelihood that the Total Death Benefit will begin to rise before
the guaranteed period of Extra Life Protection expires. Adverse investment
results or decreases in dividends could cause the Total Death Benefit to fall
below the amount of insurance which was initially in force, after the guaranteed
period of Extra Life Protection expires, but it cannot fall below the Minimum
Death Benefit so long as premiums are paid when due and no Policy debt is
outstanding.
The Extra Ordinary Life Policy is designed for a purchaser who intends to use
all dividends to purchase paid-up additions. If dividends are used for any other
purpose, or if any paid-up additions are surrendered for their cash value, the
term insurance in force will immediately terminate, any remaining guaranteed
period of Extra Life Protection will terminate and the owner's right to purchase
term insurance will terminate. The amount of Extra Life Protection thereafter
will be the sum of positive variable insurance amount plus any paid-up additions
which remain in force.
The following example (using the Policy illustrated on page 46, like the
examples above) shows how the Total Death Benefit would be reduced from $100,000
to $63,672, by the elimination of $36,328 of term insurance, if dividends are
used during Policy Year 6 to reduce the premium. The premium of $1,014 would be
reduced by the dividend of $126.33, based on the dividend scale as illustrated,
to a net premium of $887.67. The Total Death Benefit during Policy Year 6 would
then be as follows:
<TABLE>
<CAPTION>
Minimum Death Benefit................... $ 60,000
<S> <C>
Variable Insurance Amount............... +2,034
Variable Paid-Up Additions.............. +1,638
Term Insurance.......................... 0
---------
Total Death Benefit..................... $ 63,672
---------
---------
</TABLE>
CASH VALUE The cash value for the Whole Life Policy, the Extra Ordinary Life
Policy and the Single Premium Life Policy will change daily in response to
investment results. No minimum cash value is guaranteed. Calculation of the cash
value for any date requires three steps. First, the amount shown for the
preceding anniversary in the table of cash values at the front of the Policy is
noted and adjusted for the time elapsed since the last Policy anniversary. The
tabular cash values are based on the assumed net investment rate of 4%, the 1980
Commissioners Standard Ordinary Mortality Table and the deductions from the
premiums. See "Deductions from Premiums for Whole Life and Extra Ordinary Life
Policies", p. 7. For the Single Premium Life Policy the calculation begins with
the adjusted tabular cash value, which reflects the deduction for sales costs if
the Policy is surrendered during the first ten years. See "Deductions for Single
Premium Life Policies", p. 8. Second, the net single premium for the variable
insurance amount is added to the tabular cash value. See the discussion of net
single premiums under "Variable Insurance Amount", p. 10. If the variable
insurance amount is negative, the net single premium is a negative amount. A
table of net single premiums for the insured at each Policy anniversary is in
the Policy. Third, the algebraic sum of the tabular cash value and the net
single premium for the variable insurance amount is adjusted to reflect
investment results from the last Policy anniversary to the date for which the
calculation is being made. The cash value is increased by the value of any
paid-up additions which have been purchased with dividends.
If a portion of the premium for the current Policy year has not been paid, the
cash value of a Whole Life Policy or an Extra Ordinary Life Policy will be
--
13
<PAGE>
reduced. There is not likely to be any cash value for a Whole Life Policy or an
Extra Ordinary Life Policy during the early part of the first year because of
the first year deductions.
The cash value for the Whole Life Policy, the Extra Ordinary Life Policy and the
Single Premium Life Policy will be reduced by the amount of any Policy debt
outstanding.
The cash value for a Policy is determined at the end of each valuation period.
Each business day, together with any non-business days before it, is a valuation
period. A business day is any day on which the New York Stock Exchange is open
for trading. In accordance with the requirements of the Investment Company Act
of 1940, the cash value for a Policy may also be determined on any other day on
which there is sufficient trading in securities to materially affect the value
of the securities held by the Portfolios of the Fund.
The owner of a Policy may surrender it for the cash value at any time during the
lifetime of the insured. Alternatively, the cash value of a Whole Life Policy or
an Extra Ordinary Life Policy may be applied to provide extended term insurance
or a reduced amount of fixed or variable paid-up insurance. See "Extended Term
and Paid-Up Insurance", p. 15.
The Policies do not include any provision for a partial surrender. By
administrative practice Northwestern Mutual Life will permit the owner of a
Policy to split it into two Policies and surrender one of them, so long as the
new Policy meets the regular minimum size requirements. The Policy which
continues in force will be based on the age and risk classification of the
insured at the time of issuance of the original Policy.
ANNUAL DIVIDENDS The Policies share in divisible surplus to the extent
determined annually by Northwestern Mutual Life. A Policy's share will be
distributed annually as a dividend payable on each Policy anniversary beginning
at the end of the second year. For Single Premium Life Policies, and some other
Policies, the first distribution will be at the end of the first year. No
dividend will be paid on a Whole Life Policy or an Extra Ordinary Life Policy in
force as extended term insurance.
Dividends under participating policies may be described as refunds of premiums
which adjust the cost of a policy to the actual level of cost emerging over time
after the policy's issue. Thus participating policies generally have gross
premiums which are higher than those for comparable non-participating policies.
Both federal and state tax law recognize that a dividend is considered to be a
refund of a portion of the premium paid.
Dividend illustrations published at the time a life insurance policy is issued
reflect the actual recent experience of the issuing company with respect to
investment earnings, mortality and expenses. State law generally prohibits a
company from projecting or estimating future results. State law also requires
that dividends be paid out of surplus, after certain necessary amounts are set
aside, and that such surplus be apportioned equitably among participating
policies. In summary, dividends must be based on actual experience and cannot be
guaranteed at issue of a policy.
Northwestern Mutual Life's actuary annually examines current and recent
experience and compares these actual results with those which were assumed in
determining premium rates when each class of policies was issued. Classes are
determined by such factors as year of issue, age, plan of insurance and risk
classification. The actuary then determines the amount of dividends to be
equitably apportioned to each class of policies. Following the actuary's
recommendations, the Trustees of Northwestern Mutual Life adopt a dividend scale
each year, thereby authorizing the distribution of the dividend.
Northwestern Mutual Life has no significant actual mortality experience with
variable life insurance policies. For purposes of the current dividend scale
used for the illustrations in this prospectus, it has been assumed that
mortality experience in connection with the Policies will be comparable to that
actually experienced with fixed benefit life insurance.
The prospectus illustrations show dividends being used to purchase variable
paid-up additions. Dividends may also be paid in cash, used to pay premiums or
left to accumulate with interest; but unless all dividends paid on an Extra
Ordinary Life Policy are used to purchase paid-up additions, the term insurance
portion of the Extra Life Protection will be terminated. See "Extra Ordinary
Life Policy", p. 12. Dividends left to accumulate with interest will be held in
the general account of Northwestern Mutual Life and will be credited with a rate
of interest determined annually but not less than an annual effective rate of
--
14
<PAGE>
3 1/2%. If a Whole Life Policy or an Extra Ordinary Life Policy is in force as
reduced fixed benefit paid-up insurance, dividends may be used to purchase fixed
benefit paid-up additions. See "Extended Term and Paid-Up Insurance", below.
POLICY LOANS The owner of a Policy may borrow up to 90% of the Policy's cash
value using the Policy as security. The limit is 75% of the cash value during
the first two Policy years. If a Policy loan is already outstanding, the maximum
amount for any new loan is determined by applying these percentage limitations
to the amount of cash value which the Policy would have if there were no loan.
Loan proceeds may be taken in cash or, for the Whole Life and Extra Ordinary
Life Policies, may be applied to pay premiums on the Policy.
Interest on a Policy loan accrues and is payable on a daily basis. Unpaid
interest is added to the amount of the loan. If the amount of the loan equals or
exceeds the Policy's cash value, the Policy will terminate. The owner will be
given a notice at least 31 days before the termination date. The notice will
show how much must be repaid to keep the Policy in force.
The Policy loan interest rate is selected by the owner. A specified annual
effective rate of 8% is one choice. The other choice is a variable rate based on
a corporate bond yield index. The variable rate will be adjusted annually and
will not be less than 5%.
The amount of a Policy loan, including interest as it accrues, will be taken
from the Account divisions in proportion to the amounts in the divisions. The
amounts withdrawn will be transferred to Northwestern Mutual Life's general
account and will be credited on a daily basis with an annual earnings rate equal
to the Policy loan interest rate less a charge for the mortality and expense
risks assumed by Northwestern Mutual Life and for expenses, including taxes. The
aggregate charge is currently at the annual rate of .85% for the 8% specified
Policy loan interest rate and .85% for the variable Policy loan interest rate.
For example, the earnings rate corresponding to the specified 8% Policy loan
interest rate is currently 7.15%. A Policy loan, even if it is repaid, will have
a permanent effect on the Policy's variable insurance amount and cash value
because the amounts borrowed will not participate in the Account's investment
results while the loan is outstanding. The effect may be either favorable or
unfavorable depending on whether the earnings rate credited to the loan amount
is higher or lower than the rate credited to the unborrowed amount left in the
Account.
For example, using the Policy illustrated on page 45 and the 6% hypothetical
gross rate for the Account (equivalent to a net rate of 4.83%), and assuming a
Policy loan of $3,180 (90% of the cash value) at the end of Policy year 5, with
the 8% Policy loan interest rate (corresponding to a net earnings rate of
7.15%), the loan will affect the variable insurance amount and cash value
(before subtracting the loan amount and interest) at the end of the next three
Policy years as follows:
<TABLE>
<CAPTION>
VARIABLE INSURANCE
AMOUNT CASH VALUE
---------------------- ----------------------
END OF WITHOUT WITH WITHOUT WITH
POLICY YEAR LOAN LOAN LOAN LOAN
- --------------------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
5.......................... $ 232 $ 232 $ 3,534 $ 3,534
6.......................... $ 335 $ 556 $ 4,515 $ 4,591
7.......................... $ 457 $ 890 $ 5,552 $ 5,707
8.......................... $ 596 $ 1,235 $ 6,648 $ 6,886
</TABLE>
The difference results from the fact that the earnings rate for the amount of
the loan is 7.15% rather than the net rate of 4.83% for the Account.
A Policy loan, and any accrued interest outstanding, may be repaid, in whole or
in part, at any time. Payments will be credited as of the date received and will
be transferred from the general account of Northwestern Mutual Life to the
Account divisions, in proportion to the amounts in the divisions, as of the same
date.
EXTENDED TERM AND PAID-UP INSURANCE If a premium for a Whole Life Policy or an
Extra Ordinary Life Policy is not paid within the 31-day grace period (see
"Grace Period", p. 7), the owner may use the cash value to provide a reduced
amount of either fixed or variable benefit paid-up insurance. If neither of
these options is chosen, and the Policy is not surrendered, the insurance will
remain in force as extended term insurance.
If the cash value is used to provide a reduced amount of fixed benefit paid-up
insurance or for extended term insurance the amount of the cash value will be
transferred from the Account to Northwestern Mutual Life's general account.
Thereafter the Policy will not participate in the Account's investment results
unless the Policy is subsequently reinstated. See "Reinstatement", p. 16.
Variable benefit paid-up insurance may
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15
<PAGE>
be selected only if the Policy meets a $1,000 cash value minimum test.
The selection of paid-up insurance must be made within three months after the
due date of the first unpaid premium. The amount of paid-up insurance is
determined by the amount of cash value and the age and sex of the insured, using
the table of net single premiums at the attained age. Fixed benefit paid-up
insurance has guaranteed cash and loan values. Paid-up insurance remains in
force for the lifetime of the insured unless the Policy is surrendered.
If the Policy remains in force as extended term insurance the amount of
insurance will equal the Total Death Benefit prior to the date the premium was
due. The amount of cash value and the age and sex of the insured will determine
how long the insurance continues. Northwestern Mutual Life will, upon request,
tell the owner of a Policy the amount of insurance and how long the term will
be. Extended term insurance is not available if the Policy was issued with a
higher premium for extra mortality risk. Extended term insurance has a cash
value but no loan value.
Using the Policy illustrated on pages 44 and 46 and assuming the 0% and 12%
hypothetical gross rates for the Account, the cash value of $3,024 or $4,115 at
the end of Policy year 5 would provide the following amounts of reduced paid-up
insurance or $100,000 of extended term insurance for the following periods:
<TABLE>
<CAPTION>
0% 12%
------------- -------------
<S> <C> <C>
Reduced Paid-up Insurance..... $10,198 $13,877
Extended Term Insurance....... 6 Years and 9 Years and
358 Days 50 Days
</TABLE>
REINSTATEMENT If a premium for a Whole Life Policy or an Extra Ordinary Life
Policy is due and remains unpaid after the grace period expires, the Policy may
be reinstated within five years after the premium due date. The insured must
provide satisfactory evidence of insurability. A substantial payment may be
required. The Policy may not be reinstated if it has been surrendered for its
cash value.
RIGHT TO RETURN POLICY A Policy may be returned for a full refund of the
premium paid within 45 days after the application for insurance is signed, or
within 10 days after the Policy is received, or within 10 days after a Notice of
Cancellation Right is mailed or delivered to the owner, whichever date is
latest. The Policy may be mailed or delivered to the agent who sold it or to the
Home Office of Northwestern Mutual Life. If returned, the Policy will be
considered void from the beginning.
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY The owner may exchange a Policy
for a conventional whole life insurance policy with benefits that do not vary
with the investment experience of a separate account. The exchange may be
elected at any time within twenty-four months after the issue date of the Policy
provided premiums are duly paid. Evidence of insurability is not required.
The new policy will be on the life of the same insured and will have the same
face amount, policy date and issue age. The premiums and cash values will be the
same as those for policies issued by Northwestern Mutual Life on the issue date
of the Policy.
The exchange will be subject to an equitable cash adjustment. The amount will
recognize the difference in premiums and investment performance of the two
policies.
An exchange will be effective when Northwestern Mutual Life receives a proper
written request, as well as the Policy and any amount due on the exchange.
The owner of a Policy may also exchange it for a fixed benefit policy if the
Fund changes its investment adviser or if there is a material change in the
investment policies of a Fund portfolio. The owner will be given notice of any
such change and will have 60 days to make the exchange.
OTHER POLICY PROVISIONS
OWNER. The owner is identified in the Policy. The owner may exercise all rights
under the Policy while the insured is living. Ownership may be transferred to
another. Written proof of the transfer must be received by Northwestern Mutual
Life at its Home Office.
BENEFICIARY. The beneficiary is the person to whom the death benefit is
payable. The beneficiary is named in the application. After the Policy is issued
the owner may change the beneficiary in accordance with the Policy provisions.
INCONTESTABILITY. Northwestern Mutual Life will not contest a Policy after it
has been in force during the
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16
<PAGE>
lifetime of the insured for two years from the date of issue.
SUICIDE. If the insured dies by suicide within one year from the date of issue,
the amount payable under the Policy will be limited to the premiums paid.
MISSTATEMENT OF AGE OR SEX. If the age or sex of the insured has been
misstated, benefits under a Policy will be adjusted to reflect the correct age
and sex.
COLLATERAL ASSIGNMENT. The owner may assign a Policy as collateral security.
Northwestern Mutual Life is not responsible for the validity or effect of a
collateral assignment and will not be deemed to know of an assignment before
receipt of the assignment in writing at the Home Office.
PAYMENT PLANS. The Policy provides a variety of payment plans for Policy
benefits. Any Northwestern Mutual Life agent authorized to sell the Policies can
explain these provisions on request.
DEFERRAL OF DETERMINATION AND PAYMENT. So long as premiums have been paid when
due, Northwestern Mutual Life will ordinarily pay Policy benefits within seven
days after receipt of all required documents at its Home Office. However,
determination and payment of benefits may be deferred during any period when it
is not reasonably practicable to value securities because the New York Stock
Exchange is closed or an emergency exists or the Securities and Exchange
Commission, by order, permits deferral for the protection of policyowners.
If a Whole Life Policy or an Extra Ordinary Life Policy is continued in force as
extended term or reduced paid-up insurance, Northwestern Mutual Life has the
right to defer payment of the cash value for up to six months from the date of a
Policy loan or surrender. If payment is deferred for 30 days or more interest
will be paid at an annual effective rate of 4%.
VOTING RIGHTS Northwestern Mutual Life is the owner of the Fund shares in which
all assets of the Account are invested. As the owner of the shares Northwestern
Mutual Life will exercise its right to vote the shares to elect directors of the
Fund, to vote on matters required to be approved or ratified by mutual fund
shareholders under the Investment Company Act of 1940 and to vote on any other
matters that may be presented to any Fund shareholders' meeting. However,
Northwestern Mutual Life will vote the Fund shares held in the Account in
accordance with instructions from owners of the Policies. Northwestern Mutual
Life will vote the Fund shares held in its general account in the same
proportions as the shares for which voting instructions are received. If the
applicable laws or regulations change so as to permit Northwestern Mutual Life
to vote the Fund shares in its own discretion, it may elect to do so.
The number of Fund shares for each division of the Account for which the owner
of a Policy may give instructions is determined by dividing the amount of the
Policy's cash value apportioned to that division, if any, by the per share value
for the corresponding Fund Portfolio. The number will be determined as of a date
chosen by Northwestern Mutual Life, but not more than 90 days before the Fund
shareholders' meeting. Fractional votes are counted. Voting instructions will be
solicited with written materials at least 14 days before the meeting. Shares as
to which no instructions have been received will be voted in the same proportion
as the shares as to which instructions have been received.
Northwestern Mutual Life may, if required by state insurance officials,
disregard voting instructions which would require Fund shares to be voted for a
change in the sub-classification or investment objectives of a Fund Portfolio,
or to approve or disapprove an investment advisory agreement for the Fund.
Northwestern Mutual Life may also disregard voting instructions that would
require changes in the investment policy or investment adviser for the Fund or a
Fund Portfolio, provided that Northwestern Mutual Life reasonably determines to
take this action in accordance with applicable federal law. If Northwestern
Mutual Life disregards voting instructions a summary of the action and reasons
therefor will be included in the next semiannual report to the owners of the
Policies.
SUBSTITUTION OF FUND SHARES AND OTHER CHANGES If, in the judgment of
Northwestern Mutual Life, a Fund Portfolio becomes unsuitable for continued use
with the Policies because of a change in investment objectives or restrictions,
shares of another Portfolio or another mutual fund may be substituted. Any
substitution of shares will be subject to any required approval of the
Securities and Exchange Commission, the Wisconsin Commissioner of Insurance or
other regulatory authority. Northwestern Mutual Life has also reserved the
right, subject to applicable federal and state law, to operate the Account or
any of its
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17
<PAGE>
divisions as a management company under the Investment Company Act of 1940, or
in any other form permitted, or to terminate registration of the Account if
registration is no longer required, and to change the provisions of the Policies
to comply with any applicable laws.
REPORTS For each Policy year (unless a Whole Life Policy or an Extra Ordinary
Life Policy is in force as extended term or fixed benefit paid-up insurance) the
owner of a Policy will receive a statement showing the death benefit, cash value
and any Policy loan (including interest charged) as of the anniversary date.
Owners will also receive annual and semiannual reports for the Account and the
Fund, including financial statements.
SPECIAL POLICY FOR EMPLOYERS The premium for the standard Policy is based in
part on the sex of the insured. The standard annuity rates for payment plans
which last for the lifetime of the payee are also based, in part, on the sex of
the payee. For certain situations where the insurance involves an employer
sponsored benefit plan or arrangement, federal law and the laws of certain
states may require that premiums and annuity rates be determined without regard
to sex. Special Whole Life Policies, Extra Ordinary Life Policies and Single
Premium Life Policies are available for this purpose. Prospective purchasers of
the Policies are urged to review any questions in this area with qualified
counsel.
DISTRIBUTION OF THE POLICIES The Policies will be sold through individuals who,
in addition to being licensed life insurance agents of Northwestern Mutual Life,
are registered representatives of Northwestern Mutual Investment Services, Inc.
("NMIS"), a wholly-owned subsidiary of Northwestern Mutual Life. NMIS is a
registered broker-dealer under the Securities Exchange Act of 1934 and is a
member of the National Association of Securities Dealers.
Commissions paid to the agents on sales of the Whole Life and Extra Ordinary
Life Policies will not exceed 55% of the premium for the first year, 9% of the
premium for the second and third years, 6% of the premium for the fourth through
seventh years and 3% of the premium for the eighth through tenth years.
Thereafter a persistency fee of 2% of premiums may be paid to the agent. For the
Single Premium Life Policies commissions are 2 3/4% of the premium.
Agents who meet certain productivity and persistency standards receive
additional compensation. New agents may be paid differently during a training
period. General agents and district agents who are registered representatives of
NMIS and have supervisory responsibility for sales of the Policies receive
commission overrides and other compensation.
TAX TREATMENT OF POLICY BENEFITS The Policies are "life insurance contracts" as
that term is defined in sections 7702 and 817(h) of the Internal Revenue Code.
Increases in cash value under a Policy are not taxable until actual surrender of
the Policy. Upon surrender, the amount received is taxable at ordinary income
rates under section 72(e) of the Code to the extent it exceeds the amount of the
premiums paid under the Policy less any dividends or other amounts previously
received tax-free (basis of the Policy). Death benefits are excludable from the
beneficiary's gross income under section 101(a) of the Code.
Northwestern Mutual Life believes that loans received under the Policies (except
certain Single Premium Life Policies) will be construed as indebtedness of an
owner in the same manner as loans under a fixed benefit life insurance policy
and that no part of any loan under a Policy will constitute income to the owner.
For Single Premium Life Policies issued after June 20, 1988, partial
withdrawals, Policy loans and dividends paid in cash are taxable as income to
the extent the cash value of the Policy exceeds the basis of the Policy. The
taxable portion of these distributions would also be subject to a 10% penalty if
received prior to age 59 1/2, disability or annuitization. For purposes of
determining taxable income, all Single Premium Life Policies (including any
fixed dollar single premium policies or other modified endowment contracts under
Section 7702A) issued by Northwestern Mutual Life to the Policy owner during the
same calendar year are aggregated.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend upon the
circumstances of each Policy owner or beneficiary. The foregoing summary does
not purport to be complete or to cover all situations. Counsel and other
competent advisers should be consulted for more complete information.
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18
<PAGE>
OTHER INFORMATION
MANAGEMENT
Northwestern Mutual Life is managed by a Board of Trustees. The Trustees and
senior officers of Northwestern Mutual Life and their positions including Board
committee memberships, and their principal occupations, are as follows:
TRUSTEES
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------------------------------- ------------------------------------------------------------------------------
<S> <C>
R. Quintus Anderson (A)...................... Chairman, Aarque Capital Corporation since 1997; prior thereto, Chairman, The
Aarque Companies, Jamestown, NY (diversified metal products manufacturing)
Edward E. Barr (HR).......................... President and Chief Executive Officer, Sun Chemical Corporation, Fort Lee, New
Jersey (graphic arts); and President and Chief Executive Officer, DIC
Americas, Inc., Fort Lee, NJ
Gordon T. Beaham, III (OT)................... Chairman of the Board and President, Faultless Starch/Bon Ami Company, Kansas
City, MO (consumer products manufacturer)
Robert C. Buchanan (A, E, F)................. President and Chief Executive Officer, Fox Valley Corporation, Appleton, WI
(manufacturer of gift wrap and writing paper)
Robert E. Carlson (E)........................ Executive Vice President of Northwestern Mutual Life
Thomas I. Dolan (HR)......................... Retired
George A. Dickerman (AM)..................... President, Spalding Sports Worldwide, Chicopee, MA (manufacturer of sporting
equipment)
Pierre S. du Pont (AM)....................... Attorney, Richards, Layton and Finger, Wilmington, DE
James D. Ericson (AM, E, F, HR, OT).......... President and Chief Executive Officer of Northwestern Mutual Life since 1993;
President and Chief Operating Officer, 1991-1993; prior thereto, President
J. E. Gallegos (A)........................... Attorney at Law; President, Gallegos Law Firm, Santa Fe, New Mexico
Stephen N. Graff (E, F, OT).................. Retired Partner, Arthur Andersen LLP (Public Accountants) since 1994; Senior
Partner, 1993-1994; prior thereto, Managing Partner -- Milwaukee, WI office
Patricia Albjerg Graham (HR)................. Professor, Graduate School of Education, Harvard University, Cambridge, MA,
and President, The Spencer Foundation (social and behavioral sciences)
Stephen F. Keller (A)........................ Chairman, Santa Anita Realty Enterprises
Barbara A. King (AM)......................... President, Landscape Structures, Inc., Delano, MN (landscape architects)
J. Thomas Lewis (HR)......................... Attorney, Monroe & Lemann, New Orleans, LA
Daniel F. McKeithan, Jr. (E, F, HR).......... President, Tamarack Petroleum Company, Inc., Milwaukee, WI (operator of oil
and gas wells); President, Active Investor Management, Inc., Milwaukee, WI
Guy A. Osborn (E, F, OT)..................... Chairman and Chief Executive Officer of Universal Foods Corporation,
Milwaukee, WI
Donald J. Schuenke (AM, E, F)................ Retired since 1994; Chairman of Northwestern Mutual Life, 1993-1994; Chairman
and Chief Executive Officer, 1990-1993; prior thereto, President and Chief
Executive Officer
</TABLE>
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19
<PAGE>
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------------------------------- ------------------------------------------------------------------------------
<S> <C>
H. Mason Sizemore, Jr. (AM).................. President and Chief Operating Officer, The Seattle Times, Seattle, WA
(publishing)
Harold B. Smith (OT)......................... Chairman, Executive Committee, Illinois Tool Works, Inc., Chicago, IL
(engineered components and industrial systems and consumables)
Sherwood H. Smith, Jr. (AM).................. Chairman of the Board of Carolina Power & Light since 1997; prior thereto,
Chairman of the Board and Chief Executive Officer
John E. Steuri (OT).......................... Retired since 1996; prior thereto, Chairman and Chief Executive Officer of
ALLTEL Information Services, Inc., Little Rock, AR (application software)
John J. Stollenwerk (AM, E, F)............... President and Owner, Allen-Edmonds Shoe Corporation, Port Washington, WI
Barry L. Williams (HR)....................... President and Chief Executive Officer, C.N. Flagg Power, Inc., Meriden, CT
(construction services for electric power plants) and President, Williams
Pacific Ventures, Inc., Redwood City, CA (venture capital)
Kathryn D. Wriston (A)....................... Director of various corporations, New York, NY
A -- Member, Audit Committee F -- Member, Finance Committee
AM -- Member, Agency and Marketing Committee HR -- Member, Human Resources and Public Policy Committee
OT -- Member, Operations and Technology Committee
E -- Member, Executive Committee
</TABLE>
SENIOR OFFICERS (OTHER THAN TRUSTEES)
<TABLE>
<CAPTION>
POSITION WITH
NAME NORTHWESTERN MUTUAL LIFE
- ------------------------ -----------------------------------
<S> <C>
Peter W. Bruce Executive Vice President
Edward J. Zore Executive Vice President
Deborah A. Beck Senior Vice President
John M. Bremer Senior Vice President, General
Counsel and Secretary
Mark G. Doll Senior Vice President
James W. Ehrenstrom Senior Vice President
Richard L. Hall Senior Vice President
William C. Koenig Senior Vice President and Chief
Actuary
Mason G. Ross Senior Vice President
Frederic H. Sweet Senior Vice President
Dennis Tamcsin Senior Vice President
Walter J. Wojcik Senior Vice President
Gary E. Long Vice President and Controller
</TABLE>
REGULATION Northwestern Mutual Life is subject to the laws of Wisconsin
governing insurance companies and to regulation by the Wisconsin Commissioner of
Insurance. An annual statement in a prescribed form is filed with the Department
of Insurance on or before March 1 in each year covering operations for the
preceding year and including financial statements. Regulation by the Wisconsin
Insurance Department includes periodic examination to determine solvency and
compliance with insurance laws. Northwestern Mutual Life is also subject to the
insurance laws and
--
20
<PAGE>
regulations of the other jurisdictions in which it is licensed to operate.
LEGAL PROCEEDINGS Northwestern Mutual Life is engaged in litigation of various
kinds which in its judgment is not of material importance in relation to its
total assets. There are no legal proceedings pending to which the Account is a
party.
REGISTRATION STATEMENT
A registration statement has been filed with the Securities and Exchange
Commission, Washington, D.C. by Northwestern Mutual Life under the Securities
Act of 1933, as amended, with respect to the Policies. This prospectus does not
contain all the information set forth in the registration statement. A copy of
the omitted material is available from the main office of the SEC in Washington,
D.C. upon payment of the prescribed fee. Further information about the Policies
is also available from the Home Office of Northwestern Mutual Life. The address
and telephone number are on the cover of this prospectus.
EXPERTS
The financial statements of Northwestern Mutual Life as of December 31, 1996 and
1995 and for each of the three years in the period ended December 31, 1996 and
of the Account as of December 31, 1996 and for each of the two years in the
period ended December 31, 1996 included in this prospectus have been so included
in reliance on the reports of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
Actuarial matters included in this prospectus have been examined by William C.
Koenig, F.S.A., Senior Vice President and Chief Actuary of Northwestern Mutual
Life. His opinion is filed as an exhibit to the registration statement.
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21
<PAGE>
[LOGO]
[LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
To The Northwestern Mutual Life Insurance Company and
Policyowners of Northwestern Mutual Variable Life Account
In our opinion, the accompanying combined statement of assets and liabilities
and the related combined and separate statements of operations and changes in
equity present fairly, in all material respects, the financial position of
Northwestern Mutual Variable Life Account and the Index 500 Stock Division,
Growth Stock Division, Growth and Income Stock Division, Aggressive Growth Stock
Division, International Equity Division, Select Bond Division, High Yield Bond
Division, Money Market Division and the Balanced Division thereof at December
31, 1996, the results of their operations and the changes in their equity for
the year then ended and for each of the other periods presented, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of The Northwestern Mutual Life Insurance Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
direct confirmation of the number of shares owned at December 31, 1996 with
Northwestern Mutual Series Fund, Inc., provide a reasonable basis for the
opinion expressed above.
/s/ Price Waterhouse
Milwaukee, Wisconsin
January 22, 1997
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22
<PAGE>
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
FINANCIAL STATEMENTS
DECEMBER 31, 1996
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
<TABLE>
<S> <C> <C>
ASSETS
Investments at Market Value:
Northwestern Mutual Series Fund, Inc.
Growth Stock
9,868 shares (cost $12,373)................ $ 14,446
Aggressive Growth Stock
13,266 shares (cost $34,933)............... 41,721
International Equity
18,828 shares (cost $25,015)............... 29,335
Growth and Income Stock
12,617 shares (cost $14,934)............... 16,629
Index 500 Stock
28,578 shares (cost $43,159)............... 58,729
Money Market
14,751 shares (cost $14,751)............... 14,751
Balanced
58,687 shares (cost $80,512)............... 100,825
Select Bond
5,100 shares (cost $5,931)................. 6,243
High Yield Bond
3,542 shares (cost $3,821)................. 3,892 $ 286,571
---------
Due from Sale of Fund Shares.................................. 38
Due from Northwestern Mutual Life Insurance Company........... 170
---------
Total Assets............................................ $ 286,779
---------
---------
LIABILITIES
Due to Northwestern Mutual Life Insurance Company........... $ 38
Due on Purchase of Fund Shares.............................. 170
---------
Total Liabilities....................................... 208
---------
EQUITY (NOTE 8)
Policies Issued Before October 11, 1995..................... 240,097
Policies Issued On or After October 11, 1995................ 46,474
---------
Total Equity............................................ 286,571
---------
Total Liabilities and Equity............................ $ 286,779
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements
--
23
<PAGE>
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH
COMBINED GROWTH STOCK DIVISION STOCK DIVISION
----------------------------- ----------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995 1996 1995
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............. $ 11,085 $ 4,153 $ 564 $ 188 $ 892 $ 54
Mortality and Expense
Risks..................... 1,102 736 46 21 139 57
Taxes....................... 461 314 19 9 57 24
------------- ------------- ------------- ------------- ------------- -------------
Net Investment Income
(Loss).................... 9,522 3,103 499 158 696 (27)
------------- ------------- ------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Realized Gain on
Investments............... 2,405 1,300 88 16 301 58
Unrealized Appreciation of
Investments During the
Year...................... 21,398 30,929 1,191 906 2,690 3,798
------------- ------------- ------------- ------------- ------------- -------------
Net Gain on Investments..... 23,803 32,229 1,279 922 2,991 3,856
------------- ------------- ------------- ------------- ------------- -------------
Increase in Equity Derived
from Investment
Activity.................. 33,325 35,332 1,778 1,080 3,687 3,829
------------- ------------- ------------- ------------- ------------- -------------
EQUITY TRANSACTIONS
Policyowners' Net
Payments.................. 101,055 51,813 3,397 2,327 11,065 6,744
Policy Loans, Surrenders,
and Death Benefits........ (16,316) (10,909) (436) (251) (2,117) (830)
Mortality and Other (net)... (16,382) (9,537) (665) (427) (1,943) (1,184)
Transfers from Other
Divisions................. 45,652 12,075 4,758 1,048 14,807 3,476
Transfers to Other
Divisions................. (45,652) (12,075) (447) (186) (1,660) (368)
------------- ------------- ------------- ------------- ------------- -------------
Increase in Equity Derived
from Equity Transactions.... 68,357 31,367 6,607 2,511 20,152 7,838
------------- ------------- ------------- ------------- ------------- -------------
Net Increase in Equity........ 101,682 66,699 8,385 3,591 23,839 11,667
EQUITY
Beginning of Period......... 184,889 118,190 6,061 2,470 17,885 6,218
------------- ------------- ------------- ------------- ------------- -------------
End of Period............... $286,571 $184,889 $14,446 $6,061 $41,724 $17,885
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements
--
24
<PAGE>
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY GROWTH & INCOME
DIVISION STOCK DIVISION
-------------------------------- -------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............. $ 924 $ 67 $ 1,458 $ 496
Mortality and Expense
Risks..................... 100 52 58 30
Taxes....................... 42 22 24 13
-------------- -------------- -------------- -------------
Net Investment Income
(Loss).................... 782 (7) 1,376 453
-------------- -------------- -------------- -------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Realized Gain on
Investments............... 49 2 117 25
Unrealized Appreciation of
Investments During the
Year...................... 3,197 1,389 728 1,057
-------------- -------------- -------------- -------------
Net Gain on Investments..... 3,246 1,391 845 1,082
-------------- -------------- -------------- -------------
Increase in Equity Derived
from Investment
Activity.................. 4,028 1,384 2,221 1,535
-------------- -------------- -------------- -------------
EQUITY TRANSACTIONS
Policyowners' Net
Payments.................. 8,006 6,472 4,523 3,211
Policy Loans, Surrenders,
and Death Benefits........ (1,566) (634) (692) (388)
Mortality and Other (net)... (1,529) (1,156) (867) (611)
Transfers from Other
Divisions................. 6,728 2,112 3,950 1,329
Transfers to Other
Divisions................. (827) (750) (974) (312)
-------------- -------------- -------------- -------------
Increase in Equity Derived
from Equity Transactions.... 10,812 6,044 5,940 3,229
-------------- -------------- -------------- -------------
Net Increase in Equity........ 14,840 7,428 8,161 4,764
EQUITY
Beginning of Period......... 14,493 7,065 8,467 3,703
-------------- -------------- -------------- -------------
End of Period............... $ 29,333 $ 14,493 $ 16,628 $ 8,467
-------------- -------------- -------------- -------------
-------------- -------------- -------------- -------------
<CAPTION>
STOCK DIVISION MONEY MARKET DIVISION
----------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............. $ 1,153 $ 282 $ 508 $ 252
Mortality and Expense
Risks..................... 221 141 47 22
Taxes....................... 93 60 17 9
------------- ------------- ------------- -------------
Net Investment Income
(Loss).................... 839 81 444 221
------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Realized Gain on
Investments............... 359 339 -- --
Unrealized Appreciation of
Investments During the
Year...................... 8,074 8,323 -- --
------------- ------------- ------------- -------------
Net Gain on Investments..... 8,433 8,662 0 0
------------- ------------- ------------- -------------
Increase in Equity Derived
from Investment
Activity.................. 9,272 8,743 444 221
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS
Policyowners' Net
Payments.................. 12,626 11,096 43,564 4,335
Policy Loans, Surrenders,
and Death Benefits........ (3,465) (2,239) (576) (285)
Mortality and Other (net)... (2,351) (2,021) (5,552) (645)
Transfers from Other
Divisions................. 8,372 1,623 2,573 1,210
Transfers to Other
Divisions................. (2,211) (2,683) (32,622) (1,738)
------------- ------------- ------------- -------------
Increase in Equity Derived
from Equity Transactions.... 12,971 5,776 7,387 2,877
------------- ------------- ------------- -------------
Net Increase in Equity........ 22,243 14,519 7,831 3,098
EQUITY
Beginning of Period......... 36,486 21,967 6,919 3,821
------------- ------------- ------------- -------------
End of Period............... $ 58,729 $ 36,486 $ 14,750 $ 6,919
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements
--
25
<PAGE>
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCED DIVISION SELECT BOND DIVISION HIGH YIELD BOND DIVISION
----------------------------- ----------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995 1996 1995
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............. $ 5,010 $ 2,521 $ 176 $ 110 $ 400 $ 183
Mortality and Expense
Risks..................... 452 385 26 20 13 8
Taxes....................... 193 165 11 9 5 3
------------- ------------- ------------- ------------- ------------- -------------
Net Investment Income....... 4,365 1,971 139 81 382 172
------------- ------------- ------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Realized Gain on
Investments............... 1,462 839 8 13 21 8
Unrealized Appreciation of
Investments During the
Year...................... 5,413 14,831 22 596 83 29
------------- ------------- ------------- ------------- ------------- -------------
Net Gain on Investments..... 6,875 15,670 30 609 104 37
------------- ------------- ------------- ------------- ------------- -------------
Increase in Equity Derived
from Investment
Activity.................. 11,240 17,641 169 690 486 209
------------- ------------- ------------- ------------- ------------- -------------
EQUITY TRANSACTIONS
Policyowners' Net
Payments.................. 15,417 15,637 1,356 1,230 1,101 761
Policy Loans, Surrenders,
and Death Benefits........ (7,030) (5,858) (191) (311) (243) (113)
Mortality and Other (net)... (3,034) (3,110) (248) (234) (193) (149)
Transfers from Other
Divisions................. 2,467 255 954 335 1,043 687
Transfers to Other
Divisions................. (5,909) (5,344) (553) (513) (449) (181)
------------- ------------- ------------- ------------- ------------- -------------
Increase in Equity Derived
from Equity Transactions.... 1,911 1,580 1,318 507 1,259 1,005
------------- ------------- ------------- ------------- ------------- -------------
Net Increase in Equity........ 13,151 19,221 1,487 1,197 1,745 1,214
EQUITY
Beginning of Period......... 87,675 68,454 4,756 3,559 2,147 933
------------- ------------- ------------- ------------- ------------- -------------
End of Period............... $100,826 $ 87,675 $ 6,243 $ 4,756 $ 3,892 $ 2,147
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
--
26
<PAGE>
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 -- Northwestern Mutual Variable Life Account (the "Account") is
registered as a unit investment trust under the Investment Company Act of 1940
and is a segregated asset account of The Northwestern Mutual Life Insurance
Company ("Northwestern Mutual Life") used to fund variable life insurance
policies.
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. The Northwestern Mutual Series Fund, Inc. is a diversified open-end
investment company registered under the Investment Company Act of 1940.
NOTE 4 -- 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 year ended December 31, 1996 by each Division
are shown below:
<TABLE>
<CAPTION>
PURCHASES SALES
--------------- ---------------
<S> <C> <C>
Growth Stock Division........... $ 7,412,020 $ 305,733
Aggressive Growth Division...... 21,639,501 793,842
International Equity Division... 11,936,199 340,985
Growth & Income Stock
Division........................ 7,873,227 556,889
Index 500 Stock Division........ 14,876,042 1,066,298
Money Market Division........... 19,565,721 11,733,323
Balanced Division............... 11,918,678 5,643,557
Select Bond Division............ 1,881,306 424,108
High Yield Bond Division........ 2,085,969 444,972
</TABLE>
NOTE 5 -- A deduction for mortality and expense risks is determined daily and
paid to Northwestern Mutual Life. Generally, for policies issued before October
11, 1995, and policies issued on or after October 11, 1995 the deduction is at
an annual rate of .50% and .60%, respectively, of the net assets of the Account.
The mortality risk is that insureds may not live as long as estimated. The
expense risk is that expenses of issuing and administering the policies may
exceed the estimated costs.
Certain deductions are also made from the annual or single premiums before
amounts are allocated to the Account. These deductions are for (1) sales load,
(2) administrative expenses, (3) taxes and (4) a risk charge for the guaranteed
minimum death benefit.
Additional mortality costs are deducted from the policy annually and are paid to
Northwestern Mutual Life to cover the cost of providing insurance protection.
This cost is actuarially calculated based upon the insured's age, the 1980
Commissioners Standard Ordinary Mortality Table and the amount of insurance
provided under the policy.
NOTE 6 -- Northwestern Mutual Life is taxed as a "life insurance company" under
the Internal Revenue Code. The variable life insurance policies which are funded
in the Account are taxed as part of the operations of Northwestern Mutual Life.
Policies provide that a charge for taxes may be made against the assets of the
Account. Generally, for policies issued before October 11, 1995, Northwestern
Mutual Life charges the Account at an annual rate of .20% of the Account's net
assets and reserves the right to increase, decrease or eliminate the charge for
taxes in the future. Generally, for policies issued on or after October 11,
1995, there is no charge being made against the assets of the Account for
federal income taxes, but Northwestern Mutual Life reserves the right to charge
for taxes in the future.
NOTE 7 -- The Account is credited for the policyowners' net annual premiums at
the respective policy anniversary dates regardless of when policyowners actually
pay their premiums. Northwestern Mutual Life's equity represents any unpaid
portion of net annual premiums.
--
27
<PAGE>
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 8 -- Equity Values by Division are shown below
<TABLE>
<CAPTION>
POLICIES ISSUED ON OR
AFTER OCTOBER 11, 1995
EQUITY OF
------------------------
POLICYOWNERS NML
------------- ---------
<S> <C> <C> <C>
Growth Stock Division................................................................... $ 1,990 $ 1,816 $ 3,806
Aggressive Growth Stock Division........................................................ 6,342 5,826 12,168
International Equity Division........................................................... 3,185 2,607 5,792
Growth and Income Stock Division........................................................ 2,036 1,679 3,715
Index 500 Stock Division................................................................ 4,353 3,689 8,042
Money Market Division................................................................... 2,762 6,390 9,152
Balanced Division....................................................................... 1,378 1,037 2,415
Select Bond Division.................................................................... 329 241 570
High Yield Bond Division................................................................ 462 352 814
------------- --------- ---------
$ 22,837 $ 23,637 $ 46,474
------------- --------- ---------
------------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
POLICIES ISSUED
BEFORE OCTOBER 11, 1995
EQUITY OF
------------------------
POLICYOWNERS NML
------------- ---------
<S> <C> <C> <C>
Growth Stock Division.................................................................. $ 9,235 $ 1,405 $ 10,640
Aggressive Growth Stock Division....................................................... 25,388 4,165 29,553
International Equity Division.......................................................... 20,256 3,287 23,543
Growth and Income Stock Division....................................................... 11,145 1,768 12,913
Index 500 Stock Division............................................................... 45,632 5,055 50,687
Money Market Division.................................................................. 5,263 336 5,599
Balanced Division...................................................................... 92,454 5,956 98,410
Select Bond Division................................................................... 5,184 489 5,673
High Yield Bond Division............................................................... 2,670 409 3,079
------------- --------- ----------
$ 217,227 $ 22,870 $ 240,097
------------- --------- ----------
------------- --------- ----------
</TABLE>
--
28
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
The following financial statements of Northwestern Mutual should be considered
only as bearing upon the ability of Northwestern Mutual Life to meet its
obligations under the Policies.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
BONDS
United States Government.................................................................. $ 5,417 $ 3,282
Industrial and other...................................................................... 23,659 22,236
---------- ----------
29,076 25,518
---------- ----------
STOCKS
Common.................................................................................... 3,356 2,894
Unconsolidated subsidiaries............................................................... 612 531
Preferred................................................................................. 760 546
---------- ----------
4,728 3,971
---------- ----------
MORTGAGE LOANS.............................................................................. 9,564 8,429
REAL ESTATE
Investment................................................................................ 1,257 1,294
Home office............................................................................... 128 135
---------- ----------
1,385 1,429
---------- ----------
LOANS ON POLICIES........................................................................... 6,802 6,476
OTHER INVESTMENTS........................................................................... 1,714 1,589
CASH AND TEMPORARY INVESTMENTS.............................................................. 1,131 544
DUE AND ACCRUED INVESTMENT INCOME........................................................... 764 721
---------- ----------
Total invested assets................................................................... 55,164 48,677
---------- ----------
SEPARATE ACCOUNT BUSINESS................................................................... 6,339 5,000
OTHER ASSETS................................................................................ 1,177 1,199
---------- ----------
Total Assets............................................................................ $ 62,680 $ 54,876
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements
--
29
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
LIABILITIES AND RESERVES
LIABILITY FOR POLICY BENEFITS
Insurance and annuity reserves............................................................ $ 43,209 $ 39,545
Policy benefits in process or left for future payments.................................... 1,140 1,109
Premium deposits.......................................................................... 427 427
Policyowner dividends payable............................................................. 2,350 2,115
---------- ----------
47,126 43,196
---------- ----------
OTHER LIABILITIES
Interest maintenance reserve.............................................................. 299 281
Income taxes.............................................................................. 942 895
Miscellaneous............................................................................. 2,921 1,336
---------- ----------
4,162 2,512
---------- ----------
SEPARATE ACCOUNT BUSINESS................................................................... 6,339 5,000
---------- ----------
ASSET VALUATION RESERVE..................................................................... 1,538 1,382
---------- ----------
Total liabilities....................................................................... 59,165 52,090
---------- ----------
GENERAL CONTINGENCY RESERVE................................................................. 3,515 2,786
---------- ----------
Total Liabilities and Contingency Reserve............................................... $ 62,680 $ 54,876
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements
--
30
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED SUMMARY OF OPERATIONS
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
INCOME
PREMIUMS..................................................................... $ 6,760 $ 6,196 $ 5,743
NET INVESTMENT INCOME........................................................ 3,836 3,673 3,106
POLICY BENEFITS LEFT WITH COMPANY AND OTHER INCOME........................... 666 733 636
---------- ---------- ----------
Total income............................................................... 11,262 10,602 9,485
---------- ---------- ----------
DISPOSITION OF INCOME
COSTS
Agents' compensation....................................................... 529 508 492
Other insurance costs...................................................... 418 398 334
Premium and other taxes or assessments..................................... 96 120 120
---------- ---------- ----------
1,043 1,026 946
---------- ---------- ----------
BENEFITS TO POLICYOWNERS AND BENEFICIARIES
Death benefits............................................................. 673 655 609
Surrender benefits......................................................... 1,182 1,375 904
Disability benefits........................................................ 202 174 151
Annuity benefits........................................................... 128 92 94
Matured endowments......................................................... 52 48 54
Payments from policy benefits left with Company............................ 684 590 568
Net transfers to separate accounts......................................... 579 236 344
Net additions to policy reserves........................................... 3,701 3,506 3,313
---------- ---------- ----------
7,201 6,676 6,037
---------- ---------- ----------
Total disposition of income.............................................. 8,244 7,702 6,983
---------- ---------- ----------
SAVINGS FROM OPERATIONS BEFORE INCOME TAXES AND DIVIDENDS...................... 3,018 2,900 2,502
INCOME TAX EXPENSE............................................................. 452 467 281
---------- ---------- ----------
SAVINGS FROM OPERATIONS BEFORE DIVIDENDS....................................... 2,566 2,433 2,221
POLICYOWNER DIVIDENDS.......................................................... 2,341 2,111 1,942
---------- ---------- ----------
NET SAVINGS FROM OPERATIONS.................................................... 225 322 279
NET REALIZED CAPITAL GAINS, LESS TAX EXPENSE OF $208, $98 AND 85,
RESPECTIVELY.................................................................. 395 137 119
---------- ---------- ----------
CONTRIBUTION TO GENERAL CONTINGENCY RESERVE FROM OPERATIONS.................... $ 620 $ 459 $ 398
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements
--
31
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF GENERAL CONTINGENCY RESERVE
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
BEGINNING OF YEAR BALANCE....................................................................... $ 2,786 $ 2,225 $ 2,030
Contribution to general contingency reserve from operations................................... 620 459 398
Change in net unrealized capital gains........................................................ 295 373 (242)
Change in asset valuation reserve............................................................. (156) (192) 37
Other -- net.................................................................................. (30) (79) 2
---------- ---------- ----------
END OF YEAR BALANCE............................................................................. $ 3,515 $ 2,786 $ 2,225
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements
--
32
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Insurance premiums, annuities and other considerations................... $ 7,361 $ 6,864 $ 6,299
Net investment income received........................................... 3,634 3,480 3,013
Net loans on policies.................................................... (326) (331) (297)
Benefits paid to policyholders and beneficiaries......................... (2,912) (2,939) (2,357)
Net transfers to separate accounts....................................... (579) (236) (344)
Policyowner dividends paid............................................... (2,105) (1,945) (1,777)
Expenses and taxes....................................................... (1,424) (1,279) (1,033)
Other -- net............................................................. 1,558 381 89
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES................................ 5,207 3,995 3,593
CASH FLOWS FROM INVESTING ACTIVITIES
PROCEEDS FROM INVESTMENTS SOLD OR MATURED
Bonds.................................................................... 31,942 25,317 27,096
Stocks................................................................... 4,570 2,465 1,469
Mortgage loans........................................................... 1,253 431 512
Real estate.............................................................. 178 48 164
Other invested assets.................................................... 316 149 213
Capital gain (tax) benefit............................................... (239) (85) 28
---------- ---------- ----------
38,020 28,325 29,482
COST OF INVESTMENTS ACQUIRED
Bonds.................................................................... 35,342 27,596 29,674
Stocks................................................................... 4,463 2,562 1,606
Mortgage loans........................................................... 2,455 1,883 1,356
Real estate.............................................................. 125 202 6
Other invested assets.................................................... 255 336 413
---------- ---------- ----------
42,640 32,579 33,055
NET CASH USED IN INVESTING ACTIVITIES.................................... (4,620) (4,254) (3,573)
---------- ---------- ----------
NET (DECREASE) INCREASE IN CASH AND TEMPORARY INVESTMENTS.................... 587 (259) 20
CASH AND TEMPORARY INVESTMENTS, BEGINNING OF YEAR............................ 544 803 783
---------- ---------- ----------
CASH AND TEMPORARY INVESTMENTS, END OF YEAR.................................. $ 1,131 $ 544 $ 803
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements
--
33
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 1 -- PRINCIPAL ACCOUNTING POLICIES
The accompanying consolidated statutory financial statements include the
accounts of The Northwestern Mutual Life Insurance Company (the "Company") and
its wholly-owned life insurance subsidiary. The Company offers life, annuity and
disability income products to the personal, business, estate and tax-qualified
markets.
The consolidated financial statements have been prepared using accounting
policies prescribed or permitted by the Insurance Departments of the states in
which the Company and its subsidiary are domiciled (statutory basis of
accounting). Prior to December 15, 1995, these policies were considered
generally accepted accounting principles ("GAAP") for mutual life insurance
enterprises. However, in April 1993, the Financial Accounting Standards Board
issued Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance Companies and Other Enterprises," which
established a different definition of GAAP for mutual life insurance
enterprises. Under the Interpretation, financial statements of mutual life
insurance enterprises for periods beginning after December 15, 1995 which are
prepared on the statutory basis of accounting are no longer characterized as
being in conformity with GAAP.
The consolidated financial statements are prepared on the statutory basis of
accounting and are not intended to represent a presentation in accordance with
GAAP. Financial statements prepared on a statutory basis of accounting vary from
financial statements prepared on a GAAP basis primarily because on a GAAP basis
policy acquisition costs are deferred and amortized, investment valuations and
insurance reserves are based on different assumptions, deferred taxes are
provided for book and tax differences and premiums on annuity contracts are
accounted for as deposits to policyholders' accounts.
The preparation of financial statements in conformity with the statutory basis
of accounting requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVESTMENTS
The Company's investments are valued on the following bases:
<TABLE>
<S> <C> <C>
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 Stocks -- Market value
Unconsolidated Subsidiaries -- Equity in subsidiaries' net assets
Preferred Stocks -- Cost
Mortgage Loans -- Amortized cost
Investment Real Estate -- Lower of cost, less depreciation and encumbrances, or estimated net realizable
value
Home Office Real Estate -- Cost, less depreciation
Loans on Policies -- Cost
Other Investments -- Joint Ventures -- Lower of equity in or market value of ventures' net assets
</TABLE>
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT BUSINESS
This business consists of annuities funded by specific assets held in separate
accounts. The assets in these accounts are carried at market value. The policy
values reflect the investment performance of the respective accounts.
INSURANCE, ANNUITY AND DISABILITY INCOME RESERVES
Life insurance reserves on substantially all policies issued since 1978 are
based on the Commissioner's Reserve Valuation Method with interest rates ranging
from 3 1/2% to 5 1/2%. Other policy reserves are based primarily on the net
level premium method employing
--
34
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
various mortality tables at interest rates ranging from 2% to 4 1/2%.
Deferred annuity reserves on policies issued since 1985 are valued using the
Commissioner's Annuity Reserve Valuation Method with interest rates ranging from
3 1/2% to 6 1/4%. Other deferred annuity reserves are based on the contract
value. Immediate annuity reserves are present values of expected benefit
payments at interest rates ranging from 3 1/2% to 7 1/2%.
Active life reserves for disability income ("DI") policies issued since 1987 are
primarily based on the two-year preliminary term method using a 4% interest rate
and the 1985 Commissioner's Individual Disability Table A ("CIDA") for
morbidity. Previous DI business uses the net level premium method, using a 3% or
4% interest rate and the 1964 Commissioner's Disability Table for morbidity.
Disabled life reserves for DI policies are based on the present values of
expected benefit payments using primarily the 1985 CIDA (modified for Company
experience in the first two years of disability) with interest rates ranging
from 3% to 5 1/2%.
Use of these actuarial tables and methods involves estimation of future
mortality and morbidity based on past experience. Actual future experience could
differ from these estimates.
INTEREST MAINTENANCE RESERVE
The Company is required to maintain an interest maintenance reserve ("IMR"). The
IMR establishes a reserve for realized gains and losses, net of tax, resulting
from changes in interest rates on short and long-term fixed income investments.
Net realized gains and losses charged to the IMR are amortized into investment
income over the approximate remaining life of the investment sold.
ASSET VALUE RESERVE
The Company is also required to maintain an asset valuation reserve ("AVR"). The
AVR establishes a reserve for certain invested assets held by the Company. In
the aggregate, AVR was 83.8% of the allowable maximum at December 31, 1996.
PREMIUM INCOME
Life insurance premiums are recognized as income at the beginning of each policy
year.
REINSURANCE
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
reinsurance to other insurance enterprises or reinsurers under excess coverage
and co-insurance contracts. In 1996, the Company increased its use of
coinsurance on term insurance. As of December 31, 1996, total life insurance
inforce approximated $430 billion, of which approximately $146 billion,
comprised principally of term insurance, had been ceded to various reinsurers.
The Company retains a maximum of $15 million of coverage per individual life and
$20 million maximum of coverage per joint life.
OPERATING COSTS
Operating costs, including costs of acquiring new policies, are charged to
operations as incurred.
INCOME TAXES
Provisions for income taxes are based on current income tax returns without
recognition of deferred taxes due to timing differences. The portion of the
federal income tax based on mutual life insurance company equity is reflected as
a component of income tax expense, including related adjustments for prior
years.
The Company files a consolidated life-nonlife federal income tax return. Federal
income tax returns for years through 1988 are closed as to further assessment of
tax. Adequate provision has been made in the financial statements for any
additional taxes which may become due with respect to the open years.
The Company's effective tax rate on savings from operations before income tax
expense (after dividends) in 1996 was approximately 67%. Two significant factors
cause the Company's effective tax rate to exceed the federal corporate rate of
35%. First, the Company pays a tax that is assessed only on mutual life
insurance companies, which is an amount that purports to equate a portion of
policyholder dividends with nondeductible dividends paid to shareholders of
stock companies. Second, the Company must capitalize and amortize (as opposed to
immediately deducting) an amount deemed to represent the cost of acquiring new
business ("DAC tax").
--
35
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
POLICYOWNER DIVIDENDS
Dividends payable in the following year on participating policies are charged to
current operations. All life insurance policies issued by the Company are
participating.
RECLASSIFICATION
Certain amounts in previously issued financial statements have been reclassified
to conform to current year presentation.
NOTE 2 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summarizes the bases used by the Company in estimating its fair
value disclosures for financial instruments:
Bonds and common and preferred stocks -- Fair values are based upon quoted
market prices, if available. For securities not actively traded, fair values
are estimated using independent pricing services or internally developed
pricing models.
Mortgage loans -- Fair values are derived by discounting the future
estimated cash flows using current interest rates of debt securities with
similar credit risk and maturities, or utilizing net realizable values.
Loans on policies -- The carrying amount reported in the statement of
financial position approximates fair value since loans on policies reduce
the amount payable at death or at surrender of the contract.
Cash and temporary investments and due and accrued investment income -- The
carrying amounts reported in the statement of financial position approximate
fair value.
Annuity reserves (without mortality/morbidity features) -- Fair values are
derived by discounting the future estimated cash flows using current
interest rates with similar maturities.
Other deposit liabilities -- The carrying amounts reported in the statement
of financial position approximate fair value.
NOTE 3 -- INVESTMENTS
NET INVESTMENT INCOME
The Company's net investment income for the years ended December 31, 1996, 1995
and 1994 of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C>
Interest, dividends, rents,
equity in unconsolidated
subsidiaries' earnings and
joint venture income........... $ 4,125 $ 3,952 $ 3,395
Less: Investment expenses and
depreciation................... (289) (279) (289)
---------- ---------- ----------
Net investment income.......... $ 3,836 $ 3,673 $ 3,106
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
REALIZED GAINS AND LOSSES
During 1996, 1995 and 1994, the Company, in its normal course of business, sold
certain invested assets realizing gains and losses before transfer to the IMR
and capital gains tax from such sales as follows:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
FOR THE YEAR ENDED FOR THE YEAR ENDED DECEMBER 31,
DECEMBER 31, 1996 DECEMBER 31, 1995 1994
--------------------------------------- --------------------------------------- ------------
NET REALIZED NET REALIZED
REALIZED REALIZED GAINS REALIZED REALIZED GAINS REALIZED
GAINS LOSSES (LOSSES) GAINS LOSSES (LOSSES) GAINS
----------- ------------ ------------ ----------- ------------ ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Bonds............................ $ 396 $ (383) $ 13 $ 576 $ (130) $ 446 $ 171
Stocks........................... 580 (115) 465 574 (429) 145 499
Mortgage loans................... 2 (15) (13) 2 (32) (30) --
Real estate...................... 36 0 36 14 (3) 11 16
Other invested assets............ 204 (51) 153 188 (95) 93 110
----------- ------ ----- ----------- ------ ----- -----
$ 1,218 $ (564) $ 654 $ 1,354 $ (689) $ 665 $ 796
----------- ------ ----- ----------- ------ ----- -----
----------- ------ ----- ----------- ------ ----- -----
<CAPTION>
NET REALIZED
REALIZED GAINS
LOSSES (LOSSES)
------------ ------------
<S> <C> <C>
Bonds............................ $ (535) $ (364)
Stocks........................... (291) 208
Mortgage loans................... (37) (37)
Real estate...................... (7) 9
Other invested assets............ (98) 12
------ ------
$ (968) $ (172)
------ ------
------ ------
</TABLE>
- --------------------------------------------------------------------------------
--
36
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
DEBT SECURITIES
Debt securities consist of all bonds, fixed maturity preferred stocks and short
term fixed income investments.
The statement values, which principally represent amortized cost, and estimated
market values of the Company's debt securities at December 31, 1996 and 1995 are
as follows:
<TABLE>
<CAPTION>
RECONCILIATION TO ESTIMATED MARKET VALUE
---------------------------------------------------------
GROSS GROSS ESTIMATED
STATEMENT UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1996 VALUE APPRECIATION DEPRECIATION VALUE
- ----------------------------------------------------------------------- ----------- -------------- --------------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
US Government and political obligations................................ $ 4,809 $ 171 $ (2) $ 4,978
Mortgage-backed securities............................................. 6,747 179 (38) 6,888
Corporate and other debt securities.................................... 18,722 776 (99) 19,399
----------- ------- ------ -----------
30,278 1,126 (139) 31,265
Preferred stocks....................................................... 84 6 (1) 89
----------- ------- ------ -----------
Total.................................................................. $ 30,362 $ 1,132 $ (140) $ 31,354
----------- ------- ------ -----------
----------- ------- ------ -----------
<CAPTION>
RECONCILIATION TO ESTIMATED MARKET VALUE
---------------------------------------------------------
GROSS GROSS ESTIMATED
STATEMENT UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1995 VALUE APPRECIATION DEPRECIATION VALUE
- ----------------------------------------------------------------------- ----------- -------------- --------------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
US Government and political obligations................................ $ 3,267 $ 296 $ (1) $ 3,562
Mortgage-backed securities............................................. 6,734 336 (12) 7,058
Corporate and other debt securities.................................... 15,999 1,250 (47) 17,202
----------- ------- ------ -----------
26,000 1,882 (60) 27,822
Preferred stocks....................................................... 108 3 (2) 109
----------- ------- ------ -----------
Total.................................................................. $ 26,108 $ 1,885 $ (62) $ 27,931
----------- ------- ------ -----------
----------- ------- ------ -----------
</TABLE>
- --------------------------------------------------------------------------------
The amortized cost and estimated value of debt securities at December 31, 1996
and 1995, by contractual maturity, are shown below. Expected maturities may
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------ ------------------------
ESTIMATED ESTIMATED
STATEMENT MARKET STATEMENT MARKET
VALUE VALUE VALUE VALUE
----------- ----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Due in one year or less..................................................... $ 1,659 $ 1,713 $ 977 $ 979
Due after one year through five years....................................... 4,077 4,205 3,658 3,879
Due after five years through ten years...................................... 7,802 8,092 6,879 7,347
Due after ten years......................................................... 10,077 10,456 7,860 8,668
----------- ----------- ----------- -----------
23,615 24,466 19,374 20,873
Mortgage-backed securities.................................................. 6,747 6,888 6,734 7,058
----------- ----------- ----------- -----------
$ 30,362 $ 31,354 $ 26,108 $ 27,931
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
--
37
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
The fair value of perpetual preferred stocks as of December 31, 1996 and 1995
approximates $892 million and $578 million, respectively, compared to the
statement values of $676 million and $439 million, respectively.
The Company has entered into a securities lending agreement whereby blocks of
securities are loaned to third parties, primarily major brokerage firms. As of
December 31, 1996 the estimated fair value of loaned securities was $2.2
billion. The Company's policy requires a minimum of 102 percent of the fair
value of the loaned securities as collateral, calculated on a daily basis in the
form of either cash or securities. Cash collateral received and related amounts
due to counterparties are reflected in the consolidated statement of financial
position. To further minimize the credit risks related to this program, the
financial condition of counterparties is monitored on a regular basis.
MORTGAGE LOANS
As of December 31, 1996 and 1995, the mortgage loan portfolio was distributed as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------------------- ------------------
GEOGRAPHIC LOCATION % OF TOTAL
- ----------------------------------------------------------------- STATEMENT VALUE ------------ STATEMENT VALUE
------------------ ------------------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C>
Middle Atlantic................................................ $ 1,170 12.3% $ 945
South Atlantic................................................. 2,845 29.7 2,346
North Central.................................................. 1,675 17.5 1,560
South Central.................................................. 1,035 10.8 1,018
Pacific Northwest.............................................. 578 6.1 454
Pacific........................................................ 1,998 20.9 1,803
Canada......................................................... 263 2.7 303
------- ------------ -------
$ 9,564 100.0% $ 8,429
------- ------------ -------
------- ------------ -------
PROPERTY TYPE
- -----------------------------------------------------------------
Retail......................................................... $ 3,099 32.4% $ 2,897
Office Building................................................ 2,963 31.0 2,677
Residential.................................................... 2,340 24.5 1,804
Commercial..................................................... 818 8.5 792
Other.......................................................... 344 3.6 259
------- ------------ -------
$ 9,564 100.0% $ 8,429
------- ------------ -------
------- ------------ -------
<CAPTION>
GEOGRAPHIC LOCATION % OF TOTAL
- ----------------------------------------------------------------- ------------
<S> <C>
Middle Atlantic................................................ 11.2%
South Atlantic................................................. 27.8
North Central.................................................. 18.5
South Central.................................................. 12.1
Pacific Northwest.............................................. 5.4
Pacific........................................................ 21.4
Canada......................................................... 3.6
------------
100.0%
------------
------------
PROPERTY TYPE
- -----------------------------------------------------------------
Retail......................................................... 34.4%
Office Building................................................ 31.8
Residential.................................................... 21.4
Commercial..................................................... 9.4
Other.......................................................... 3.0
------------
100.0%
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
The fair value of mortgage loans as of December 31, 1996 and 1995 approximates
$9,823 million and $8,983 million, respectively.
AFFILIATES
The Company has a 17.7% investment in MGIC Investment Corporation ("MGIC"), an
affiliate. At December 31, 1996, the market value of the Company's investment in
MGIC (10.4 million shares) exceeded the statement value by $466 million. During
1996, NML sold 1.2 million shares of MGIC resulting in a realized gain of $50.0
million.
In July 1995, the Company entered into a forward contract with a brokerage firm
to deliver 4.4 million to 5.4 million shares of MGIC (or cash) in August 1998
for a price determined by the market value of the MGIC shares at that time in
exchange for a fixed cash payment of $247 million ($48 per share). The Company's
objective in entering into the forward contract is to hedge against depreciation
in the value of its MGIC holdings during the contract period below the initial
spot price of $48, while partially participating in appreciation, if any, during
the forward contract's duration.
REAL ESTATE
For real estate and joint venture properties acquired subsequent to December
1990, the Company calculates depreciation using the straight-line method in
accordance with guidelines established by the National Association of Insurance
Commissioners. For properties acquired prior to December 1990, the Company
calculates depreciation using either the straight-line method or the
constant-yield method. Home office real estate is depreciated using the
straight-line method.
--
38
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
At December 31, 1996, investment real estate includes $119 million of real
estate acquired through foreclosure. In 1996, the Company recorded writedowns of
$31 million and $12 million for the excess of carrying value over fair value of
certain real estate investments and mortgage loans, respectively. Valuation
allowances for real estate and mortgage loans with fair values that are less
than statement values are adequately covered by normal AVR reserves and by a
$110 million special investment reserve established by the Company for real
estate, mortgage loans and other invested assets.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company's current utilization of derivative financial instruments is
limited. The Company's derivative transactions are used to reduce or modify
risks of volatility related to foreign currency, interest rate movements and
stock price fluctuation. These hedging strategies use forwards, futures, options
and swaps.
At December 31, 1996 the Company held the following positions:
<TABLE>
<CAPTION>
DERIVATIVE FINANCIAL INSTRUMENT: RISKS REDUCED
- ------------------------------------------------------- NOTIONAL -------------------------------------------------------
CONTRACT
AMOUNTS
--------------
($ MILLIONS)
<S> <C> <C>
Foreign Currency Forward Contracts..................... $ 854 Currency exposure on foreign denominated investments.
Stock Futures.......................................... 279 Stock market price fluctuation.
Option to acquire an Interest Rate Swap................ 320 Interest rates payable on Fixed Annuities.
Foreign Currency and Interest Rate Swaps............... 251 Interest rates on variable rate notes and currency on
foreign denominated bonds.
</TABLE>
The hedges are recorded by the Company in the same manner as the underlying
investments. Changes in the values of these contracts are expected to offset the
gains and losses on the hedged investments. On hedges marked to market, gains
and losses are unrealized before contract settlement and realized on settlement.
The effect of derivative transactions is not significant to the Company's
results of operations or financial position.
NOTE 4 -- ANNUITIES AND OTHER DEPOSIT LIABILITIES
The value of annuities (without mortality/morbidity features) and other deposit
liabilities as of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
DECEMBER 31, 1996 1995
-------------------------- ------------
STATEMENT STATEMENT
VALUE FAIR VALUE VALUE
------------ ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C>
Annuities.................................................................... $ 2,554 $ 2,477 $ 2,631
Other deposit liabilities.................................................... 797 797 783
<CAPTION>
FAIR VALUE
------------
<S> <C>
Annuities.................................................................... $ 2,437
Other deposit liabilities.................................................... 783
</TABLE>
- --------------------------------------------------------------------------------
NOTE 5 -- BENEFIT PLANS
The Company maintains non-contributory defined benefit retirement plans for all
eligible employees and agents as well as a 401(k) plan for eligible employees
and a non-contributory defined contribution plan for all full-time agents. These
plans are funded currently and plan assets of $1.3 billion at December 31, 1996
are primarily included in the separate accounts of the Company. As of January 1,
1996, the most recent actuarial valuation date available, the defined benefit
plans were fully funded.
In addition to pension benefits, the Company provides certain health care and
life insurance benefits ("postretirement benefits") for retired employees.
Substantially all employees may become eligible for these benefits if they reach
retirement age while working for the Company.
--
39
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
Postretirement benefit cost for the year ended December 31, 1996 was a benefit
of $12 million; it includes the expected cost of postretirement benefits for
newly eligible and vested employees and interest cost totaling $6 million offset
by gains from differences between actuarial assumptions and actual experience of
$18 million. At December 31, 1996 and 1995, the unfunded postretirement benefit
obligation for retirees and other fully eligible or vested employees was $35
million and $49 million, respectively. The estimated postretirement benefit
obligation for active non-vested employees was $43 million. The discount rate
used to determine the postretirement benefit obligation was 7% and the health
care cost trend rate was 10% in 1996, declining by 1% per year to an ultimate
rate of 5% over 5 years. If the health care cost trend rate assumptions were
increased by 1%, the postretirement benefit obligation as of December 31, 1996
would be increased by $5 million.
At December 31, 1996, the plan assets attributable to postretirement health care
benefits totaled $34 million.
NOTE 6 -- REINSURANCE
The amounts shown in the accompanying consolidated financial statements are net
of reinsurance activity. Reserves at December 31, 1996 are stated net of
reinsurance of $355 million. The effect of reinsurance on premiums and benefits
for the years ended December 31, 1996, 1995 and 1994 are as follows (in
millions):
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Direct premiums................ $ 7,064 $ 6,452 $ 5,977
Reinsurance ceded.............. (304) (256) (234)
---------- ---------- ----------
Net premiums................... $ 6,760 $ 6,196 $ 5,743
---------- ---------- ----------
---------- ---------- ----------
Benefits to policyholders and
beneficiaries................. $ 7,348 $ 6,818 $ 6,178
Reinsurance recoveries......... (147) (142) (141)
---------- ---------- ----------
Net benefits to policyholders
and beneficiaries............. $ 7,201 $ 6,676 $ 6,037
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
In addition, the Company received credits of $93 million from reinsurers
representing reimbursements of commissions and other expenses. The credits are
included in other income in the consolidated summary of operations.
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result in
losses to the Company; consequently, allowances are established for amounts
deemed uncollectible. The Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk arising from similar
geographic regions, activities, or economic characteristics of the reinsurers to
minimize its exposure to significant losses from reinsurer insolvencies.
NOTE 7 -- CONTINGENCIES
In the normal course of business, the Company enters into transactions to reduce
its exposure to fluctuations in interest rates and market volatility. These
instruments may involve credit risk and may also be subject to risk of loss due
to interest rate fluctuations.
The Company has guaranteed certain obligations of its affiliates. These
guarantees totaled approximately $120 million at December 31, 1996 and are
generally supported by the underlying net asset values of the affiliates.
The Company is engaged in various legal actions in the normal course of its
investment and insurance operations. In the opinion of management, any losses
resulting from such actions would not have a material effect on the Company's
financial condition.
--
40
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
[LOGO]
[LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Policyowners of
The Northwestern Mutual Life Insurance Company
We have audited the accompanying consolidated statement of financial position of
The Northwestern Mutual Life Insurance Company and its subsidiary as of December
31, 1996 and 1995, and the related consolidated summary of operations and
consolidated statements of general contingency reserve and of cash flows for
each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our report dated January 24, 1996, we expressed an opinion that the 1995 and
1994 consolidated financial statements, prepared using accounting practices
prescribed or permitted by the Insurance Departments of the states in which the
Company and its subsidiary are domiciled (statutory basis of accounting), were
presented fairly, in all material respects, in conformity with generally
accepted accounting principles. As described in Note 1 to these financial
statements, pursuant to the pronouncement of the Financial Accounting Standards
Board, financial statements of mutual life insurance enterprises prepared using
accounting practices prescribed or permitted by insurance regulators (statutory
basis of accounting) are no longer considered presentations in conformity with
generally accepted accounting principles. Accordingly, our present opinion on
the presentation of the 1995 and 1994 financial statements, as presented herein,
is different from that expressed in our previous report.
As described in Note 1, these consolidated financial statements were prepared in
conformity with accounting practices prescribed or permitted by the Insurance
Departments of the states in which the Company and its subsidiary are domiciled
(statutory basis of accounting), which practices differ from generally accepted
accounting principles. Accordingly, the consolidated financial statements are
not intended to represent a presentation in accordance with generally accepted
accounting principles. The effects on the consolidated financial statements of
the variances between the statutory basis of accounting and generally accepted
accounting principles, although not reasonably determinable, are presumed to be
material.
In our opinion, the consolidated financial statements audited by us (1) do not
present fairly in conformity with generally accepted accounting principles, the
financial position of The Northwestern Mutual Life Insurance Company and its
subsidiary at December 31, 1996 and 1995, or the results of their operations or
their cash flows for each of the three years in the period ended December 31,
1996 because of the effects of the variances between the statutory basis of
accounting and generally accepted accounting principles referred to in the
preceding paragraph and (2) do present fairly, in all material respects, the
financial position of The Northwestern Mutual Life Insurance Company and its
subsidiary at December 31, 1996 and 1995 and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1996, on the basis of accounting described in Note 1.
[LOGO]
--
41
<PAGE>
January 22, 1997
--
42
<PAGE>
APPENDIX
ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES AND ACCUMULATED PREMIUMS. The
tables on the following pages illustrate how the death benefit and cash value
for a Whole Life Policy, an Extra Ordinary Life Policy and a Single Premium Life
Policy would vary over time based on hypothetical investment results. The tables
assume gross (after tax) investment return rates of 0%, 6% and 12% on assets of
the Fund. The Policies illustrated are for male insureds, select risks, age 35.
The illustration for the Whole Life Policy is on page 43. The illustrations for
Extra Ordinary Life Policies are on pages 44 through 46. The illustration for
the Single Premium Life Policy is on page 47.
The death benefits and cash values would be different from those shown if the
gross investment return rate averaged 0%, 6% or 12%, but fluctuated over and
under the average rate at various points in time. The values would also be
different, depending on the Account divisions selected by the owner of the
Policy, if the return rate for the nine Fund Portfolios averaged 0%, 6% or 12%,
but the rates for each individual Portfolio varied over and under the average.
The amounts shown as the death benefits and cash values reflect the deductions
from premiums, the charge at the annual rate of .50% of the Account's assets for
mortality and expense risks and the charge at the annual rate of .20% of the
Account's assets for taxes. The amounts shown as the cash values for the Single
Premium Life Policy reflect the deduction for sales costs during the first ten
Policy years. The amounts shown also reflect the average of the investment
advisory fees and the other Fund expenses applicable to each of the nine
Portfolios of the Fund during 1996 at the annual rate of .47% of the Fund's net
assets. See "Deductions and Charges", p. 7. Thus the 0%, 6% and 12% gross
hypothetical return rates on the Fund's assets are equivalent to the net rates
of -1.17%, 4.83% and 10.83% on the assets of the Account.
The second column of each table shows the amount which would accumulate if an
amount equal to the annual or single premium were invested to earn interest,
after taxes, at the stated interest rate compounded annually.
The death benefits and corresponding cash values shown for paid-up additions
purchased with dividends illustrate benefits which would be paid if investment
returns of 0%, 6% and 12% are realized, if mortality and expense experience in
the future is as currently experienced and if the current dividend scale remains
unchanged. See "Annual Dividends," p. 14. HOWEVER, THERE IS NO GUARANTEE AS TO
THE AMOUNT OF DIVIDENDS, IF ANY, THAT WILL BE PAID UNDER A POLICY. Although the
tables are based on the assumption that dividends will be used to purchase
additional paid-up death benefits, other dividend options are available. The
Extra Ordinary Life Policy is designed for a purchaser who intends to use all
dividends to purchase paid-up additions. See "Extra Ordinary Life Policy," p.
12.
A comparable illustration based on a proposed insured's age, sex and risk
classification and proposed face amount or premium is available upon request.
--
42
<PAGE>
VARIABLE WHOLE LIFE INSURANCE POLICY
MALE ISSUE AGE 35
$500 ANNUAL PREMIUM FOR SELECT UNDERWRITING RISK
FACE AMOUNT $30,979
DIVIDENDS USED TO PURCHASE PAID-UP ADDITIONS
<TABLE>
<CAPTION>
12%
DEATH
BENEFIT*
---------
0% 6% ASSUMING
DEATH BENEFIT* DEATH BENEFIT* HYPOTHETICAL
--------------------------------- --------------------------------- GROSS
ANNUAL
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS INVESTMENT
PREMIUM ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF RETURN OF
ACCUMULATED RETURN RETURN RETURN
AT 5% --------------------------------- --------------------------------- ---------
END OF INTEREST PER BASE PAID-UP BASE PAID-UP BASE
POLICY YEAR YEAR POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL POLICY
- ------------------------ ------------- --------- ----------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1....................... $ 525 $ 30,979 $ 73 $ 31,052 $ 30,983 $ 73 $ 31,056 $ 31,011
2....................... 1,076 30,979 163 31,142 30,997 167 31,164 31,131
3....................... 1,655 30,979 267 31,246 31,022 282 31,304 31,341
4....................... 2,263 30,979 384 31,363 31,056 417 31,473 31,644
5....................... 2,901 30,979 512 31,491 31,100 572 31,672 32,047
6....................... 3,571 30,979 647 31,626 31,154 745 31,899 32,552
7....................... 4,275 30,979 793 31,772 31,217 940 32,157 33,164
8....................... 5,013 30,979 946 31,925 31,289 1,155 32,444 33,887
9....................... 5,789 30,979 1,108 32,087 31,370 1,394 32,764 34,725
10...................... 6,603 30,979 1,278 32,257 31,460 1,656 33,116 35,683
15...................... 11,329 30,979 2,143 33,122 32,029 3,264 35,293 42,487
20 (age 55)............. 17,359 30,979 2,776 33,755 32,779 5,201 37,980 53,335
30 (age 65)............. 34,880 30,979 3,037 34,016 34,743 10,383 45,126 92,722
<CAPTION>
12%
CASH
VALUE*
---------
0% 6% ASSUMING
CASH VALUE* CASH VALUE* HYPOTHETICAL
--------------------------------- --------------------------------- GROSS
ANNUAL
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS INVESTMENT
PREMIUM ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF RETURN OF
ACCUMULATED RETURN RETURN RETURN
AT 5% --------------------------------- --------------------------------- ---------
END OF INTEREST PER BASE PAID-UP BASE PAID-UP BASE
POLICY YEAR YEAR POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL POLICY
- ------------------------ ------------- --------- ----------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1....................... $ 525 $ 91 $ 18 $ 109 $ 98 $ 18 $ 116 $ 106
2....................... 1,076 419 43 462 454 44 498 490
3....................... 1,655 739 74 813 823 78 901 912
4....................... 2,263 1,051 110 1,161 1,205 119 1,324 1,374
5....................... 2,901 1,369 151 1,520 1,614 169 1,783 1,895
6....................... 3,571 1,678 198 1,876 2,038 228 2,266 2,466
7....................... 4,275 1,977 250 2,227 2,475 297 2,772 3,091
8....................... 5,013 2,268 308 2,576 2,926 377 3,303 3,774
9....................... 5,789 2,549 373 2,922 3,392 469 3,861 4,522
10...................... 6,603 2,822 444 3,266 3,873 575 4,448 5,340
15...................... 11,329 4,048 866 4,914 6,509 1,319 7,828 10,739
20 (age 55)............. 17,359 5,039 1,296 6,335 9,543 2,429 11,972 19,144
30 (age 65)............. 34,880 6,218 1,831 8,049 16,656 6,261 22,917 51,617
<CAPTION>
END OF PAID-UP
POLICY YEAR ADDITIONS TOTAL
- ------------------------ ----------- ----------
<S> <C> <C>
1....................... $ 73 $ 31,084
2....................... 172 31,303
3....................... 298 31,639
4....................... 452 32,096
5....................... 637 32,684
6....................... 853 33,405
7....................... 1,107 34,271
8....................... 1,401 35,288
9....................... 1,741 36,466
10...................... 2,132 37,815
15...................... 4,957 47,444
20 (age 55)............. 9,582 62,917
30 (age 65)............. 29,523 122,245
END OF PAID-UP
POLICY YEAR ADDITIONS TOTAL
- ------------------------ ----------- ----------
<S> <C> <C>
1....................... $ 18 $ 124
2....................... 46 536
3....................... 82 994
4....................... 129 1,503
5....................... 188 2,083
6....................... 261 2,727
7....................... 350 3,441
8....................... 457 4,231
9....................... 586 5,108
10...................... 740 6,080
15...................... 2,004 12,743
20 (age 55)............. 4,475 23,619
30 (age 65)............. 17,802 69,419
</TABLE>
* Assumes no policy loan has been made.
DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALE AND EXPERIENCE AND ARE NOT
GUARANTEED. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE
INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF RETURN OF THE FUND
PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND
12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF
TIME.
--
43
<PAGE>
EXTRA ORDINARY VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 35
$100,000 OF INSURANCE ($60,000 GUARANTEED MINIMUM
+ $40,000 OF EXTRA LIFE PROTECTION GUARANTEED FOR 27 YEARS (1))
ANNUAL PREMIUM FOR SELECT UNDERWRITING RISK: $1,014.00 (2)
DIVIDENDS USED TO PURCHASE PAID-UP ADDITIONS (1)
ASSUMING 0% HYPOTHETICAL GROSS ANNUAL INVESTMENT RATE OF RETURN
<TABLE>
<CAPTION>
DEATH BENEFIT (3)
-------------------------------------------------------------- CASH VALUE (3)
PREMIUM EXTRA LIFE PROTECTION ---------------------------------
ACCUMULATED ------------------------------------- CASH
AT 5% TOTAL MINIMUM VARIABLE VARIABLE VALUE OF CASH VALUE TOTAL
END OF INTEREST PER DEATH DEATH INSURANCE PAID-UP TERM BASE OF PAID-UP CASH
POLICY YEAR YEAR BENEFIT BENEFIT AMOUNT ADDITIONS INSURANCE POLICY ADDITIONS VALUE
- -------------- ------------- ---------- ----------- ----------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1............. $ 1,065 $ 100,000 $ 60,000 $- 44 $ 158 $ 39,842 $ 152 $ 41 $ 193
2............. 2,183 100,000 60,000 - 210 381 39,619 787 102 889
3............. 3,356 100,000 60,000 - 488 657 39,343 1,407 182 1,589
4............. 4,589 100,000 60,000 - 868 978 39,022 2,011 280 2,291
5............. 5,883 100,000 60,000 - 1,346 1,336 38,664 2,628 396 3,024
6............. 7,242 100,000 60,000 - 1,912 1,722 38,278 3,228 527 3,755
7............. 8,669 100,000 60,000 - 2,557 2,137 37,863 3,810 675 4,485
8............. 10,167 100,000 60,000 - 3,273 2,579 37,421 4,375 841 5,216
9............. 11,740 100,000 60,000 - 4,053 3,048 36,952 4,921 1,026 5,947
10............ 13,392 100,000 60,000 - 4,890 3,542 36,458 5,451 1,230 6,681
15............ 22,975 100,000 60,000 - 9,710 6,065 33,935 7,833 2,452 10,285
20 (age 55)... 35,205 100,000 60,000 -15,148 7,549 32,451 9,758 3,525 13,283
30 (age 65)... 70,737 91,028 60,000 -26,193 6,466 24,562(4) 12,051 3,899 15,950
</TABLE>
(1) Extra Life Protection is guaranteed to be at least $40,000 for 27 years, so
long as all premiums are paid when due, no policy loan is outstanding, all
dividends are applied to purchase paid-up additions and no paid-up additions
are surrendered for their cash value. Extra Life Protection is the sum of
any positive variable insurance amount plus variable paid-up additions plus
term insurance.
(2) If premiums were paid monthly, the monthly payments would be $89.10. The
death benefit and cash values would not be affected.
(3) Assumes no policy loan has been made.
(4) After the guaranteed period of 27 years for Extra Life Protection, the
amount of term insurance depends on the dividend scale. The amount
illustrated is based on current scale and experience and is not guaranteed.
DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALE AND EXPERIENCE AND ARE NOT
GUARANTEED. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE
INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF RETURN OF THE FUND
PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATE OF RETURN AVERAGED 0% OVER A
PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THIS HYPOTHETICAL RATE OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME.
--
44
<PAGE>
EXTRA ORDINARY VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 35
$100,000 OF INSURANCE ($60,000 GUARANTEED MINIMUM
+ $40,000 OF EXTRA LIFE PROTECTION GUARANTEED FOR 27 YEARS (1))
ANNUAL PREMIUM FOR SELECT UNDERWRITING RISK: $1,014.00 (2)
DIVIDENDS USED TO PURCHASE PAID-UP ADDITIONS (1)
ASSUMING 6% HYPOTHETICAL GROSS ANNUAL INVESTMENT RATE OF RETURN
<TABLE>
<CAPTION>
DEATH BENEFIT (3)
--------------------------------------------------------------- CASH VALUE (3)
PREMIUM EXTRA LIFE PROTECTION ----------------------
ACCUMULATED -------------------------------------- CASH
AT 5% TOTAL MINIMUM VARIABLE VARIABLE VALUE OF CASH VALUE
END OF INTEREST PER DEATH DEATH INSURANCE PAID-UP TERM BASE OF PAID-UP
POLICY YEAR YEAR BENEFIT BENEFIT AMOUNT ADDITIONS INSURANCE POLICY ADDITIONS
- -------------------------- ------------- ---------- ----------- ----------- ----------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1......................... $ 1,065 $ 100,000 $ 60,000 $ 7 $ 158 $ 39,835 $ 166 $ 41
2......................... 2,183 100,000 60,000 34 390 39,576 853 104
3......................... 3,356 100,000 60,000 81 690 39,229 1,565 191
4......................... 4,589 100,000 60,000 147 1,054 38,799 2,303 302
5......................... 5,883 100,000 60,000 232 1,478 38,290 3,096 438
6......................... 7,242 100,000 60,000 335 1,958 37,707 3,916 599
7......................... 8,669 100,000 60,000 457 2,497 37,046 4,763 789
8......................... 10,167 100,000 60,000 596 3,096 36,308 5,638 1,010
9......................... 11,740 100,000 60,000 752 3,761 35,487 6,540 1,266
10........................ 13,392 100,000 60,000 925 4,492 34,583 7,471 1,560
15........................ 22,975 100,000 60,000 2,023 8,951 29,026 12,578 3,619
20 (age 55)............... 35,205 100,000 60,000 3,475 13,843 22,682 18,456 6,465
30 (age 65)............... 70,737 100,000 60,000 7,279 25,679 7,042(4) 32,235 15,484
<CAPTION>
TOTAL
END OF CASH
POLICY YEAR VALUE
- -------------------------- ---------
<S> <C>
1......................... $ 207
2......................... 957
3......................... 1,756
4......................... 2,605
5......................... 3,534
6......................... 4,515
7......................... 5,552
8......................... 6,648
9......................... 7,806
10........................ 9,031
15........................ 16,197
20 (age 55)............... 24,921
30 (age 65)............... 47,719
</TABLE>
(1) Extra Life Protection is guaranteed to be at least $40,000 for 27 years, so
long as all premiums are paid when due, no policy loan is outstanding, all
dividends are applied to purchase paid-up additions and no paid-up additions
are surrendered for their cash value. Extra Life Protection is the sum of
any positive variable insurance amount plus variable paid-up additions plus
term insurance.
(2) If premiums were paid monthly, the monthly payments would be $89.10. The
death benefit and cash values would not be affected.
(3) Assumes no policy loan has been made.
(4) After the guaranteed period of 27 years for Extra Life Protection, the
amount of term insurance depends on the dividend scale. The amount
illustrated is based on current scale and experience and is not guaranteed.
DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALE AND EXPERIENCE AND ARE NOT
GUARANTEED. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE
INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF RETURN OF THE FUND
PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATE OF RETURN AVERAGED 6% OVER A
PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THIS HYPOTHETICAL RATE OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME.
--
45
<PAGE>
EXTRA ORDINARY VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 35
$100,000 OF INSURANCE ($60,000 GUARANTEED MINIMUM
+ $40,000 OF EXTRA LIFE PROTECTION GUARANTEED FOR 27 YEARS (1))
ANNUAL PREMIUM FOR SELECT UNDERWRITING RISK: $1,014.00 (2)
DIVIDENDS USED TO PURCHASE PAID-UP ADDITIONS (1)
ASSUMING 12% HYPOTHETICAL GROSS ANNUAL INVESTMENT RATE OF RETURN
<TABLE>
<CAPTION>
DEATH BENEFIT (3)
-------------------------------------------------------------- CASH VALUE (3)
PREMIUM EXTRA LIFE PROTECTION ----------------------
ACCUMULATED ------------------------------------- CASH
AT 5% TOTAL MINIMUM VARIABLE VARIABLE VALUE OF CASH VALUE
END OF INTEREST PER DEATH DEATH INSURANCE PAID-UP TERM BASE OF PAID-UP
POLICY YEAR YEAR BENEFIT BENEFIT AMOUNT ADDITIONS INSURANCE POLICY ADDITIONS
- ------------------------- ------------- ---------- ----------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1........................ $ 1,065 $ 100,000 $ 60,000 $ 58 $ 158 $ 39,784 $ 179 $ 41
2........................ 2,183 100,000 60,000 284 400 39,316 920 107
3........................ 3,356 100,000 60,000 684 725 38,591 1,733 201
4........................ 4,589 100,000 60,000 1,263 1,137 37,600 2,623 326
5........................ 5,883 100,000 60,000 2,034 1,638 36,328 3,630 485
6........................ 7,242 100,000 60,000 3,004 2,231 34,765 4,734 683
7........................ 8,669 100,000 60,000 4,180 2,928 32,892 5,940 925
8........................ 10,167 100,000 60,000 5,570 3,739 30,691 7,261 1,220
9........................ 11,740 100,000 60,000 7,183 4,680 28,137 8,706 1,576
10....................... 13,392 100,000 60,000 9,029 5,763 25,208 10,287 2,002
15....................... 22,975 100,000 60,000 22,150 13,631 4,219 20,717 5,512
20 (age 55).............. 35,205 129,294 60,000 43,086 26,208 0 36,956 12,240
30 (age 65).............. 70,737 255,995 60,000 119,146 76,849 0 99,692 46,340
<CAPTION>
END OF TOTAL CASH
POLICY YEAR VALUE
- ------------------------- ----------
<S> <C>
1........................ $ 220
2........................ 1,027
3........................ 1,934
4........................ 2,949
5........................ 4,115
6........................ 5,417
7........................ 6,865
8........................ 8,481
9........................ 10,282
10....................... 12,289
15....................... 26,229
20 (age 55).............. 49,196
30 (age 65).............. 146,032
</TABLE>
(1) Extra Life Protection is guaranteed to be at least $40,000 for 27 years, so
long as all premiums are paid when due, no policy loan is outstanding, all
dividends are applied to purchase paid-up additions and no paid-up additions
are surrendered for their cash value. Extra Life Protection is the sum of
any positive variable insurance amount plus variable paid-up additions plus
term insurance.
(2) If premiums were paid monthly, the monthly payments would be $89.10. The
death benefit and cash values would not be affected.
(3) Assumes no policy loan has been made.
DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALE AND EXPERIENCE AND ARE NOT
GUARANTEED. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE
INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF RETURN OF THE FUND
PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATE OF RETURN AVERAGED 12% OVER A
PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THIS HYPOTHETICAL RATE OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME.
--
46
<PAGE>
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 35
FACE AMOUNT $25,000
SINGLE PREMIUM FOR SELECT UNDERWRITING RISK: $6,443.25
DIVIDENDS USED TO PURCHASE PAID-UP ADDITIONS
<TABLE>
<CAPTION>
12%
0% 6% DEATH BENEFIT*
DEATH BENEFIT* DEATH BENEFIT* ASSUMING HYPOTHETICAL
ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL GROSS ANNUAL
PREMIUMS GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT INVESTMENT
ACCUMULATED RATE OF RETURN RATE OF RETURN RATE OF RETURN
AT 5% ------------------------------------ --------------------------------- ----------------------
END OF INTEREST PER BASE PAID-UP BASE PAID-UP BASE PAID-UP
POLICY YEAR YEAR POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL POLICY ADDITIONS
- -------------------- ------------- ---------- ------------- --------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1................... $ 6,765 $ 25,000 $ 50 $ 25,050 $ 25,200 $ 50 $ 25,250 $ 26,647 $ 50
2................... 7,104 25,000 92 25,092 25,402 106 25,508 28,402 116
3................... 7,459 25,000 126 25,126 25,605 166 25,771 30,273 200
4................... 7,832 25,000 152 25,152 25,810 232 26,042 32,268 305
5................... 8,223 25,000 170 25,170 26,017 303 26,320 34,394 432
6................... 8,635 25,000 181 25,181 26,225 380 26,605 36,661 586
7................... 9,066 25,000 185 25,185 26,435 464 26,899 39,077 771
8................... 9,520 25,000 183 25,183 26,647 556 27,203 41,653 991
9................... 9,996 25,000 176 25,176 26,860 657 27,517 44,399 1,254
10.................. 10,495 25,000 168 25,168 27,075 767 27,842 47,326 1,565
15.................. 13,395 25,000 135 25,135 28,178 1,442 29,620 65,133 4,024
20 (age 55)......... 17,096 25,000 109 25,109 29,327 2,294 31,621 89,662 8,622
30 (age 65)......... 27,847 25,000 72 25,072 31,767 4,802 36,569 170,079 31,681
<CAPTION>
END OF
POLICY YEAR TOTAL
- -------------------- ----------
<S> <C>
1................... $ 26,697
2................... 28,518
3................... 30,473
4................... 32,573
5................... 34,826
6................... 37,247
7................... 39,848
8................... 42,644
9................... 45,653
10.................. 48,891
15.................. 69,157
20 (age 55)......... 98,284
30 (age 65)......... 201,760
</TABLE>
<TABLE>
<CAPTION>
12%
0% 6% CASH VALUE*
CASH VALUE* CASH VALUE* ASSUMING HYPOTHETICAL
ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL GROSS ANNUAL
PREMIUMS GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT INVESTMENT
ACCUMULATED RATE OF RETURN RATE OF RETURN RATE OF RETURN
AT 5% ------------------------------------ --------------------------------- ----------------------
END OF INTEREST PER BASE PAID-UP BASE PAID-UP BASE PAID-UP
POLICY YEAR YEAR POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL POLICY ADDITIONS
- -------------------- ------------- ---------- ------------- --------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1................... $ 6,765 $ 5,665 $ 13 $ 5,678 $ 6,042 $ 13 $ 6,055 $ 6,418 $ 13
2................... 7,104 5,592 24 5,616 6,354 28 6,382 7,160 31
3................... 7,459 5,524 35 5,559 6,680 46 6,726 7,977 55
4................... 7,832 5,461 43 5,504 7,022 66 7,088 8,876 87
5................... 8,223 5,404 50 5,454 7,378 89 7,467 9,863 128
6................... 8,635 5,352 55 5,407 7,751 116 7,867 10,947 179
7................... 9,066 5,306 58 5,364 8,139 146 8,285 12,137 243
8................... 9,520 5,266 59 5,325 8,545 181 8,726 13,443 323
9................... 9,996 5,233 59 5,292 8,967 221 9,188 14,875 422
10.................. 10,495 5,207 58 5,265 9,408 266 9,674 16,444 543
15.................. 13,395 4,691 54 4,745 11,395 583 11,978 26,339 1,627
20 (age 55)......... 17,096 4,193 50 4,243 13,696 1,071 14,767 41,875 4,026
30 (age 65)......... 27,847 3,240 43 3,283 19,155 2,895 22,050 102,559 19,103
<CAPTION>
END OF
POLICY YEAR TOTAL
- -------------------- ----------
<S> <C>
1................... $ 6,431
2................... 7,191
3................... 8,032
4................... 8,963
5................... 9,991
6................... 11,126
7................... 12,380
8................... 13,766
9................... 15,297
10.................. 16,987
15.................. 27,966
20 (age 55)......... 45,901
30 (age 65)......... 121,662
</TABLE>
* Assumes no policy loan has been made.
DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALE AND EXPERIENCE AND ARE NOT
GUARANTEED. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE
INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF RETURN OF THE FUND
PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND
12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF
TIME.
--
47
<PAGE>
NORTHWESTERN MUTUAL VARIABLE LIFE
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
NORTHWESTERN MUTUAL SERIES FUND, INC.
PROSPECTUS
90-1898 (4/97)
Northwestern BULK
Mutual Life-Registered Trademark- RATE
PO Box 3095 U.S.
Milwaukee WI 53201-3095 POSTAGE
Address Correction Requested PAID
MILWAUKEE,
WI
PERMIT
NO.
426
<PAGE>
PART II
CONTENTS OF REGISTRATION STATEMENT
This amendment to the registration statement comprises the following papers
and documents:
The facing sheet
The cross-reference sheet
The prospectus consisting of 47 pages
The signatures
Written consents of the following persons:
Price Waterhouse LLP (filed herewith as Exhibit 99.C1)
William C. Koenig, F.S.A. (included in his opinion filed
herewith as Exhibit 99.C6)
The following exhibits:
EX-99.C1 Consent of Price Waterhouse LLP
EX-99.C6 Opinion of William C. Koenig, F.S.A.
EX-27 Financial Data Schedule for period
ended December 31, 1996
UNDERTAKING
The Northwestern Mutual Life Insurance Company hereby represents that the
fees and charges deducted under the contracts registered by this registration
statement, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by the
insurance company.
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Northwestern Mutual Variable Life Account, certifies that it meets all the
requirements for effectiveness of this Amended Registration Statement pursuant
to Rule 485 (b) under the Securities Act of 1933 and has duly caused this
Amended Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Milwaukee, and State of Wisconsin, on
the 29th day of April, 1997.
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
(Registrant)
By THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
(Depositor)
Attest: JOHN M. BREMER By: JAMES D. ERICSON
--------------- ------------------
John M. Bremer, Senior Vice James D. Ericson, President and
President, General Counsel Chief Executive Officer
and Secretary
By NORTHWESTERN MUTUAL INVESTMENT
SERVICES, INC.
(Depositor)
Attest: MERRILL C. LUNDBERG By: RICHARD L. HALL
-------------------- -----------------
Merrill C. Lundberg, Secretary Richard L. Hall,
President and CEO
Pursuant to the requirements of the Securities Act of 1933, the depositors
have duly caused this Amended Registration Statement to be signed on their
behalf by the undersigned, thereunto duly authorized, and their seals to be
hereunto affixed, all in the City of Milwaukee, and State of Wisconsin, on the
29th day of April, 1997.
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY (Depositor)
Attest: JOHN M. BREMER By: JAMES D. ERICSON
--------------- ------------------
John M. Bremer, Senior Vice James D. Ericson, President and
President, General Counsel Chief Executive Officer
and Secretary
NORTHWESTERN MUTUAL INVESTMENT
SERVICES, INC. (Depositor)
Attest: MERRILL C. LUNDBERG By: RICHARD L. HALL
-------------------- ----------------
Merrill C. Lundberg, Secretary Richard L. Hall,
President and CEO
Pursuant to the requirements of the Securities Act of 1933, this Amended
Registration Statement has been signed by the following persons in the
capacities with the depositor and on the dates indicated:
SIGNATURE TITLE
- --------- -----
JAMES D. ERICSON Trustee, President and Dated April
- ------------------------------ Principal Executive and 29, 1997
James D. Ericson Financial Officer
II-2
<PAGE>
GARY E. LONG Vice President, Controller
- ------------------------------ and Principal Accounting
Gary E. Long Officer
HAROLD B. SMITH* Trustee
- ------------------------------
Harold B. Smith
J. THOMAS LEWIS* Trustee
- ------------------------------
J. Thomas Lewis
PATRICIA ALBJERG GRAHAM* Trustee
- ------------------------------
Patricia Albjerg Graham
DONALD J. SCHUENKE* Trustee
- ------------------------------
Donald J. Schuenke
R. QUINTUS ANDERSON* Trustee
- ------------------------------
R. Quintus Anderson
STEPHEN F. KELLER* Trustee Dated April
- ------------------------------ 29, 1997
Stephen F. Keller
PIERRE S. du PONT* Trustee
- ------------------------------
Pierre S. du Pont
J. E. GALLEGOS* Trustee
- ------------------------------
J. E. Gallegos
THOMAS I. DOLAN* Trustee
- ------------------------------
Thomas I. Dolan
KATHRYN D. WRISTON* Trustee
- ------------------------------
Kathryn D. Wriston
BARRY L. WILLIAMS* Trustee
- ------------------------------
Barry L. Williams
GORDON T. BEAHAM III* Trustee
- ------------------------------
Gordon T. Beaham III
DANIEL F. McKEITHAN, JR.* Trustee
- ------------------------------
Daniel F. McKeithan, Jr.
II-3
<PAGE>
ROBERT E. CARLSON* Trustee
- ------------------------------
Robert E. Carlson
EDWARD E. BARR* Trustee
- ------------------------------
Edward E. Barr
ROBERT C. BUCHANAN* Trustee
- ------------------------------
Robert C. Buchanan
SHERWOOD H. SMITH, JR.* Trustee
- ------------------------------
Sherwood H. Smith, Jr.
H. MASON SIZEMORE, JR.* Trustee
- ------------------------------
H. Mason Sizemore, Jr.
JOHN J. STOLLENWERK* Trustee
- ------------------------------
John J. Stollenwerk
GEORGE A. DICKERMAN* Trustee
- ------------------------------
George A. Dickerman
GUY A. OSBORN* Trustee Dated April
- ------------------------------ 29, 1997
Guy A. Osborn
JOHN E. STEURI* Trustee
- ------------------------------
John E. Steuri
STEPHEN N. GRAFF* Trustee
- ------------------------------
Stephen N. Graff
BARBARA A. KING* Trustee
- ------------------------------
Barbara A. King
*By: JAMES D. ERICSON
------------------------------------
James D. Ericson, Attorney in fact,
pursuant to the Power of Attorney
attached hereto
II-4
<PAGE>
CONSENT OF ACTUARY
The Consent of William C. Koenig, F.S.A., is contained in his opinion filed
as Exhibit 99.C6.
CONSENT OF INDEPENDENT ACCOUNTANTS
The Consent of Price Waterhouse LLP is filed as Exhibit 99.C1.
II-5
<PAGE>
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, 1996 to be filed under the Securities Exchange
Act of 1934 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. "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 24th day of July, 1996.
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
II-6
<PAGE>
THOMAS I. DOLAN Trustee
-------------------------------
Thomas I. Dolan
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
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.
II-7
<PAGE>
GUY A. OSBORN Trustee
-------------------------------
Guy A. Osborn
DONALD J. SCHUENKE Trustee
-------------------------------
Donald J. Schuenke
H. MASON SIZEMORE, JR. Trustee
-------------------------------
H. Mason Sizemore, Jr.
HAROLD B. SMITH Trustee
-------------------------------
Harold B. Smith
SHERWOOD H. SMITH, JR. Trustee
-------------------------------
Sherwood H. Smith, Jr.
JOHN E. STEURI Trustee
-------------------------------
John E. Steuri
JOHN J. STOLLENWERK Trustee
-------------------------------
John J. Stollenwerk
BARRY L. WILLIAMS Trustee
-------------------------------
Barry L. Williams
KATHRYN D. WRISTON Trustee
-------------------------------
Kathryn D. Wriston
II-8
<PAGE>
EXHIBIT INDEX
EXHIBITS FILED WITH FORM S-6
POST-EFFECTIVE AMENDMENT NO. 19 TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FOR
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
EXHIBIT NUMBER EXHIBIT NAME
- -------------- ------------
EX-99.C1 Consent of Price Waterhouse LLP.
EX-99.C6 Opinion of William C. Koenig, F.S.A.
EX-27 Financial Data Schedule for period ended December 31, 1996.
<PAGE>
EX-99.C1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 19 to the Registration Statement on Form S-6 (the
"Registration Statement") of our report dated January 22, 1997, relating to the
financial statements of The Northwestern Mutual Life Insurance Company, and of
our report dated January 22, 1997, relating to the financial statements of
Northwestern Mutual Variable Life Account, which appear in such Prospectus. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
April 29, 1997
<PAGE>
EX-99.C6
April 29, 1997
The Northwestern Mutual Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Gentlemen:
This opinion is furnished in connection with Post-Effective Amendment No. 19 to
the Registration Statement on Form S-6 of Northwestern Mutual Variable Life
Account (File No. 2-89972). The prospectus included in Post-Effective Amendment
No. 19 ("Prospectus") describes three variable life insurance policies which are
issued in connection with the Account ("Policies"): Whole Life, Extra Ordinary
Life Policies and Single Premium Life Policies. The Policy forms were prepared
under my direction, and I am familiar with the Registration Statement and
Amendments and Exhibits thereto. In my opinion:
l. The illustrations of death benefits included on pages 11, 12 and 13 of the
Prospectus, based on the assumptions stated in the illustrations, are
consistent with the provisions of the Policies.
2. The illustration of the effect of a Policy loan on the death benefit and
cash value included on page 15, based on the assumptions stated in the
illustration, is consistent with the provisions of the Policies.
3. The illustration of reduced paid-up insurance and extended term in- surance
included on page 16 of the Prospectus, based on the assumptions stated in
the illustration, is consistent with the provisions of the Policies.
4. The illustrations of cash values and death benefits included on pages 43
through 47 of the Prospectus, in the Appendix thereto, including the amounts
shown for the Base Policy and as Paid-Up Additions, based on the assumptions
stated in the illustrations, are consistent with the provi- sions of the
Policies and current dividend scale and experience. The rate structure of
the Policies has not been designed so as to make the relationship between
premiums and benefits, as shown in the illustra- tions, appear more
favorable to a prospective purchaser of a Policy for male age 35, than to
prospective purchasers of Policies for a male at other ages or for a female.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
Prospectus.
Sincerely,
/S/WILLIAM C. KOENIG
William C. Koenig, F.S.A.
Senior Vice President and Chief Actuary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTHWESTERN
MUTUAL VARIABLE LIFE ACCOUNT DECEMBER 31, 1996 FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 235,429
<INVESTMENTS-AT-VALUE> 286,571
<RECEIVABLES> 208
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 286,779
<PAYABLE-FOR-SECURITIES> 170
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 38
<TOTAL-LIABILITIES> 208
<SENIOR-EQUITY> 286,571
<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> 286,571
<DIVIDEND-INCOME> 11,085
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 1,563
<NET-INVESTMENT-INCOME> 9,522
<REALIZED-GAINS-CURRENT> 2,405
<APPREC-INCREASE-CURRENT> 1,398
<NET-CHANGE-FROM-OPS> 33,325
<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> 101,682
<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>
