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December 10, 1998
Northwestern
Mutual Life-Registered Trademark-
The Quiet Company-Registered Trademark-
Northwestern Mutual Variable Joint Life
FLEXIBLE PREMIUM VARIABLE JOINT LIFE INSURANCE POLICY
INSURANCE PAYABLE ON SECOND DEATH
PROSPECTUS
[GRAPHIC]
SUCCESS
COMMITMENT
PROSPERITY
GOALS
INVENTIONS
STRUCTURE
Northwestern Mutual
Series Fund, Inc.
The Northwestern Mutual
Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, WI 53202
414 271 1444
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CONTENTS FOR THIS PROSPECTUS
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Prospectus................................................................ 1
Summary................................................................... 2
Variable Life Insurance............................................... 2
The Account and its Divisions......................................... 2
The Policy............................................................ 2
Availability Limitations............................................ 2
Premiums............................................................ 2
Death Benefit....................................................... 2
Cash Value.......................................................... 2
Deductions and Charges.............................................. 2
From Premiums..................................................... 2
From Policy Value................................................. 2
From Surrender Proceeds........................................... 3
From the Fund..................................................... 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
Aggressive Growth Stock Portfolio..................................... 4
International Equity Portfolio........................................ 5
Growth Stock Portfolio................................................ 5
Growth and Income Stock Portfolio..................................... 5
Index 500 Stock Portfolio............................................. 5
Balanced Portfolio.................................................... 5
High Yield Bond Portfolio............................................. 5
Select Bond Portfolio................................................. 5
Money Market Portfolio................................................ 5
Detailed Information About the Policy..................................... 5
Premiums.............................................................. 5
Death Benefit......................................................... 6
Death Benefit Options............................................... 6
Choice of Tests for Tax Purposes.................................... 6
Death Benefit Changes............................................... 6
Allocations to the Account............................................ 7
Deductions and Charges................................................ 7
Deductions from Premiums............................................ 7
Charges against the Policy Value.................................... 7
Surrender Charge.................................................... 8
Expenses of the Fund................................................ 8
Cash Value............................................................ 8
Policy Loans.......................................................... 9
Withdrawals of Cash Value............................................. 9
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Termination and Reinstatement......................................... 9
Right to Return Policy................................................ 10
Other Policy Provisions............................................... 10
Owner............................................................... 10
Beneficiary......................................................... 10
Incontestability.................................................... 10
Suicide............................................................. 10
Misstatement of Age or Sex.......................................... 10
Collateral Assignment............................................... 10
Deferral of Determination and Payment............................... 10
Dividends........................................................... 11
Voting Rights......................................................... 11
Substitution of Fund Shares and Other Changes......................... 11
Reports............................................................... 11
Distribution of the Policies.......................................... 11
Tax Considerations.................................................... 12
General............................................................. 12
Life Insurance Qualification........................................ 12
Tax Treatment of Life Insurance..................................... 12
Modified Endowment Contracts........................................ 12
Estate and Generation Skipping Taxes................................ 13
Other Tax Considerations............................................ 14
Other Information......................................................... 14
Management............................................................ 14
Regulation............................................................ 16
Year 2000 Issues...................................................... 17
Legal Proceedings..................................................... 17
Registration Statement................................................ 17
Experts............................................................... 17
Financial Statements...................................................... 18
Financial Statements of the Account
(for the nine months ended
September 30, 1998 -- unaudited)..................................... 18
Report of Independent Accountants
(for the two years ended December 31, 1997).......................... 24
Financial Statements of the Account
(for the two years ended December 31, 1997).......................... 25
Financial Statements of Northwestern Mutual Life
(for the three years ended December 31, 1997)........................ 31
Report of Independent Accountants
(for the three years ended December 31, 1997)........................ 44
Appendix A................................................................ 45
Appendix B................................................................ 54
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PROSPECTUS
NORTHWESTERN MUTUAL VARIABLE JOINT LIFE
FLEXIBLE PREMIUM VARIABLE JOINT LIFE INSURANCE POLICY
INSURANCE PAYABLE ON SECOND DEATH
This prospectus describes the Variable Joint Life Policy (the "Policy") offered
by The Northwestern Mutual Life Insurance Company. The Policy provides life
insurance coverage on two insureds with a death benefit payable on the second
death while the policy is in force.
The Policy offers flexible premium payments, nine investment funding options and
a choice of three death benefit options.
The investment options correspond to the Portfolios 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
Aggressive Growth Stock Portfolio, the International Equity Portfolio, the
Growth Stock Portfolio, the Growth and Income Stock Portfolio, the Index 500
Stock Portfolio, the Balanced Portfolio, the High Yield Bond Portfolio, the
Select Bond Portfolio and the Money Market Portfolio.
The values provided by the Policy vary daily depending on investment results.
These values are not guaranteed. The Portfolios present varying degrees of
investment risk.
A Policy may be returned for a limited period of time. See "Right to Return
Policy", p. 10.
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.
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.
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SUMMARY
THE FOLLOWING SUMMARY PROVIDES A BRIEF OVERVIEW OF THE POLICY. IT OMITS DETAILS
WHICH ARE INCLUDED ELSEWHERE IN THIS PROSPECTUS AND THE ATTACHED FUND PROSPECTUS
AND IN THE TERMS OF THE POLICY.
VARIABLE LIFE INSURANCE
Variable life insurance is cash value life insurance and is similar in many ways
to traditional fixed benefit life insurance. Both kinds of life insurance
provide an income tax-free death benefit and a cash value that grows
tax-deferred. Variable life insurance allows the policyowner to direct the
premiums, after certain deductions, among a range of investment options. The
variable life insurance death benefit and cash value vary to reflect the
performance of the selected investments.
THE ACCOUNT AND ITS DIVISIONS
Northwestern Mutual Variable Life Account is the investment vehicle for the
Policies. The Account has nine divisions. The owner of the Policy determines how
net premiums are to be allocated. The assets of each division are invested in a
corresponding Portfolio of Northwestern Mutual Series Fund, Inc. The nine
Portfolios are the Aggressive Growth Stock Portfolio, the International Equity
Portfolio, the Growth Stock Portfolio, the Growth and Income Stock Portfolio,
the Index 500 Stock Portfolio, the Balanced Portfolio, the High Yield Bond
Portfolio, the Select Bond Portfolio and the Money Market 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.
THE POLICY
AVAILABILITY LIMITATIONS The Variable Joint Life Policy is available for two
insureds each between ages 20 and 85. The minimum Specified Amount of insurance
is $1,000,000, or $500,000 if the older insured's issue age is age 50 or older.
PREMIUMS Premiums may be paid at any time and in any amounts, within limits,
but additional premiums will be required to keep the Policy in force if values
become insufficient to pay current charges.
DEATH BENEFIT The Policy offers a choice of three death benefit options:
- - SPECIFIED AMOUNT (OPTION A)
- - SPECIFIED AMOUNT PLUS POLICY VALUE (OPTION B)
- - SPECIFIED AMOUNT PLUS PREMIUMS PAID (OPTION C)
In each case, the death benefit will be at least the amount needed to meet
federal income tax requirements for life insurance. The Specified Amount is
selected by the applicant when the Policy is purchased and may be increased or
decreased by the owner, within limits and subject to conditions, after a Policy
is issued. The amount of the death benefit is not guaranteed.
CASH VALUE The cash value of a Policy is not guaranteed and varies daily to
reflect investment experience. A Policy may be surrendered for its cash value.
The Policy also includes loan and withdrawal provisions.
DEDUCTIONS AND CHARGES
FROM PREMIUMS
- - Deduction of 3.6% for local, state and federal taxes attributable to premiums
- - Sales load of 6.4% up to the Target Premium in Policy years 1-10, and 2.4% of
all other premiums
FROM POLICY VALUE
- - Cost of insurance charge deducted monthly, is based on the net amount at risk,
Policy duration, and the issue age, sex and risk classification of the insured
persons. Current charges are based on the experience of Northwestern Mutual
Life. Maximum charges are based on the 1980 CSO Mortality Tables.
- - Monthly mortality and expense risk charge. This consists of two components:
(1) THE INVESTED ASSETS COMPONENT--The current charge is at the annual rate of
.45% (0.0375% monthly rate) of the Policy Value less any Policy debt. The
maximum charge is at the annual rate of .90% (0.075% monthly rate).
(2) THE SPECIFIED AMOUNT COMPONENT--The charge is based on the Specified
Amount and the issue ages of the insured persons, and applies during the first
10 Policy years. The range on an annual basis is from 4 CENTS
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per $1,000 of initial Specified Amount if both insured persons are issue age
25 or younger, up to $1.72 per $1,000 of initial Specified Amount if both
insured persons are issue age 72 or older.
- - Monthly administrative charge. The current charge is $5.00. The maximum charge
is $7.50.
- - Monthly underwriting and issue charge. The charge is based on the Specified
Amount and risk classification of the insured persons. It applies during the
first 10 Policy years. The range is from 1.5 CENTS to 3.5 CENTS per $1,000 of
initial Specified Amount, with a maximum monthly charge of $75 to $175.
- - Deferred sales charge deducted monthly. The charge is 7.5% (0.625% monthly
rate) of premiums paid during the first Policy year up to the Target Premium.
During the first Policy year the monthly deduction is based on cumulative
premiums paid to date up to the Target Premium. The charge applies during the
first 10 Policy years.
- - Charge for expenses and taxes associated with the Policy loan, if any. The
aggregate charge is at the current annual rate of .90% (0.075% monthly rate)
of the Policy debt during the first ten Policy years and .35% (.029167%)
thereafter.
- - Any transaction charges that may result from a withdrawal, a transfer, a
change in the Specified Amount or a change in the death benefit option. These
charges are currently waived. The maximum charge is $250 for death benefit
option changes and $25 for each of the other transactions.
FROM SURRENDER PROCEEDS
- - A surrender charge equal to 50% of the premiums actually paid during the first
Policy year or the Target Premium, whichever is less. Beginning with the
second Policy year, the surrender charge decreases by the same dollar amount
month by month to zero at the end of the tenth Policy year.
FROM THE FUND
- - A daily charge for investment advisory and other services provided to the
Fund. The total Fund expenses vary by Portfolio and currently fall in an
approximate range of .21% to .77% of assets on an annual basis.
The following table shows the annual expenses for each of the Portfolios of the
Fund, as a percentage of the average net assets of the Portfolio, based on 1997
operations for the Portfolios and their predecessors:
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INVESTMENT
PORTFOLIO ADVISORY FEE OTHER EXPENSES TOTAL EXPENSES
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Aggressive Growth
Stock................. .52% .01% .53%
International Equity... .67% .10% .77%
Growth Stock........... .47% .02% .49%
Growth and Income
Stock................. .59% .01% .60%
Index 500 Stock........ .20% .01% .21%
Balanced............... .30% .00% .30%
High Yield Bond........ .52% .03% .55%
Select Bond............ .30% .00% .30%
Money Market........... .30% .00% .30%
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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 fifth largest life insurance company, based on total assets in
excess of $71 billion on December 31, 1997, 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
insurance policies and annuity contracts through its own field force of
approximately 6,000 full time producing agents. The Internal Revenue Service
Employer Identification Number of Northwestern Mutual Life is 39-0509570.
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 variable life insurance
policies, including the Policies described in this prospectus as well as other
policy series.
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,
LLC ("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 1997 asset size. Other expenses borne
by the Portfolios range from 0% for the Select Bond, Money Market and Balanced
Portfolios to .10% 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.
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.
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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.
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.
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.
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 generally are more volatile than debt securities and
involve greater investment risks.
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.
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.
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 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.
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DETAILED INFORMATION ABOUT THE POLICY
PREMIUMS
The Policy permits premiums to be paid at any time before the Policy anniversary
that is nearest the 95th birthday of the younger insured and in any amounts
within the limits described in this section.
The Specified Amount selected when the Policy is purchased is used to determine
the minimum initial premium. The minimum initial premium varies with the issue
age and sex of the insured persons.
A Target Premium is calculated when the Policy is issued and is used in
determining the sales load, commissions, surrender charge and other expense
charges during the first 10 Policy years. The Target Premium is based on the
Specified Amount and the age, sex and risk classification of the insured
persons.
After a Policy is issued, there are no minimum premiums, except that no premium
of less than $25 will be accepted. The Policy will remain in force during the
lifetime of at least one of the insured persons so long as the cash value is
sufficient to pay the monthly cost of insurance charge and other current
charges.
The Policy sets no maximum on premiums, but a premium that would increase the
net amount at risk will be accepted only if the insurance, as increased, will be
within the issue limits of Northwestern Mutual Life, the insureds meet the
insurability requirements and the premium is received prior to the anniversary
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nearest the older insured's 85th birthday. If the Guideline Premium/Cash Value
Corridor Test has been elected, a premium will not be accepted if it would
disqualify the Policy as life insurance for federal income tax purposes. See
"Choice of Tests for Tax Purposes", below and "Tax Considerations", p. 12.
DEATH BENEFIT
DEATH BENEFIT OPTIONS The death benefit is payable on the second death while
the Policy is in force. The Policy provides for three death benefit options:
SPECIFIED AMOUNT (OPTION A) The Specified Amount is selected by the applicant
when the Policy is purchased.
SPECIFIED AMOUNT PLUS POLICY VALUE (OPTION B) The Policy Value is the
cumulative amount invested, adjusted for investment results, reduced by the
charges for insurance and other expenses.
SPECIFIED AMOUNT PLUS PREMIUMS PAID (OPTION C)
The selected death benefit option will be in effect before the Policy
anniversary nearest the 100th birthday of the younger insured, and the death
benefit will be equal to the Policy Value after that date.
Under any of the Options, or on or after the Policy anniversary nearest the
100th birthday of the younger insured, the death benefit will be increased if
necessary to meet the definitional requirements for life insurance for federal
income tax purposes as discussed below.
CHOICE OF TESTS FOR TAX PURPOSES A Policy must satisfy one of two testing
methods to qualify as life insurance for federal income tax purposes. The
purchaser may choose either the Guideline Premium/ Cash Value Corridor Test or
the Cash Value Accumulation Test. Both tests require the Policy to meet minimum
ratios, or multiples, of death benefit to the Policy Value. The minimum multiple
decreases as the age of the insured persons advances. The choice of testing
methods is made when a Policy is purchased and it may not be changed.
For the Guideline Premium/Cash Value Corridor Test the minimum multiples of
death benefit to the Policy Value are shown in the following table. The attained
age of the younger insured is used even if the younger insured is no longer
living.
GUIDELINE PREMIUM/CASH VALUE
CORRIDOR TEST MULTIPLES
YOUNGER INSURED AGE
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ATTAINED POLICY ATTAINED POLICY
AGE VALUE % AGE VALUE %
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40 or under... 250 61............ 128
41............ 243 62............ 126
42............ 236 63............ 124
43............ 229 64............ 122
44............ 222 65............ 120
45............ 215 66............ 119
46............ 209 67............ 118
47............ 203 68............ 117
48............ 197 69............ 116
49............ 191 70............ 115
50............ 185 71............ 113
51............ 178 72............ 111
52............ 171 73............ 109
53............ 164 74............ 107
54............ 157 75-90......... 105
55............ 150 91............ 104
56............ 146 92............ 103
57............ 142 93............ 102
58............ 138 94............ 101
59............ 134 95 or over.... 100
60............ 130
</TABLE>
For the Cash Value Accumulation Test the minimum multiples of death benefit to
the Policy Value are calculated using net single premiums based on the attained
age of both insureds and the Policy's underwriting classification, using a 4%
interest rate.
The Guideline Premium/Cash Value Corridor Test generally has lower minimum
multiples than the Cash Value Accumulation Test, usually resulting in better
cash value accumulation for a given amount of premium. But the Guideline
Premium/Cash Value Corridor Test limits the amount of premium that may be paid
in each Policy year. The Cash Value Accumulation Test has no such annual
limitation, and allows more premium to be paid during the early Policy years.
DEATH BENEFIT CHANGES After a Policy is issued the owner may change the death
benefit option, or increase or decrease the Specified Amount, subject to
approval by Northwestern Mutual Life. Changes are subject to insurability
requirements and issue limits. A change will not be permitted if it results in a
Specified Amount less than the minimum for a new Policy issued on that date.
A change in the death benefit option, or an increase or decrease in the
Specified Amount, will be effective on
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the monthly processing date next following receipt of a written request at the
Home Office of Northwestern Mutual Life.
Administrative charges of up to $250 for a change in the death benefit option,
and up to $25 for each of more than one change in the Specified Amount in a
Policy year, may apply. Any such charges will be deducted from the Policy Value.
Northwestern Mutual Life is currently waiving these charges.
A change in the death benefit option, or an increase or decrease in the
Specified Amount, may have important tax effects. See "Tax Considerations", p.
12. The cost of insurance charge will increase if a change results in a larger
net amount at risk. See "Charges against the Policy Value," below.
ALLOCATIONS TO THE ACCOUNT
The initial net premium is placed in the Account on the Policy date. Net
premiums paid thereafter are placed in the Account on the date received at the
Home Office of Northwestern Mutual Life. Net premiums are premiums less the
deductions from premiums. See "Deductions from Premiums", below.
Premiums placed in the Account prior to the initial allocation date are invested
in the Money Market Division of the Account. The initial allocation date is
identified in the Policy and is the later of the date the application is
approved by Northwestern Mutual Life and the date the initial premium is
received at the Home Office of Northwestern Mutual Life. A different initial
allocation date applies in those states which require a refund of at least the
premium paid during the period when the Policy may be returned. See "Right to
Return Policy," p. 10. On the initial allocation date the amount in the Money
Market Division is invested in the Account divisions as directed in the
application for the Policy. The owner may change the allocation for future net
premiums at any time by written request and the change will be effective for
premiums placed in the Account thereafter. Allocation must be in whole
percentages.
The owner may transfer accumulated amounts from one division of the Account to
another. 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 of up to $25, to cover administrative costs of
transfers, if there are more than twelve transfers in a Policy year.
Northwestern Mutual Life is currently waiving these fees.
DEDUCTIONS AND CHARGES
DEDUCTIONS FROM PREMIUMS A charge for taxes attributable to premiums is
deducted from each premium. The total amount of this deduction is 3.6% of the
premium. Of this amount 2.35% is for state premium taxes. Premium taxes vary
from state to state and currently range from .75% to 3.5% of life insurance
premiums. The 2.35% rate is an average. The tax rate for a particular state may
be lower, higher, or equal to the 2.35% deduction. Northwestern Mutual Life does
not expect to profit from this charge. The remainder of the deduction, 1.25% of
each premium, is for federal income taxes measured by premiums. Northwestern
Mutual Life believes that this charge does not exceed a reasonable estimate of
its federal income taxes attributable to the treatment of deferred acquisition
costs. The charge for taxes may be changed to reflect any changes in the law.
A charge for sales costs is deducted from each premium. The charge is 6.4% of
premiums paid during each of the first ten Policy years up to the Target Premium
and 2.4% of all other premiums. The Target Premium is based on the Specified
Amount and the issue age, sex and risk classification of the insured persons. 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 monthly charge against the Policy
Value for the mortality and expense risks assumed by Northwestern Mutual Life,
as described below.
CHARGES AGAINST THE POLICY VALUE A cost of insurance charge is deducted from
the Policy Value on each monthly processing date. The amount is determined by
multiplying the net amount at risk by the cost of insurance rate. The net amount
at risk is equal to the death benefit currently in effect less the Policy Value.
The cost of insurance rate reflects the policy duration, and the issue age, sex
and risk classification of the insured persons. The maximum cost of insurance
rates are included in the Policy.
A charge for the mortality and expense risks assumed by Northwestern Mutual Life
is also deducted monthly from the Policy Value. This charge includes the
invested assets component and the Specified Amount component. The maximum amount
of the
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invested assets component is equal to an annual rate of .90% (0.075% monthly
rate) of the Policy Value. Currently the charge is equal to an annual rate of
.45% (0.0375% monthly rate) of the Policy Value. The Specified Amount component
is based on the Specified Amount and the issue ages of the insured persons, and
applies during the first 10 Policy years. The range on an annual basis is from
4 CENTS per $1,000 of initial Specified Amount if both insured persons are issue
age 25 or younger, up to $1.72 per $1,000 of initial Specified Amount if both
insured persons are issue age 72 or older. A table of rates and an example are
included in Appendix B, p. 54. 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.
There is a monthly administrative charge of not more than $7.50. Currently this
charge will be $5. This charge is for administrative expenses, including costs
of premium collection, processing claims, keeping records and communicating with
Policyowners. Northwestern Mutual Life does not expect to profit from this
charge.
There is a monthly underwriting and issue charge based on the Specified Amount
and the risk classification of the insureds. This charge applies during the
first 10 Policy years. The range is from 1.5 CENTS to 3.5 CENTS per $1000 of
initial Specified Amount, with a maximum monthly charge of $75 to $175.
A deferred sales charge is deducted monthly. The charge is 7.5% (0.625% monthly
rate) of premiums paid during the first Policy year up to the Target Premium.
During the first Policy year the monthly deduction is based on cumulative
premiums paid to date up to the Target Premium. The charge applies during the
first 10 Policy years. This charge is for sales expenses.
A charge is made for the expenses and taxes associated with the Policy debt, if
any. The aggregate charge is at the current annual rate of 0.90% (0.075% monthly
rate) of the Policy debt for the first ten Policy years and 0.35% (0.029167%
monthly rate) thereafter.
The Policy provides for transaction fees to be deducted from the Policy Value on
the dates on which transactions take place. These charges are $25 for changes in
the Specified Amount, withdrawals or transfers of assets among the divisions of
the Account if more than twelve transfers take place in a Policy year. The fee
for a change in the death benefit option is $250. Currently all of these fees
are being waived.
Deductions from the Policy Value will be apportioned among the divisions of the
Account in proportion to the amounts invested in the divisions.
SURRENDER CHARGE A surrender charge will be deducted from the Policy proceeds
if the Policy is surrendered during the first ten Policy years. During the first
Policy year the surrender charge is equal to 50% of the premiums actually paid
during the first Policy year or the Target Premium, whichever is less. The
Target Premium, and therefore the maximum surrender charge, depends on the issue
age, sex and risk classification of the insured persons. For example, for a male
and female, both in the best risk classification and both issue age 55, the
maximum surrender charge, where the Target Premium or more is paid and the
Policy is surrendered during the first Policy year, would be $9.29 per $1,000 of
initial Specified Amount. The surrender charge will never exceed $50 per $1,000
of initial Specified Amount for any issue age, sex and risk classification
combination. Beginning with the second Policy year the surrender charge
decreases by the same dollar amount month by month to zero at the end of the
tenth Policy year. No surrender charge applies to a withdrawal of cash value.
EXPENSES OF THE FUND The investment performance of each division of the Account
reflects all expenses borne by the corresponding Portfolio of the Fund. See the
attached Fund prospectus for more information about those expenses.
CASH VALUE
The owner of a Policy may surrender it for the cash value at any time during the
lifetime of at least one of the insured persons. The cash value for the Policy
will change daily in response to investment results. No minimum cash value is
guaranteed. The cash value is equal to the Policy Value, reduced by the
surrender charge and reduced by 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
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8
<PAGE>
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.
POLICY LOANS
The owner of a Policy may borrow up to 90% of the Policy Value less the
surrender charge on the date of the loan, using the Policy as security. If a
Policy loan is already outstanding, the maximum amount for any new loan is
reduced by the amount already borrowed.
Interest on a Policy loan accrues and is payable on a daily basis at an annual
effective rate of 5%. Unpaid interest is added to the amount of the loan. If the
amount of the loan plus the surrender charge equals or exceeds the Policy Value
on a monthly processing date, the Policy will enter the grace period. See
"Termination and Reinstatement", below. A notice will be sent to the owner at
least 61 days before the termination date. The notice will show how much must be
paid to keep the Policy in force.
The amount of a Policy loan 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 5% Policy loan
interest rate. A Policy loan, even if it is repaid, will have a permanent effect
on the Policy 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.
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 premium allocation in effect, as of the
same date.
A Policy loan may have important tax consequences. See "Tax Considerations", p.
12.
WITHDRAWALS OF CASH VALUE
The owner may make a withdrawal of cash value. A withdrawal may not reduce the
loan value to less than any Policy debt outstanding. The loan value is 90% of
the Policy Value less the surrender charge. Following a withdrawal the remaining
cash value must be at least three times the current monthly charges for the cost
of insurance and other expenses. The minimum amount for withdrawals is $250. Up
to four withdrawals are permitted in a Policy year. An administrative charge of
up to $25 may apply, but is currently being waived.
A withdrawal of cash value decreases the death benefit by the same amount. If
the death benefit for a Policy has been increased to meet the federal tax
requirements for life insurance, the decrease in the death benefit caused by a
subsequent withdrawal will be larger than the amount of the withdrawal. If
Option A or Option C is in effect a withdrawal of cash value will reduce the
Specified Amount by the amount of the withdrawal. Following a withdrawal the
remaining death benefit must be at least the minimum amount that Northwestern
Mutual Life would currently issue.
The amount withdrawn from cash value will be taken from the Account divisions in
proportion to the amounts in the divisions. The Policy makes no provision for
repayment of amounts withdrawn. A withdrawal of cash value may have important
tax consequences. See "Tax Considerations", p. 12.
TERMINATION AND REINSTATEMENT
If the cash value is less than the monthly charges for the cost of insurance and
other expenses on any monthly processing date, a grace period of 61 days is
allowed for the payment of sufficient premium to keep the Policy in force. The
grace period begins on the date that a notice is sent to the owner. The notice
will state the minimum amount of premium required to keep the Policy in force
and the date by which the premium must be paid. The Policy will terminate with
no value unless the required amount is paid before the grace period expires.
After a Policy has terminated, it may be reinstated within three years. The
insureds must provide satisfactory evidence of insurability. The minimum amount
of premium required for reinstatement will be the monthly charges that were due
when the Policy terminated plus the charges for three more months.
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<PAGE>
Reinstatement of a Policy will be effective on the first monthly processing date
after an application for reinstatement is received at the Home Office of
Northwestern Mutual Life, subject to approval by Northwestern Mutual Life. Any
Policy debt that was outstanding when the Policy terminated will also be
reinstated.
The Policy Value when a Policy is reinstated is equal to the premium paid, after
the deduction for taxes and sales load, plus any Policy debt, less the sum of
all monthly charges for the cost of insurance and other expenses for the grace
period and for the current month. The Policy Value, less any Policy debt, will
be allocated among the Account divisions based on the allocation for premiums
currently in effect.
A Policy may not be reinstated after the Policy has been surrendered for its
cash value or if either of the insured persons has died after the end of the
grace period.
See "Tax Considerations", p. 12, for a discussion of the tax effects associated
with termination and reinstatement of a Policy.
RIGHT TO RETURN POLICY
A Policy may be returned within 10 days (or later where required by state law)
after the Policy is received. In some states the Policy may be returned within
45 days after the application for insurance is signed. 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.
Northwestern Mutual Life will refund the sum of the amounts deducted from the
premium paid plus the Policy Value less any Policy debt on the date the returned
Policy is received. In some states, the amount refunded will not be less than
the premium paid.
OTHER POLICY PROVISIONS
OWNER. The owner is identified in the Policy. The owner may exercise all rights
under the Policy while at least one of the insured persons 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 lifetime of at least one insured for two years from
the date of issue or two years from the effective date of a reinstatement. An
increase in the amount of insurance that was subject to insurability
requirements will not be contested after the increased amount has been in force
during the lifetime of at least one insured for two years from the date of
issuance of the increase.
SUICIDE. If either 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,
less the amount of any Policy debt and withdrawals. If either insured dies by
suicide within one year of the date of issuance of an increase in the amount of
insurance, which was subject to insurability requirements, the amount payable
with respect to the increase will be limited to the amounts charged for the cost
of insurance and other expenses attributable to the increase.
MISSTATEMENT OF AGE OR SEX. If the age or sex of either of the insureds has
been misstated, the charges for cost of insurance and other expenses under a
Policy will be adjusted to reflect the correct age and sex of both insured
persons.
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.
DEFERRAL OF DETERMINATION AND PAYMENT. 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.
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<PAGE>
DIVIDENDS. The Policies will share in divisible surplus to the extent
determined annually by Northwestern Mutual Life. Since the Policies are not
expected to contribute to divisible surplus, it is not expected that any
dividends will be paid.
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 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 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
At least once each Policy year the owner of a Policy will receive a statement
showing the death benefit, cash value, Policy Value and any Policy loan,
including loan interest. This report will show the apportionment of invested
assets among the Account divisions. Owners will also receive annual and
semiannual reports for the Account and the Fund, including financial statements.
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, LLC ("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. NMIS was organized in 1968 and is a
Wisconsin limited liability company. Its address is 720 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202. The Internal Revenue Service Employer Identification
Number of NMIS is 39-0509570.
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<PAGE>
Commissions paid to the agents will not exceed 40% of the premium up to the
Target Premium for the first year, 6% of the premium up to the Target Premium
during Policy years 2-10, and 2.75% of all other premium. Agents also receive
commissions equal to .10% of Policy Value less Policy debt in Policy years 6 and
later.
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 CONSIDERATIONS
GENERAL The following discussion provides a general description of federal
income tax considerations relating to the Policy. The discussion is based on
current provisions of the Internal Revenue Code ("Code") as currently
interpreted by the Internal Revenue Service. This discussion is not intended as
tax advice. The discussion is not exhaustive, it does not address the likelihood
of future changes in federal income tax law or interpretations thereof, and it
does not address state or local tax considerations which may be significant in
the purchase and ownership of a Policy.
LIFE INSURANCE QUALIFICATION Section 7702 of the Code defines life insurance
for federal income tax purposes. The Code provides two alternative tests for
determining whether the death benefit is a sufficient multiple of the Policy
Value. See "Choice of Tests for Tax Purposes", p. 6. The Policy is designed to
comply with these rules. Premiums that would cause a Policy to be disqualified
as life insurance will be returned.
Section 817(h) of the Code authorizes the Secretary of the Treasury to set
standards for diversification of the investments underlying variable life
insurance policies. Final regulations have been issued pursuant to this
authority. Failure to meet the diversification requirements would disqualify the
Policies as life insurance for purposes of Section 7702 of the Code.
Northwestern Mutual Life intends to comply with these requirements.
The Treasury Department, in connection with the diversification requirements,
stated that it expected to issue guidance about circumstances where a
policyowner's control of separate account assets would cause the policyowner,
and not the life insurance company, to be treated as the owner of those assets.
These guidelines have not been issued. If the owner of a Policy were treated as
the owner of the Fund shares held in the Account, the income and gains related
to those shares would be included in the owner's gross income for federal income
tax purposes. Northwestern Mutual Life believes that it owns the assets of the
Account under current federal income tax law.
Northwestern Mutual Life believes that the Policies comply with the provisions
of Sections 7702 and 817(h) of the Code, but the application of these rules is
not entirely clear. Northwestern Mutual Life may make changes in the Policies if
necessary to qualify the Policies as life insurance for tax purposes.
TAX TREATMENT OF LIFE INSURANCE While a Policy is in force, increases in the
Policy Value as a result of investment experience are not subject to federal
income tax until there is a distribution as defined by the Code. The death
benefit received by a beneficiary will not be subject to federal income tax.
Unless the Policy is a modified endowment contract, as described below,
Northwestern Mutual Life believes that a loan received under a Policy will be
construed as indebtedness of the owner and no part of the loan will be treated
as a distribution subject to current federal income tax. Interest paid by owners
of the Policies will ordinarily not be deductible.
As a general rule, the proceeds from a withdrawal of cash value will be taxable
only to the extent that the withdrawal exceeds the basis of the Policy. The
basis of the Policy is generally equal to the premiums paid less any amounts
previously received as tax-free distributions. In certain circumstances, a
withdrawal of cash value during the first 15 Policy years may be taxable to the
extent that the cash value exceeds the basis of the Policy. This means that the
amount withdrawn may be taxable even if that amount is less than the basis of
the Policy. In addition, if a Policy terminates while a Policy loan is
outstanding, the cancellation of the loan and accrued interest will be treated
as a distribution from the Policy and may be taxable under these rules.
Special tax rules may apply when ownership of a Policy is transferred. Qualified
tax advice should be sought when a transfer of ownership is planned.
MODIFIED ENDOWMENT CONTRACTS A Policy will be classified as a modified
endowment contract if the cumulative premium paid during the first seven Policy
years exceeds a defined "seven-pay" limit. The seven-
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pay limit is based on a hypothetical life insurance policy issued on the same
insured person and for the same initial death benefit which, under specified
conditions (which include the absence of expense and administrative charges)
will be fully paid for after seven level annual payments. A Policy will be
treated as a modified endowment contract unless cumulative premiums paid under
the Policy, at all times during the first seven Policy years, are less than or
equal to the cumulative seven-pay premiums which would have been paid under the
hypothetical policy on or before such times.
Whenever there is a "material change" under a Policy, it will generally be
treated as a new contract for purposes of determining whether the Policy is a
modified endowment contract, and subjected to a new seven-pay period and a new
seven-pay limit. The new seven-pay limit would be determined taking into account
the Policy Value of the Policy at the time of such change. A materially changed
Policy would be considered a modified endowment contract if it failed to satisfy
the new seven-pay limit. A material change could occur as a result of a change
in the death benefit option, a change in the Specified Amount, and certain other
changes.
If the benefits are reduced during the lifetime of either insured, for example,
by requesting a decrease in the Specified Amount or, in some cases, by making a
withdrawal of cash value, the seven-pay premium limit will be redetermined based
on the reduced level of benefits and applied retroactively for purposes of the
seven-pay test. If the premiums previously paid are greater than the calculated
seven-pay premium level limit, the Policy will become a modified endowment
contract. A life insurance policy which is received in exchange for a modified
endowment contract will also be considered a modified endowment contract.
If a Policy is a modified endowment contract, any distribution from the Policy
will be taxed on a gain-first basis. Distributions for this purpose include a
loan (including any increase in the loan amount to pay interest on an existing
loan or an assignment or a pledge to secure a loan) or a withdrawal of cash
value. Any such distributions will be considered taxable income to the extent
the cash value exceeds the basis in the Policy. For modified endowment
contracts, the basis would be increased by the amount of any prior loan under
the Policy that was considered taxable income. For purposes of determining the
taxable portion of any distribution, all modified endowment contracts issued by
Northwestern Mutual Life to the same policyowner (excluding certain qualified
plans) during any calendar year are to be aggregated. The Secretary of the
Treasury has authority to prescribe additional rules to prevent avoidance of
gain-first taxation on distributions from modified endowment contracts.
A 10% penalty tax will apply to the taxable portion of a distribution from a
modified endowment contract. The penalty tax will not, however, apply to
distributions (i) to taxpayers 59 1/2 years of age or older, (ii) in the case of
a disability (as defined in the Code) or (iii) received as part of a series of
substantially equal periodic annuity payments for the life (or life expectancy)
of the taxpayers or the joint lives (or joint life expectancies) of the taxpayer
and his beneficiaries. If a Policy is surrendered, the excess, if any, of the
Policy Value over the basis of the Policy will be subject to federal income tax
and, unless one of the above exceptions applies, the 10% penalty tax. The
exceptions generally do not apply to life insurance policies owned by
corporations or other entities. If a Policy terminates while there is a Policy
loan, the cancellation of the loan and accrued loan interest will be treated as
a distribution to the extent not previously treated as such and could be subject
to tax, including the penalty tax, as described under the above rules.
If a Policy becomes a modified endowment contract, distributions that occur
during the Policy year it becomes a modified endowment contract and any
subsequent Policy year will be taxed as described in the two preceding
paragraphs. In addition, distributions from a Policy within two years before it
becomes a modified endowment contract will be subject to tax in this manner.
This means that a distribution made from a Policy that is not a modified
endowment contract could later become taxable as a distribution from a modified
endowment contract. The Secretary of the Treasury has been authorized to
prescribe rules which would treat similarly other distributions made in
anticipation of a policy becoming a modified endowment contract.
ESTATE AND GENERATION SKIPPING TAXES The amount of the death benefit will
generally be includible in the owner's estate for federal estate tax purposes if
the last surviving insured owned the Policy. If the owner is not the last
surviving insured, the fair market value of the Policy is includible in the
owner's estate.
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The federal estate tax and gift tax are integrated under a unified rate schedule
which effectively excludes estates of less than $625,000 from federal estate
taxes. The exclusion will be increased in several steps to $1 million in the
year 2006 under current law. In addition, an unlimited marital deduction permits
deferral of federal estate and gift taxes until the death of the surviving
spouse.
If ownership of the Policy is transferred to a person two or more generations
younger than the owner, the value of the Policy may be taxable. Individuals are
generally allowed an aggregate generation skipping tax exemption of $1 million.
A qualified tax adviser should be consulted if transfer of ownership to
grandchildren is contemplated.
OTHER TAX CONSIDERATIONS The Policy permits the owner to exchange the Policy
for two policies, one on the life of each insured, if a change in the federal
estate tax law results in the repeal of the unlimited marital deduction or a 50%
or greater reduction in the estate tax rate. The Internal Revenue Service has
ruled with respect to one taxpayer that such a transaction would be treated as a
non-taxable exchange. If not, such a split of the Policy could result in the
recognition of taxable income.
Depending on the circumstances, the exchange of a Policy, a change in the death
benefit option, a Policy loan, a withdrawal of cash value, a change in ownership
or an assignment of the Policy may have federal income tax consequences. In
addition, federal, state and local transfer, estate, inheritance, and other tax
consequences of Policy ownership, premium payments and receipt of Policy
proceeds depend on the circumstances of each Policyowner or beneficiary. Any
person contemplating any such transaction should consult a qualified tax
adviser.
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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, as of the date of this
prospectus, are listed below. Unless otherwise indicated, the business address
of each Trustee and senior officer is c/o The Northwestern Mutual Life Insurance
Company, 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202.
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, 111 West Second Street, P.O. Box 310, Jamestown, NY
14702-0310 (diversified metal products manufacturing)
Edward E. Barr (HR).......................... Chairman, Sun Chemical Corporation, 222 Bridge Plaza South, Fort Lee, New
Jersey 07024 (graphic arts) since 1998; prior thereto, President and Chief
Executive Officer. 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, 1025
West Eighth Street, Kansas City, MO 64101 (consumer products manufacturer)
Robert C. Buchanan (A, E, F)................. President and Chief Executive Officer, Fox Valley Corporation, 100 West
Lawrence Street, P.O. Box 727, Appleton, WI 54911 (manufacturer of gift wrap
and writing paper)
Robert E. Carlson (E)........................ Executive Vice President of Northwestern Mutual Life
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------------------------------- ------------------------------------------------------------------------------
<S> <C>
George A. Dickerman (AM)..................... Chairman of the Board, Spalding Sports Worldwide, 425 Meadow Street, P.O. Box
901, Chicopee, MA 01021-0901 (manufacturer of sporting equipment) since 1998;
prior thereto, President
Pierre S. du Pont (AM)....................... Attorney, Richards, Layton and Finger, P.O. Box 551, 1 Rodney Square,
Wilmington, DE 19899
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, 460 St. Michaels Drive,
Building 300, Santa Fe, NM 87505
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.
Address: 805 Lone Tree Road, Elm Grove, WI 53122-2014
Patricia Albjerg Graham (HR)................. Professor, Graduate School of Education, Harvard University, 420 Gutman,
Cambridge, MA 02138. President, The Spencer Foundation (social and behavioral
sciences)
Stephen F. Keller (HR)....................... Attorney. Former Chairman, Santa Anita Realty Enterprises since 1997; prior
thereto, Chairman. Address: 101 South Las Palmas Avenue, Los Angeles, CA 90004
Barbara A. King (AM)......................... President, Landscape Structures, Inc., Rt 3, 601 - 7th Street South, Delano,
MN 55328 (manufacturer of playground equipment)
J. Thomas Lewis (HR)......................... Attorney (retired), 228 St. Charles Avenue, Suite 1024, New Orleans, LA 70130,
since 1998; prior thereto, Attorney, Monroe & Lemann, New Orleans, LA
Daniel F. McKeithan, Jr. (E, F, HR).......... President, Tamarack Petroleum Company, Inc., 777 East Wisconsin Avenue,
Milwaukee, WI 53202 (operator of oil and gas wells); President, Active
Investor Management, Inc., Milwaukee, WI
Guy A. Osborn (E, F, OT)..................... Retired Chairman of Universal Foods Corporation, 433 East Michigan Street,
Milwaukee, WI 53202 since 1997; prior thereto, Chairman and Chief Executive
Officer
Timothy D. Proctor (A)....................... Director, Worldwide Human Resources of Glaxo Wellcome plc, P.O. Box 13398, 5
Moore Drive, Research Triangle Park, NC 27709, since 1998. Senior Vice
President Human Resources, General Counsel & Secretary from 1994 to 1998
(pharmaceuticals)
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
H. Mason Sizemore, Jr. (AM).................. President and Chief Operating Officer, The Seattle Times, Fairview Avenue
North and John Street, P.O. Box 70, Seattle, WA 98109 (publishing)
Harold B. Smith (OT)......................... Chairman, Executive Committee, Illinois Tool Works, Inc., 3600 West Lake
Avenue, Glenview, IL 60025-5811 (engineered components and industrial systems
and consumables)
Sherwood H. Smith, Jr. (AM).................. Chairman of the Board of Carolina Power & Light, 411 Fayetteville Street Mall,
P.O. Box 1551, Raleigh, NC 27602, since 1997; prior thereto, Chairman of the
Board and Chief Executive Officer
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------------------------------- ------------------------------------------------------------------------------
<S> <C>
John E. Steuri (OT).......................... Chairman, Advanced Thermal Technologies, 2102 Riverfront Drive, Suite 120,
Little Rock, AR 72202-1747 since 1997 (heating, air-conditioning and humidity
control). Retired since 1996 as Chairman and Chief Executive Officer of ALLTEL
Information Services, Inc., Little Rock, AR (application software)
John J. Stollenwerk (AM, E, F)............... President and Chief Executive Officer, Allen-Edmonds Shoe Corporation, 201
East Seven Hills Road, P.O. Box 998, Port Washington, WI 53074-0998
Barry L. Williams (HR)....................... President and Chief Executive Officer of Williams Pacific Ventures, Inc., 100
First Street, Suite 2350, San Francisco, CA 94105-2634 (venture
capital)
Kathryn D. Wriston (A)....................... Director of various corporations. Address: c/o Shearman & Sterling, 599
Lexington Avenue, Room 1126, New York, NY 10022
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>
John M. Bremer Executive Vice President, General
Counsel and Secretary
Peter W. Bruce Executive Vice President
Edward J. Zore Executive Vice President
Deborah A. Beck Senior Vice President
William H. Beckley Senior Vice President
Mark G. Doll Senior Vice President
Richard L. Hall Senior Vice President
William C. Koenig Senior Vice President and Chief
Actuary
Donald L. Mellish Senior Vice President
Mason G. Ross Senior Vice President
Leonard F. Stecklein 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
--
16
<PAGE>
and compliance with insurance laws. Northwestern Mutual Life is also subject to
the insurance laws and regulations of the other jurisdictions in which it is
licensed to operate.
YEAR 2000 ISSUES
Since early 1996 Northwestern Mutual Life has been preparing for the computer
requirements associated with the approaching turn of the century. Assessment of
internal systems was completed in 1996. As of the date of this prospectus the
necessary system changes are substantially complete. System testing is in
process and testing of all critical systems is expected to be completed during
the first six months of 1999.
The work on these computer systems extends to software packages purchased from
vendors. In addition, Northwestern Mutual Life has begun communicating formally
with business partners to identify and assess potential exposure that could
result from their failure to address these computer issues on a timely basis.
The costs of identifying and resolving the computer systems issues associated
with the year 2000 are borne entirely by Northwestern Mutual Life and its
business partners. These costs will have no effect on the performance of the
Account. The Policies permit charges for administrative expenses to be increased
up to the guaranteed maximum rates. However, Northwestern Mutual Life does not
expect its costs for year 2000 compliance to have any significant effect on the
benefits or values provided by the Policies.
Northwestern Mutual Life believes that its computer systems will be ready for
the year 2000 well in advance of the deadline. By their nature, however, the
issues in this area carry the risk of unforeseen problems, both at Northwestern
Mutual Life and at all the other sites where supporting functions and
interaction take place. There can be no assurance that these problems will not
have a material adverse impact on the operations of Northwestern Mutual Life and
the Account.
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, 1997 and
1996 and for each of the three years in the period ended December 31, 1997 and
of the Account as of December 31, 1997 and for each of the two years in the
period ended December 31, 1997 included in this prospectus have been so included
in reliance on the reports of PricewaterhouseCoopers 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.
--
17
<PAGE>
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
<TABLE>
<S> <C> <C>
ASSETS
Investments at Market Value:
Northwestern Mutual Series Fund, Inc.
Aggressive Growth Stock
31,156 shares (cost $92,710)............... $ 86,739
International Equity
43,007 shares (cost $67,076)............... 63,392
Growth Stock
25,930 shares (cost $42,237)............... 48,022
Growth and Income Stock
8,745 shares (cost $53,116)................ 52,074
Index 500 Stock
53,732 shares (cost $112,518).............. 145,505
Balanced
69,821 shares (cost $105,146).............. 138,384
High Yield Bond
12,312 shares (cost $13,690)............... 12,349
Select Bond
9,943 shares (cost $11,870)................ 12,090
Money Market
31,467 shares (cost $31,467)............... 31,467 $ 590,022
---------
Due from Sale of Fund Shares.................................. 269
Due from Northwestern Mutual Life Insurance Company........... 625
---------
Total Assets.................................................. $ 590,916
---------
---------
LIABILITIES
Due to Northwestern Mutual Life Insurance Company........... $ 625
Due on Purchase of Fund Shares.............................. 269
---------
Total Liabilities....................................... 894
---------
EQUITY (NOTE 8)
Variable Life Policies Issued Before October 11, 1995....... $ 332,413
Variable Complife Policies Issued On or After October 11,
1995....................................................... 257,377
Variable Executive Life Policies Issued On or After March 2,
1998....................................................... 232
---------
Total Equity............................................ 590,022
---------
Total Liabilities and Equity............................ $ 590,916
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
(Prepared from Unaudited Figures)
--
18
<PAGE>
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH
COMBINED STOCK DIVISION INTERNATIONAL EQUITY DIVISION
----------------------------- ----------------------------- -----------------------------
NINE MONTHS NINE MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1998 1997 1998 1997 1998 1997
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............. $ 22,134 $ 24,262 $ 3,287 $3,345 $ 3,591 $ 1,286
Mortality and Expense
Risks..................... 1,976 1,788 310 271 226 197
Taxes....................... 846 767 133 116 96 85
------------- ------------- ------------- ------------- ------------- -------------
Net Investment Income....... 19,312 21,707 2,844 2,958 3,269 1,004
------------- ------------- ------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized Gain on
Investments............... 3,204 4,871 425 231 234 203
Unrealized Appreciation
(Depreciation) of
Investments During the
Period.................... (33,480) 42,532 (17,868) 5,109 (10,361) 2,358
------------- ------------- ------------- ------------- ------------- -------------
Net Gain (Loss) on
Investments............... (30,276) 47,403 (17,443) 5,340 (10,127) 2,561
------------- ------------- ------------- ------------- ------------- -------------
Increase (Decrease) in
Equity Derived from
Investment Activity....... (10,964) 69,110 (14,599) 8,298 (6,858) 3,565
------------- ------------- ------------- ------------- ------------- -------------
EQUITY TRANSACTIONS
Policyowners' Net
Payments.................. 181,526 170,672 20,898 21,502 14,783 12,656
Policy Loans, Surrenders,
and Death Benefits........ (26,413) (23,728) (4,846) (4,003) (3,209) (2,787)
Mortality and Other (net)... (28,325) (28,427) (3,696) (3,791) (2,782) (2,368)
Transfers from Other
Divisions................. 95,818 86,366 14,898 19,008 11,685 14,866
Transfers from Other
Divisions................. (95,818) (86,366) (4,562) (4,091) (3,344) (2,149)
------------- ------------- ------------- ------------- ------------- -------------
Increase in Equity Derived
from Equity Transactions.... 126,788 118,517 22,692 28,625 17,133 20,218
------------- ------------- ------------- ------------- ------------- -------------
Net Increase in Equity........ 115,824 187,627 8,093 36,923 10,275 23,783
EQUITY
Beginning of Period......... 474,198 286,571 78,647 41,724 53,116 29,333
------------- ------------- ------------- ------------- ------------- -------------
End of Period............... $590,022 $474,198 $86,740 $78,647 $63,391 $53,116
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
(Prepared from Unaudited Figures)
---
19
<PAGE>
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
GROWTH & INCOME INDEX 500
GROWTH STOCK DIVISION STOCK DIVISION STOCK DIVISION
----------------------------- ----------------------------- -----------------------------
NINE MONTHS NINE MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1998 1997 1998 1997 1998 1997
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............. $ 555 $ 1,413 $ 74 $ 7,776 $ 4,530 $ 2,579
Mortality and Expense
Risks..................... 148 105 163 120 472 395
Taxes....................... 63 45 69 52 202 169
------------- ------------- ------------- ------------- ------------- -------------
Net Investment Income....... 344 1,263 (158) 7,604 3,856 2,015
------------- ------------- ------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized Gain on
Investments............... 101 172 183 173 726 2,375
Unrealized Appreciation
(Depreciation) of
Investments During the
Period.................... (439) 4,151 (914) (1,823) (354) 17,772
------------- ------------- ------------- ------------- ------------- -------------
Net Gain (Loss) on
Investments............... (338) 4,323 (731) (1,650) 372 20,147
------------- ------------- ------------- ------------- ------------- -------------
Increase (Decrease) in
Equity Derived from
Investment Activity....... 6 5,586 (889) 5,954 4,228 22,162
------------- ------------- ------------- ------------- ------------- -------------
EQUITY TRANSACTIONS
Policyowners' Net
Payments.................. 8,944 7,334 9,868 7,537 20,336 19,733
Policy Loans, Surrenders,
and Death Benefits........ (2,084) (1,314) (2,050) (1,842) (6,142) (5,039)
Mortality and Other (net)... (1,724) (1,329) (1,870) (1,457) (3,802) (4,127)
Transfers from Other
Divisions................. 11,975 8,851 12,969 10,673 26,516 20,024
Transfers from Other
Divisions................. (1,330) (1,341) (2,343) (1,104) (3,330) (3,783)
------------- ------------- ------------- ------------- ------------- -------------
Increase in Equity Derived
from Equity Transactions.... 15,781 12,201 16,574 13,807 33,578 26,808
------------- ------------- ------------- ------------- ------------- -------------
Net Increase in Equity........ 15,787 17,787 15,685 19,761 37,806 48,970
EQUITY
Beginning of Period......... 32,233 14,446 36,389 16,628 107,699 58,729
------------- ------------- ------------- ------------- ------------- -------------
End of Period............... $48,020 $32,233 $52,074 $36,389 $145,505 $107,699
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
(Prepared from Unaudited Figures)
---
20
<PAGE>
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCED DIVISION HIGH YIELD BOND DIVISION SELECT BOND DIVISION
----------------------------- ----------------------------- -----------------------------
NINE MONTHS NINE MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1998 1997 1998 1997 1998 1997
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............. $ 8,344 $ 5,105 $ -- $ 1,370 $ 743 $ 436
Mortality and Expense
Risks..................... 500 558 38 29 37 35
Taxes....................... 215 239 16 12 16 15
------------- ------------- ------------- ------------- ------------- -------------
Net Investment Income....... 7,629 4,308 (54) 1,329 690 386
------------- ------------- ------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized Gain on
Investments............... 1,463 1,655 45 26 27 36
Unrealized Appreciation
(Depreciation) of
Investments During the
Period.................... (2,337) 15,262 (881) (531) (326) 234
------------- ------------- ------------- ------------- ------------- -------------
Net Gain (Loss) on
Investments............... (874) 16,917 (836) (505) (299) 270
------------- ------------- ------------- ------------- ------------- -------------
Increase (Decrease) in
Equity Derived from
Investment Activity....... 6,755 21,225 (890) 824 391 656
------------- ------------- ------------- ------------- ------------- -------------
EQUITY TRANSACTIONS
Policyowners' Net
Payments.................. 12,657 15,394 2,317 1,922 1,326 1,820
Policy Loans, Surrenders,
and Death Benefits........ (6,097) (7,260) (514) (349) (432) (311)
Mortality and Other (net)... (2,276) (3,395) (443) (339) (128) (560)
Transfers from Other
Divisions................. 5,447 4,266 4,097 3,276 2,977 2,000
Transfers from Other
Divisions................. (4,424) (4,734) (1,019) (425) (1,135) (756)
------------- ------------- ------------- ------------- ------------- -------------
Increase in Equity Derived
from Equity Transactions.... 5,307 4,271 4,438 4,085 2,608 2,193
------------- ------------- ------------- ------------- ------------- -------------
Net Increase in Equity........ 12,062 25,496 3,548 4,909 2,999 2,849
EQUITY
Beginning of Period......... 126,322 100,826 8,801 3,892 9,092 6,243
------------- ------------- ------------- ------------- ------------- -------------
End of Period............... $138,384 $126,322 $ 12,349 $ 8,801 $ 12,091 $ 9,092
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
<CAPTION>
MONEY MARKET DIVISION
-----------------------------
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
INVESTMENT INCOME
Dividend Income............. $ 1,009 $ 952
Mortality and Expense
Risks..................... 82 78
Taxes....................... 35 34
------------- -------------
Net Investment Income....... 892 840
------------- -------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized Gain on
Investments............... -- --
Unrealized Appreciation
(Depreciation) of
Investments During the
Period.................... -- --
------------- -------------
Net Gain (Loss) on
Investments............... -- --
------------- -------------
Increase (Decrease) in
Equity Derived from
Investment Activity....... 892 840
------------- -------------
EQUITY TRANSACTIONS
Policyowners' Net
Payments.................. 90,396 82,774
Policy Loans, Surrenders,
and Death Benefits........ (1,039) (823)
Mortality and Other (net)... (11,604) (11,061)
Transfers from Other
Divisions................. 5,253 3,402
Transfers from Other
Divisions................. (74,329) (67,983)
------------- -------------
Increase in Equity Derived
from Equity Transactions.... 8,677 6,309
------------- -------------
Net Increase in Equity........ 9,569 7,149
EQUITY
Beginning of Period......... 21,899 14,750
------------- -------------
End of Period............... $ 31,468 $ 21,899
------------- -------------
------------- -------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
(Prepared from Unaudited Figures)
---
21
<PAGE>
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
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") 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 Fund 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 nine months ended September 30, 1998 by each
Division are shown below:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Aggressive Growth Division.......... $ 26,513,670 $ 977,259
International Equity Division....... 21,073,260 751,733
Growth Stock Division............... 16,326,141 199,312
Growth & Income Stock
Division............................ 17,032,508 600,992
Index 500 Stock Division............ 42,311,692 1,322,673
Balanced Division................... 16,873,034 3,936,009
High Yield Bond Division............ 4,835,061 451,938
Select Bond Division................ 4,212,106 926,482
Money Market Division............... 33,125,890 23,562,807
</TABLE>
NOTE 5 -- A deduction for mortality and expense risks is determined daily and
paid to Northwestern Mutual. Generally, for policies issued before October 11,
1995, and Variable CompLife 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 insured 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
accounts 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 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 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. Policies
provide that a charge for taxes may be made against the assets of the Account.
Generally, for Variable Life policies issued before October 11, 1995,
Northwestern Mutual 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 change for taxes in the future. Generally, for Variable CompLife 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 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
paid their premiums. Northwestern Mutual's equity represents any unpaid portion
of net annual premiums.
--
22
<PAGE>
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
SEPTEMBER 30, 1998
NOTE 8 -- Equity Values by Division are shown below:
<TABLE>
<CAPTION>
VARIABLE LIFE
POLICIES ISSUED BEFORE
OCTOBER 11, 1995
EQUITY OF:
------------------------ TOTAL
POLICYOWNERS NML EQUITY
------------- --------- ---------
<S> <C> <C> <C>
Aggressive Growth Stock Division......................................................... $ 32,267 $ 3,771 $ 36,038
International Equity Division............................................................ 27,564 3,111 30,675
Growth Stock Division.................................................................... 17,772 1,409 19,181
Growth and Income Stock Division......................................................... 20,873 1,779 22,652
Index 500 Stock Division................................................................. 76,658 4,779 81,437
Balanced Division........................................................................ 119,131 4,993 124,124
High Yield Bond Division................................................................. 4,586 408 4,994
Select Bond Division..................................................................... 6,693 407 7,100
Money Market Division.................................................................... 5,889 323 6,212
------------- --------- ---------
$ 311,433 $ 20,980 $ 332,413
------------- --------- ---------
------------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
VARIABLE COMPLIFE
POLICIES ISSUED ON OR
AFTER OCTOBER 11, 1995
EQUITY OF:
------------------------ TOTAL
POLICYOWNERS NML EQUITY
------------- --------- ---------
<S> <C> <C> <C>
Aggressive Growth Stock Division......................................................... $ 34,803 $ 15,844 $ 50,647
International Equity Division............................................................ 21,936 10,773 32,709
Growth Stock Division.................................................................... 19,471 9,352 28,823
Growth and Income Stock Division......................................................... 19,343 10,040 29,383
Index 500 Stock Division................................................................. 42,648 21,353 64,001
Balanced Division........................................................................ 10,224 4,018 14,242
High Yield Bond Division................................................................. 4,930 2,415 7,345
Select Bond Division..................................................................... 3,962 1,021 4,983
Money Market Division.................................................................... 8,979 16,265 25,244
------------- --------- ---------
$ 166,296 $ 91,081 $ 257,377
------------- --------- ---------
------------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
VARIABLE EXECUTIVE LIFE
POLICIES ISSUED ON OR
AFTER MARCH 2, 1998
EQUITY OF:
------------------------ TOTAL
POLICYOWNERS NML EQUITY
------------- --------- ---------
<S> <C> <C> <C>
Aggressive Growth Stock Division......................................................... $ 55 $ 0 $ 55
International Equity Division............................................................ 7 0 7
Growth Stock Division.................................................................... 18 0 18
Growth and Income Stock Division......................................................... 39 0 39
Index 500 Stock Division................................................................. 67 0 67
Balanced Division........................................................................ 17 0 17
High Yield Bond Division................................................................. 10 0 10
Select Bond Division..................................................................... 8 0 8
Money Market Division.................................................................... 11 0 11
------------- --------- ---------
$ 232 $ 0 $ 232
------------- --------- ---------
------------- --------- ---------
</TABLE>
--
23
<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, 1997, 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, 1997 with
Northwestern Mutual Series Fund, Inc., provide a reasonable basis for the
opinion expressed above.
[SIGNATURE]
Milwaukee, Wisconsin
January 27, 1998
--
24
<PAGE>
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
FINANCIAL STATEMENTS
DECEMBER 31, 1997
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
<TABLE>
<S> <C> <C>
ASSETS
Investments at Market Value:
Northwestern Mutual Series Fund, Inc.
Aggressive Growth Stock
23,568 shares (cost $66,748)............... $ 78,645
International Equity
31,449 shares (cost $46,440)............... 53,117
Growth Stock
17,809 shares (cost $26,009)............... 32,234
Growth and Income Stock
27,339 shares (cost $36,512)............... 36,389
Index 500 Stock
40,734 shares (cost $74,358)............... 107,700
Balanced
63,446 shares (cost $90,745)............... 126,320
High Yield Bond
8,280 shares (cost $9,262)................. 8,802
Select Bond
7,233 shares (cost $8,546)................. 9,092
Money Market
21,899 shares (cost $21,899)............... 21,899 $ 474,198
---------
Due from Sale of Fund Shares.................................. 978
Due from Northwestern Mutual Life Insurance Company........... 382
---------
Total Assets............................................ $ 475,558
---------
---------
LIABILITIES
Due to Northwestern Mutual Life Insurance Company........... $ 978
Due on Purchase of Fund Shares.............................. 382
---------
Total Liabilities....................................... 1,360
---------
EQUITY (NOTE 8)
Policies Issued Before October 11, 1995..................... 315,462
Policies Issued On or After October 11, 1995................ 158,736
---------
Total Equity............................................ 474,198
---------
Total Liabilities and Equity............................ $ 475,558
---------
---------
</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>
AGGRESSIVE GROWTH
COMBINED STOCK DIVISION INTERNATIONAL EQUITY 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,
1997 1996 1997 1996 1997 1996
-------------- -------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............. $ 24,262 $ 11,085 $ 3,345 $ 892 $ 1,286 $ 924
Mortality and Expense
Risks..................... 1,788 1,102 271 139 197 100
Taxes....................... 767 461 116 57 85 42
-------------- -------------- ------------- ------------- ------------- -------------
Net Investment Income....... 21,707 9,522 2,958 696 1,004 782
-------------- -------------- ------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized Gain on
Investments............... 4,871 2,405 231 301 203 49
Unrealized Appreciation
(Depreciation) of
Investments During the
Period.................... 42,532 21,398 5,109 2,690 2,358 3,197
-------------- -------------- ------------- ------------- ------------- -------------
Net Gain (Loss) on
Investments............... 47,403 23,803 5,340 2,991 2,561 3,246
-------------- -------------- ------------- ------------- ------------- -------------
Increase in Equity Derived
from Investment
Activity.................. 69,110 33,325 8,298 3,687 3,565 4,028
-------------- -------------- ------------- ------------- ------------- -------------
EQUITY TRANSACTIONS
Policyowners' Net
Payments.................. 170,672 101,055 21,502 11,065 12,656 8,006
Policy Loans, Surrenders,
and Death Benefits........ (23,728) (16,316) (4,003) (2,117) (2,787) (1,566)
Mortality and Other (net)... (28,427) (16,382) (3,791) (1,943) (2,368) (1,529)
Transfers from Other
Divisions................. 86,366 45,652 19,008 14,807 14,866 6,728
Transfers to Other
Divisions................. (86,366) (45,652) (4,091) (1,660) (2,149) (827)
-------------- -------------- ------------- ------------- ------------- -------------
Increase in Equity Derived
from Equity Transactions.... 118,517 68,357 28,625 20,152 20,218 10,812
-------------- -------------- ------------- ------------- ------------- -------------
Net Increase in Equity........ 187,627 101,682 36,923 23,839 23,783 14,840
EQUITY
Beginning of Period......... 286,571 184,889 41,724 17,885 29,333 14,493
-------------- -------------- ------------- ------------- ------------- -------------
End of Period............... $ 474,198 $ 286,571 $ 78,647 $ 41,724 $ 53,116 $ 29,333
-------------- -------------- ------------- ------------- ------------- -------------
-------------- -------------- ------------- ------------- ------------- -------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
26
<PAGE>
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
GROWTH & INCOME INDEX 500
GROWTH STOCK DIVISION 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,
1997 1996 1997 1996 1997 1996
------------- ------------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............. $ 1,413 $ 564 $ 7,776 $ 1,458 $ 2,579 $ 1,153
Mortality and Expense
Risks..................... 105 46 120 58 395 221
Taxes....................... 45 19 52 24 169 93
------------- ------------- -------------- -------------- --------------- --------------
Net Investment Income....... 1,263 499 7,604 1,376 2,015 839
------------- ------------- -------------- -------------- --------------- --------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized Gain on
Investments............... 172 88 173 117 2,375 359
Unrealized Appreciation
(Depreciation) of
Investments During the
Period.................... 4,151 1,191 (1,823) 728 17,772 8,074
------------- ------------- -------------- -------------- --------------- --------------
Net Gain (Loss) on
Investments............... 4,323 1,279 (1,650) 845 20,147 8,433
------------- ------------- -------------- -------------- --------------- --------------
Increase in Equity Derived
from Investment
Activity.................. 5,586 1,778 5,954 2,221 22,162 9,272
------------- ------------- -------------- -------------- --------------- --------------
EQUITY TRANSACTIONS
Policyowners' Net
Payments.................. 7,334 3,397 7,537 4,523 19,733 12,626
Policy Loans, Surrenders,
and Death Benefits........ (1,314) (436) (1,842) (692) (5,039) (3,465)
Mortality and Other (net)... (1,329) (665) (1,457) (867) (4,127) (2,351)
Transfers from Other
Divisions................. 8,851 4,758 10,673 3,950 20,024 8,372
Transfers to Other
Divisions................. (1,341) (447) (1,104) (974) (3,783) (2,211)
------------- ------------- -------------- -------------- --------------- --------------
Increase in Equity Derived
from Equity Transactions.... 12,201 6,607 13,807 5,940 26,808 12,971
------------- ------------- -------------- -------------- --------------- --------------
Net Increase in Equity........ 17,787 8,385 19,761 8,161 48,970 22,243
EQUITY
Beginning of Period......... 14,446 6,061 16,628 8,467 58,729 36,486
------------- ------------- -------------- -------------- --------------- --------------
End of Period............... $ 32,233 $ 14,446 $ 36,389 $ 16,628 $ 107,699 $ 58,729
------------- ------------- -------------- -------------- --------------- --------------
------------- ------------- -------------- -------------- --------------- --------------
<CAPTION>
BALANCED DIVISION
-------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
-------------- --------------
<S> <C> <C>
INVESTMENT INCOME
Dividend Income............. $ 5,105 $ 5,010
Mortality and Expense
Risks..................... 558 452
Taxes....................... 239 193
-------------- --------------
Net Investment Income....... 4,308 4,365
-------------- --------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized Gain on
Investments............... 1,655 1,462
Unrealized Appreciation
(Depreciation) of
Investments During the
Period.................... 15,262 5,413
-------------- --------------
Net Gain (Loss) on
Investments............... 16,917 6,875
-------------- --------------
Increase in Equity Derived
from Investment
Activity.................. 21,225 11,240
-------------- --------------
EQUITY TRANSACTIONS
Policyowners' Net
Payments.................. 15,394 15,417
Policy Loans, Surrenders,
and Death Benefits........ (7,260) (7,030)
Mortality and Other (net)... (3,395) (3,034)
Transfers from Other
Divisions................. 4,266 2,467
Transfers to Other
Divisions................. (4,734) (5,909)
-------------- --------------
Increase in Equity Derived
from Equity Transactions.... 4,271 1,911
-------------- --------------
Net Increase in Equity........ 25,496 13,151
EQUITY
Beginning of Period......... 100,826 87,675
-------------- --------------
End of Period............... $126,322 $100,826
-------------- --------------
-------------- --------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
27
<PAGE>
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
HIGH YIELD BOND
DIVISION SELECT BOND DIVISION MONEY MARKET DIVISION
----------------------- ----------------------- -------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
31, 31, 31, 31, 31, 31,
1997 1996 1997 1996 1997 1996
---------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............. $1,370 $ 400 $ 436 $ 176 $ 952 $ 508
Mortality and Expense
Risks..................... 29 13 35 26 78 47
Taxes....................... 12 5 15 11 34 17
---------- ---------- ---------- ---------- ----------- -----------
Net Investment Income....... 1,329 382 386 139 840 444
---------- ---------- ---------- ---------- ----------- -----------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized Gain on
Investments............... 26 21 36 8 -- --
Unrealized Appreciation
(Depreciation) of
Investments During the
Period.................... (531) 83 234 22 -- --
---------- ---------- ---------- ---------- ----------- -----------
Net Gain (Loss) on
Investments............... (505) 104 270 30 0 0
---------- ---------- ---------- ---------- ----------- -----------
Increase in Equity Derived
from Investment
Activity.................. 824 486 656 169 840 444
---------- ---------- ---------- ---------- ----------- -----------
EQUITY TRANSACTIONS
Policyowners' Net
Payments.................. 1,922 1,101 1,820 1,356 82,774 43,564
Policy Loans, Surrenders,
and Death Benefits........ (349) (243) (311) (191) (823) (576)
Mortality and Other (net)... (339) (193) (560) (248) (11,061) (5,552)
Transfers from Other
Divisions................. 3,276 1,043 2,000 954 3,402 2,573
Transfers to Other
Divisions................. (425) (449) (756) (553) (67,983) (32,622)
---------- ---------- ---------- ---------- ----------- -----------
Increase in Equity Derived
from Equity Transactions.... 4,085 1,259 2,193 1,318 6,309 7,387
---------- ---------- ---------- ---------- ----------- -----------
Net Increase in Equity........ 4,909 1,745 2,849 1,487 7,149 7,831
EQUITY
Beginning of Period......... 3,892 2,147 6,243 4,756 14,750 6,919
---------- ---------- ---------- ---------- ----------- -----------
End of Period............... $8,801 $3,892 $9,092 $6,243 $21,899 $14,750
---------- ---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ---------- ----------- -----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
28
<PAGE>
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 Fund 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, 1997 by each Division
are shown below:
<TABLE>
<CAPTION>
PURCHASES SALES
--------------- ---------------
<S> <C> <C>
Aggressive Growth Division...... $ 32,148,589 $ 564,378
International Equity Division... 22,025,927 803,101
Growth Stock Division........... 13,899,147 435,326
Growth & Income Stock
Division........................ 21,933,009 522,627
Index 500 Stock Division........ 33,585,092 4,761,393
Balanced Division............... 13,206,373 4,627,540
High Yield Bond Division........ 5,627,863 213,319
Select Bond Division............ 3,269,526 691,055
Money Market Division........... 31,100,613 23,952,747
</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
accounts 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
paid their premiums. Northwestern Mutual Life's equity represents any unpaid
portion of net annual premiums.
--
29
<PAGE>
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 8 -- Equity Values by Division are shown below:
<TABLE>
<CAPTION>
POLICIES ISSUED BEFORE
OCTOBER 11, 1995
EQUITY OF:
------------------------ TOTAL
POLICYOWNERS NML EQUITY
------------- --------- ----------
<S> <C> <C> <C>
Aggressive Growth Stock Division....................................................... $ 35,423 $ 4,027 $ 39,450
International Equity Division.......................................................... 28,405 3,253 31,658
Growth Stock Division.................................................................. 14,641 1,420 16,061
Growth and Income Stock Division....................................................... 19,349 1,808 21,157
Index 500 Stock Division............................................................... 67,754 4,993 72,747
Balanced Division...................................................................... 113,340 5,378 118,718
High Yield Bond Division............................................................... 4,331 427 4,758
Select Bond Division................................................................... 5,969 449 6,418
Money Market Division.................................................................. 4,274 221 4,495
------------- --------- ----------
$ 293,486 $ 21,976 $ 315,462
------------- --------- ----------
------------- --------- ----------
</TABLE>
<TABLE>
<CAPTION>
POLICIES ISSUED ON OR
AFTER OCTOBER 11, 1995
EQUITY OF:
------------------------ TOTAL
POLICYOWNERS NML EQUITY
------------- --------- ----------
<S> <C> <C> <C>
Aggressive Growth Stock Division....................................................... $ 26,389 $ 12,807 $ 39,196
International Equity Division.......................................................... 14,079 7,381 21,460
Growth Stock Division.................................................................. 10,886 5,287 16,173
Growth and Income Stock Division....................................................... 9,982 5,249 15,231
Index 500 Stock Division............................................................... 23,177 11,775 34,952
Balanced Division...................................................................... 5,155 2,448 7,603
High Yield Bond Division............................................................... 2,798 1,245 4,043
Select Bond Division................................................................... 2,034 640 2,674
Money Market Division.................................................................. 5,841 11,563 17,404
------------- --------- ----------
$ 100,341 $ 58,395 $ 158,736
------------- --------- ----------
------------- --------- ----------
</TABLE>
--
30
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(IN MILLIONS)
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.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Bonds......................................... $ 32,359 $ 29,076
Common and preferred stocks................... 6,524 4,728
Mortgage loans................................ 10,835 9,564
Real estate................................... 1,372 1,385
Policy loans.................................. 7,163 6,802
Other investments............................. 2,026 1,714
Cash and temporary investments................ 572 1,131
Due and accrued investment income............. 795 764
Other assets.................................. 1,275 1,177
Separate account assets....................... 8,160 6,339
--------- ---------
Total assets.............................. $ 71,081 $ 62,680
--------- ---------
--------- ---------
LIABILITIES AND GENERAL CONTINGENCY RESERVE
Reserves for policy benefits.................. $ 47,343 $ 43,209
Policy benefit and premium deposits........... 1,624 1,567
Policyowner dividends payable................. 2,640 2,350
Interest maintenance reserve.................. 461 299
Asset valuation reserve....................... 1,974 1,538
Income taxes payable.......................... 1,043 942
Other liabilities............................. 3,735 2,921
Separate account liabilities.................. 8,160 6,339
--------- ---------
Total liabilities......................... 66,980 59,165
General contingency reserve................... 4,101 3,515
--------- ---------
Total liabilities and general contingency
reserve.................................. $ 71,081 $ 62,680
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements
--
31
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
REVENUE
Premiums...................................... $ 7,294 $ 6,667 $ 6,196
Net investment income......................... 4,171 3,836 3,673
Policy benefits left with Company and other
income....................................... 861 759 733
--------- --------- ---------
Total revenue............................. 12,326 11,262 10,602
--------- --------- ---------
BENEFITS AND EXPENSES
Benefit payments to policyowners and
beneficiaries:
Death benefits.............................. 775 673 655
Surrender benefits.......................... 1,422 1,182 1,375
Disability benefits......................... 227 202 174
Annuity benefits............................ 140 128 92
Matured endowments.......................... 58 52 48
Payments from policy benefits left with
Company.................................... 707 684 590
--------- --------- ---------
Benefits paid............................. 3,329 2,921 2,934
Net transfers to separate accounts............ 566 579 236
Net additions to policy reserves.............. 4,026 3,701 3,506
--------- --------- ---------
Total benefits............................ 7,921 7,201 6,676
Operating expenses............................ 1,138 1,043 1,026
--------- --------- ---------
Total benefits and expenses............... 9,059 8,244 7,702
--------- --------- ---------
Gain from operations before income taxes and
dividends........................................ 3,267 3,018 2,900
Policyowner dividends............................. 2,636 2,341 2,111
--------- --------- ---------
Gain from operations before taxes................. 631 677 789
Income tax expense................................ 356 452 467
--------- --------- ---------
Net gain from operations.......................... 275 225 322
Net realized capital gains........................ 414 395 137
--------- --------- ---------
Net income................................ $ 689 $ 620 $ 459
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements
--
32
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN GENERAL CONTINGENCY RESERVE
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
BEGINNING OF YEAR BALANCE......................... $3,515 $2,786 $2,225
Net income...................................... 689 620 459
Increase in net unrealized capital gains........ 576 295 373
Increase in investment reserves................. (526) (176) (237)
Other, net...................................... (153) (10) (34)
------- ------- -------
Net increase in general contingency reserve..... 586 729 561
------- ------- -------
END OF YEAR BALANCE............................... $4,101 $3,515 $2,786
------- ------- -------
------- ------- -------
</TABLE>
The accompanying notes are an integral part of the financial statements
--
33
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Insurance and annuity premiums................ $ 8,093 $ 7,361 $ 6,864
Investment income received.................... 3,928 3,634 3,480
Net disbursement of policy loans.............. (360) (326) (331)
Benefits paid to policyowners and
beneficiaries................................ (3,316) (2,912) (2,939)
Net transfers to separate accounts............ (565) (579) (236)
Policyowner dividends paid.................... (2,347) (2,105) (1,945)
Operating expenses and taxes.................. (1,722) (1,663) (1,364)
Other, net.................................... 564 1,558 381
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES..... 4,275 4,968 3,910
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
PROCEEDS FROM INVESTMENTS SOLD OR MATURED
Bonds......................................... 38,284 31,942 25,317
Common and preferred stocks................... 9,057 4,570 2,465
Mortgage loans................................ 1,012 1,253 431
Real estate................................... 302 178 48
Other invested assets......................... 398 316 149
-------- -------- --------
49,053 38,259 28,410
-------- -------- --------
COST OF INVESTMENTS ACQUIRED
Bonds......................................... 41,169 35,342 27,596
Common and preferred stocks................... 9,848 4,463 2,562
Mortgage loans................................ 2,309 2,455 1,883
Real estate................................... 202 125 202
Other invested assets......................... 359 255 336
-------- -------- --------
53,887 42,640 32,579
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES......... (4,834) (4,381) (4,169)
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND TEMPORARY
INVESTMENTS...................................... (559) 587 (259)
CASH AND TEMPORARY INVESTMENTS, BEGINNING OF
YEAR............................................. 1,131 544 803
-------- -------- --------
CASH AND TEMPORARY INVESTMENTS, END OF YEAR....... $ 572 $ 1,131 $ 544
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of the financial statements
--
34
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 1 -- PRINCIPAL ACCOUNTING POLICIES
The accompanying consolidated statutory financial statements include the
accounts of The Northwestern Mutual Life Insurance Company ("Company") and its
wholly-owned life insurance subsidiary, Northwestern Long Term Care Insurance
Company ("Subsidiary"). The Company offers life, annuity and disability income
products to the personal, business, estate and tax-qualified markets.
The consolidated financial statements have been prepared using accounting
policies prescribed or permitted by the Office of the Commissioner of Insurance
of the State of Wisconsin ("statutory basis of accounting"). Prior to December
15, 1995, these policies were considered generally accepted accounting
principles ("GAAP") for mutual life insurance enterprises. However, in April
1993, the Financial Accounting Standards Board issued Interpretation No. 40,
"Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance Companies and Other Enterprises," which established a different
definition of GAAP for mutual life insurance enterprises. Under the
Interpretation, financial statements of mutual life insurance enterprises for
periods beginning after December 15, 1995 which are prepared on the statutory
basis of accounting are no longer characterized as being in conformity with
GAAP.
Financial statements prepared on the statutory basis of accounting vary from
financial statements prepared on a GAAP basis primarily because on a GAAP basis
(1) policy acquisition costs are deferred and amortized, (2) investment
valuations and insurance reserves are based on different assumptions, (3) funds
received under deposit-type contracts are not reported as premium revenue, and
(4) deferred taxes are provided for temporary differences between book and tax
basis of certain assets and liabilities. The effects on the financial statements
of the differences between the statutory basis of accounting and GAAP are
material to the Company.
The preparation of financial statements in conformity with the statutory basis
of accounting requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual future results could differ from these estimates.
INVESTMENTS
The Company's investments are valued on the following bases:
<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 and preferred stocks -- Common stocks are carried at market value, preferred stocks
are generally carried at cost, and unconsolidated
subsidiaries are recorded as equity in subsidiaries' net
assets
Mortgage loans -- Amortized cost
Real estate -- Lower of cost, less depreciation and encumbrances, or
estimated net realizable value
Policy loans -- Unpaid principal balance, which approximates fair value
Other investments -- Consists primarily of joint ventures which are valued at
equity in ventures' net assets
Cash and temporary investments -- Amortized cost, which approximates fair value
</TABLE>
--
35
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
CASH AND TEMPORARY INVESTMENTS
Temporary investments consist of debt securities that have maturities of one
year or less at acquisition.
NET INVESTMENT INCOME
Net investment income includes interest and dividends received or due and
accrued on debt securities and stocks, equity in unconsolidated subsidiaries'
earnings and the Company's prorated portion of joint venture income. Net
investment income is reduced by investment management expenses, real estate
depreciation and depletion related to energy assets.
INTEREST MAINTENANCE RESERVE
The Company is required to maintain an interest maintenance reserve ("IMR"). The
IMR is used to defer realized gains and losses, net of tax, on fixed income
investments resulting from changes in interest rates. Net realized gains and
losses deferred to the IMR are amortized into investment income over the
approximate remaining term to maturity of the investment sold.
ASSET VALUATION RESERVE
The Company is required to maintain an asset valuation reserve ("AVR"). The AVR
establishes a general reserve for invested assets held by the Company using a
formula prescribed by state regulations. The AVR is designed to stabilize the
general contingency reserves against potential declines in the value of
investments.
SEPARATE ACCOUNT BUSINESS
Separate account assets and related policy liabilities represent the segregation
of funds deposited by "variable" life insurance and annuity policyowners.
Policyowners bear the investment performance risk associated with variable
products. Separate account assets are invested at the direction of the
policyowner in a variety of Company-managed mutual funds and/or a fixed interest
rate option. Separate account assets are reported at fair market value.
RESERVES FOR POLICY BENEFITS
Reserves for policy benefits are determined by actuarial estimates based on
mortality and morbidity experience tables and valuation interest rates
prescribed by the Office of the Commissioner of Insurance of the State of
Wisconsin. See Note 3.
PREMIUM REVENUE AND OPERATING EXPENSES
Life insurance premiums are recognized as revenue at the beginning of each
policy year. Annuity and disability income premiums are recognized when received
by the Company. Operating expenses, including costs of acquiring new policies,
are charged to operations as incurred.
--
36
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
POLICYOWNER DIVIDENDS
All life insurance policies, and certain annuity and disability income policies,
issued by the Company are participating. Annually, the Company's Board of
Trustees approves dividends payable on participating policies in the following
fiscal year, which are accrued and charged to operations when approved.
RECLASSIFICATION
Certain 1996 and 1995 financial statement balances have been reclassified to
conform to the current year presentation.
NOTE 2 -- INVESTMENTS
DEBT SECURITIES
Debt securities consist of all bonds and fixed-maturity preferred stocks. The
estimated market values of debt securities are based upon quoted market prices,
if available. For securities not actively traded, fair values are estimated
using independent pricing services or internally developed pricing models.
Statement value, which principally represents amortized cost, and estimated
market value of the Company's debt securities at December 31, 1997 and 1996 are
as follows:
<TABLE>
<CAPTION>
RECONCILIATION TO ESTIMATED MARKET
VALUE
---------------------------------------
GROSS GROSS ESTIMATED
STATEMENT UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1997 VALUE APPRECIATION DEPRECIATION VALUE
- -------------------------------------------------- --------- ------------ ------------ ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
US Government and political obligations........... $ 3,695 $ 336 $ (3) $ 4,028
Mortgage-backed securities........................ 7,015 264 (4) 7,275
Corporate and other debt securities............... 21,649 1,098 (208) 22,539
--------- ------------ ------ ---------
32,359 1,698 (215) 33,842
Preferred stocks.................................. 167 4 (2) 169
--------- ------------ ------ ---------
Total............................................. $32,526 $1,702 $(217) $34,011
--------- ------------ ------ ---------
--------- ------------ ------ ---------
<CAPTION>
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........... $ 4,789 $ 171 $ (2) $ 4,958
Mortgage-backed securities........................ 6,747 179 (38) 6,888
Corporate and other debt securities............... 17,540 776 (99) 18,217
--------- ------------ ------ ---------
29,076 1,126 (139) 30,063
Preferred stocks.................................. 84 6 (1) 89
--------- ------------ ------ ---------
Total............................................. $29,160 $1,132 $(140) $30,152
--------- ------------ ------ ---------
--------- ------------ ------ ---------
</TABLE>
--
37
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
The statement value of debt securities by contractual maturity at December 31,
1997 and 1996 is shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(IN MILLIONS)
<S> <C> <C>
Due in one year or less........................... $ 605 $ 457
Due after one year through five years............. 4,878 4,077
Due after five years through ten years............ 9,760 7,802
Due after ten years............................... 10,268 10,077
------------ ------------
25,511 22,413
Mortgage-backed securities........................ 7,015 6,747
------------ ------------
$32,526 $29,160
------------ ------------
------------ ------------
</TABLE>
STOCKS
The estimated market values of common and perpetual preferred stocks are based
upon quoted market prices, if available. For securities not actively traded,
fair values are estimated using independent pricing services or internally
developed pricing models.
The cost of common and preferred stock held by the Company at December 31, 1997
and 1996 is $5.0 billion and $3.7 billion, respectively.
MORTGAGE LOANS AND REAL ESTATE
Mortgage loans are collateralized by properties located throughout the United
States and Canada. The Company attempts to minimize mortgage loan investment
risk by diversification of geographic locations and types of properties.
The fair value of mortgage loans as of December 31, 1997 and 1996 was
approximately $11.5 billion and $9.8 billion, respectively. The fair value of
the mortgage loan portfolio is estimated by discounting the future estimated
cash flows using current interest rates of debt securities with similar credit
risk and maturities, or utilizing net realizable values.
At December 31, 1997, real estate includes $61 million acquired through
foreclosure and $124 million of home office real estate. In 1997 and 1996, the
Company recorded unrealized losses of $2 million and $43 million, respectively,
for the excess of carrying value over fair value of certain real estate
investments and mortgage loans.
--
38
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
REALIZED GAINS AND LOSSES
Realized investment gains and losses for the years ended December 31, 1997, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------ ------------------------------ ------------------------------
NET NET NET
REALIZED REALIZED REALIZED
REALIZED REALIZED GAINS REALIZED REALIZED GAINS REALIZED REALIZED GAINS
GAINS LOSSES (LOSSES) GAINS LOSSES (LOSSES) GAINS LOSSES (LOSSES)
-------- -------- -------- -------- -------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bonds......................... $ 518 $ (269) $ 249 $ 396 $ (383) $ 13 $ 576 $ (130) $ 446
Common and preferred Stocks... 533 (150) 383 580 (115) 465 574 (429) 145
Mortgage loans................ 14 (14) - 2 (15) (13) 2 (32) (30)
Real estate................... 100 (2) 98 36 0 36 14 (3) 11
Other invested assets......... 338 (105) 233 204 (51) 153 188 (95) 93
-------- -------- -------- -------- -------- -------- -------- -------- --------
$ 1,503 $ (540) $ 963 $ 1,218 $ (564) $ 654 $ 1,354 $ (689) $ 665
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
Less: Capital gains taxes..... 340 224 239
Less: IMR deferrals........... 209 35 289
-------- -------- --------
Net realized capital gains.... $ 414 $ 395 $ 137
-------- -------- --------
-------- -------- --------
</TABLE>
SECURITIES LENDING
The Company has entered into a securities lending agreement whereby certain
securities are loaned to third parties, primarily major brokerage firms. The
Company's policy requires a minimum of 102 percent of the fair value of the
loaned securities as collateral, calculated on a daily basis in the form of
either cash or securities. Collateral assets received and related liability due
to counterparties of $1.5 billion and $1.0 billion are included in the
consolidated statements of financial position at December 31, 1997 and 1996,
respectively, and approximate the statement value of securities loaned at those
dates.
INVESTMENT IN MGIC
The Company owns 18.4% (20.9 million shares) of the outstanding common stock of
MGIC Investment Corporation ("MGIC"). This investment is accounted for using the
equity method. At December 31, 1997, the market value of the Company's
investment in MGIC exceeded the statement value of $273 million by $768 million.
In July 1995, the Company entered into a forward contract with a brokerage firm
to deliver 8.8 million to 10.7 million shares of MGIC (or cash in an amount
equal to the market value of the MGIC shares at contract maturity) in August,
1998, in exchange for a fixed cash payment of $247 million ($24 per share). The
Company's objective in entering into the forward contract was to hedge against
depreciation in the value of its MGIC holdings during the contract period below
the initial spot price of $24, while partially participating in appreciation, if
any, during the forward contract's duration.
--
39
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
DERIVATIVE FINANCIAL INSTRUMENTS
In the normal course of business, the Company enters into transactions to reduce
its exposure to fluctuations in interest rates, foreign currency exchange rates
and market volatility. These hedging strategies include the use of forwards,
futures, options and swaps. In addition to the use of derivatives for hedging
purposes, equity swaps were held for investment purposes during 1997.
The Company held the following positions for hedging purposes at December 31,
1997:
<TABLE>
<CAPTION>
DERIVATIVE FINANCIAL INSTRUMENT NOTIONAL AMOUNTS RISKS REDUCED
- --------------------------------------------- ------------------ ---------------------------------------------
(IN MILLIONS)
<S> <C> <C>
Foreign Currency Forward Contracts........... $564 Currency exposure on foreign denominated
investments.
Common Stock Futures......................... 327 Stock market price fluctuation.
Bond Futures................................. 95 Bond market price fluctuation.
Options to acquire Interest Rate Swaps....... 530 Interest rates payable on certain annuity and
insurance contracts.
Foreign Currency and Interest Rate Swaps..... 209 Interest rates on variable rate notes and
currency exposure on foreign denominated
bonds.
</TABLE>
The notional or contractual amounts of derivative financial instruments are used
to denominate these types of transactions and do not represent the amounts
exchanged between the parties.
The notional amount of equity swaps outstanding at December 31, 1997 was $143
million.
The hedges are recorded by the Company in the same manner as the underlying
investments. Foreign currency forwards, foreign currency swaps, stock futures,
and options to acquire interest rate swaps are reported at market value. There
is no statement value reported for interest rate swaps and bond futures prior to
the settlement of the contract. Changes in the values of these contracts are
expected to offset gains and losses on the hedged items. For hedges reported at
market value, gains and losses are unrealized until expiration of the contract.
The effect of derivative transactions is not material to the Company's results
of operations or financial position.
NOTE 3 -- RESERVES FOR POLICY BENEFITS
Life insurance reserves on substantially all policies issued since 1978 are
based on the Commissioner's Reserve Valuation Method ("CRVM") with interest
rates ranging from 3 1/2% to 5 1/2%. Other life policy reserves are based
primarily on the net level premium method employing various mortality tables at
interest rates ranging from 2% to 4 1/2%.
Deferred annuity reserves on contracts issued since 1985 are valued using CRVM
with interest rates ranging from 3 1/2% to 6 1/4%. Other deferred annuity
reserves are based on the contract value. Immediate annuity reserves are based
on present values of expected benefit payments at interest rates ranging from
3 1/2% to 7 1/2%.
--
40
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
Active life reserves for disability income ("DI") policies issued since 1987 are
primarily based on the two-year preliminary term method using a 4% interest rate
and the 1985 Commissioner's Individual Disability Table A ("CIDA") for
morbidity. Active life reserves for prior DI policies are estimated using the
net level premium method, a 3% to 4% interest rate and the 1964 Commissioner's
Disability Table for morbidity. Disabled life reserves for DI policies are based
on the present values of expected benefit payments using primarily the 1985 CIDA
(modified for Company experience in the first two years of disability) with
interest rates ranging from 3% to 5 1/2%.
Use of these actuarial tables and methods involves estimation of future
mortality and morbidity based on past experience. Actual future experience could
differ from these estimates.
NOTE 4 -- EMPLOYEE AND AGENT BENEFIT PLANS
The Company sponsors noncontributory defined benefit retirement plans for all
eligible employees and agents. The expense associated with these plans is
generally recorded by the Company in the period contributions to the plans are
funded. As of January 1, 1997, the most recent actuarial valuation date
available, the defined benefit plans were fully funded. In addition, the Company
has a contributory 401(k) plan for eligible employees and a noncontributory
defined contribution plan for all full-time agents. The Company's contributions
are expensed in the period contributions are made to the plan. The defined
benefit and defined contribution plans' assets of $1.4 billion at December 31,
1997 are primarily invested in the separate accounts of the Company.
In addition to pension benefits, the Company provides certain health care and
life insurance benefits ("postretirement benefits") for retired employees.
Substantially all employees may become eligible for these benefits if they reach
retirement age while working for the Company. Postretirement benefit cost for
the year ended December 31, 1997 was a net benefit of $1.3 million; it includes
the expected cost of postretirement benefits for newly eligible and vested
employees, interest cost and return on plan assets totaling $3.6 million, offset
by gains from favorable differences between actuarial assumptions and actual
experience of $4.9 million.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
-------------------- --------------------
<S> <C> <C>
Unfunded postretirement
benefit obligation for
retirees and other fully
eligible employees (Accrued
in statement of financial
position).................... $34 million $35 million
Estimated postretirement
benefit obligation for active
non-vested employees (Not
accrued until employee
vests)....................... $50 million $43 million
Discount rate................. 7% 7%
Health care cost trend rate... 10% to an ultimate 10% to an ultimate
5%, declining 1% 5%, declining 1%
for 5 years for 5 years
</TABLE>
If the health care cost trend rate assumptions were increased by 1%, the accrued
postretirement benefit obligation as of December 31, 1997 would be increased by
$4 million.
At December 31, 1997, the recorded postretirement benefit obligation was reduced
by $20 million for assets funded for postretirement health care benefits.
--
41
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 5 -- REINSURANCE
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
to reinsurers under excess coverage and co-insurance contracts. The Company
retains a maximum of $15 million of coverage per individual life and $20 million
maximum of coverage per joint life. The Company has an excess reinsurance
contract for disability income policies with retention limits varying based upon
on coverage type.
The amounts shown in the accompanying consolidated financial statements are net
of reinsurance activity. Benefit reserves at December 31, 1997 and 1996 are
reported net of reinsurance of $435 million and $355 million, respectively. The
effect of reinsurance on premiums and benefits for the years ended December 31,
1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Direct premiums................................... $7,647 $7,064 $6,452
Reinsurance ceded................................. (353) (397) (256)
------- ------- -------
Net premium revenue............................... $7,294 $6,667 $6,196
------- ------- -------
------- ------- -------
Benefits to policyowners and beneficiaries........ $8,057 $7,348 $6,818
Reinsurance recoveries............................ (136) (147) (142)
------- ------- -------
Net benefits to policyowners and beneficiaries.... $7,921 $7,201 $6,676
------- ------- -------
------- ------- -------
</TABLE>
In addition, the Company received $115 million, $93 million and $67 million in
1997, 1996 and 1995 respectively, from reinsurers representing reimbursement of
commissions and other expenses. These amounts are included in other income in
the consolidated statement of operations.
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result in
losses to the Company; consequently, allowances are established for amounts
deemed uncollectible. The Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk arising from similar
geographic regions, activities, or economic characteristics of the reinsurers to
minimize its exposure to significant losses from reinsurer insolvencies
NOTE 6 -- INCOME TAXES
Provisions for income taxes are based on current income tax payable without
recognition of deferred taxes. The Company files a consolidated life-nonlife
federal income tax return. Federal income tax returns for years through 1988 are
closed as to further assessment of tax. Adequate provision has been made in the
financial statements for any additional taxes which may become due with respect
to the open years.
The Company's effective tax rate on gains from operations before income tax
expense (after dividends) in 1997, 1996 and 1995 were 56%, 67% and 60%,
respectively. The Company's effective tax rate exceeds the federal corporate
rate of 35% because, (1) the Company pays a tax that is assessed only on mutual
life insurance companies which treats a portion of policyholder dividends like
nondeductible dividends paid to shareholders of stock companies ("equity tax"),
and (2) the Company must capitalize and amortize (as opposed to immediately
deducting) an amount deemed to represent the cost of acquiring new business
("DAC tax").
--
42
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 7 -- CONTINGENCIES
The Company has guaranteed certain obligations of its affiliates. These
guarantees totaled approximately $112 million at December 31, 1997 and are
generally supported by the underlying net asset values of the affiliates.
The Company is engaged in various legal actions in the normal course of its
investment and insurance operations. In the opinion of management, any losses
resulting from such actions would not have a material effect on the Company's
financial condition.
--
43
<PAGE>
[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, 1997 and 1996, and the related consolidated statements of operations, of
changes in general contingency reserve and of cash flows for each of the three
years in the period ended December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our report dated January 24, 1996, we expressed an opinion that the 1995
consolidated financial statements, prepared using accounting practices
prescribed or permitted by the Insurance Departments of the states in which the
Company and its subsidiary were domiciled (statutory basis of accounting), were
presented fairly, in all material respects, in conformity with generally
accepted accounting principles. As described in Note 1 to these financial
statements, pursuant to the pronouncement of the Financial Accounting Standards
Board, financial statements of mutual life insurance enterprises prepared using
accounting practices prescribed or permitted by insurance regulators (statutory
basis of accounting) are no longer considered presentations in conformity with
generally accepted accounting principles. Accordingly, our present opinion on
the presentation of the 1995 financial statements, as presented herein, is
different from that expressed in our previous report.
As described in Note 1, these consolidated financial statements were prepared in
conformity with accounting practices prescribed or permitted by the Office of
the Commissioner of Insurance of the State of Wisconsin (statutory basis of
accounting), which practices differ from generally accepted accounting
principles. Accordingly, the consolidated financial statements are not intended
to represent a presentation in accordance with generally accepted accounting
principles. The effects on the consolidated financial statements of the
variances between the statutory basis of accounting and generally accepted
accounting principles, although not reasonably determinable, are presumed to be
material.
In our opinion, the consolidated financial statements audited by us (1) do not
present fairly in conformity with generally accepted accounting principles, the
financial position of The Northwestern Mutual Life Insurance Company and its
subsidiary at December 31, 1997 and 1996, or the results of their operations or
their cash flows for each of the three years in the period ended December 31,
1997 because of the effects of the variances between the statutory basis of
accounting and generally accepted accounting principles referred to in the
preceding paragraph and (2) do present fairly, in all material respects, the
financial position of The Northwestern Mutual Life Insurance Company and its
subsidiary at December 31, 1997 and 1996 and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1997, on the basis of accounting described in Note 1.
[SIGNATURE]
January 26, 1998
--
44
<PAGE>
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS, POLICY VALUES CASH VALUES AND ACCUMULATED
PREMIUMS. The tables on the following pages illustrate how the death benefit,
Policy Value and cash value for a Policy would vary over time based on
hypothetical investment results. The tables assume gross investment return rates
of 0%, 6% and 12% on assets of the Account. The Policies illustrated are for a
male and female, both select risks, age 55, with a Specified Amount of
$1,000,000 and annual premium of $20,000. The first four illustrations, on pages
46-49, are for death benefit Option A, based on both current charges and
Guaranteed Charges, using 1) the Guideline Premium/Cash Value Corridor Test, and
2) the Cash Value Accumulation Test for the definition of life insurance. The
next four illustrations are for Policies with death benefit Option B.
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, Policy Values and cash values reflect
the deductions from premiums and deductions from Policy Value. The amounts shown
as the cash values reflect surrender charges. The amounts shown also reflect the
average of the investment advisory fees and other Fund expenses applicable to
each of the nine Portfolios of the Fund during 1997 at the annual rate of .45%
of the Fund's net assets. See "The Fund", p. 4. Thus the 0%, 6% and 12% gross
hypothetical return rates on the Fund's assets are equivalent to the net rates
of -.45%, 5.55% and 11.55% 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 premium were invested to earn interest, after taxes,
at a 5% interest rate compounded annually.
The death benefits and corresponding Policy Values and cash values shown on
pages 46, 48, 50 and 52 illustrate benefits which would be paid if investment
returns of 0%, 6% and 12% are realized, and if mortality and expense experience
in the future is as currently experienced. HOWEVER, CURRENT MONTHLY COST OF
INSURANCE AND EXPENSE CHARGES MAY CHANGE SUBJECT TO THE STATED MAXIMUM CHARGES.
A comparable illustration based on the issue age, sex and risk classification of
the proposed insured persons and proposed Specified Amount, death benefit option
and premium is available upon request.
--
45
<PAGE>
FLEXIBLE PREMIUM VARIABLE JOINT LIFE INSURANCE POLICY
SPECIFIED AMOUNT: $1,000,000 DEATH BENEFIT OPTION: A
MALE SELECT CLASS ISSUE AGE 55 FEMALE SELECT CLASS ISSUE AGE 55
ANNUAL PREMIUM: $20,000 GUIDELINE PREMIUM / CASH VALUE CORRIDOR TEST
CURRENT CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT
-------------------------------------
ASSUMING HYPOTHETICAL GROSS ANNUAL
PREMIUM ACCUMULATED INVESTMENT RETURN OF
END OF AT 5% INTEREST PER -------------------------------------
POLICY YEAR YEAR 0% 6% 12%
- --------------- ---------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1 21,000 1,000,000 1,000,000 1,000,000
2 43,050 1,000,000 1,000,000 1,000,000
3 66,203 1,000,000 1,000,000 1,000,000
4 90,513 1,000,000 1,000,000 1,000,000
5 116,038 1,000,000 1,000,000 1,000,000
6 142,840 1,000,000 1,000,000 1,000,000
7 170,982 1,000,000 1,000,000 1,000,000
8 200,531 1,000,000 1,000,000 1,000,000
9 231,558 1,000,000 1,000,000 1,000,000
10 264,136 1,000,000 1,000,000 1,000,000
15 453,150 1,000,000 1,000,000 1,000,000
20 694,385 1,000,000 1,000,000 1,263,114
25 1,002,269 1,000,000 1,000,000 2,223,824
30 1,395,216 1,000,000 1,224,909 3,861,856
35 1,896,726 1,000,000 1,652,141 6,532,279
</TABLE>
<TABLE>
<CAPTION>
POLICY VALUE CASH VALUE
--------------------------------------------- ---------------------------------------------
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT
RETURN OF RETURN OF
--------------------------------------------- ---------------------------------------------
END OF
POLICY YEAR 0% 6% 12% 0% 6% 12%
- ------------ ------- --------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 15,557 16,560 17,565 6,267 7,270 8,275
2 30,972 33,958 37,067 22,714 25,700 28,809
3 46,243 52,234 58,719 39,018 45,008 51,494
4 61,370 71,430 82,756 55,177 65,236 76,563
5 76,349 91,588 109,436 71,188 86,427 104,275
6 91,176 112,751 139,047 87,047 108,622 134,918
7 105,844 134,963 171,903 102,747 131,867 168,807
8 120,345 158,269 208,359 118,280 156,204 206,294
9 134,672 182,715 248,804 133,640 181,683 247,772
10 148,818 208,354 293,676 148,818 208,354 293,676
15 230,988 373,446 623,655 230,988 373,446 623,655
20 302,248 579,668 1,180,480 302,248 579,668 1,180,480
25 344,026 834,849 2,117,928 344,026 834,849 2,117,928
30 312,860 1,166,580 3,677,958 312,860 1,166,580 3,677,958
35 75,632 1,573,467 6,221,218 75,632 1,573,467 6,221,218
</TABLE>
ALL PREMIUM PAYMENTS ARE ILLUSTRATED AS IF MADE AT THE BEGINNING OF THE POLICY
YEAR. ASSUMES NO POLICY LOAN OR WITHDRAWAL HAS BEEN MADE.
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
TO THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE DIFFERENT RATES OF RETURN OF
THE VARIABLE ACCOUNT.
THE DEATH BENEFIT, POLICY VALUE 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. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN
DIFFERENT AMOUNTS OR FREQUENCIES THAN SHOWN. 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.
--
46
<PAGE>
FLEXIBLE PREMIUM VARIABLE JOINT LIFE INSURANCE POLICY
SPECIFIED AMOUNT: $1,000,000 DEATH BENEFIT OPTION: A
MALE SELECT CLASS ISSUE AGE 55 FEMALE SELECT CLASS ISSUE AGE 55
ANNUAL PREMIUM: $20,000 GUIDELINE PREMIUM / CASH VALUE CORRIDOR TEST
GUARANTEED CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT
-------------------------------------
ASSUMING HYPOTHETICAL GROSS ANNUAL
PREMIUM ACCUMULATED INVESTMENT RETURN OF
END OF AT 5% INTEREST PER -------------------------------------
POLICY YEAR YEAR 0% 6% 12%
- --------------- ---------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1 21,000 1,000,000 1,000,000 1,000,000
2 43,050 1,000,000 1,000,000 1,000,000
3 66,203 1,000,000 1,000,000 1,000,000
4 90,513 1,000,000 1,000,000 1,000,000
5 116,038 1,000,000 1,000,000 1,000,000
6 142,840 1,000,000 1,000,000 1,000,000
7 170,982 1,000,000 1,000,000 1,000,000
8 200,531 1,000,000 1,000,000 1,000,000
9 231,558 1,000,000 1,000,000 1,000,000
10 264,136 1,000,000 1,000,000 1,000,000
15 453,150 1,000,000 1,000,000 1,000,000
20 694,385 1,000,000 1,000,000 1,111,331
25 1,002,269 1,000,000 1,000,000 1,920,064
30 1,395,216 0* 1,000,000 3,250,096
35 1,896,726 0* 1,029,127 5,326,214
</TABLE>
<TABLE>
<CAPTION>
POLICY VALUE CASH VALUE
------------------------------------------------------- -------------------------------------------------------
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF
------------------------------------------------------- -------------------------------------------------------
END OF
POLICY YEAR 0% 6% 12% 0% 6% 12%
- --------------- --------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 15,413 16,410 17,408 6,123 7,120 8,118
2 30,513 33,465 36,539 22,255 25,207 28,281
3 45,283 51,175 57,555 38,057 43,950 50,330
4 59,704 69,549 80,635 53,511 63,356 74,442
5 73,756 88,591 105,973 68,595 83,430 100,811
6 87,411 108,303 133,780 83,282 104,174 129,651
7 100,634 128,678 164,287 97,537 125,582 161,191
8 113,375 149,699 197,742 111,310 147,635 195,678
9 125,569 171,333 234,409 124,537 170,301 233,377
10 137,137 193,537 274,583 137,137 193,537 274,583
15 197,389 328,964 562,463 197,389 328,964 562,463
20 222,986 475,520 1,038,627 222,986 475,520 1,038,627
25 169,729 622,087 1,828,633 169,729 622,087 1,828,633
30 0* 771,559 3,095,329 0* 771,559 3,095,329
35 0* 980,121 5,072,585 0* 980,121 5,072,585
</TABLE>
* Additional payment will be required to prevent policy termination.
ALL PREMIUM PAYMENTS ARE ILLUSTRATED AS IF MADE AT THE BEGINNING OF THE POLICY
YEAR. ASSUMES NO POLICY LOAN OR WITHDRAWAL HAS BEEN MADE.
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
TO THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE DIFFERENT RATES OF RETURN OF
THE VARIABLE ACCOUNT.
THE DEATH BENEFIT, POLICY VALUE 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. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN
DIFFERENT AMOUNTS OR FREQUENCIES THAN SHOWN. 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>
FLEXIBLE PREMIUM VARIABLE JOINT LIFE INSURANCE POLICY
SPECIFIED AMOUNT: $1,000,000 DEATH BENEFIT OPTION: A
MALE SELECT CLASS ISSUE AGE 55 FEMALE SELECT CLASS ISSUE AGE 55
ANNUAL PREMIUM: $20,000 CASH VALUE ACCUMULATION TEST
CURRENT CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT
-------------------------------------
ASSUMING HYPOTHETICAL GROSS ANNUAL
PREMIUM ACCUMULATED INVESTMENT RETURN OF
END OF AT 5% INTEREST PER -------------------------------------
POLICY YEAR YEAR 0% 6% 12%
- --------------- ---------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1 21,000 1,000,000 1,000,000 1,000,000
2 43,050 1,000,000 1,000,000 1,000,000
3 66,203 1,000,000 1,000,000 1,000,000
4 90,513 1,000,000 1,000,000 1,000,000
5 116,038 1,000,000 1,000,000 1,000,000
6 142,840 1,000,000 1,000,000 1,000,000
7 170,982 1,000,000 1,000,000 1,000,000
8 200,531 1,000,000 1,000,000 1,000,000
9 231,558 1,000,000 1,000,000 1,000,000
10 264,136 1,000,000 1,000,000 1,000,000
15 453,150 1,000,000 1,000,000 1,153,309
20 694,385 1,000,000 1,000,000 1,853,149
25 1,002,269 1,000,000 1,153,358 2,858,371
30 1,395,216 1,000,000 1,405,325 4,316,513
35 1,896,726 1,000,000 1,670,923 6,419,966
</TABLE>
<TABLE>
<CAPTION>
POLICY VALUE CASH VALUE
--------------------------------------------- ---------------------------------------------
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT
RETURN OF RETURN OF
--------------------------------------------- ---------------------------------------------
END OF
POLICY YEAR 0% 6% 12% 0% 6% 12%
- ----------- ------- --------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 15,557 16,560 17,565 6,267 7,270 8,275
2 30,972 33,958 37,067 22,714 25,700 28,809
3 46,243 52,234 58,719 39,018 45,008 51,494
4 61,370 71,430 82,756 55,177 65,236 76,563
5 76,349 91,588 109,436 71,188 86,427 104,275
6 91,176 112,751 139,047 87,047 108,622 134,918
7 105,844 134,963 171,903 102,747 131,866 168,807
8 120,345 158,269 208,359 118,280 156,204 206,294
9 134,672 182,715 248,804 133,640 181,683 247,772
10 148,818 208,354 293,676 148,818 208,354 293,676
15 230,988 373,446 623,548 230,988 373,446 623,548
20 302,248 579,668 1,172,469 302,248 579,668 1,172,469
25 344,026 831,075 2,059,656 344,026 831,075 2,059,656
30 312,860 1,119,566 3,438,793 312,860 1,119,566 3,438,793
35 75,632 1,428,472 5,488,429 75,632 1,428,472 5,488,429
</TABLE>
ALL PREMIUM PAYMENTS ARE ILLUSTRATED AS IF MADE AT THE BEGINNING OF THE POLICY
YEAR. ASSUMES NO POLICY LOAN OR WITHDRAWAL HAS BEEN MADE.
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
TO THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE DIFFERENT RATES OF RETURN OF
THE VARIABLE ACCOUNT.
THE DEATH BENEFIT, POLICY VALUE 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. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN
DIFFERENT AMOUNTS OR FREQUENCIES THAN SHOWN. 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.
--
48
<PAGE>
FLEXIBLE PREMIUM VARIABLE JOINT LIFE INSURANCE POLICY
SPECIFIED AMOUNT: $1,000,000 DEATH BENEFIT OPTION: A
MALE SELECT CLASS ISSUE AGE 55 FEMALE SELECT CLASS ISSUE AGE 55
ANNUAL PREMIUM: $20,000 CASH VALUE ACCUMULATION TEST
GUARANTEED CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT
-------------------------------------
ASSUMING HYPOTHETICAL GROSS ANNUAL
PREMIUM ACCUMULATED INVESTMENT RETURN OF
END OF AT 5% INTEREST PER -------------------------------------
POLICY YEAR YEAR 0% 6% 12%
- --------------- ---------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1 21,000 1,000,000 1,000,000 1,000,000
2 43,050 1,000,000 1,000,000 1,000,000
3 66,203 1,000,000 1,000,000 1,000,000
4 90,513 1,000,000 1,000,000 1,000,000
5 116,038 1,000,000 1,000,000 1,000,000
6 142,840 1,000,000 1,000,000 1,000,000
7 170,982 1,000,000 1,000,000 1,000,000
8 200,531 1,000,000 1,000,000 1,000,000
9 231,558 1,000,000 1,000,000 1,000,000
10 264,136 1,000,000 1,000,000 1,000,000
15 453,150 1,000,000 1,000,000 1,040,236
20 694,385 1,000,000 1,000,000 1,598,918
25 1,002,269 1,000,000 1,000,000 2,319,922
30 1,395,216 0* 1,000,000 3,266,634
35 1,896,726 0* 1,100,663 4,528,632
</TABLE>
<TABLE>
<CAPTION>
POLICY VALUE CASH VALUE
------------------------------------------------------- -------------------------------------------------------
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF
------------------------------------------------------- -------------------------------------------------------
END OF
POLICY YEAR 0% 6% 12% 0% 6% 12%
- --------------- --------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 15,413 16,410 17,408 6,123 7,120 8,118
2 30,513 33,465 36,539 22,255 25,207 28,281
3 45,283 51,175 57,555 38,057 43,950 50,330
4 59,704 69,549 80,635 53,511 63,356 74,442
5 73,756 88,591 105,973 68,595 83,430 100,811
6 87,411 108,303 133,780 83,282 104,174 129,651
7 100,634 128,678 164,287 97,537 125,582 161,191
8 113,375 149,699 197,742 111,310 147,635 195,678
9 125,569 171,333 234,409 124,537 170,301 233,377
10 137,137 193,537 274,583 137,137 193,537 274,583
15 197,389 328,964 562,414 197,389 328,964 562,414
20 222,986 475,520 1,011,619 222,986 475,520 1,011,619
25 169,729 622,087 1,671,667 169,729 622,087 1,671,667
30 0* 771,559 2,602,397 0* 771,559 2,602,397
35 0* 940,957 3,871,527 0* 940,957 3,871,527
</TABLE>
* Additional payment will be required to prevent policy termination.
ALL PREMIUM PAYMENTS ARE ILLUSTRATED AS IF MADE AT THE BEGINNING OF THE POLICY
YEAR. ASSUMES NO POLICY LOAN OR WITHDRAWAL HAS BEEN MADE.
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
TO THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE DIFFERENT RATES OF RETURN OF
THE VARIABLE ACCOUNT.
THE DEATH BENEFIT, POLICY VALUE 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. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN
DIFFERENT AMOUNTS OR FREQUENCIES THAN SHOWN. 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.
--
49
<PAGE>
FLEXIBLE PREMIUM VARIABLE JOINT LIFE INSURANCE POLICY
SPECIFIED AMOUNT: $1,000,000 DEATH BENEFIT OPTION: B
MALE SELECT CLASS ISSUE AGE 55 FEMALE SELECT CLASS ISSUE AGE 55
ANNUAL PREMIUM: $20,000 GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST
CURRENT CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT
-------------------------------------
ASSUMING HYPOTHETICAL GROSS ANNUAL
PREMIUM ACCUMULATED INVESTMENT RETURN OF
END OF AT 5% INTEREST PER -------------------------------------
POLICY YEAR YEAR 0% 6% 12%
- --------------- ---------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1 21,000 1,015,557 1,016,560 1,017,565
2 43,050 1,030,972 1,033,958 1,037,067
3 66,203 1,046,242 1,052,233 1,058,719
4 90,513 1,061,368 1,071,428 1,082,754
5 116,038 1,076,345 1,091,583 1,109,430
6 142,840 1,091,167 1,112,740 1,139,032
7 170,982 1,105,826 1,134,940 1,171,874
8 200,531 1,120,312 1,158,225 1,208,300
9 231,558 1,134,616 1,182,637 1,248,694
10 264,136 1,148,726 1,208,221 1,293,483
15 453,150 1,230,233 1,372,156 1,621,411
20 694,385 1,297,600 1,570,274 2,161,877
25 1,002,269 1,320,898 1,777,516 3,022,084
30 1,395,216 1,234,054 1,919,012 4,334,799
35 1,896,726 0* 1,827,516 6,244,070
</TABLE>
<TABLE>
<CAPTION>
CASH VALUE POLICY VALUE
------------------------------------------------------- -------------------------------------------------------
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF
------------------------------------------------------- -------------------------------------------------------
END OF
POLICY YEAR 0% 6% 12% 0% 6% 12%
- --------------- --------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 15,557 16,560 17,565 6,267 7,270 8,275
2 30,972 33,958 37,067 22,714 25,700 28,809
3 46,242 52,233 58,719 39,017 45,008 51,493
4 61,368 71,428 82,754 55,175 65,234 76,560
5 76,345 91,583 109,430 71,184 86,422 104,269
6 91,167 112,740 139,032 87,038 108,611 134,904
7 105,826 134,940 171,874 102,729 131,844 168,777
8 120,312 158,225 208,300 118,248 156,161 206,236
9 134,616 182,637 248,694 133,583 181,604 247,662
10 148,726 208,221 293,483 148,726 208,221 293,483
15 230,233 372,156 621,411 230,233 372,156 621,411
20 297,600 570,274 1,161,877 297,600 570,274 1,161,877
25 320,898 777,516 2,022,084 320,898 777,516 2,022,084
30 234,054 919,012 3,334,799 234,054 919,012 3,334,799
35 0* 827,516 5,244,070 0* 827,516 5,244,070
</TABLE>
* Additional payment will be required to prevent policy termination.
ALL PREMIUM PAYMENTS ARE ILLUSTRATED AS IF MADE AT THE BEGINNING OF THE POLICY
YEAR. ASSUMES NO POLICY LOAN OR WITHDRAWAL HAS BEEN MADE.
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
TO THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE DIFFERENT RATES OF RETURN OF
THE VARIABLE ACCOUNT.
THE DEATH BENEFIT, POLICY VALUE 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. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN
DIFFERENT AMOUNTS OR FREQUENCIES THAN SHOWN. 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.
--
50
<PAGE>
FLEXIBLE PREMIUM VARIABLE JOINT LIFE INSURANCE POLICY
SPECIFIED AMOUNT: $1,000,000 DEATH BENEFIT OPTION: B
MALE SELECT CLASS ISSUE AGE 55 FEMALE SELECT CLASS ISSUE AGE 55
ANNUAL PREMIUM: $20,000 GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST
GUARANTEED CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT
-------------------------------------
ASSUMING HYPOTHETICAL GROSS ANNUAL
PREMIUM ACCUMULATED INVESTMENT RETURN OF
END OF AT 5% INTEREST PER -------------------------------------
POLICY YEAR YEAR 0% 6% 12%
- --------------- ---------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1 21,000 1,015,412 1,016,409 1,017,407
2 43,050 1,030,507 1,033,459 1,036,532
3 66,203 1,045,263 1,051,153 1,057,530
4 90,513 1,059,657 1,069,493 1,080,569
5 116,038 1,073,660 1,088,473 1,105,829
6 142,840 1,087,236 1,108,081 1,133,499
7 170,982 1,100,339 1,128,290 1,163,779
8 200,531 1,112,904 1,149,057 1,196,869
9 231,558 1,124,848 1,170,312 1,232,967
10 264,136 1,136,065 1,191,962 1,272,273
15 453,150 1,191,719 1,318,996 1,544,704
20 694,385 1,202,653 1,431,355 1,941,455
25 1,002,269 1,116,030 1,461,530 2,470,774
30 1,395,216 0* 1,286,200 3,102,540
35 1,896,726 0* 0* 3,720,140
</TABLE>
<TABLE>
<CAPTION>
POLICY VALUE CASH VALUE
------------------------------------------------------- -------------------------------------------------------
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF
------------------------------------------------------- -------------------------------------------------------
END OF
POLICY YEAR 0% 6% 12% 0% 6% 12%
- --------------- --------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 15,412 16,409 17,407 6,122 7,119 8,117
2 30,507 33,459 36,532 22,249 25,201 28,274
3 45,263 51,153 57,530 38,037 43,928 50,305
4 59,657 69,493 80,569 53,464 63,300 74,376
5 73,660 88,473 105,829 68,499 83,312 100,668
6 87,236 108,081 133,499 83,107 103,952 129,370
7 100,339 128,290 163,779 97,242 125,193 160,682
8 112,904 149,057 196,869 110,840 146,992 194,804
9 124,848 170,312 232,967 123,815 169,280 231,935
10 136,065 191,962 272,273 136,065 191,962 272,273
15 191,719 318,996 544,704 191,719 318,996 544,704
20 202,653 431,355 941,455 202,653 431,355 941,455
25 116,030 461,530 1,470,774 116,030 461,530 1,470,774
30 0* 286,200 2,102,540 0* 286,200 2,102,540
35 0* 0* 2,720,140 0* 0* 2,720,140
</TABLE>
* Additional payment will be required to prevent policy termination.
ALL PREMIUM PAYMENTS ARE ILLUSTRATED AS IF MADE AT THE BEGINNING OF THE POLICY
YEAR. ASSUMES NO POLICY LOAN OR WITHDRAWAL HAS BEEN MADE.
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
TO THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE DIFFERENT RATES OF RETURN OF
THE VARIABLE ACCOUNT.
THE DEATH BENEFIT, POLICY VALUE 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. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN
DIFFERENT AMOUNTS OR FREQUENCIES THAN SHOWN. 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.
--
51
<PAGE>
FLEXIBLE PREMIUM VARIABLE JOINT LIFE INSURANCE POLICY
SPECIFIED AMOUNT: $1,000,000 DEATH BENEFIT OPTION: B
MALE SELECT CLASS ISSUE AGE 55 FEMALE SELECT CLASS ISSUE AGE 55
ANNUAL PREMIUM: $20,000 CASH VALUE ACCUMULATION TEST
CURRENT CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT
-------------------------------------
ASSUMING HYPOTHETICAL GROSS ANNUAL
PREMIUM ACCUMULATED INVESTMENT RETURN OF
END OF AT 5% INTEREST PER -------------------------------------
POLICY YEAR YEAR 0% 6% 12%
- --------------- ---------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1 21,000 1,015,557 1,016,560 1,017,565
2 43,050 1,030,972 1,033,958 1,037,067
3 66,203 1,046,242 1,052,233 1,058,719
4 90,513 1,061,368 1,071,428 1,082,754
5 116,038 1,076,345 1,091,583 1,109,430
6 142,840 1,091,167 1,112,740 1,139,032
7 170,982 1,105,826 1,134,940 1,171,874
8 200,531 1,120,312 1,158,225 1,208,300
9 231,558 1,134,616 1,182,637 1,248,694
10 264,136 1,148,726 1,208,221 1,293,483
15 453,150 1,230,233 1,372,156 1,621,411
20 694,385 1,297,600 1,570,274 2,161,877
25 1,002,269 1,320,898 1,777,516 3,022,084
30 1,395,216 1,234,054 1,919,012 4,334,799
35 1,896,726 0* 1,827,516 6,244,070
</TABLE>
<TABLE>
<CAPTION>
POLICY VALUE CASH VALUE
------------------------------------------------------- -------------------------------------------------------
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF
------------------------------------------------------- -------------------------------------------------------
END OF
POLICY YEAR 0% 6% 12% 0% 6% 12%
- --------------- --------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 15,557 16,560 17,565 6,267 7,270 8,275
2 30,972 33,958 37,067 22,714 25,700 28,809
3 46,242 52,233 58,719 39,017 45,008 51,493
4 61,368 71,428 82,754 55,175 65,234 76,560
5 76,345 91,583 109,430 71,184 86,422 104,269
6 91,167 112,740 139,032 87,038 108,611 134,904
7 105,826 134,940 171,874 102,729 131,844 168,777
8 120,312 158,225 208,300 118,248 156,161 206,236
9 134,616 182,637 248,694 133,583 181,604 247,662
10 148,726 208,221 293,483 148,726 208,221 293,483
15 230,233 372,156 621,411 230,233 372,156 621,411
20 297,600 570,274 1,161,877 297,600 570,274 1,161,877
25 320,898 777,516 2,022,084 320,898 777,516 2,022,084
30 234,054 919,012 3,334,799 234,054 919,012 3,334,799
35 0* 827,516 5,244,070 0* 827,516 5,244,070
</TABLE>
* Additional payment will be required to prevent policy termination.
ALL PREMIUM PAYMENTS ARE ILLUSTRATED AS IF MADE AT THE BEGINNING OF THE POLICY
YEAR. ASSUMES NO POLICY LOAN OR WITHDRAWAL HAS BEEN MADE.
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
TO THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE DIFFERENT RATES OF RETURN OF
THE VARIABLE ACCOUNT.
THE DEATH BENEFIT, POLICY VALUE 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. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN
DIFFERENT AMOUNTS OR FREQUENCIES THAN SHOWN. 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.
--
52
<PAGE>
FLEXIBLE PREMIUM VARIABLE JOINT LIFE INSURANCE POLICY
SPECIFIED AMOUNT: $1,000,000 DEATH BENEFIT OPTION: B
MALE SELECT CLASS ISSUE AGE 55 FEMALE SELECT CLASS ISSUE AGE 55
ANNUAL PREMIUM: $20,000 CASH VALUE ACCUMULATION TEST
GUARANTEED CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT
-------------------------------------
ASSUMING HYPOTHETICAL GROSS ANNUAL
PREMIUM ACCUMULATED INVESTMENT RETURN OF
END OF AT 5% INTEREST PER -------------------------------------
POLICY YEAR YEAR 0% 6% 12%
- --------------- ---------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1 21,000 1,015,412 1,016,409 1,017,407
2 43,050 1,030,507 1,033,459 1,036,532
3 66,203 1,045,263 1,051,153 1,057,530
4 90,513 1,059,657 1,069,493 1,080,569
5 116,038 1,073,660 1,088,473 1,105,829
6 142,840 1,087,236 1,108,081 1,133,499
7 170,982 1,100,339 1,128,290 1,163,779
8 200,531 1,112,904 1,149,057 1,196,869
9 231,558 1,124,848 1,170,312 1,232,967
10 264,136 1,136,065 1,191,962 1,272,273
15 453,150 1,191,719 1,318,996 1,544,704
20 694,385 1,202,653 1,431,355 1,941,455
25 1,002,269 1,116,030 1,461,530 2,470,774
30 1,395,216 0* 1,286,200 3,102,540
35 1,896,726 0* 0* 3,720,140
</TABLE>
<TABLE>
<CAPTION>
POLICY VALUE CASH VALUE
------------------------------------------------------- -------------------------------------------------------
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF
------------------------------------------------------- -------------------------------------------------------
END OF
POLICY YEAR 0% 6% 12% 0% 6% 12%
- --------------- --------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 15,412 16,409 17,407 6,122 7,119 8,117
2 30,507 33,459 36,532 22,249 25,201 28,274
3 45,263 51,153 57,530 38,037 43,928 50,305
4 59,657 69,493 80,569 53,464 63,300 74,376
5 73,660 88,473 105,829 68,499 83,312 100,668
6 87,236 108,081 133,499 83,107 103,952 129,370
7 100,339 128,290 163,779 97,242 125,193 160,682
8 112,904 149,057 196,869 110,840 146,992 194,804
9 124,848 170,312 232,967 123,815 169,280 231,935
10 136,065 191,962 272,273 136,065 191,962 272,273
15 191,719 318,996 544,704 191,719 318,996 544,704
20 202,653 431,355 941,455 202,653 431,355 941,455
25 116,030 461,530 1,470,774 116,030 461,530 1,470,774
30 0* 286,200 2,102,540 0* 286,200 2,102,540
35 0* 0* 2,720,140 0* 0* 2,720,140
</TABLE>
* Additional payment will be required to prevent policy termination.
ALL PREMIUM PAYMENTS ARE ILLUSTRATED AS IF MADE AT THE BEGINNING OF THE POLICY
YEAR. ASSUMES NO POLICY LOAN OR WITHDRAWAL HAS BEEN MADE.
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
TO THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE DIFFERENT RATES OF RETURN OF
THE VARIABLE ACCOUNT.
THE DEATH BENEFIT, POLICY VALUE 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. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN
DIFFERENT AMOUNTS OR FREQUENCIES THAN SHOWN. 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.
--
53
<PAGE>
APPENDIX B
Mortality and Expense Risk Charge - Specified Amount Component
Table of Annual Charges Per $1,000 of Initial Specified Amount
<TABLE>
<CAPTION>
Issue Annual
Age* Charge
- --------- -----------
<S> <C>
20-25 $ 0.04
26 0.05
27 0.06
28 0.07
29 0.08
30 0.09
31 0.10
32 0.11
33 0.12
34 0.13
35 0.14
36 0.17
37 0.19
38 0.22
39 0.25
40 0.28
41 0.30
<CAPTION>
Issue Annual
Age* Charge
- --------- -----------
<S> <C>
42 $ 0.33
43 0.36
44 0.38
45 0.41
46 0.44
47 0.47
48 0.50
49 0.53
50 0.57
51 0.60
52 0.63
53 0.66
54 0.69
55 0.72
56 0.77
57 0.83
58 0.88
<CAPTION>
Issue Annual
Age* Charge
- --------- -----------
<S> <C>
59 $ 0.94
60 0.99
61 1.04
62 1.10
63 1.15
64 1.21
65 1.26
66 1.31
67 1.35
68 1.40
69 1.44
70 1.49
71 1.54
72 1.58
73 1.63
74 1.67
75-85 1.72
</TABLE>
*The issue age used in this calculation equals the younger insured issue age
plus an age adjustment. The age adjustment is based on the age difference (older
issue age minus younger issue age) and this schedule:
<TABLE>
<CAPTION>
Age Age
Difference Adjustment
(years) (years)
- ------------- ------------
<S> <C>
0-1 0
2-4 1
5-8 2
9-14 3
15-24 4
25-34 5
35-44 6
45-54 7
55-65 8
</TABLE>
Example: For a Policy at issue ages 65 and 60 and a Specified Amount of
$1,000,000, the age adjustment is 2 and the issue age is 62. The annual charge
per $1000 of Specified Amount is $1.10. The Specified Amount component of the
mortality and expense risk charge will be $1100.04 annually, or $91.67 monthly,
for this Policy.
Note: In no event will the sum of the Mortality and Expense Risk
Charge - Specified Amount Component Annual Charge and the annualized
underwriting and issue charge exceed $1.90 per $1000 of initial Specified
Amount. The underwriting and issue charge will be reduced to meet this
constraint if necessary.
--
54
<PAGE>
Northwestern Mutual Variable Joint Life
Northwestern Mutual Variable Life Account
Northwestern Mutual Series Fund, Inc.
71-2010 (12-98)
PROSPECTUS
Northwestern
Mutual Life-Registered Trademark-
The Quiet Company-Registered Trademark-
PO Box 3095
Milwaukee WI 53201-3095
Change Service Requested
