<PAGE>
Registration No. 33-89188
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
POST-EFFECTIVE AMENDMENT NO. 3 TO
FORM S-6
FOR REGISTRATION
UNDER
THE SECURITIES ACT OF 1933 OF SECURITIES
OF UNIT INVESTMENT TRUSTS REGISTERED
ON FORM N-8B-2
----------------
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
(EXACT NAME OF TRUST)
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
720 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202
(COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
JOHN M. BREMER, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
720 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202
(NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE)
It is proposed that this filing will become effective
immediately upon filing pursuant to paragraph (b)
------
X on April 30, 1998 pursuant to paragraph (b)
------
60 days after filing pursuant to paragraph (a)(1)
------
on (DATE) pursuant to paragraph (a)(1)
------
of Rule 485
------
this post-effective amendment designates a new
------
effective date for a previously filed post-effective
amendment
----------------
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
CROSS-REFERENCE SHEET
Cross reference sheet showing location in Prospectus of information
required by Form N-8B-2.
<TABLE>
<CAPTION>
ITEM NUMBER HEADING IN PROSPECTUS
----------- ---------------------
<C> <C> <S>
1 . . . . . . . . . . . Cover Page
2 . . . . . . . . . . . Cover Page; Northwestern Mutual Life
3 . . . . . . . . . . . Not Applicable
4 . . . . . . . . . . . Distribution of the Policies
5 . . . . . . . . . . . The Account and its Divisions
6 . . . . . . . . . . . The Account and its Divisions
7 . . . . . . . . . . . Not Applicable
8 . . . . . . . . . . . Not Applicable
9 . . . . . . . . . . . Legal Proceedings
10(a). . . . . . . . . . Other Policy Provisions: OWNER
-----
10(b). . . . . . . . . . Annual Dividends
10(c) and (d). . . . . . Death Benefit, Cash Value, Loans
and Withdrawals, Right to Return Policy,
Right to Exchange for a Fixed Benefit Policy,
Payment Plans
10(e). . . . . . . . . . Premiums, Paid-Up Insurance,
` Reinstatement
10(f). . . . . . . . . . Voting Rights
10(g). . . . . . . . . . Voting Rights, Substitution of Fund
Shares and Other Changes
10(h). . . . . . . . . . Voting Rights, Substitution of Fund
Shares and Other Changes
10(i). . . . . . . . . . Premiums, Death Benefit, Annual
Dividends, Other Policy Provisions:
PAYMENT PLANS
-------------
11 . . . . . . . . . . . The Account, The Fund, Aggressive Growth
Stock Portfolio, International Equity
Portfolio, Growth Stock Portfolio, Growth and
Income Stock Portfolio, Index 500 Stock
Portfolio, High Yield Bond Portfolio, Select
Bond Portfolio, and Money Market Portfolio
12 . . . . . . . . . . . The Fund
13 . . . . . . . . . . . Summary, The Fund, Deductions and
Charges, Distribution of the Policies
14 . . . . . . . . . . . Requirements for Insurance
15 . . . . . . . . . . . Premiums, Allocations to the Account
16 . . . . . . . . . . . The Account, The Fund, Allocations
to the Account
17 . . . . . . . . . . . Same Captions as Items 10(a), (c),
and (d)
18 . . . . . . . . . . . The Account, Annual Dividends
19 . . . . . . . . . . . Reports
-ii-
<PAGE>
20 . . . . . . . . . . . Not Applicable
21 . . . . . . . . . . . Loans and Withdrawals
22 . . . . . . . . . . . Not Applicable
23 . . . . . . . . . . . Not Applicable
24 . . . . . . . . . . . Not Applicable
25 . . . . . . . . . . . Northwestern Mutual Life
26 . . . . . . . . . . . The Fund, Deductions and Charges
27 . . . . . . . . . . . Northwestern Mutual Life
28 . . . . . . . . . . . Management
29 . . . . . . . . . . . Not Applicable
30 . . . . . . . . . . . Not Applicable
31 . . . . . . . . . . . Not Applicable
32 . . . . . . . . . . . Not Applicable
33 . . . . . . . . . . . Not Applicable
34 . . . . . . . . . . . Not Applicable
35 . . . . . . . . . . . Northwestern Mutual Life
36 . . . . . . . . . . . Not Applicable
37 . . . . . . . . . . . Not Applicable
38 . . . . . . . . . . . Distribution of the Policies
39 . . . . . . . . . . . Distribution of the Policies
40 . . . . . . . . . . . The Fund
41 . . . . . . . . . . . The Fund, Distribution of the Policies
42 . . . . . . . . . . . Not Applicable
43 . . . . . . . . . . . Not Applicable
44 . . . . . . . . . . . The Fund, Requirements for Insurance,
Premiums, Death Benefit, Cash Value
45 . . . . . . . . . . . Not Applicable
46 . . . . . . . . . . . Same Captions as Items 10(c) and (d)
47 . . . . . . . . . . . Not Applicable
48 . . . . . . . . . . . Not Applicable
49 . . . . . . . . . . . Not Applicable
50 . . . . . . . . . . . The Account
51 . . . . . . . . . . . Numerous Captions
52 . . . . . . . . . . . Substitution of Fund Shares and
Other Changes
53 . . . . . . . . . . . Not Applicable
54 . . . . . . . . . . . Not Applicable
55 . . . . . . . . . . . Not Applicable
56 . . . . . . . . . . . Not Applicable
57 . . . . . . . . . . . Not Applicable
58 . . . . . . . . . . . Not Applicable
59 . . . . . . . . . . . Financial Statements
-iii-
</TABLE>
<PAGE>
April 30, 1998
[LOGO]
The Quiet Company-Registered Trademark-
NORTHWESTERN MUTUAL VARIABLE COMPLIFE-Registered Trademark-
VARIABLE WHOLE LIFE POLICY
WITH ADDITIONAL PROTECTION
[PHOTO]
P R O S P E C T U S
CompLife-Registered Trademark- is a registered
service mark of
Northwestern Mutual
Life Insurance Company
NORTHWESTERN MUTUAL
SERIES FUND, INC.
The Northwestern Mutual
Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
(414) 271-1444
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus. . . . . . . . . . . . . . . . . . . . 1
Summary . . . . . . . . . . . . . . . . . . . . . 2
Variable Life Insurance. . . . . . . . . . . . 2
The Account and its Divisions. . . . . . . . . 2
The Policy . . . . . . . . . . . . . . . . . . 2
Premiums. . . . . . . . . . . . . . . . . . . 2
Death Benefit . . . . . . . . . . . . . . . . 2
Cash Value . . . . . . . . . . . . . . . . . 2
Deductions and Charges. . . . . . . . . . . . 2
From Premiums. . . . . . . . . . . . . . . . 2
From Policy Value. . . . . . . . . . . . . . 3
From the Assets of the Account and the
Fund . . . . . . . . . . . . . . . . . . . 3
Transaction Charges. . . . . . . . . . . . . 3
Surrender Charges. . . . . . . . . . . . . . 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 . . . . . . . . 4
Growth Stock Portfolio . . . . . . . . . . . . 4
Growth and Income Stock Portfolio. . . . . . . 4
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
The Policy Design. . . . . . . . . . . . . . . 5
Requirements for Insurance . . . . . . . . . . 6
Premiums . . . . . . . . . . . . . . . . . . . 6
Death Benefit. . . . . . . . . . . . . . . . . 8
Policy Value and Paid-Up Additional Insurance. 8
Allocations to the Account . . . . . . . . . . 9
Deductions and Charges . . . . . . . . . . . . 9
Deductions from Premiums. . . . . . . . . . . 9
Charges Against the Policy Value. . . . . . . 10
Charges Against the Account Assets. . . . . . 10
Transaction Charges . . . . . . . . . . . . . 10
Surrender Charges . . . . . . . . . . . . . . 10
Guarantee of Premiums, Deductions
and Charges . . . . . . . . . . . . . . . . . 11
PAGE
----
Cash Value. . . . . . . . . . . . . . . . . . 11
Annual Dividends. . . . . . . . . . . . . . . 11
Loans and Withdrawals . . . . . . . . . . . . 12
Excess Amount . . . . . . . . . . . . . . . . 13
Paid-Up Insurance . . . . . . . . . . . . . . 13
Reinstatement . . . . . . . . . . . . . . . . 13
Right to Return Policy. . . . . . . . . . . . 13
Right to Exchange for a Fixed Benefit Policy. 13
Other Policy Provisions . . . . . . . . . . . 14
Owner . . . . . . . . . . . . . . . . . . . 14
Beneficiary . . . . . . . . . . . . . . . . 14
Incontestability. . . . . . . . . . . . . . 14
Suicide . . . . . . . . . . . . . . . . . . 14
Misstatement of Age or Sex. . . . . . . . . 14
Collateral Assignment . . . . . . . . . . . 14
Payment Plans . . . . . . . . . . . . . . . 14
Deferral of Determination and Payment . . . 14
Voting Rights . . . . . . . . . . . . . . . . 14
Substitution of Fund Shares
and Other Changes. . . . . . . . . . . . . . 15
Reports . . . . . . . . . . . . . . . . . . . 15
Special Policy for Employers. . . . . . . . . 15
Distribution of the Policies. . . . . . . . . 15
Tax Treatment of Policy Benefits. . . . . . . 15
Other Information. . . . . . . . . . . . . . . . 16
Management. . . . . . . . . . . . . . . . . . 16
Regulation. . . . . . . . . . . . . . . . . . 18
Legal Proceedings . . . . . . . . . . . . . . 18
Registration Statement. . . . . . . . . . . . 18
Experts . . . . . . . . . . . . . . . . . . . 18
Financial Statements . . . . . . . . . . . . . . 19
Report of Independent Accountants
(for the two years ended December 31, 1997) . 19
Financial Statements of the Account
(for the two years ended December 31, 1997) . 20
Financial Statements of Northwestern Mutual Life
(for the three years ended
December 31, 1997). . . . . . . . . . . . 26
Report of Independent Accountants
(for the three years ended
December 31, 1997). . . . . . . . . . . . . 39
Appendix . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
<PAGE>
P R O S P E C T U S
NORTHWESTERN MUTUAL VARIABLE COMPLIFE-Registered Trademark-
VARIABLE WHOLE LIFE POLICY WITH ADDITIONAL PROTECTION
This prospectus describes the Variable CompLife-Registered Trademark- Policy
(the "Policy") offered by The Northwestern Mutual Life Insurance Company. The
Policy is designed to provide lifetime insurance coverage on the insured named
in the Policy. Both the death benefit and the cash value provided by the Policy
will vary daily to reflect the investment experience of Northwestern Mutual
Variable Life Account (the "Account").
The owner of a Policy may allocate the net premiums to one or more of the nine
divisions of the Account. The assets of each division will be invested in a
corresponding Portfolio of Northwestern Mutual Series Fund, Inc. (the "Fund").
The prospectus for the Fund, attached to this prospectus, describes the
investment objectives of the nine portfolios: the Aggressive Growth Stock
Portfolio, International Equity Portfolio, Growth Stock Portfolio, Growth and
Income Stock Portfolio, Index 500 Stock Portfolio, Balanced Portfolio, High
Yield Bond Portfolio, Select Bond Portfolio and Money Market Portfolio.
The Policy provides for a scheduled premium payable at least annually, but the
owner of a Policy may pay more than the scheduled amount. In some situations
the owner may pay less than the scheduled amount. Northwestern Mutual Life
guarantees that the death benefit will never be less than the Policy's initial
amount of whole life insurance, regardless of the Account's investment
experience, so long as scheduled premiums are paid when due and no Policy debt
is outstanding. The Policy may include insurance which is guaranteed for only a
specified number of years. There is no guaranteed minimum cash value.
In the early years of a Policy it is likely that the cash value will be less
than the premium amounts accumulated at interest. This is because of the sales
and insurance costs for a new Policy. Deductions for sales costs and
administrative expenses are made from the cash values of Policies surrendered
during the early Policy years. Therefore a Policy should be purchased only if
the purchaser intends to keep it in force for a reasonably long period.
A Policy may be returned for a full refund for a limited period of time. See
"Right to Return Policy", p.13.
THE ASSETS OF THE HIGH YIELD BOND DIVISION OF THE ACCOUNT ARE INVESTED IN SHARES
OF THE HIGH YIELD BOND PORTFOLIO OF THE FUND, WHICH INVESTS PRIMARILY IN FIXED
INCOME SECURITIES THAT ARE RATED BELOW INVESTMENT GRADE BY THE MAJOR RATING
AGENCIES. SUCH SECURITIES ARE SOMETIMES KNOWN AS "JUNK BONDS" AND ARE
CONSIDERED SPECULATIVE. INVESTORS SHOULD CAREFULLY CONSIDER THE RISKS
ASSOCIATED WITH SUCH INVESTMENTS, AS DESCRIBED IN THE FUND'S PROSPECTUS ATTACHED
HERETO, AND SHOULD UNDERSTAND THAT HIGH YIELD FIXED INCOME SECURITIES ARE not
APPROPRIATE FOR SHORT-TERM INVESTMENT PURPOSES.
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.
1
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY PROVIDES A BRIEF OVERVIEW OF THE ACCOUNT AND 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. 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 daily to reflect the performance of the selected investments. Since a
substantial part of the premium pays for the insurance risk of death a variable
life insurance policy should not be considered unless the primary need is life
insurance protection.
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 apportioned. Up to six divisions may be selected at
any one point in time. 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, International Equity
Portfolio, Growth Stock Portfolio, Growth and Income Stock Portfolio, Index 500
Stock Portfolio, Balanced Portfolio, High Yield Bond Portfolio, Select Bond
Portfolio and 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
PREMIUMS The Policy provides for a scheduled premium for the Minimum
Guaranteed Death Benefit and any Additional Protection purchased as part of the
Policy. The Minimum Guaranteed Death Benefit is the initial amount of whole
life insurance provided by the Policy. Additional Protection is insurance which
does not have a lifetime guarantee, but is guaranteed for a specified period.
The scheduled premium may include additional amounts to purchase variable
paid-up additional insurance or to increase Policy Value. The scheduled premium
also includes the amount required for any additional benefits that are purchased
with the Policy. The Policy permits payment of optional unscheduled additional
premiums, within limits, to purchase variable paid-up additional insurance or to
increase Policy Value. Payment of premiums may be suspended if it is determined
under a certain set of assumptions that the Policy Value is already sufficient
to cover future insurance costs. Resumption of premiums may be required in the
future if the Policy Value becomes insufficient. The Policy Value reflects
investment experience as well as premiums paid and the cost of insurance and
other charges. After a Policy is issued the amount of scheduled premiums may be
increased, or decreased, within limits, at the option of the policyowner.
Premiums are payable at least annually.
DEATH BENEFIT Northwestern Mutual Life guarantees that the Minimum
Guaranteed Death Benefit provided by a Policy will be paid upon the death of the
insured, regardless of investment experience, if scheduled premiums are paid
when due and no Policy debt is outstanding. The death benefit will be increased
by the amount of any Additional Protection in force. The Additional Protection
is guaranteed for a period which depends on the sex and risk classification and
age of the insured when the Policy is issued and on the proportions of Minimum
Guaranteed Death Benefit and Additional Protection. The death benefit will also
be increased by the amount of any variable paid-up additional insurance, any
excess Policy Value and any amount needed to meet federal income tax
requirements for life insurance.
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.
A surrender charge applies during the first 15 policy years. Partial surrenders
are permitted by administrative practice if the remaining Policy meets minimum
size requirements.
DEDUCTIONS AND CHARGES
FROM PREMIUMS
- Deduction of 3.5% for state and federal taxes attributable to premiums
- Sales load of 4.5%
- Annual charge of $84, currently expected to be reduced to $60 after
ten years
- Annual charge of $0.12 per $1,000 of Minimum Guaranteed Death Benefit
- Annual expense charge of $0.12 per $1,000 of Minimum Guaranteed Death
Benefit and Additional Protection (currently expected to be charged
for ten years only)
- Any extra premium charged for insureds who do not qualify as select,
standard plus or standard risks
- Any extra premium for additional benefits purchased with the Policy
2
<PAGE>
FROM POLICY VALUE
- An annual charge, based on the amount at risk and the attained age and
risk classification of the insured, with rates based on the 1980 CSO
Mortality Tables. This charge also applies for the values which
support any paid-up additional insurance.
- Any surrender charges, administrative charges or decrease in Policy
debt that may result from a withdrawal, a decrease in the face amount
of insurance or a transfer of Policy Value to paid-up insurance
FROM THE ASSETS OF THE ACCOUNT AND THE FUND
- A daily charge at the annual rate of .60% of the account assets for
mortality and expense risks
- 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.
TRANSACTION CHARGES
- Fee of up to $25 (currently waived) for transfers among the Account
Divisions
- Fee of up to $25 (currently waived) for withdrawals of Excess Amount
- Charge for administrative costs to process a partial surrender,
currently expected to be $250
SURRENDER CHARGES
- Surrender charges for sales and issuance expenses deducted from Policy
proceeds upon surrender of the Policy during the first 15 years
3
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY,
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT AND
NORTHWESTERN MUTUAL SERIES FUND, INC.
NORTHWESTERN MUTUAL LIFE
The Northwestern Mutual Life Insurance Company is a mutual life insurance
company organized by a special act of the Wisconsin Legislature in 1857. It is
the nation's 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 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. However, the policies issued prior to the introduction of Variable
CompLife-Registered Trademark- (October 11, 1995 in most states) are different
from the Variable CompLife-Registered Trademark- Policies described herein. The
older policies are described in a separate prospectus and are no longer offered.
The Account is registered as a unit investment trust under the Investment
Company Act of 1940. Such registration does not involve supervision of
management or investment practices or policies. The Account has nine divisions.
All of the assets of each division are invested in shares of the corresponding
Portfolio of the Fund described below.
THE FUND
Northwestern Mutual Series Fund, Inc. is a mutual fund of the series type
registered under the Investment Company Act of 1940 as an open-end diversified
management investment company. Shares of each Portfolio of the Fund are
purchased by the corresponding division of the Account at their net asset value
without any sales charge.
The investment adviser for the Fund is Northwestern Mutual Investment Services,
Inc. ("NMIS"), a wholly-owned subsidiary of Northwestern Mutual Life. The
investment advisory agreements for the respective Portfolios provide that NMIS
will provide services and bear certain expenses of the Fund. For providing
investment advisory and other services and bearing Fund expenses, the Fund pays
NMIS a fee at an annual rate which ranges from .20% of the aggregate average
daily net assets of the Index 500 Stock Portfolio to a maximum of .67% for the
International Equity Portfolio, based on 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.
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
4
<PAGE>
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 are generally 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.
- --------------------------------------------------------------------------------
DETAILED INFORMATION ABOUT THE POLICY
THE POLICY DESIGN
The simplified description of the Variable CompLife-Registered Trademark- Policy
design in this section is intended to help the reader understand how the Policy
is constructed. It omits details and important qualifications which are
discussed in the following sections.
The Policy combines a Minimum Guaranteed Death Benefit with Additional
Protection in an integrated policy design. The Minimum Guaranteed Death Benefit
represents permanent life insurance guaranteed for the lifetime of the insured
if premiums are paid when due and no Policy debt is outstanding. The Additional
Protection is guaranteed for a period of years which depends on the sex and risk
classification and age of the insured when the Policy is issued and the relative
proportions of Minimum Guaranteed Death Benefit and Additional Protection. For
an insured aged less than 43 the guaranteed period is not less than ten years.
It is generally longer for younger insureds and shorter for insureds who are
older, but will not be less than six years.
Net premiums are invested in the Account divisions selected by the Policyowner
and increase the Policy Value. The Policy Value is the cumulative amount
invested, adjusted for investment results, reduced by the cost of insurance.
The cost of insurance is based on the net amount at risk. This is the amount of
insurance in force less the Policy Value. The cost of insurance also reflects
the attained age of the insured each year. If premiums are paid when due and
investment experience is favorable, the Policy Value will increase year by year.
The Policy is designed so that the increase in Policy Value over time should
reduce the net amount at risk. The reduction in the net amount at risk offsets
the rising cost of the mortality risk as the age of the insured increases,
reducing the total cost of insurance which is subtracted from the Policy Value
each year. This scenario depends, however, on the investment experience which
is a principal factor in determining Policy Value. Investment experience is not
guaranteed. If investment experience does not produce a sufficient rate of
return, the amount of Additional Protection will be reduced in later Policy
years, or the Policyowner will need to pay additional premium to keep the
Additional Protection from falling. For a typical Policy the average annual net
investment rate of return required to maintain the initial amount of Additional
Protection, without additional premium, should be between 4% and 6%, based on
the current charges and dividend scale. Any excess Policy Value (called the
"Excess Amount") is simply added to the death benefit and the cash value, dollar
for dollar, unless a greater increase in the death benefit is required to meet
tax requirements for life insurance. See "Excess Amount", p.13.
5
<PAGE>
The Policy also allows the payment of additional premiums to purchase variable
paid up additional insurance. The values for the additional insurance are
calculated separately from those which support the initial amount of insurance
and do not affect the Policy Value. Unscheduled additional premiums to purchase
variable paid-up additional insurance are allowed, subject to insurability of
the insured when the premiums are accepted.
REQUIREMENTS FOR INSURANCE
The minimum amount required for the Minimum Guaranteed Death Benefit is
$100,000, reduced to $50,000 if the insured is below age 15 or over age 59. If
the initial premium is at least $10,000 ($5,000 for ages below 15) the required
minimum for the Minimum Guaranteed Death Benefit is $1,000. A lower minimum may
apply in some circumstances and will apply if the Policy is purchased for an
employer-sponsored benefit plan. See "Special Policy for Employers", p. 15.
The Minimum Guaranteed Death Benefit must always be at least $1,000.
Before issuing a Policy, Northwestern Mutual Life will require satisfactory
evidence of insurability. Non-smokers who meet preferred underwriting
requirements are considered select risks. Nonsmokers in the second best
classification are considered standard plus risks. The best class of smokers
are considered standard risks. The premium is different for each risk
classification. A higher premium is charged for insureds who do not qualify as
select, standard plus or standard risks. The amount of extra premium depends on
the risk classification in which the insured is placed.
PREMIUMS
The Policy provides for a level scheduled premium to be paid annually at the
beginning of each Policy year. Premiums are payable at the Home Office or to an
authorized Agent of Northwestern Mutual Life.
By administrative practice, Northwestern Mutual Life accepts premiums on a
monthly, quarterly or semi-annual schedule. If premiums are paid more
frequently than annually, Northwestern Mutual Life places the scheduled net
annual premium in the Account on each Policy anniversary. Northwestern Mutual
Life advances this amount on this date and is reimbursed as premium payments are
received from the Policyowner. The Policyowner has no obligation to repay the
amount that has been advanced, but failure to pay the premiums when due will
cause (a) premium payments to be suspended (subject to the conditions described
later in this section), (b) the Policy to continue in force as a reduced amount
of paid-up insurance, or (c) the Policy to terminate. If premiums are not paid
when due, the Account assets supporting the Policy will be reduced to reflect
the premiums due later in the Policy year.
Premiums paid other than on an annual basis are increased to (1) reflect the
time value of money, based on an 8% interest rate, and (2) cover the
administrative costs to process the additional premium payments. A monthly
premium is currently equal to the annual premium times .0863 plus 50 cents.
Thus, the total of monthly premiums for a year is currently 3.56% plus $6.00
higher than a premium paid annually. Monthly premiums may be paid only through
an automatic payment plan arranged with the Policyowner's bank. A quarterly
premium is currently equal to the annual premium times .2573 plus $2.00. A
semiannual premium is equal to the annual premium times .5096 plus $1.35.
The scheduled premium includes the premium for the Minimum Guaranteed Death
Benefit and the premium for any Additional Protection. The amount of the
premium depends on the amount of the Minimum Guaranteed Death Benefit and the
amount of Additional Protection, as well as the insured's age and risk
classification. The amount of the premium also reflects the sex of the insured
except where state or federal law requires that premiums and other charges and
values be determined without regard to sex. A notice is sent to the Policyowner
not less than two weeks before each premium is due.
The purchaser of the Policy may select the proportions of Minimum Guaranteed
Death Benefit and Additional Protection, subject to the required minimum amount
for the Minimum Guaranteed Death Benefit. See "Requirements for Insurance",
above.
Policies that include Additional Protection are subject to a minimum premium
that is equal to 70% of the premium for a Policy that consists solely of Minimum
Guaranteed Death Benefit. The premium for the Additional Protection consists of
two times the cost of term insurance (for the insured's age when the Policy was
issued) as long as this amount in combination with the premium for the Minimum
Guaranteed Death Benefit meets the 70% requirement. If this combination does
not meet the 70% requirement the premium for Additional Protection is increased
to bring the total up to the 70% level.
In addition to the premium required for the Minimum Guaranteed Death Benefit and
any Additional Protection, the scheduled premium may include additional premium
to purchase paid-up additional insurance or to increase the Policy Value. The
scheduled premium will also include the premium required for any additional
benefit included as part of the Policy.
6
<PAGE>
After the Policy is issued the additional premium included in the scheduled
premium may be decreased at any time upon the request of the Policyowner. The
additional premium included in the scheduled premium may be increased, or
optional unscheduled additional premiums may be paid, at any time before the
Policy anniversary nearest to the insured's 85th birthday, subject to the
insurability requirements and issue limits of Northwestern Mutual Life.
If the Policy includes Additional Protection, an increased premium may be
required after the guaranteed period to prevent a reduction of the amount of
Additional Protection. The increased premium, if required, is determined each
year as of the date 25 days before the Policy anniversary. The Policyowner is
entitled to pay the increased premium required to keep the Additional Protection
from falling until the insured reaches age 80 but this right terminates as of
the first Policy anniversary on which the required increased premium is not paid
when due.
Payment of scheduled premiums may be suspended, at the option of the
Policyowner, if as of 25 days prior to the Policy anniversary on or before the
due date of the premium, (1) the Excess Amount exceeds one year's minimum
premium, and (2) the Policy Value exceeds the sum of the net single premium for
the amount of insurance then in force, plus the present value of future charges
for expenses, additional benefits, and any extra mortality. See "Excess
Amount", p. 13. The minimum premium is the sum of the premiums for the Minimum
Guaranteed Death Benefit, the Additional Protection and any additional benefit
included in the Policy. The net single premium and the present value of future
charges will be calculated using the mortality basis for the cost of insurance
charges with 6% interest. See "Charges Against the Policy Value", p. 10. While
payment of premiums is suspended, certain charges ordinarily deducted from
premiums will reduce the Policy Value instead. Payment of scheduled premiums
may be resumed as of any Policy anniversary. Payment of scheduled premiums must
be resumed as of the next Policy anniversary if the Excess Amount, as of 25 days
prior to the Policy anniversary, is determined to be less than one year's
minimum premium. Unscheduled additional premiums may be paid while suspension
of scheduled premiums is in effect, subject to the insurability requirements and
issue limits of Northwestern Mutual Life.
The Policy provides for a grace period of 31 days for any premium that is not
paid when due. The Policy remains in force during this period. If a premium is
paid during the grace period, the values for the Policy will be the same as if
the premium had been paid when due. If the premium is not paid within the grace
period, and the Policy does not qualify for premium suspension, the Policy will
terminate as of the date when the premium was due and will no longer be in
force, unless it is continued as paid-up insurance. See "Paid-Up Insurance", p.
13. If a Policy is surrendered, its cash value will be paid. See "Cash Value",
p. 11.
The following table shows representative annual premiums for a Policy with an
initial amount of $200,000, divided equally between Minimum Guaranteed Death
Benefit and Additional Protection, for male select, standard plus and standard
risks, at three ages.
<TABLE>
<CAPTION>
PREMIUM FOR
MINIMUM MINIMUM
GUARANTEED GUARANTEED PREMIUM FOR
AGE AT DEATH DEATH ADDITIONAL ADDITIONAL TOTAL
ISSUE BENEFIT PROTECTION PROTECTION PROTECTION PREMIUM
- ------ ---------- ----------- ---------- ----------- -------
SELECT
<S> <C> <C> <C> <C> <C>
15 . . . .$100,000 $ 688 $100,000 $ 294 $ 982
35 . . . . 100,000 1,347 100,000 505 1,852
55 . . . . 100,000 3,351 100,000 1,660 5,011
STANDARD PLUS
15 . . . .$100,000 $ 745 $100,000 $ 304 $1,049
35 . . . . 100,000 1,479 100,000 558 2.037
55 . . . . 100,000 3,640 100,000 2,420 6,060
STANDARD
15 . . . .$100,000 $ 848 $100,000 $ 370 $1,218
35 . . . . 100,000 1,723 100,000 656 2,379
55 . . . . 100,000 4,367 100,000 3,190 7,557
</TABLE>
7
<PAGE>
DEATH BENEFIT
The death benefit for a Policy includes the Minimum Guaranteed Death Benefit,
any Additional Protection in effect, any Excess Amount and any paid-up
additional insurance. It is reduced by the amount of any Policy debt
outstanding and by an adjustment for any unpaid premiums which have been applied
to purchase paid-up additional insurance.
The Minimum Guaranteed Death Benefit selected by the Policyowner when the Policy
is issued will neither increase nor decrease, regardless of the investment
experience of the Account divisions where assets for the Policy are held, so
long as scheduled premiums are paid when due and no Policy debt is outstanding.
In setting the premium rates for the Minimum Guaranteed Death Benefit it has
been assumed that the Account assets will grow at a net annual rate of 4%.
Northwestern Mutual Life bears the risk that the rate of growth will be less. A
higher rate of growth results in an increase in the Policy Value.
The Additional Protection included in a Policy when it is issued will not
increase by reason of investment experience more favorable than the assumed 4%
net annual rate of growth. It will not decrease, regardless of investment
experience, until expiration of the guaranteed period, so long as scheduled
premiums are paid when due and no Policy debt is outstanding. A condition for
this guarantee is that any dividends paid on the Policy must be used to increase
Policy Value until the end of the guaranteed period unless the Policy has an
Excess Amount. See "Excess Amount" p. 13. After the guaranteed period, the
Additional Protection may be reduced unless the Policy Value exceeds the amount
defined by the formula in the Policy. The amount of Policy Value, and the
amount of increased premium required to prevent a reduction in the Additional
Protection, are calculated 25 days before each Policy anniversary. The
Policyowner may pay any increased premium required to prevent a reduction in the
Additional Protection each year until the Policy anniversary nearest the
insured's 80th birthday, but this right terminates the first time any required
increased premium is not paid when it is due.
The Policy Value represents the total cumulative net premiums for the Minimum
Guaranteed Death Benefit and the Additional Protection, including any additional
net premiums or Policy dividends which have been used to increase the Policy
Value, adjusted for investment experience, less the cost of insurance which is
deducted from the Policy Value on each Policy anniversary. The Policy Value may
exceed the amount required to support the Minimum Guaranteed Death Benefit and
the Additional Protection. This may result from favorable investment experience
or from additional premium or Policy dividends used to increase the Policy
Value. The amount by which the Policy Value exceeds the amount needed to
support the Minimum Guaranteed Death Benefit and the Additional Protection under
a specified set of assumptions is called the Excess Amount. See "Excess
Amount", p. 13. Any Excess Amount will increase the death benefit for the
Policy, dollar-for-dollar, except as described in the next paragraph. The
Policy Value and any Excess Amount change daily.
The Policy is designed to meet the definitional requirements for life insurance
in Section 7702 of the Internal Revenue Code. See "Tax Treatment of Policy
Benefits," p. 15. These rules require that the death benefit will never be less
than the Policy Value divided by the net single premium per dollar of death
benefit. The required difference between the death benefit and the Policy Value
is higher at younger ages than at older ages. The Policy provides for an
increase in the death benefit to the extent required to meet this test. After
the death benefit has been increased to meet this requirement an increase in the
Policy Value will cause a greater than dollar-for-dollar increase in the death
benefit, and a decrease in the Policy Value will cause a greater than
dollar-for-dollar decrease in the death benefit.
The death benefit is increased by the amount of any paid-up additional insurance
purchased with additional premium or Policy dividends. The amount and value of
the paid-up additional insurance vary daily to reflect investment experience and
are not guaranteed. The amount of any paid-up additional insurance is its value
used as a net single premium at the attained age of the insured.
POLICY VALUE AND PAID-UP ADDITIONAL INSURANCE
The Policy Value and the value of any paid-up additional insurance are each
determined daily by separate calculations. An increase or decrease in the
Policy Value has no effect on the value of any paid-up additional insurance, and
an increase or decrease in the value of any paid-up additional insurance has no
effect on the Policy Value. The Policyowner may increase or decrease the amount
of scheduled additional premium which is being paid to increase the Policy Value
or to increase the amount of paid-up additional insurance, and may change the
allocation for applying this additional premium. Changes in the scheduled
additional premium and its allocation must be made by written request. Evidence
of insurability may be required. Increases in the scheduled additional
8
<PAGE>
premium are not permitted after the Policy anniversary nearest the insured's
85th birthday.
The value of paid-up additional insurance may be transferred to increase the
Policy Value by written request. This will generally result in a decrease in the
total death benefit. Policy Value may not be transferred to the value of
paid-up additional insurance.
ALLOCATIONS TO THE ACCOUNT
The first net annual premium for the Policy, including any net scheduled
additional premium, is placed in the Account on the Policy date. The net
scheduled annual premium is placed in the Account on each Policy anniversary
thereafter even if premiums are being paid on an other-than-annual frequency.
Net unscheduled premiums will be 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 latest of the Policy date, 45 days after the
date of the completed application or 32 days after the application is approved
by Northwestern Mutual Life. 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 Policyowner 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. If any portion of a
premium is allocated to a division, the division must receive at least 10% of
that premium.
The Account assets supporting a Policy may be apportioned among as many as six
divisions of the Account at any one time.
The Policyowner may transfer accumulated amounts from one division of the
Account to another as often as twelve times in a Policy year. Transfers are
effective on the date a written request is received at the Home Office of
Northwestern Mutual Life. Northwestern Mutual Life reserves the right to charge
a fee of up to $25 to cover administrative costs of transfers. No fee is
presently charged.
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 3.5% of the
premium. Of this amount 2.25% 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 2.25% rate is an average. The tax rate for a particular state
may be lower, higher, or equal to the 2.25% 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 an increase in its federal income taxes resulting from a recent
change in the Internal Revenue Code.
A charge of 4.5% for sales costs is deducted from each premium. Northwestern
Mutual Life expects to recover its sales expenses from this amount, over the
period while the Policies are in force, and from the surrender charges described
below. The amounts deducted for sales costs in a Policy year are not
specifically related to sales costs incurred that year. To the extent that
sales expenses exceed the amounts deducted, Northwestern Mutual Life will pay
the expenses from its other assets. These assets may include, among other
things, any gain realized from the charge against the assets of the Account for
the mortality and expense risks assumed by Northwestern Mutual Life. See
"Charges Against the Account Assets", p. 10. To the extent that the amounts
deducted for sales costs exceed the amounts needed, Northwestern Mutual Life
will realize a gain.
An annual charge of $60 is deducted from premiums each year for administrative
costs to maintain the Policy. These expenses include costs of premium billing
and collection, processing claims, keeping records and communicating with
Policyowners. Northwestern Mutual Life retains the right to increase this
charge after 10 years, but it is guaranteed not to exceed $84 plus 12 cents per
$1,000 of both the Minimum Guaranteed Death Benefit and the Additional
Protection. Northwestern Mutual Life does not expect to profit from this
charge.
An annual charge is deducted from premiums each of the first 10 years to
compensate Northwestern Mutual Life for expenses, other than sales expenses,
incurred in conjunction with issuance of the Policy. These expenses include the
costs of processing applications, medical examinations, determining insurability
and establishing records. The annual amount of this charge is $24 plus 12 cents
per $1,000 of Minimum Guaranteed Death Benefit and Additional Protection. If
the Policy is surrendered before these charges have been deducted for 10 years,
the remaining charges will be reflected in the administrative surrender charge.
See "Surrender Charges", p. 10.
An annual charge of 12 cents per $1,000 of Minimum Guaranteed Death Benefit is
deducted from premiums
9
<PAGE>
each year to compensate Northwestern Mutual Life for the risk assumed by
guaranteeing the Minimum Guaranteed Death Benefit, as long as all premiums are
paid when due, no matter how unfavorable investment performance may be.
Any extra amounts charged for insureds who do not qualify as select, standard
plus or standard risks, plus the cost of any additional benefits purchased with
the Policy, are also deducted to determine the net annual premium.
CHARGES AGAINST THE POLICY VALUE A cost of insurance charge is deducted from
the Policy Value on each Policy Anniversary. The amount is determined by
multiplying the net amount at risk by the cost of insurance rate. The net
amount at risk is the projected insurance amount, discounted at 4%, less the
Policy Value. The projected insurance amount is the amount of insurance at the
end of the Policy year, assuming that the Policy Value increases by the 4%
annual growth rate assumed in constructing the Policy. The cost of insurance
rate reflects the attained age of the insured. For select and standard risks,
the cost of insurance rate is based on the Commissioners 1980 Standard Ordinary
Smoker and Non-Smoker Mortality Tables. For other risks, the cost of insurance
rate is based on the Commissioners 1980 Standard Ordinary Mortality Tables. The
cost of insurance rates are included in the Policy. A cost of insurance charge
is also deducted from the cash value of any paid-up additional insurance on each
Policy anniversary. If an unscheduled premium is received on a day other than a
Policy anniversary and the net amount at risk increases as a result, a cost of
insurance charge will be deducted on that day, reflecting the increase in the
net amount at risk and the portion of the Policy year remaining.
While payment of premiums is suspended, a portion of the annual charges which
would ordinarily be deducted from premiums will be deducted from the Policy
Value instead. This deduction will also be made on the Policy anniversary each
year.
The Policy Value will also be reduced by any surrender charges, administrative
charges or decrease in Policy debt that may result from a withdrawal, a decrease
in the face amount of insurance or a change to variable benefit paid-up
insurance.
CHARGES AGAINST THE ACCOUNT ASSETS There is a daily charge to the Account for
the mortality and expense risks assumed by Northwestern Mutual Life. The charge
is at the annual rate of .60% of the assets of the Account. The mortality risk
is that insureds may not live as long as Northwestern Mutual Life estimated. The
expense risk is that expenses of issuing and administering the Policies may
exceed the estimated costs. Northwestern Mutual Life will realize a gain from
this charge to the extent it is not needed to provide benefits and pay expenses
under the Policies. The actual mortality and expense experience under the
Policies will be the basis for determining dividends. See "Annual Dividends", p.
11.
The Policies provide that a charge for taxes may be made against the assets of
the Account. Currently, a daily charge for federal income taxes incurred by
Northwestern Mutual Life is not being made. In no event will the charge for
taxes exceed that portion of the actual tax expenses of Northwestern Mutual Life
which is fairly allocable to the Policies.
TRANSACTION CHARGES The Policy provides for a fee of up to $25 for a transfer
of assets among the Account divisions and for a fee of up to $25 for a
withdrawal of Excess Amount. These charges are currently being waived.
SURRENDER CHARGES If the Policy is surrendered before the premium due at the
beginning of the fifteenth year has been paid, surrender charges will be
deducted from the Policy Value. A table of surrender charges is in the Policy.
The surrender charges consist of an administrative surrender charge and a
premium surrender charge. The administrative surrender charge is equal to the
sum of the issue expense charges which have not been deducted. The
administrative surrender charge in the first Policy year is $216, plus $1.08 per
$1,000 of Minimum Guaranteed Death Benefit and Additional Protection. This
charge grades down linearly each year as the premium is paid (or payment of
premiums is suspended) and is zero after the premium due at the beginning of the
tenth Policy year has been paid (or suspended).
The premium surrender charge is a percentage (shown in the table below) of the
surrender charge base. If payment of the premium for a Policy year has been
suspended, the premium surrender charge percentage will be as if the annual
premium had been paid. During the first five policy years, if premiums are paid
more frequently than annually the premium surrender charge percentages will be
adjusted to reflect the actual period for which premiums have been paid.
If none of the premium payments during the first five Policy years have been
suspended, the surrender charge base equals the sum of an annual premium for the
Minimum Guaranteed Death Benefit (exclusive of the Policy fee and exclusive of
any charge for extra mortality) plus a term insurance premium for the initial
amount of Additional Protection.
If any of the premium payments during the first five Policy years have been
suspended, the surrender charge base equals the lesser of (1) the sum of an
10
<PAGE>
annual premium for the Minimum Guaranteed Death Benefit (exclusive of the Policy
fee and exclusive of any charge for extra mortality) plus a term insurance
premium for the initial amount of Additional Protection, and (2) the sum of the
total premiums paid (exclusive of any premiums for additional benefits purchased
with the Policy, and premiums for extra mortality, and any extra amount for
premiums paid more often than annually) divided by the number of years
(including fractions), but not more than five, for which premiums have been paid
or suspended.
<TABLE>
<CAPTION>
FOR POLICIES PREMIUM SURRENDER CHARGE
SURRENDERED AFTER PERCENTAGE
PAYMENT OF THE ---------------------------------------------
BEGINNING OF YEAR ISSUE AGE 65 AND UNDER ISSUE AGE 75
- ----------------- ---------------------- ------------
<S> <C> <C>
1 24% 24%
2 28% 25.5%
3 32% 27%
4 36% 28.5%
5 through 10 40% 30%
11 32% 24%
12 24% 18%
13 16% 12%
14 8% 6%
15 and later 0% 0%
</TABLE>
For issue ages 66 through 74, the percentages are determined by linear
interpolation between the percentages shown.
GUARANTEE OF PREMIUMS, DEDUCTIONS AND CHARGES
Northwestern Mutual Life guarantees and may not increase the premiums for the
Minimum Guaranteed Death Benefit and the charge for mortality and expense risks.
These amounts will not increase regardless of future changes in longevity or
increases in expenses.
CASH VALUE
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 plus the value of any paid-up additional insurance, reduced by any
Policy debt outstanding and the surrender charges. If premiums are not being
paid on an annual basis the cash value is reduced for any premiums due later in
the Policy year.
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 l940, the cash value for a Policy may also be determined on any other day on
which there is sufficient trading in securities to materially affect the value
of the securities held by the Portfolios of the Fund.
The owner of a Policy may surrender it for the cash value at any time during the
lifetime of the insured. Alternatively, the cash value may be applied to provide
a reduced amount of fixed or variable paid-up insurance. See "Paid-Up
Insurance", p.13.
Northwestern Mutual Life will permit partial surrenders of the Policies so long
as the Policy that remains meets the regular minimum size requirements. A
partial surrender will cause the Policy to be split into two Policies. One
Policy will be surrendered; the other will continue in force on the same terms
as the original Policy except that the premiums will be based on the reduced
amount of insurance. The owner will receive a new Policy document. The cash
value and the death benefit will be proportionately reduced. A deduction from
the Policy proceeds for a proportionate part of the surrender charges will be
made if a partial surrender takes place before the premium due at the beginning
of the fifteenth Policy year has been paid. A transaction charge will be made
when a partial surrender is effected. The amount of the transaction charge will
not exceed the actual administrative costs for the transaction. Northwestern
Mutual Life currently expects this charge to be $250.
ANNUAL DIVIDENDS
The Policies share in divisible surplus to the extent determined annually by
Northwestern Mutual Life. A Policy's share will be distributed annually as a
dividend payable on each Policy anniversary. Dividends under participating
policies may be described as refunds of premiums which adjust the cost of a
policy to the actual level of cost emerging over time after the policy's issue.
Thus participating policies generally have gross premiums which are higher than
those for comparable non-participating policies. Both federal and state tax law
recognize that a dividend is considered to be a refund of a portion of the
premium paid.
Dividend illustrations published at the time a life insurance policy is issued
reflect the actual recent experience of the issuing company with respect to
investment earnings, mortality and expenses. State law generally prohibits a
company from projecting or estimating future results. State law also requires
that dividends be paid out of surplus, after certain necessary amounts are set
aside, and that such surplus be apportioned equitably among participating
policies. In summary, dividends must be based on actual experience and cannot be
guaranteed at issue of a policy.
11
<PAGE>
Northwestern Mutual Life's actuary annually examines current and recent
experience and compares these results with those which were assumed in
determining premium rates when each class of policies was issued. Classes are
determined by such factors as year of issue, age, plan of insurance and risk
classification. The actuary then determines the amount of dividends to be
equitably apportioned to each class of policies. Following the actuary's
recommendations, the Trustees of Northwestern Mutual Life adopt a dividend scale
each year, thereby authorizing the distribution of the dividend.
Northwestern Mutual Life has no significant actual mortality experience with
variable life insurance policies. For purposes of the current dividend scale
used for the illustrations in this prospectus, it has been assumed that
mortality experience in connection with the Policies will be comparable to that
actually experienced with fixed benefit life insurance.
Dividends for variable life insurance are generally lower than those for
participating fixed benefit life insurance, primarily because a variable life
insurance policy provides a contractual mechanism for translation of investment
experience into a variable death benefit and variable cash value. For
participating fixed benefit life insurance the dividend includes amounts
produced by favorable investment results. Dividends based on the Minimum
Guaranteed Death Benefit for the Policies described in this prospectus are
expected be relatively low during the first 15 Policy years.
The prospectus illustrations show dividends being used to increase the Policy
Value. If the Policy has Additional Protection in force, the dividends will be
used to increase the Policy Value unless the Policy has Excess Amount. See
"Excess Amount", p. 13. If the Policy has Excess Amount, or if no Additional
Protection is in force, dividends may be used to purchase variable benefit
paid-up additional insurance, used to pay premiums or paid in cash. If the
Policy is in force as fixed benefit paid-up insurance, dividends may be paid in
cash or used to purchase fixed benefit paid-up additional insurance. If the
Policy is in force as variable benefit paid-up insurance, dividends may be paid
in cash or used to purchase variable benefit paid-up additional insurance.
LOANS AND WITHDRAWALS
The owner of a Policy may borrow up to 90% of the Policy's cash value using the
Policy as security. If a Policy loan is already outstanding, the maximum amount
for any new loan is 90% of the amount of cash value the Policy would have if
there were no loan, less the amount already borrowed. Loan proceeds may be taken
in cash or may be applied to pay premiums on the Policy.
Interest on a Policy loan accrues and is payable on a daily basis. Unpaid
interest is added to the amount of the loan. If the amount of the loan equals or
exceeds the Policy's cash value, the Policy will terminate. The owner will be
given a notice at least 31 days before the termination date. The notice will
show how much must be repaid to keep the Policy in force.
The Policy loan interest rate is selected by the owner. A specified annual
effective rate of 5% is one choice. The other choice is a variable rate based on
a corporate bond yield index. The variable rate will be adjusted annually, but
will not be less than 5%.
The amount of a Policy loan, including interest as it accrues, will be taken
from the Account divisions in proportion to the amounts in the divisions. The
amounts withdrawn will be transferred to Northwestern Mutual Life's general
account and will be credited on a daily basis with an annual earnings rate equal
to the Policy loan interest rate less a charge for the mortality and expense
risks assumed by Northwestern Mutual Life and for expenses, including taxes. The
aggregate charge is currently at the annual rate of .90% for the 5% specified
Policy loan interest rate and .90% for the variable Policy loan interest rate.
For example, the earnings rate corresponding to the specified 5% Policy loan
interest rate is currently 4.10%. A Policy loan, even if it is repaid, will have
a permanent effect on the Policy Value and cash value because the amounts
borrowed will not participate in the Account's investment results while the loan
is outstanding. The effect may be either favorable or unfavorable depending on
whether the earnings rate credited to the loan amount is higher or lower than
the rate credited to the unborrowed amount left in the Account.
Except when the Policy is in force as fixed benefit paid-up insurance, a Policy
loan will be allocated between Policy Value and variable paid-up additional
insurance in proportion to the amount of cash value attributable to each.
A Policy loan, and any accrued interest outstanding, may be repaid, in whole or
in part, at any time. Payments will be credited as of the date received and will
be transferred from the general account of Northwestern Mutual Life to the
Account divisions, in proportion to the amounts in the divisions, as of the same
date.
The Policyowner may make a withdrawal if the Excess Amount is sufficient. See
"Excess Amount", p. 13. A withdrawal may neither decrease the Excess Amount to
less than the surrender charge which would apply if the Policy were surrendered
nor reduce the
12
<PAGE>
loan value to less than any Policy debt outstanding. The minimum amount for
withdrawals is $250. An administrative charge of up to $25 may apply, but is
currently being waived.
A withdrawal of Policy 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 may be larger than the amount of the withdrawal.
If cumulative withdrawals exceed the cumulative additional premiums which have
been used to increase the Policy Value, with both withdrawals and premiums
increased by 4% annual interest, subsequent unfavorable investment experience
may cause the Policy to lapse unless an additional unscheduled premium is paid
to increase the Policy Value. The due date for this premium is the Policy
anniversary following written notice to the Policyowner.
EXCESS AMOUNT
The Excess Amount is the amount by which the Policy Value exceeds the Tabular
Cash Value for the sum of the Minimum Guaranteed Death Benefit and any
Additional Protection in effect. The Tabular Cash Value is an amount equal to
a Policy Value calculated assuming (1) a whole life Policy with a face amount
equal to the sum of the Minimum Guaranteed Death Benefit and the Additional
Protection, (2) all premiums are paid when due, (3) no additional premiums or
dividends used to increase Policy Value, (4) a 4% level annual rate of return,
and (5) maximum Policy charges apply. If premiums are not being paid on an
annual basis, the Excess Amount is reduced for any premiums due later in the
Policy year.
PAID-UP INSURANCE
If a premium is not paid within the 31-day grace period, and the Policy does not
qualify for suspension of premium payments, the Policy will continue in force as
a reduced amount of fixed benefit paid-up insurance. Alternatively the
Policyowner may select a reduced amount of variable benefit paid-up insurance.
This selection must be made during the grace period or sooner.
If the Policy is in force as a reduced amount of fixed benefit paid-up insurance
the amount of the cash value will be transferred from the Account to
Northwestern Mutual Life's general account. Thereafter the Policy will not
participate in the Account's investment results unless the Policy is
subsequently reinstated. See "Reinstatement", below. The minimum cash value for
fixed benefit paid-up insurance is $1,000. If the cash value is less than
$1,000 as of the last day of the grace period the Policy will be treated as
surrendered. Variable benefit paid-up insurance may be selected only if the cash
value of the Policy is at least $5,000.
The amount of paid-up insurance is determined by applying the amount of cash
value plus any Policy debt as a net single premium at the attained age. Paid-up
insurance has cash and loan values. For fixed benefit paid-up insurance the
amounts of these are guaranteed. For variable paid-up insurance neither the
death benefit or the cash value is guaranteed. Paid-up insurance remains in
force for the lifetime of the insured unless the Policy is surrendered or
terminated. While the Policy is in force as either fixed or variable benefit
paid-up insurance the Minimum Guaranteed Death Benefit and any Additional
Protection will not be in effect. Any Policy debt will continue.
REINSTATEMENT
If a premium is due and remains unpaid after the grace period expires, the
Policy may be reinstated while the insured is alive within three years after the
premium due date. The insured must provide satisfactory evidence of insurability
unless reinstatement takes place within 31 days after the end of the grace
period. A substantial payment may be required. Following reinstatement the
Policy will have the same Minimum Guaranteed Death Benefit, Additional
Protection, Policy Value and paid-up additional insurance as if minimum premiums
had been paid when due. A 4% rate of investment earnings will be credited for
the period from the due date of the overdue premium to the date of
reinstatement. An adjustment will be made for any Policy debt or the debt may
be reinstated. The Policy may not be reinstated if it has been surrendered for
its cash value.
RIGHT TO RETURN POLICY
A Policy may be returned for a full refund of the premium paid within 45 days
after the application for insurance is signed, or within 10 days after the
Policy is received, or within 10 days after a Notice of Cancellation Right is
mailed or delivered to the owner, whichever date is latest. The Policy may be
mailed or delivered to the agent who sold it or to the Home Office of
Northwestern Mutual Life. If returned, the Policy will be considered void from
the beginning.
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
The owner may exchange a Policy for a whole life insurance policy with benefits
that do not vary with the investment experience of a separate account. The
exchange may be elected at any time within twenty-four months after the issue
date of the Policy provided premiums are duly paid. Evidence of insurability is
not required.
13
<PAGE>
The new policy will be on the life of the same insured and will have the same
initial guaranteed death benefit, policy date and issue age. The premiums and
cash values will be the same as those for fixed benefit policies issued by
Northwestern Mutual Life on the issue date of the Policy.
The exchange will be subject to an equitable cash adjustment. The amount will
recognize the difference in premiums and investment performance of the two
policies.
An exchange will be effective when Northwestern Mutual Life receives a proper
written request, as well as the Policy and any amount due on the exchange.
The owner of a Policy may also exchange it for a fixed benefit policy if the
Fund changes its investment adviser or if there is a material change in the
investment policies of a Fund portfolio. The owner will be given notice of any
such change and will have 60 days to make the exchange.
OTHER POLICY PROVISIONS
OWNER. The owner is identified in the Policy. The owner may exercise all rights
under the Policy while the insured is living. Ownership may be transferred to
another. Written proof of the transfer must be received by Northwestern Mutual
Life at its Home Office.
BENEFICIARY. The beneficiary is the person to whom the death benefit is
payable. The beneficiary is named in the application. After the Policy is issued
the owner may change the beneficiary in accordance with the Policy provisions.
INCONTESTABILITY. Northwestern Mutual Life will not contest a Policy after it
has been in force during the lifetime of the insured for two years from the date
of issue.
SUICIDE. If the insured dies by suicide within one year from the date of issue,
the amount payable under the Policy will be limited to the premiums paid, less
the amount of any Policy debt and withdrawals and less the cash value of any
variable paid-up insurance surrendered.
MISSTATEMENT OF AGE OR SEX. If the age or sex of the insured has been
misstated, benefits under a Policy will be adjusted to reflect the correct age
and sex.
COLLATERAL ASSIGNMENT. The owner may assign a Policy as collateral security.
Northwestern Mutual Life is not responsible for the validity or effect of a
collateral assignment and will not be deemed to know of an assignment before
receipt of the assignment in writing at the Home Office.
PAYMENT PLANS. The Policy provides a variety of payment plans for Policy
benefits. Any Northwestern Mutual Life agent authorized to sell the Policies can
explain these provisions on request.
DEFERRAL OF DETERMINATION AND PAYMENT. So long as premiums have been paid when
due, Northwestern Mutual Life will ordinarily pay Policy benefits within seven
days after receipt of all required documents at its Home Office. However,
determination and payment of benefits may be deferred during any period when it
is not reasonably practicable to value securities because the New York Stock
Exchange is closed or an emergency exists or the Securities and Exchange
Commission, by order, permits deferral for the protection of Policyowners.
If a Policy is in force as fixed benefit paid-up insurance, Northwestern Mutual
Life has the right to defer payment of the cash value for up to six months from
the date of a Policy loan or surrender. If payment is deferred for 30 days or
more interest will be paid at an annual effective rate of 4%.
VOTING RIGHTS
Northwestern Mutual Life is the owner of the Fund shares in which all assets of
the Account are invested. As the owner of the shares Northwestern Mutual Life
will exercise its right to vote the shares to elect directors of the Fund, to
vote on matters required to be approved or ratified by mutual fund shareholders
under the Investment Company Act of 1940 and to vote on any other matters that
may be presented to any Fund shareholders' meeting. However, Northwestern Mutual
Life will vote the Fund shares held in the Account in accordance with
instructions from owners of the Policies. Northwestern Mutual Life will vote the
Fund shares held in its general account in the same proportions as the shares
for which voting instructions are received. If the applicable laws or
regulations change so as to permit Northwestern Mutual Life to vote the Fund
shares in its own discretion, it may elect to do so.
The number of Fund shares for each division of the Account for which the owner
of a Policy may give instructions is determined by dividing the amount of the
Policy's cash value apportioned to that division, if any, by the per share value
for the corresponding Fund Portfolio. The number will be determined as of a date
chosen by Northwestern Mutual Life, but not more than 90 days before the Fund
shareholders' meeting. Fractional votes are counted. Voting instructions will be
solicited with written materials at least 14 days before the meeting. Shares as
to which no instructions have been received will be voted in the same proportion
as the shares as to which instructions have been received.
Northwestern Mutual Life may, if required by state insurance officials,
disregard voting instructions which
14
<PAGE>
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
For each Policy year (unless a Policy is in force as fixed benefit paid-up
insurance) the owner of a Policy will receive a statement showing the death
benefit, cash value and any Policy loan (including interest charged) as of the
anniversary date. 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.
SPECIAL POLICY FOR EMPLOYERS
A reduced minimum amount applies for Policies where the insurance involves an
employer sponsored benefit plan or arrangement. The sum of the Minimum
Guaranteed Death Benefit and the Additional Protection must be at least $10,000,
of which the Minimum Guaranteed Death Benefit must be at least $1,000. The
premium for the Additional Protection is two times the cost of term insurance
for the insured's age when the Policy is issued.
These Policies for employers may include a provision to permit the amount of
Additional Protection to increase after issue. Any such increase amount must be
based on the terms of the benefit plan or arrangement and may not be subject to
the discretion of the insured or the insured's beneficiary. A description of
the method of determining the amount of any increase is included in the Policy.
Changes to the amount of Additional Protection will be effective on Policy
anniversaries. The surrender charge and all charges for issue and
administrative expenses will be based on the initial amount of Additional
Protection.
For certain situations where the insurance involves an employer sponsored
benefit plan or arrangement, federal law and the laws of certain states may
require that premiums and annuity rates be determined without regard to sex.
Special Policies are available for this purpose. Prospective purchasers of the
Policies are urged to review any questions in this area with qualified counsel.
DISTRIBUTION OF THE POLICIES
The Policies will be sold through individuals who, in addition to being licensed
life insurance agents of Northwestern Mutual Life, are registered
representatives of Northwestern Mutual Investment Services, Inc. ("NMIS"), a
wholly-owned subsidiary of Northwestern Mutual Life. NMIS is a registered
broker-dealer under the Securities Exchange Act of 1934 and is a member of the
National Association of Securities Dealers.
Commissions paid to the agents will not exceed 40% of the premium for the first
year, 6% of the premium for the second through tenth years, and 2-3/4% of the
premium thereafter.
Agents who meet certain productivity and persistency standards receive
additional compensation. New agents may be paid differently during a training
period. General agents and district agents who are registered representatives of
NMIS and have supervisory responsibility for sales of the Policies receive
commission overrides and other compensation.
TAX TREATMENT OF POLICY BENEFITS
The Policies are "life insurance contracts" as that term is defined in Sections
7702 and 817(h) of the Internal Revenue Code. Increases in cash value under a
Policy are not taxable until actual surrender of the Policy. Upon surrender, the
amount received is taxable at ordinary income rates under Section 72(e) of the
Code to the extent it exceeds the amount of the premiums paid under the Policy
less any dividends or other amounts previously received tax-free (basis of the
Policy). Death benefits are excludable from the
15
<PAGE>
beneficiary's gross income under Section l0l(a) of the Code.
Under certain limited circumstances, all or part of a partial surrender or a
withdrawal during the first 15 years may be taxable on a "gain first basis" to
the extent that the cash value of the Policy exceeds the basis of the Policy.
This means the amount surrendered or withdrawn may be taxable even if that
amount is less than the basis of the Policy.
Northwestern Mutual Life believes that loans received under the Policies (except
modified endowment contracts as described below) will be construed as
indebtedness of an owner in the same manner as loans under a fixed benefit life
insurance policy and that no part of any loan under a Policy will constitute
income to the owner.
Policies will be classified as modified endowment contracts under Section 7702A
of the Internal Revenue Code if the aggregate premium paid during the first 7
years exceeds a defined "7-pay limit". Generally, this can occur if significant
additional premiums are paid or the death benefit is reduced within the first 7
years or if additional benefits are added to the Policy.
For Policies that are modified endowment contracts, withdrawals, partial
surrenders, Policy loans and dividends paid in cash are taxable as income on a
gain first basis. The taxable portion of these distributions would also be
subject to a 10% penalty if received prior to age 59 1/2, disability or
annuitization. For purposes of determining taxable income, all Policies that
are modified endowment contracts (including any fixed dollar policies that are
modified endowment contracts) issued by Northwestern Mutual Life to the
Policyowner during the same calendar year are aggregated.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend upon the
circumstances of each Policy owner or beneficiary.
The foregoing summary does not purport to be complete or to cover all
situations. Counsel and other competent advisers should be consulted for more
complete information.
- --------------------------------------------------------------------------------
OTHER INFORMATION
MANAGEMENT
Northwestern Mutual Life is managed by a Board of Trustees. The Trustees and
senior officers of Northwestern Mutual Life and their positions including Board
committee memberships, and their principal occupations, are as follows:
TRUSTEES
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ---- -------------------------------------------
<S> <C>
R. Quintus Anderson (A) . . . . Chairman, Aarque Capital Corporation since
1997, prior thereto; Chairman, The Aarque
Companies, Jamestown, NY (diversified metal
products manufacturing)
Edward E. Barr (HR) . . . . . . Chairman, Sun Chemical Corporation, Fort Lee,
New Jersey (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, Kansas
city, MO (consumer products manufacturer)
Robert C. Buchanan (A, E, F). . President and Chief Executive Officer, Fox
Valley Corporation, Appleton, WI
(manufacturer of gift wrap and writing paper)
Robert E. Carlson (E) . . . . . Executive Vice President of Northwestern
Mutual Life
George A. Dickerman (AM). . . . Chairman of the Board, Spalding Sports
Worldwide, Chicopee, MA (manufacturer of
sporting equipment) since 1998; prior
thereto, President
Pierre S. du Pont (AM). . . . . Attorney, Richards, Layton and Finger,
Wilmington, DE
16
<PAGE>
James D. Ericson President and Chief Executive Officer of
(AM, E, F. HR, OT). . . . . . . Northwestern Mutual Life since 1993; President
and Chief Operating Officer, 1991-1993; prior
thereto, President
J. E. Gallegos (A). . . . . . . Attorney at Law; President, Gallegos Law
Firm, Santa Fe, New Mexico
Stephen N. Graff (E, F, OT) . . Retired Partner, Arthur Andersen LLP (public
accountants) since 1994; Senior Partner,
1993-1994; prior thereto, Managing Partner -
Milwaukee, WI office
Patricia Albjerg Graham (HR). . Professor, Graduate School of Education,
Harvard University, Cambridge, MA, and
President, The Spencer Foundation (social and
behavioral sciences)
Stephen F. Keller (HR). . . . . Former Chairman, Santa Anita Realty
Enterprises since 1997; prior thereto,
Chairman
Barbara A. King (AM). . . . . . President, Landscape Structures, Inc.,
Delano, MN (manufacturer of playground
equipment)
J. Thomas Lewis (HR). . . . . . Attorney (sole practitioner), New Orleans,
LA since 1998; prior thereto, Attorney with
Monroe & Lemann, New Orleans, LA
Daniel F. McKeithan, Jr. (E, F, HR) President, Tamarack Petroleum Company, Inc.,
Milwaukee, WI (operator of oil and gas
wells); President, Active Investor
Management, Inc., Milwaukee, WI
Guy A. Osborn (E, F, OT). . . . Retired Chairman of Universal Foods
Corporation, Milwaukee, WI since 1997; prior
thereto, Chairman and Chief Executive Officer
Timothy D. Proctor (A). . . . . Senior Vice President Human Resources,
General Counsel & Secretary of Glaxo Wellcome
Inc., Research Triangle Park, NC, since 1994
(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, Seattle, WA (publishing)
Harold B. Smith (OT). . . . . . Chairman, Executive Committee, Illinois Tool
Works, Inc., Chicago, IL (engineered
components and industrial systems and
consumables)
Sherwood H. Smith, Jr. (AM) . . Chairman of the Board of Carolina Power &
Light since 1997; prior thereto, Chairman of
the Board and Chief Executive Officer
John E. Steuri (OT) . . . . . . Chairman, Advanced Thermal Technologies,
Little Rock, AR 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 Owner, Allen-Edmonds Shoe
Corporation, Port Washington, WI
Barry L. Williams (HR). . . . . President and Chief Executive Officer, C.N.
Flagg Power, Inc., Meriden, CT (construction
services for electric power plants) and
President, Williams Pacific Ventures, Inc.,
Redwood City, CA (venture capital)
Kathryn D. Wriston (A). . . . . Director of various corporations, New York,
NY
</TABLE>
17
<PAGE>
A -- Member, Audit Committee F -- Member, Finance Committee
AM -- Member, Agency and Marketing HR -- Member, Human Resources and
Committee Public Policy Committee
E -- Member, Executive Committee OT -- Member, Operations and
Technology Committee
SENIOR OFFICERS (OTHER THAN TRUSTEES)
POSITION WITH
NAME NORTHWESTERN MUTUAL LIFE
-----------------------------------------------------------------
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
REGULATION
Northwestern Mutual Life is subject to the laws of Wisconsin governing insurance
companies and to regulation by the Wisconsin Commissioner of Insurance. An
annual statement in a prescribed form is filed with the Department of Insurance
on or before March 1 in each year covering operations for the preceding year and
including financial statements. Regulation by the Wisconsin Insurance Department
includes periodic examination to determine solvency and compliance with
insurance laws. Northwestern Mutual Life is also subject to the insurance laws
and regulations of the other jurisdictions in which it is licensed to operate.
LEGAL PROCEEDINGS
Northwestern Mutual Life is engaged in litigation of various kinds which in its
judgment is not of material importance in relation to its total assets. There
are no legal proceedings pending to which the Account is a party.
REGISTRATION STATEMENT
A registration statement has been filed with the Securities and Exchange
Commission, Washington, D.C. by Northwestern Mutual Life under the Securities
Act of 1933, as amended, with respect to the Policies. This prospectus does not
contain all the information set forth in the registration statement. A copy of
the omitted material is available from the main office of the SEC in Washington,
D.C. upon payment of the prescribed fee. Further information about the Policies
is also available from the Home Office of Northwestern Mutual Life. The address
and telephone number are on the cover of this prospectus.
EXPERTS
The financial statements of Northwestern Mutual Life as of December 31, 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 Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
Actuarial matters included in this prospectus have been examined by William C.
Koenig, F.S.A., Senior Vice President and Chief Actuary of Northwestern Mutual
Life. His opinion is filed as an exhibit to the registration statement.
18
<PAGE>
VARIABLE LIFE ACCOUNTANTS' LETTER
[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 Aggressive Growth Stock Division,
International Equity Division, Growth Stock Division, Growth and Income Stock
Division, the Index 500 Stock Division, the Balanced Division, High Yield Bond
Division, Select Bond Division, and Money Market 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.
/s/ PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
January 27, 1998
--
19
<PAGE>
VARIABLE LIFE FINANCIAL STATEMENTS
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
--
20
<PAGE>
VARIABLE LIFE FINANCIAL STATEMENTS
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
Statement of Operations and Changes in Equity
(IN THOUSANDS)
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH STOCK
COMBINED 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
---
21
<PAGE>
VARIABLE LIFE FINANCIAL STATEMENTS
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
Statement of Operations and Changes in Equity
(IN THOUSANDS)
<TABLE>
<CAPTION>
GROWTH STOCK DIVISION GROWTH & INCOME STOCK DIVISION INDEX 500 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
--------- --------- --------- --------- ---------- ---------
--------- --------- --------- --------- ---------- ---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
22
<PAGE>
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
Statement of Operations and Changes in Equity
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCED DIVISION HIGH YIELD BOND DIVISION
------------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............. $ 5,105 $ 5,010 $ 1,370 $ 400
Mortality and Expense
Risks..................... 558 452 29 13
Taxes....................... 239 193 12 5
--------- --------- -------- --------
Net Investment Income....... 4,308 4,365 1,329 382
--------- --------- -------- --------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized Gain on
Investments............... 1,655 1,462 26 21
Unrealized Appreciation
(Depreciation) of
Investments During the
Period.................... 15,262 5,413 (531) 83
--------- --------- -------- --------
Net Gain (Loss) on
Investments............... 16,917 6,875 (505) 104
--------- --------- -------- --------
Increase in Equity Derived
from Investment
Activity.................. 21,225 11,240 824 486
--------- --------- -------- --------
EQUITY TRANSACTIONS
Policyowners' Net
Payments.................. 15,394 15,417 1,922 1,101
Policy Loans, Surrenders,
and Death Benefits........ (7,260) (7,030) (349) (243)
Mortality and Other (net)... (3,395) (3,034) (339) (193)
Transfers from Other
Divisions................. 4,266 2,467 3,276 1,043
Transfers to Other
Divisions................. (4,734) (5,909) (425) (449)
--------- --------- -------- --------
Increase in Equity Derived
from Equity Transactions.... 4,271 1,911 4,085 1,259
--------- --------- -------- --------
Net Increase in Equity........ 25,496 13,151 4,909 1,745
EQUITY
Beginning of Period......... 100,826 87,675 3,892 2,147
--------- --------- -------- --------
End of Period............... $126,322 $100,826 $ 8,801 $ 3,892
--------- --------- -------- --------
--------- --------- -------- --------
<CAPTION>
SELECT BOND DIVISION MONEY MARKET DIVISION
--------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............. $ 436 $ 176 $ 952 $ 508
Mortality and Expense
Risks..................... 35 26 78 47
Taxes....................... 15 11 34 17
-------- -------- --------- ---------
Net Investment Income....... 386 139 840 444
-------- -------- --------- ---------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized Gain on
Investments............... 36 8 -- --
Unrealized Appreciation
(Depreciation) of
Investments During the
Period.................... 234 22 -- --
-------- -------- --------- ---------
Net Gain (Loss) on
Investments............... 270 30 0 0
-------- -------- --------- ---------
Increase in Equity Derived
from Investment
Activity.................. 656 169 840 444
-------- -------- --------- ---------
EQUITY TRANSACTIONS
Policyowners' Net
Payments.................. 1,820 1,356 82,774 43,564
Policy Loans, Surrenders,
and Death Benefits........ (311) (191) (823) (576)
Mortality and Other (net)... (560) (248) (11,061) (5,552)
Transfers from Other
Divisions................. 2,000 954 3,402 2,573
Transfers to Other
Divisions................. (756) (553) (67,983) (32,622)
-------- -------- --------- ---------
Increase in Equity Derived
from Equity Transactions.... 2,193 1,318 6,309 7,387
-------- -------- --------- ---------
Net Increase in Equity........ 2,849 1,487 7,149 7,831
EQUITY
Beginning of Period......... 6,243 4,756 14,750 6,919
-------- -------- --------- ---------
End of Period............... $ 9,092 $ 6,243 $ 21,899 $ 14,750
-------- -------- --------- ---------
-------- -------- --------- ---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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.
--
24
<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>
--
25
<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
26
<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
27
<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
28
<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
29
<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>
30
<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.
31
<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>
32
<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.
33
<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
DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------------------- ---------------------------------------
NET NET
REALIZED REALIZED
REALIZED REALIZED GAINS REALIZED REALIZED GAINS
GAINS LOSSES (LOSSES) GAINS LOSSES (LOSSES)
----------- ----------- ----------- ----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Bonds............................ $ 518 $(269) $249 $ 396 $(383) $ 13
Common and preferred Stocks...... 533 (150) 383 580 (115) 465
Mortgage loans................... 14 (14) - 2 (15) (13)
Real estate...................... 100 (2) 98 36 0 36
Other invested assets............ 338 (105) 233 204 (51) 153
------ ----- ---- ------ ----- ----
$1,503 $(540) $963 $1,218 $(564) $654
------ ----- ---- ------ ----- ----
------ ----- ---- ------ ----- ----
Less: Capital gains taxes........ 340 224
Less: IMR deferrals.............. 209 35
---- ----
Net realized capital gains....... $414 $395
---- ----
---- ----
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1995
---------------------------------------
NET
REALIZED
REALIZED REALIZED GAINS
GAINS LOSSES (LOSSES)
----------- ----------- -----------
<S> <C> <C> <C>
Bonds............................ $ 576 $(130) $446
Common and preferred Stocks...... 574 (429) 145
Mortgage loans................... 2 (32) (30)
Real estate...................... 14 (3) 11
Other invested assets............ 188 (95) 93
------ ----- ----
$1,354 $(689) $665
------ ----- ----
------ ----- ----
Less: Capital gains taxes........ 239
Less: IMR deferrals.............. 289
----
Net realized capital gains....... $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.
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
DERIVATIVE FINANCIAL INSTRUMENTS
In the normal course of business, the Company enters into transactions to reduce
its exposure to fluctuations in interest rates, foreign currency exchange rates
and market volatility. These hedging strategies include the use of forwards,
futures, options and swaps. In addition to the use of derivatives for hedging
purposes, equity swaps were held for investment purposes during 1997.
The Company held the following positions for hedging purposes at December 31,
1997:
<TABLE>
<CAPTION>
NOTIONAL
DERIVATIVE FINANCIAL INSTRUMENT AMOUNTS RISKS REDUCED
- --------------------------------------------- ------------------ ---------------------------------------------
(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%.
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
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 required
under the plan. The defined benefit and defined contribution plans' assets of
$1.4 billion at December 31, 1997 are primarily invested in the separate
accounts of the Company.
In addition to pension benefits, the Company provides certain health care and
life insurance benefits ("postretirement benefits") for retired employees.
Substantially all employees may become eligible for these benefits if they reach
retirement age while working for the Company. Postretirement benefit cost for
the year ended December 31, 1997 was a net benefit of $1.3 million; it includes
the expected cost of postretirement benefits for newly eligible and vested
employees, interest cost and return on plan assets totaling $3.6 million, offset
by gains from favorable differences between actuarial assumptions and actual
experience of $4.9 million.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
-------------------- --------------------
<S> <C> <C>
Unfunded postretirement
benefit obligation for
retirees and other fully
eligible employees (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.
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
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
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").
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
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.
38
<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.
/s/ PRICE WATERHOUSE LLP
January 26, 1998
39
<PAGE>
APPENDIX
ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES AND ACCUMULATED PREMIUMS. The
tables on the following pages illustrate how the death benefit and cash value
for a Policy would vary over time based on hypothetical investment results. The
tables assume gross (after tax) investment return rates of 0%, 6% and 12% on
assets of the Account. The Policies illustrated are for male insureds, select
risks, age 35. The first two illustrations, on pages 41-42, are for a policy
with a Minimum Guaranteed Death Benefit of $100,000 and no Additional
Protection, based (1) on current charges and the current dividend scale and (2)
on maximum charges and zero dividends. The other two illustrations are for a
Policy with a Minimum Guaranteed Death Benefit of $100,000 and Additional
Protection of $100,000.
The death benefits and cash values would be different from those shown if the
gross investment return rate averaged 0%, 6% or 12%, but fluctuated over and
under the average rate at various points in time. The values would also be
different, depending on the Account divisions selected by the owner of the
Policy, if the return rate for the nine Fund Portfolios averaged 0%, 6% or 12%,
but the rates for each individual Portfolio varied over and under the average.
The amounts shown as the death benefits and cash values reflect the deductions
from premiums, deductions from Policy Value and the charge at the annual rate of
.60% of the Account's assets for mortality and expense risks. The amounts shown
as the cash values reflect the deduction of the surrender charge during the
first fifteen Policy years. 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 -1.05%, 4.95% and
10.95% 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 cash values shown on pages 41 and 43
illustrate benefits which would be paid if investment returns of 0%, 6% and 12%
are realized, if mortality and expense experience in the future is as currently
experienced and if the current dividend scale remains unchanged. See "Annual
Dividends," p. 11. HOWEVER, THERE IS NO GUARANTEE AS TO THE AMOUNT OF
DIVIDENDS, IF ANY, THAT WILL BE PAID UNDER A POLICY. Although the tables are
based on the assumption that dividends will be used to increase the Policy
Value, other dividend options are available. The use of dividends for other
purposes during the guaranteed period for Additional Protection may cause the
guaranteed period to terminate. See "Death Benefit", p. 8.
A comparable illustration based on a proposed insured's age, sex and risk
classification and proposed face amount or premium is available upon request.
40
<PAGE>
VARIABLE WHOLE LIFE WITH ADDITIONAL PROTECTION INSURANCE POLICY
MALE ISSUE AGE 35 -- SELECT UNDERWRITING RISK
$100,000 VARIABLE WHOLE LIFE, $0 ADDITIONAL PROTECTION
$1,347 ANNUAL PREMIUM (1)
CURRENT CHARGES AND DIVIDEND SCALE (2)
DIVIDENDS USED TO INCREASE POLICY VALUE
<TABLE>
<CAPTION>
DEATH BENEFIT (3) CASH SURRENDER VALUE (3)
---------------------------------------- ----------------------------------------
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
PREMIUM ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
ACCUMULATED
END OF AT 5% INTEREST 0% 6% 12% 0% 6% 12%
POLICY YEAR PER YEAR -------- -------- -------- -------- -------- --------
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,414 $100,000 $100,012 $100,071 $ 345 $ 403 $ 462
2 2,899 100,000 100,036 100,222 1,286 1,465 1,650
3 4,459 100,000 100,072 100,463 2,209 2,571 2,962
4 6,096 100,000 100,120 100,807 3,112 3,724 4,412
5 7,815 100,000 100,182 101,269 3,995 4,925 6,011
6 9,620 100,000 100,256 101,860 4,905 6,224 7,828
7 11,516 100,000 100,348 102,604 5,793 7,573 9,830
8 13,506 100,000 100,459 103,521 6,659 8,978 12,040
9 15,595 100,000 100,595 104,636 7,505 10,441 14,482
10 17,790 100,000 100,756 105,973 8,333 11,969 17,186
15 30,520 100,000 102,715 117,897 13,058 21,625 36,807
20 46,767 100,000 106,896 160,294 17,394 33,896 70,018
25 67,503 100,000 113,401 248,035 20,821 49,190 125,166
30 (age 65) 93,968 100,000 123,224 374,517 22,973 68,278 215,763
35 127,745 100,000 142,079 560,629 23,138 92,043 363,192
40 170,853 100,000 168,095 835,500 19,135 120,419 598,535
45 225,872 100,000 197,239 1,244,158 5,991 153,180 966,238
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$687.78 semiannually, $348.58 quarterly, or $116.75 monthly.
(2) Dividends illustrated are based on current scale and experience and are not
guaranteed.
(3) Assumes no policy loan 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
AND THE DIFFERENT RATES OF RETURN OF THE FUND PORTFOLIOS. THE DEATH BENEFIT AND
CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME.
41
<PAGE>
VARIABLE WHOLE LIFE WITH ADDITIONAL PROTECTION INSURANCE POLICY
MALE ISSUE AGE 35 -- SELECT UNDERWRITING RISK
$100,000 VARIABLE WHOLE LIFE, $0 ADDITIONAL PROTECTION
$1,347 ANNUAL PREMIUM (1)
MAXIMUM CHARGES AND ZERO DIVIDENDS
<TABLE>
<CAPTION>
DEATH BENEFIT (2) CASH SURRENDER VALUE (2)
---------------------------------------- ----------------------------------------
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
PREMIUM ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
ACCUMULATED
END OF AT 5% INTEREST 0% 6% 12% 0% 6% 12%
POLICY YEAR PER YEAR -------- -------- -------- -------- -------- --------
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,414 $100,000 $100,009 $100,068 $ 341 $ 400 $ 459
2 2,899 100,000 100,029 100,214 1,279 1,458 1,643
3 4,459 100,000 100,061 100,450 2,199 2,560 2,949
4 6,096 100,000 100,103 100,785 3,100 3,707 4,390
5 7,815 100,000 100,159 101,235 3,980 4,902 5,978
6 9,620 100,000 100,227 101,813 4,890 6,195 7,780
7 11,516 100,000 100,310 102,536 5,776 7,536 9,761
8 13,506 100,000 100,410 103,422 6,640 8,929 11,941
9 15,595 100,000 100,526 104,492 7,479 10,373 14,339
10 17,790 100,000 100,659 105,767 8,294 11,872 16,980
15 30,520 100,000 101,641 116,212 12,259 20,551 35,122
20 46,767 100,000 103,280 146,376 14,790 30,278 63,938
25 67,503 100,000 105,796 217,349 15,819 41,585 109,681
30(age 65) 93,968 100,000 109,458 313,449 14,395 54,512 180,581
35 127,745 100,000 114,590 444,692 8,421 68,942 288,085
40 170,853 100,000 121,585 624,828 0 84,822 447,614
45 225,872 100,000 131,266 872,830 0 101,943 677,857
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$687.78 semiannually, $348.58 quarterly, or $116.75 monthly.
(2) Assumes no policy loan 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
AND THE DIFFERENT RATES OF RETURN OF THE FUND PORTFOLIOS. THE DEATH BENEFIT AND
CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME.
42
<PAGE>
VARIABLE WHOLE LIFE WITH ADDITIONAL PROTECTION INSURANCE POLICY
MALE ISSUE AGE 35 -- SELECT UNDERWRITING RISK
$100,000 VARIABLE WHOLE LIFE PLUS $100,000 ADDITIONAL PROTECTION(1)
$1,852 ANNUAL PREMIUM (2)
CURRENT CHARGES AND DIVIDEND SCALE (3)
DIVIDENDS USED TO INCREASE POLICY VALUE
<TABLE>
<CAPTION>
DEATH BENEFIT (4) CASH SURRENDER VALUE (4)
---------------------------------------- ----------------------------------------
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
PREMIUM ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
ACCUMULATED
END OF AT 5% INTEREST 0% 6% 12% 0% 6% 12%
POLICY YEAR PER YEAR -------- -------- -------- -------- -------- --------
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,945 $200,000 $200,000 $200,000 $ 566 $ 642 $ 718
2 3,986 200,000 200,000 200,000 1,884 2,121 2,367
3 6,130 200,000 200,000 200,000 3,178 3,663 4,186
4 8,381 200,000 200,000 200,000 4,447 5,271 6,197
5 10,745 200,000 200,000 200,000 5,688 6,945 8,414
6 13,227 200,000 200,000 200,000 6,954 8,742 10,919
7 15,833 200,000 200,000 200,000 8,187 10,608 13,677
8 18,569 200,000 200,000 200,000 9,390 12,549 16,722
9 21,442 200,000 200,000 200,000 10,565 14,570 20,088
10 24,459 200,000 200,000 200,962 11,716 16,681 23,817
15 41,962 200,000 200,000 212,712 17,945 29,670 50,532
20 64,300 200,000 200,000 241,412 23,184 45,714 95,408
25 92,810 200,000 200,000 338,094 26,486 65,091 170,612
30(age 65) 129,197 197,600 200,000 510,960 26,953 88,595 294,369
35 175,637 181,659 208,663 765,267 23,567 117,367 495,763
40 234,907 164,488 225,154 1,140,813 13,198 151,628 817,255
45 310,553 105,636 249,831 1,699,114 0 191,921 1,319,566
</TABLE>
(1) Additional Protection is guaranteed to be $100,000 for at least 15 years,
so long as all premiums are paid when due and all dividends are used to
increase Policy Value.
(2) If premiums are paid more frequently than annually the payments would be
$945.13 semiannually, $478.52 quarterly, or $160.33 monthly.
(3) Dividends illustrated are based on current scale and experience and are not
guaranteed.
(4) Assumes no policy loan 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
AND THE DIFFERENT RATES OF RETURN OF THE FUND PORTFOLIOS. THE DEATH BENEFIT AND
CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME.
43
<PAGE>
VARIABLE WHOLE LIFE WITH ADDITIONAL PROTECTION INSURANCE POLICY
MALE ISSUE AGE 35 -- SELECT UNDERWRITING RISK
$100,000 VARIABLE WHOLE LIFE PLUS $100,000 ADDITIONAL PROTECTION(1)
$1,852 ANNUAL PREMIUM (2)
MAXIMUM CHARGES AND ZERO DIVIDENDS
<TABLE>
<CAPTION>
DEATH BENEFIT (3) CASH SURRENDER VALUE (3)
---------------------------------------- ----------------------------------------
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
PREMIUM ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
ACCUMULATED
END OF AT 5% INTEREST 0% 6% 12% 0% 6% 12%
POLICY YEAR PER YEAR -------- -------- -------- -------- -------- --------
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,945 $200,000 $200,000 $200,000 $ 476 $ 553 $ 629
2 3,986 200,000 200,000 200,000 1,697 1,928 2,169
3 6,130 200,000 200,000 200,000 2,887 3,354 3,858
4 8,381 200,000 200,000 200,000 4,044 4,829 5,712
5 10,745 200,000 200,000 200,000 5,165 6,354 7,746
6 13,227 200,000 200,000 200,000 6,308 7,987 10,037
7 15,833 200,000 200,000 200,000 7,408 9,668 12,542
8 18,569 200,000 200,000 200,000 8,467 11,400 15,288
9 21,442 200,000 200,000 200,000 9,481 13,181 18,295
10 24,459 200,000 200,000 200,000 10,449 15,013 21,597
15 41,962 200,000 200,000 206,160 14,798 25,227 43,980
20 64,300 166,976 200,000 225,051 17,265 35,835 79,047
25 92,810 141,701 200,000 268,430 18,255 46,521 135,457
30(age 65) 129,197 125,250 200,000 389,248 16,857 55,706 224,250
35 175,637 115,340 200,000 554,030 11,040 59,787 358,917
40 234,907 109,110 111,320 780,024 0 65,604 558,794
45 310,553 105,628 111,320 1,091,031 0 77,176 847,317
</TABLE>
(1) Additional Protection is guaranteed to be $100,000 for at least 15 years,
so long as all premiums are paid when due and all dividends are used to
increase Policy Value.
(2) If premiums are paid more frequently than annually the payments would be
$945.13 semiannually, $478.52 quarterly, or $160.33 monthly.
(3) Assumes no policy loan 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
AND THE DIFFERENT RATES OF RETURN OF THE FUND PORTFOLIOS. THE DEATH BENEFIT AND
CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME.
44
<PAGE>
NORTHWESTERN MUTUAL VARIABLE COMPLIFE-Registered Trademark-
Northwestern Mutual Variable Life Account
Northwestern Mutual Series Fund, Inc.
P R O S P E C T U S
NORTHWESTERN
MUTUAL LIFE-Registered Trademark-
PO Box 3095
Milwaukee WI 53201-3095
HOLO3\41850
<PAGE>
PART II
CONTENTS OF REGISTRATION STATEMENT
This amendment to the registration statement comprises the following papers
and documents:
The facing sheet
The cross-reference sheet
The prospectus consisting of 47 pages
The undertaking with respect to fees and charges
The signatures
Written consents of the following persons:
Price Waterhouse LLP (filed herewith as Exhibit C(1)
William C. Koenig, F.S.A. (included in his opinion filed herewith as
Exhibit C(6)
The following exhibits:
Exhibit C(1) Consent of Price Waterhouse LLP
Exhibit C(6) Opinion and consent of William C. Koenig, F.S.A.
The following exhibit was filed in electronic format with the Registration
Statement on Form S-6 for Northwestern Mutual Variable Life Account, File No.
333-36865, CIK 0000742277, dated October 1, 1997, and is incorporated herein by
reference.
Exhibit A(6)(c) Amendments to By-laws of The Northwestern Mutual Life
Insurance Company dated July 23, 1997.
The following exhibit was filed in electronic format with the Registration
Statement on Form S-6 for Northwestern Mutual Variable Life Account, File No.
333-36865, CIK 0000742277, dated February 27, 1998, and is incorporated herein
by reference.
Exhibit A(6)(c)(1) Amendment to By-laws of The Northwestern Mutual Life
Insurance Company dated January 28, 1998.
UNDERTAKING
The Northwestern Mutual Life Insurance Company hereby represents that the fees
and charges deducted under the contracts registered by this registration
statement, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by the
insurance company.
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Northwestern Mutual Variable Life Account, certifies that it meets all the
requirements for effectiveness of this Amended Registration Statement pursuant
to Rule 485 (b) under the Securities Act of 1933 and has duly caused this
amended Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Milwaukee, and State of Wisconsin, on
the 28th day of April, 1998.
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
(Registrant)
By THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
(Depositor)
Attest: JOHN M. BREMER By: JAMES D. ERICSON
----------------------------- --------------------------------
John M. Bremer, Executive Vice James D. Ericson, President and
President, General Counsel Chief Executive Officer
and Secretary
By NORTHWESTERN MUTUAL INVESTMENT
SERVICES, INC.
(Depositor)
Attest: MERRILL C. LUNDBERG By: RICHARD L. HALL
------------------------------ --------------------------------
Merrill C. Lundberg, Secretary Richard L. Hall,
President and CEO
Pursuant to the requirements of the Securities Act of 1933, the depositors
have duly caused this amended Registration Statement to be signed on their
behalf by the undersigned, thereunto duly authorized, and their seals to be
hereunto affixed, all in the City of Milwaukee, and State of Wisconsin, on the
28th day of April, 1998.
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY (Depositor)
Attest: JOHN M. BREMER By: JAMES D. ERICSON
----------------------------- --------------------------------
John M. Bremer, Executive Vice James D. Ericson, President and
President, General Counsel Chief Executive Officer
and Secretary
NORTHWESTERN MUTUAL INVESTMENT
SERVICES, INC. (Depositor)
Attest: MERRILL C. LUNDBERG By: RICHARD L. HALL
----------------------------- --------------------------------
Merrill C. Lundberg, Secretary Richard L. Hall,
President and CEO
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed by the following persons in the
capacities with the depositor and on the dates indicated:
SIGNATURE TITLE
- --------- -----
JAMES D. ERICSON
- ------------------------- Trustee, President and Dated
James D. Ericson Principal Executive and April 28,
Financial Officer 1998
II-2
<PAGE>
GARY E. LONG
- ------------------------- Vice President, Controller
Gary E. Long and Principal Accounting
Officer
HAROLD B. SMITH* Trustee
- -------------------------
Harold B. Smith
J. THOMAS LEWIS* Trustee
- -------------------------
J. Thomas Lewis
PATRICIA ALBJERG GRAHAM* Trustee
- -------------------------
Patricia Albjerg Graham
DONALD J. SCHUENKE* Trustee
- -------------------------
Donald J. Schuenke
R. QUINTUS ANDERSON* Trustee
- -------------------------
R. Quintus Anderson
STEPHEN F. KELLER*
- ------------------------- Trustee Dated
Stephen F. Keller April 28, 1998
PIERRE S. DU PONT* Trustee
- -------------------------
Pierre S. du Pont
J. E. GALLEGOS* Trustee
- -------------------------
J. E. Gallegos
KATHRYN D. WRISTON* Trustee
- -------------------------
Kathryn D. Wriston
BARRY L. WILLIAMS* Trustee
- -------------------------
Barry L. Williams
GORDON T. BEAHAM III* Trustee
- -------------------------
Gordon T. Beaham III
DANIEL F. MCKEITHAN, JR.* Trustee
- -------------------------
Daniel F. McKeithan, Jr.
ROBERT E. CARLSON* Trustee
- -------------------------
Robert E. Carlson
II-3
<PAGE>
EDWARD E. BARR* Trustee
- -------------------------
Edward E. Barr
ROBERT C. BUCHANAN* Trustee
- -------------------------
Robert C. Buchanan
SHERWOOD H. SMITH, JR.* Trustee
- -------------------------
Sherwood H. Smith, Jr.
H. MASON SIZEMORE, JR.* Trustee
- -------------------------
H. Mason Sizemore, Jr.
JOHN J. STOLLENWERK* Trustee
- -------------------------
John J. Stollenwerk
GEORGE A. DICKERMAN* Trustee
- -------------------------
George A. Dickerman
GUY A. OSBORN*
- ------------------------- Trustee Dated
Guy A. Osborn April 28, 1998
JOHN E. STEURI* Trustee
- -------------------------
John E. Steuri
STEPHEN N. GRAFF* Trustee
- -------------------------
Stephen N. Graff
BARBARA A. KING* Trustee
- -------------------------
Barbara A. King
TIMOTHY D. PROCTOR* Trustee
- -------------------------
Timothy D. Proctor
*By: JAMES D. ERICSON
-----------------------------------
James D. Ericson, Attorney in fact,
pursuant to the Power of Attorney
attached hereto
II-4
<PAGE>
CONSENT OF ACTUARY
The Consent of William C. Koenig, F.S.A., is contained in his opinion filed
as Exhibit C(6).
CONSENT OF INDEPENDENT ACCOUNTANTS
The Consent of Price Waterhouse LLP is filed as Exhibit C(1).
II-5
<PAGE>
POWER OF ATTORNEY
The undersigned Trustees of THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
hereby constitute and appoint James D. Ericson and Robert E. Carlson, or either
of them, their true and lawful attorneys and agents to sign the names of the
undersigned Trustees to (1) the registration statement or statements to be filed
under the Securities Act of 1933 and to any instrument or document filed as part
thereof or in connection therewith or in any way related thereto, and any and
all amendments thereto in connection with variable contracts issued or sold by
The Northwestern Mutual Life Insurance Company or any separate account credited
therein and (2) the Form 10-K Annual Report or Reports of The Northwestern
Mutual Life Insurance Company and/or its separate accounts for its or their
fiscal year ended December 31, 1997 to be filed under the Securities Exchange
Act of 1934 and to any instrument or document filed as part thereof or in
connection therewith or in any way related thereto, and any and all amendments
thereto. "Variable contracts" as used herein means any contracts providing for
benefits or values which may vary according to the investment experience of any
separate account maintained by The Northwestern Mutual Life Insurance Company,
including variable annuity contracts and variable life insurance policies. Each
of the undersigned hereby ratifies and confirms all that said attorneys and
agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has subscribed these presents
this 23rd day of July, 1997.
R. QUINTUS ANDERSON Trustee
-------------------------------
R. Quintus Anderson
EDWARD E. BARR Trustee
-------------------------------
Edward E. Barr
GORDON T. BEAHAM III Trustee
-------------------------------
Gordon T. Beaham III
ROBERT C. BUCHANAN Trustee
-------------------------------
Robert C. Buchanan
ROBERT E. CARLSON Trustee
-------------------------------
Robert E. Carlson
GEORGE A. DICKERMAN Trustee
-------------------------------
George A. Dickerman
II-6
<PAGE>
PIERRE S. DU PONT Trustee
-------------------------------
Pierre S. du Pont
JAMES D. ERICSON Trustee
-------------------------------
James D. Ericson
J. E. GALLEGOS Trustee
-------------------------------
J. E. Gallegos
STEPHEN N. GRAFF Trustee
-------------------------------
Stephen N. Graff
PATRICIA ALBJERG GRAHAM Trustee
-------------------------------
Patricia Albjerg Graham
STEPHEN F. KELLER Trustee
-------------------------------
Stephen F. Keller
BARBARA A. KING Trustee
-------------------------------
Barbara A. King
J. THOMAS LEWIS Trustee
-------------------------------
J. Thomas Lewis
DANIEL F. MCKEITHAN, JR. Trustee
-------------------------------
Daniel F. McKeithan, Jr.
GUY A. OSBORN Trustee
-------------------------------
Guy A. Osborn
II-7
<PAGE>
TIMOTHY D. PROCTOR Trustee
-------------------------------
Timothy D. Proctor
DONALD J. SCHUENKE Trustee
-------------------------------
Donald J. Schuenke
H. MASON SIZEMORE, JR. Trustee
-------------------------------
H. Mason Sizemore, Jr.
HAROLD B. SMITH Trustee
-------------------------------
Harold B. Smith
SHERWOOD H. SMITH, JR. Trustee
-------------------------------
Sherwood H. Smith, Jr.
JOHN E. STEURI Trustee
-------------------------------
John E. Steuri
JOHN J. STOLLENWERK Trustee
-------------------------------
John J. Stollenwerk
BARRY L. WILLIAMS Trustee
-------------------------------
Barry L. Williams
KATHRYN D. WRISTON Trustee
-------------------------------
Kathryn D. Wriston
II-8
<PAGE>
EXHIBIT INDEX
EXHIBITS FILED WITH FORM S-6
POST-EFFECTIVE AMENDMENT NO. 3 TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FOR
NORTHWESTERN MUTUAL VARIABLE COMPLIFE
Exhibit Number Exhibit Name
- -------------- ------------
Exhibit C(1) Consent of Price Waterhouse LLP.
Exhibit C(6) Opinion of William C. Koenig, F.S.A.
The following exhibit was filed in electronic format with the Registration
Statement on Form S-6 for Northwestern Mutual Variable Life Account, File No.
333-36865, CIK 0000742277, dated October 1, 1997, and is incorporated herein by
reference.
Exhibit A(6)(c) Amendments to By-laws of The Northwestern Mutual
Life Insurance Company dated July 23, 1997.
The following exhibit was filed in electronic format with the Registration
Statement on Form S-6 for Northwestern Mutual Variable Life Account, File No.
333-36865, CIK 0000742277, dated February 27, 1998, and is incorporated herein
by reference.
Exhibit A(6)(c)(1) Amendment to By-laws of The Northwestern Mutual
Life Insurance Company dated January 28, 1998.
<PAGE>
Exhibit C(1)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 3 to the Registration Statement on Form S-6 (the
"Registration Statement") of our report dated January 26, 1998, relating to the
financial statements of The Northwestern Mutual Life Insurance Company, and of
our report dated January 27, 1998, relating to the financial statements of
Northwestern Mutual Variable Life Account, which appear in such Prospectus. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
April 28, 1998
<PAGE>
Exhibit C(6)
April 28, 1998
The Northwestern Mutual Life Insurance Company
720 East Wisconsin
Milwaukee, WI 53202
Gentlemen:
This opinion is furnished in connection with Post-Effective Amendment No. 3
to the Registration Statement on Form S-6, Registration No. 33-89188, of
Northwestern Mutual Variable Life Account. The prospectus included in the
Registration Statement ("Prospectus") describes the Variable CompLife insurance
policies to be issued in connection with the Account ("Policies"). The Policy
form was prepared under my direction, and I am familiar with the Registration
Statement and Exhibits thereto. In my opinion:
1. The illustrations of cash values and death benefits included on pages 41
through 44 of the Prospectus, in the Appendix thereto, based on the
assumptions stated in the illustrations, are consistent with the provisions
of the Policies and current dividend scale and experience. The rate
structure of the Policies has not been designed so as to make the
relationship between premiums and benefits, as shown in the illustrations,
appear more favorable to a prospective purchaser of a Policy for male age
35, than to prospective purchasers of Policies for a male at other ages or
for a female.
2. With respect to the charge of 1.25% of premiums for federal income taxes
measured by premiums, described on page 9 of the Prospectus,
(a) the charge is reasonable in relation to the issuer's increased federal
tax burden under Section 848 of the Internal Revenue Code of 1986;
(b) the targeted rate of return (11%) used in calculating the charge is
reasonable; and
(c) the factors taken into account in determining such targeted rate of
return are appropriate.
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to my name under the heading
"Experts" in the Prospectus.
Sincerely,
/s/ WILLIAM C. KOENIG
William C. Koenig
Senior Vice President
and Chief Actuary
