<PAGE>
Registration No. 333-36865
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)
---
on (DATE) pursuant to paragraph (b)
---
60 days after filing pursuant to paragraph (a)(1)
---
X on November 8, 1999 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
VARIABLE EXECUTIVE LIFE INSURANCE POLICIES
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
----------- ---------------------
<S> <C>
1.........................................Cover Page
2 ........................................Cover Page; Northwestern Mutual Life
3 ........................................Not Applicable
4 ........................................Distribution of the Policies
5 ........................................The Account
6 ........................................The Account
7 ........................................Not Applicable
8 ........................................Not Applicable
9 ........................................Legal Proceedings
10(a)......................................Other Policy Provisions: OWNER
10(b)......................................Other Policy Provisions: DIVIDENDS
10(c) and (d)..............................Death Benefit, Cash Value, Policy
Loans, Withdrawals of Policy Value, Right to Return
Policy
10(e)......................................Premiums, Termination and
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, Cash Value,
Dividends
11.........................................The Account, The Funds
12 ........................................The Funds
13 ........................................Summary, The Funds, Deductions and
Charges, Distribution of the Policies
14 ........................................Summary: The Policy: Availability
Limitations
15 ........................................Premiums, Allocations to the Account
16 ........................................The Account, The Funds, Allocations
to the Account
17 ........................................Same Captions as Items 10(a), (c),
and (d)
18 ........................................The Account, Detailed Information about
the Policy
19 ........................................Reports
20 ........................................Not Applicable
21 ........................................Policy Loans
22 ........................................Other Policy Provisions:
INCONTESTABILITY and DEFERRAL OF
DETERMINATION AND PAYMENT
23.........................................Not Applicable
24 ........................................Not Applicable
25 ........................................Northwestern Mutual Life
26 ........................................The Funds, Deductions and Charges
27 ........................................Northwestern Mutual Life
28 ........................................Management
29 ........................................Not Applicable
30 ........................................Not Applicable
31 ........................................Not Applicable
32 ........................................Not Applicable
-ii-
<PAGE>
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 Funds
41 ........................................The Funds, Distribution of the Policies
42 ........................................Not Applicable
43 ........................................Not Applicable
44 ........................................The Funds, Premiums, Death Benefit,
Allocations to the Account, 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
</TABLE>
-iii-
<PAGE>
November 8, 1999
[LOGO]
The Quiet Company-Registered Trademark-
P R O S P E C T U S
NORTHWESTERN MUTUAL VARIABLE EXECUTIVE LIFE
Flexible Premium Variable Life Insurance Policy
(PHOTO)
Northwestern Mutual Series Fund, Inc. and
Russell Insurance Funds
The Northwestern Mutual
Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
(414) 271-1444
<PAGE>
CONTENTS FOR THIS PROSPECTUS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus..............................................1
Summary ................................................2
Variable Life Insurance............................2
The Account and its Divisions......................2
The Policy.........................................2
Availability Limitations.........................2
Premiums.........................................2
Death Benefit....................................2
Cash Value ......................................2
Deductions and Charges...........................2
From Premiums..................................2
From Policy Value..............................2
From the Mutual Funds..........................3
The Northwestern Mutual Life Insurance Company,
Northwestern Mutual Variable Life Account,
Northwestern Mutual Series Fund, Inc. and
Russell Insurance Funds........................4
Northwestern Mutual Life...........................4
The Account........................................4
The Funds..........................................4
Northwestern Mutual Series Fund, Inc...............4
Small Cap Growth Stock Portfolio................4
Aggressive Growth Stock Portfolio...............4
International Equity Portfolio..................4
Index 400 Stock Portfolio.......................4
Growth Stock Portfolio..........................5
Growth and Income Stock Portfolio...............5
Index 500 Stock Portfolio.......................5
Balanced Portfolio..............................5
High Yield Bond Portfolio.......................5
Select Bond Portfolio...........................5
Money Market Portfolio..........................5
Russell Insurance Funds.........................5
Multi-Style Equity Fund.........................5
Aggressive Equity Fund..........................5
Non-U.S. Fund...................................5
Real Estate Securities Fund.....................6
Core Bond Fund..................................6
Detailed Information About the Policy...................6
Premiums...........................................6
Death Benefit......................................6
Death Benefit Options............................6
Choice of Tests for Tax Purposes.................6
Death Benefit Changes............................7
Allocations to the Account.........................7
Deductions and Charges.............................7
Deductions from Premiums.........................7
Charges Against the Policy Value.................8
Expenses of the Funds............................8
Policies Issued Prior to November 1, 1999........8
Cash Value...........................................8
Policy Loans.........................................9
Withdrawals of Policy Value..........................9
Termination and Reinstatement........................9
Right to Return Policy..........................10
Other Policy Provisions.........................10
Owner.......................................10
Beneficiary.................................10
Incontestability............................10
Suicide.....................................10
Misstatement of Age or Sex..................10
Collateral Assignment.......................10
Deferral of Determination and Payment.......10
Dividends...................................10
Voting Rights...................................10
Substitution of Fund Shares
and Other Changes.............................11
Reports.............................................11
Distribution of the Policies........................11
Tax Considerations..................................11
General.........................................11
Life Insurance Qualification....................11
Tax Treatment of Life Insurance.................12
Modified Endowment Contracts....................12
Other Tax Considerations........................13
Other Information...................................13
Management......................................13
Regulation......................................16
Year 2000 Issues................................16
Legal Proceedings...............................16
Registration Statement..........................16
Experts.........................................16
Financial Statements................................17
Financial Statements of the Account
(for the two years ended June 30, 1999).........17
Report of Independent Accountants
(for the two years ended December 31, 1998).....25
Financial Statements of the Account
(for the two years ended December 31, 1998).....26
Financial Statements of Northwestern Mutual Life
(for the three years ended
December 31, 1998)...........................32
Report of Independent Accountants
(for the three years ended
December 31, 1998)............................45
Appendix............................................46
</TABLE>
<PAGE>
P R O S P E C T U S
NORTHWESTERN MUTUAL VARIABLE EXECUTIVE LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
This prospectus describes the Variable Executive Life Policy (the "Policy")
offered by The Northwestern Mutual Life Insurance Company. The Policy is an
individual flexible premium variable life insurance policy designed to be used
for a variety of business purposes.
The Policy offers flexible premium payments, sixteen investment funding options
and a choice of three death benefit options.
The investment options correspond to the eleven Portfolios of Northwestern
Mutual Series Fund, Inc. and the five Funds which comprise the Russell Insurance
Funds. The prospectuses for these mutual funds, attached to this prospectus,
describe the investment objectives for all of the Portfolios and Funds.
The values provided by the Policy vary daily depending on investment results.
These values are not guaranteed. The Portfolios and Funds present varying
degrees of investment risk.
You may return a Policy for a limited period of time. See "Right to Return
Policy", p. 10.
IT MAY NOT BE ADVANTAGEOUS TO REPLACE EXISTING INSURANCE WITH A VARIABLE LIFE
INSURANCE POLICY. SEE DEDUCTIONS AND CHARGES AND CASH VALUE.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR
NORTHWESTERN MUTUAL SERIES FUND, INC. AND THE RUSSELL INSURANCE FUNDS WHICH ARE
ATTACHED HERETO, AND SHOULD BE RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY PROVIDES A BRIEF OVERVIEW OF THE POLICY. IT OMITS DETAILS
WHICH ARE INCLUDED ELSEWHERE IN THIS PROSPECTUS AND THE ATTACHED MUTUAL FUND
PROSPECTUSES AND IN THE TERMS OF THE POLICY.
VARIABLE LIFE INSURANCE
Variable life insurance is cash value life insurance and is similar in many ways
to traditional fixed benefit life insurance. Both kinds of life insurance
provide an income tax-free death benefit and a cash value that grows
tax-deferred. Variable life insurance allows the policyowner to direct the
premiums, after certain deductions, among a range of investment options. The
variable life insurance death benefit and cash value vary to reflect the
performance of the selected investments.
THE ACCOUNT AND ITS DIVISIONS
Northwestern Mutual Variable Life Account is the investment vehicle for the
Policies. The Account has sixteen divisions. You determine how net premiums are
to be apportioned. We invest the assets of each division in a corresponding
Portfolio of Northwestern Mutual Series Fund, Inc. or one of the Russell
Insurance Funds. The eleven Portfolios of Northwestern Mutual Series Fund, Inc.
are the Small Cap Growth Stock Portfolio, Aggressive Growth Stock Portfolio,
International Equity Portfolio, Index 400 Stock 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 five Russell Insurance Funds are the Multi-Style Equity
Fund, Aggressive Equity Fund, Non-U.S. Fund, Real Estate Securities Fund, and
Core Bond Fund. For additional information about the funds see the attached
prospectuses.
THE POLICY
AVAILABILITY LIMITATIONS We have designed the Variable Executive Life Policy for
use with non-tax qualified executive benefit plans. We offer the Policy for use
with corporate-sponsored plans where at least five Policies will be issued, each
on the life of a different eligible insured person, and the first year premium
for the group will be at least $250,000. We will permit exceptions in some cases
and additional requirements may apply. Each case must be approved at our Home
Office.
PREMIUMS You may pay premiums at any time and in any amounts, within limits, but
additional premiums will be required to keep the Policy in force if values
become insufficient to pay current charges.
DEATH BENEFIT The Policy offers a choice of three death benefit options:
- - SPECIFIED AMOUNT (OPTION A)
- - SPECIFIED AMOUNT PLUS POLICY VALUE (OPTION B)
- - SPECIFIED AMOUNT PLUS PREMIUMS PAID (OPTION C)
In each case, the death benefit will be at least the amount needed to meet
federal income tax requirements for life insurance. You select the Specified
Amount when you purchase the Policy. You may increase or decrease the Specified
Amount, within limits and subject to conditions, after a Policy is issued. The
minimum amount is $50,000.00. No minimum death benefit is guaranteed.
CASH VALUE The cash value of a Policy is not guaranteed and varies daily to
reflect investment experience. You may surrender a Policy for its cash value.
The Policy also includes loan and withdrawal provisions.
DEDUCTIONS AND CHARGES
FROM PREMIUMS
- - Deduction of 3.6% for local, state and federal taxes attributable to
premiums
- - Sales load of 15% up to the Target Premium for first Policy year, 6.8%
of premiums up to the Target Premium for Policy years 2-6, and 3% of
all other premiums. The Target Premium is based on the modified
endowment contract seven-pay limit for the Specified Amount and the age
and sex of the insured. See "Modified Endowment Contracts", p. 12. A
Policy receiving the 3% deduction in the first Policy year on any
portion of the premium will be classified as a modified endowment
contract.
FROM POLICY VALUE
- - Cost of insurance charge deducted monthly, is based on the net amount
at risk, the age, sex and risk classification of the insured, and the
Policy duration. Current charges are based on our experience.
Maximum charges are based on the 1980 CSO Mortality Tables.
- - Monthly mortality and expense risk charge. The current charge is at the
annual rate of .75% (0.06250% monthly rate) of the Policy Value, less
any Policy debt, for the first 10 Policy years, and .30% (0.02500%
monthly rate) thereafter. The maximum annual rate is .90% (0.07500%
monthly rate).
2
<PAGE>
- - Monthly administrative charge. The current charge is $15.00 in the
first Policy year and $5.00 thereafter. The maximum charge is $15 in
the first Policy year and $10 thereafter.
- - Charge for expenses and taxes associated with the Policy loan, if any.
The aggregate charge is at the current annual rate of .75% (0.06250%
monthly rate) of the Policy debt for the first ten Policy years and
.20% (0.01667%) thereafter.
- - Any transaction charges that may result from a withdrawal, a transfer,
a change in the Specified Amount or a change in the death benefit
option. We are currently waiving these charges. The maximum charge is
$250 for death benefit option changes and $25 for each of the other
transactions.
FROM THE MUTUAL FUNDS
- - A daily charge for investment advisory and other services provided to
the mutual funds. The total expenses vary by Portfolio or Fund and
currently fall in an approximate range of .21% to 2.37% of assets on
an annual basis.
The following table shows the annual expenses for each of the Portfolios and
Funds, as a percentage of the average net assets, based on 1998 operations.
Expenses for the Portfolios and Funds which were not in operation during 1998
are estimated.
NORTHWESTERN MUTUAL SERIES FUND, INC.
-------------------------------------
<TABLE>
<CAPTION>
INVESTMENT
ADVISORY OTHER TOTAL
PORTFOLIO FEE EXPENSES EXPENSES
- --------- ------- -------- --------
<S> <C> <C> <C>
Small Cap Growth
Stock* ........... .80% .46% 1.26%
Aggressive Growth
Stock............. .52% .00% .52%
International Equity .67% .09%
.76%
Index 400 Stock*.... .25% .23% .48%
Growth Stock ....... .45% .01% .46%
Growth and Income
Stock............. .57% .01% .58%
Index 500 Stock..... .20% .01% .21%
Balanced............ .30% .00% .30%
High Yield Bond..... .49% .01% .50%
Select Bond......... .30% .00% .30%
Money Market........ .30% .00% .30%
</TABLE>
*SMALL CAP GROWTH STOCK AND INDEX 400 STOCK PORTFOLIOS
Northwestern Mutual Investment Services, LLC (NMIS), investment adviser to
Northwestern Mutual Series Fund, Inc., has voluntarily agreed to waive a portion
of its advisory fee, up to the full amount of that fee, equal to the amount by
which total operating expenses exceed (1) 0.92% of the Small Cap Growth Stock
Portfolio's average daily net assets on an annual basis, and (2) 0.35% of the
Index 400 Stock Portfolio's average daily net assets. In addition, NMIS has
voluntarily agreed to reimburse each of these portfolios for all remaining
expenses after fee waivers which exceed (1) 0.92% in the case of the Small Cap
Growth Stock Portfolio, and (2) 0.35% in the case of the Index 400 Stock
Portfolio, of the average daily net assets on an annual basis. This waiver and
reimbursement, in each case, may be revised or eliminated at any time without
notice to shareholders. Operating expenses are based on average net assets
expected to be invested during the period ending on December 31, 1999. During
the course of this period, expenses may be more or less than the amounts shown.
RUSSELL INSURANCE FUNDS
-----------------------
<TABLE>
<CAPTION>
INVESTMENT
ADVISORY OTHER TOTAL
FUND FEE * EXPENSES* EXPENSES
- ---- ------- -------- --------
<S> <C> <C> <C>
Multi-Style Equity
Fund.............. 0.78% 0.43% 1.21%
Aggressive Equity
Fund.............. 0.95% 0.72% 1.67%
Non-U.S. Fund....... 0.95% 1.42% 2.37%
Real Estate Securities
Fund.............. 0.85% 0.30% 1.15%
Core Bond Fund...... 0.60% 0.68% 1.28%
</TABLE>
*MULTI-STYLE EQUITY FUND Frank Russell Investment Company's (FRIC's) advisor,
Frank Russell Investment Management Company (FRIMCo) has contractually agreed to
waive, at least until April 30, 2000, a portion of its 0.78% management fee, up
to the full amount of that fee, equal to the amount by which the Fund's total
operating expenses exceed 0.92% of the Fund's average daily net assets on an
annual basis and to reimburse the Fund for all remaining expenses after fee
waivers which exceed 0.92% of the average daily net assets on an annual basis.
Taking the fee waivers into account, the actual annual total operating expenses
were 0.92% of the average net assets of the Multi-Style Fund.
AGGRESSIVE EQUITY FUND FRIMCo has contractually agreed to waive, at least until
April 30, 2000, a portion of its 0.95% management fee, up to the full amount of
that fee, equal to the amount by which the Fund's total operating expenses
exceed 1.25% of the Fund's average daily net assets on an annual basis and to
reimburse the Fund for all remaining expenses after fee waivers which exceed
1.25% of the average daily net assets on an annual basis. Taking the fee waivers
into account, the actual annual total operating expenses were 1.25% of the
average net assets of the Aggressive Equity Fund.
NON-U.S. FUND FRIMCo has voluntarily agreed to waive a portion of its 0.95%
management fee, up to the full amount of that fee, equal to the amount by which
the Fund's total operating expenses exceed 1.30% of the Fund's average daily net
assets on an annual basis and to reimburse the Fund for all remaining expenses
after fee waivers which exceed 1.30% of the average daily net assets on an
annual basis. Taking the fee waivers into account, the actual annual total
operating expenses were 1.30% of the average net assets of the Non-U.S. Fund.
REAL ESTATE SECURITIES FUND FRIMCo has contractually agreed to waive a portion
of its .85% management fee, up to the full amount of that fee, equal to the
amount by which the Fund's total operating expenses exceed 1.15% of the Fund's
average daily net assets on an annual basis and to reimburse the Fund for all
remaining expenses after fee waivers which exceed 1.15% of the average daily net
assets on an annual basis. Operating expenses are based on average net assets
expected to be invested during the year ending December 31, 1999. During the
course of this period, expenses may be more or less than the amount shown.
CORE BOND FUND FRIMCo has contractually agreed to waive a portion of its 0.60%
management fee, up to the full amount of that fee, equal to the amount by which
the Fund's total operating expenses exceed .80% of the Fund's average daily net
assets on an annual basis and to reimburse the Fund for all remaining expenses
after fee waivers which exceed .80% of the average daily net assets on an annual
basis. Taking the fee waivers into account, the actual annual total operating
expenses were .80% of the average net assets of the Core Bond Fund.
3
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY,
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT,
NORTHWESTERN MUTUAL SERIES FUND, INC. AND
RUSSELL INSURANCE FUNDS
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 fourth largest life insurance company, based on total assets in
excess of $77 billion on December 31, 1998, and is licensed to conduct a
conventional life insurance business in the District of Columbia and in all
states of the United States. Northwestern Mutual Life sells life and disability
insurance policies and annuity contracts through its own field force of
approximately 6,000 full time producing agents. The Internal Revenue Service
Employer Identification Number of Northwestern Mutual Life is 39-0509570.
"We" in this prospectus means Northwestern Mutual Life.
THE ACCOUNT
We established Northwestern Mutual Variable Life Account by action of our
Trustees 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 our other income, gains or losses. We use the Account
only for variable life insurance policies, including other variable life
insurance policies which are described in other prospectuses.
The Account is registered with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940. This registration
does not involve supervision of management or investment practices or policies.
The Account has sixteen divisions. All of the assets of each division are
invested in shares of the corresponding Portfolio or Fund described below.
THE FUNDS
NORTHWESTERN MUTUAL SERIES FUND, INC.
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. The Account buys shares of each Portfolio at
their net asset value without any sales charge.
The investment adviser for the Fund is Northwestern Mutual Investment Services,
LLC ("NMIS"), our wholly-owned subsidiary. 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 1998 asset size. Other expenses borne by the Portfolios range from 0%
for the Select Bond, Money Market and Balanced Portfolios to .09% for the
International Equity Portfolio. We provide the people and facilities NMIS uses
in performing its investment advisory functions and we are a party to the
investment advisory agreement. NMIS has retained J.P. Morgan Investment
Management, Inc. and Templeton Investment Counsel, Inc. under investment
sub-advisory agreements to provide investment advice to the Growth and Income
Stock Portfolio and the International Equity Portfolio.
The investment objectives and types of investments for each of the eleven
Portfolios of the Fund are set forth below. There can be no assurance that the
Portfolios will realize their objectives. For more information about the
investment objectives and policies, the attendant risk factors and expenses see
the attached prospectus for Northwestern Mutual Series Fund, Inc.
SMALL CAP GROWTH STOCK PORTFOLIO The investment objective of the Small Cap
Growth Stock Portfolio is long-term growth of capital. The Portfolio will seek
to achieve this objective primarily by investing in the common stocks of
companies which can reasonably be expected to increase sales and earnings at a
pace which will exceed the growth rate of the U.S. economy over an extended
period.
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.
INDEX 400 STOCK PORTFOLIO The investment objective of the Index 400 Stock
Portfolio is to achieve investment results that approximate the performance of
4
<PAGE>
the Standard & Poor's MidCap 400 Index ("S&P 400 Index"). The Portfolio will
attempt to meet this objective by investing in stocks included in the S&P 400
Index.
GROWTH STOCK PORTFOLIO. The investment objective of the Growth Stock Portfolio
is long-term growth of capital; current income is secondary. The Portfolio will
seek to achieve this objective by selecting investments in companies which have
above average earnings growth potential.
GROWTH AND INCOME STOCK PORTFOLIO. The investment objective of the Growth and
Income Stock Portfolio is long-term growth of capital and income. Ordinarily the
Portfolio pursues its investment objectives by investing primarily in
dividend-paying common stock.
INDEX 500 STOCK PORTFOLIO. The investment objective of the Index 500 Stock
Portfolio is to achieve investment results that approximate the performance of
the Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index"). The
Portfolio will attempt to meet this objective by investing in stocks included in
the S&P 500 Index. Stocks 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.
RUSSELL INSURANCE FUNDS
The Russell Insurance Funds also comprise a mutual fund of the series type
registered under the Investment Company Act of 1940 as an open-end diversified
management investment company. The Account buys shares of each of the Russell
Insurance Funds at their net asset value without any sales charge.
The assets of each of the Russell Insurance Funds are invested by one or more
investment management organizations researched and recommended by Frank Russell
Company ("Russell"), and an affiliate of Russell, Frank Russell Investment
Management Company ("FRIMCo"). FRIMCo also advises, operates and administers the
Russell Insurance Funds. Russell is our majority-owned subsidiary.
The investment objectives and types of investments for each of the five Russell
Insurance Funds are set forth below. There can be no assurance that the Funds
will realize their objectives. A table showing the expense ratios for each of
the Russell Insurance Funds is included in the Summary above, at PAGE 3. For
more information about the investment objectives and policies, the attendant
risk factors and expenses see the attached prospectus for the Russell Insurance
Funds.
MULTI-STYLE EQUITY FUND. The investment objective of the Multi-Style Equity Fund
is to provide income and capital growth by investing principally in equity
securities. The Multi-Style Equity Fund invests primarily in common stocks of
medium and large capitalization companies. These companies are predominately
US-based, although the Fund may invest a limited portion of its assets in non-US
firms from time to time.
AGGRESSIVE EQUITY FUND. The investment objective of the Aggressive Equity Fund
is to provide capital appreciation by assuming a higher level of volatility than
is ordinarily expected from Multi-Style Equity Fund by investing in equity
securities. The Aggressive Equity Fund invests primarily in common stocks of
small and medium capitalization companies. These companies are predominately
US-based, although the Fund may invest in non-US firms from time to time.
NON-U.S. FUND. The investment objective of the Non-U.S. Fund is to provide
favorable total return and additional diversification for US investors by
investing primarily in equity and fixed-income securities of non-US companies,
and securities issued by non-US governments. The Non-U.S. Fund invests primarily
in equity securities issued by companies domiciled
5
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outside the United States and in depository receipts, which represent ownership
of securities of non-US companies.
REAL ESTATE SECURITIES FUND. The investment objective of the Real Estate
Securities Fund is to generate a high level of total return through above
average current income, while maintaining the potential for capital
appreciation. The Fund seeks to achieve its objective by concentrating its
investments in equity securities of issuers whose value is derived primarily
from development, management and market pricing of underlying real estate
properties.
CORE BOND FUND. The investment objective of the Core Bond Fund is to maximize
total return, through capital appreciation and income, by assuming a level of
volatility consistent with the broad fixed-income market, by investing in
fixed-income securities. The Core Bond Fund invests primarily in fixed-income
securities. In particular, the Fund holds debt securities issued or guaranteed
by the US government, or to a lesser extent by non-US governments, or by their
respective agencies and instrumentalities. It also holds mortgage-backed
securities, including collateralized mortgage obligations. The Fund also invests
in corporate debt securities and dollar-denominated obligations issued in the US
by non-US banks and corporations (Yankee Bonds). A majority of the Fund's
holdings are US dollar-denominated. From time to time the Fund may invest in
municipal debt obligations.
- --------------------------------------------------------------------------------
DETAILED INFORMATION ABOUT THE POLICY
PREMIUMS
The Policy permits you to pay premiums at any time before the Policy anniversary
that is nearest the insured's 95th birthday and in any amounts within the limits
described in this section.
We use the Specified Amount you select when you purchase the Policy to determine
the minimum initial premium. The minimum initial premium is approximately equal
to three times the initial monthly Cost of Insurance Charge and other
deductions.
We calculate a Target Premium when the Policy is issued and we use the Target
Premium to determine the sales load. The Target Premium is based on the modified
endowment contract seven-pay limit for the Specified Amount and the age and sex
of the insured.
After a Policy is issued, there are no minimum premiums, except that we will not
accept a premium of less than $25. The Policy will remain in force during the
insured's lifetime so long as the Policy Value, less the amount of any Policy
debt, is sufficient to pay the monthly cost of insurance charge and other
current charges.
The Policy sets no maximum on premiums, but we will accept a premium that would
increase the net amount at risk only if the insurance, as increased, will be
within our issue limits, the insured meets our insurability requirements and we
receive the premium prior to the anniversary nearest the insured's 75th
birthday. We will not accept a premium if it would disqualify the Policy as life
insurance for federal income tax purposes. We will accept a premium, however,
even if it would cause the Policy to be classified as a modified endowment
contract. See "Tax Considerations", p. 11.
DEATH BENEFIT
DEATH BENEFIT OPTIONS The Policy provides for three death benefit options:
SPECIFIED AMOUNT (OPTION A) You select the Specified Amount when you purchase
the Policy.
SPECIFIED AMOUNT PLUS POLICY VALUE (OPTION B) The Policy Value is the cumulative
amount invested, adjusted for investment results, reduced by the charges for
insurance and other expenses.
SPECIFIED AMOUNT PLUS PREMIUMS PAID (OPTION C)
In addition, under any of the Options, we will increase the Death Benefit if
necessary to meet the definitional requirements for life insurance for federal
income tax purposes as discussed below.
Under any of the death benefit options the death benefit will be equal to the
Policy Value at all times on and after the Policy anniversary nearest the 100th
birthday of the insured.
CHOICE OF TESTS FOR TAX PURPOSES A Policy must satisfy one of two testing
methods to qualify as life insurance for federal income tax purposes. You may
choose either the Guideline Premium/Cash Value Corridor Test or the Cash Value
Accumulation Test. Both tests require the Policy to meet minimum ratios, or
multiples, of death benefit to the Policy Value. The minimum multiple decreases
as the age of the insured advances. You make the choice of testing methods when
you purchase a Policy and it may not be changed.
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For the Guideline Premium/Cash Value Corridor Test the minimum multiples of
death benefit to the Policy Value are shown below.
Guideline Premium/Cash Value
----------------------------
Corridor Test Multiples
-----------------------
<TABLE>
<CAPTION>
Attained Policy Attained Policy
- -------- ------ -------- ------
Age Value % Age Value %
- --- ------- --- -------
<S> <C> <C> <C>
40 or under..250 61...........128
41...........243 62...........126
42...........236 63...........124
43...........229 64...........122
44...........222 65...........120
45...........215 66...........119
46...........209 67...........118
47...........203 68...........117
48...........197 69...........116
49...........191 70...........115
50...........185 71...........113
51...........178 72...........111
52...........171 73...........109
53...........164 74...........107
54...........157 75-90........105
55...........150 91...........104
56...........146 92...........103
57...........142 93...........102
58...........138 94...........101
59...........134 95 or over...100
60...........130
</TABLE>
For the Cash Value Accumulation Test the minimum multiples of death benefit to
the Policy Value are calculated using net single premiums based on the attained
age of the insured and the Policy's underwriting classification, using a 4%
interest rate.
The Guideline Premium/Cash Value Corridor Test has lower minimum multiples than
the Cash Value Accumulation Test, usually resulting in better cash value
accumulation for a given amount of premium. But the Guideline Premium/Cash Value
Corridor Test limits the amount of premium that may be paid in each Policy year.
The Cash Value Accumulation Test has no such annual limitation, and allows more
premium to be paid during the early Policy years.
DEATH BENEFIT CHANGES After we issue a Policy you may change the death benefit
option, or increase or decrease the Specified Amount, subject to our approval.
Changes are subject to insurability requirements and issue limits. We will not
permit a change if it results in a Specified Amount less than the minimum for a
new Policy that we would issue on that date.
A change in the death benefit option, or an increase or decrease in the
Specified Amount, will be effective on the monthly processing date next
following receipt of a written request at our Home Office.
Administrative charges of up to $250 for a change in the death benefit option,
and up to $25 for each of more than one change in the Specified Amount in a
Policy year, may apply. We will deduct any such charges from the Policy Value.
We are currently waiving these charges.
A change in the death benefit option, or an increase or decrease in the
Specified Amount, may have important tax effects. See "Tax Considerations", p.
11. The cost of insurance charge will increase if a change results in a larger
net amount at risk. See "Charges Against the Policy Value," below.
ALLOCATIONS TO THE ACCOUNT
We place the initial net premium in the Account on the Policy date. Net premiums
you pay thereafter are placed in the Account on the date we receive them at our
Home Office. Net premiums are premiums less the deductions from premiums. See
"Deductions from Premiums," below.
We invest premiums we place in the Account prior to the initial allocation date
in the Money Market Division of the Account. The initial allocation date is
identified in the Policy and is the later of the date we approved the
application and the date we received the initial premium at our Home Office. A
different initial allocation date applies in those states which require a refund
of at least the premium paid during the period when the Policy may be returned.
In those states, the initial allocation date will be one day after the end of
the period during which the policyowner has the right to return the Policy,
based on the applicable state laws. See "Right to Return Policy", p.10. On the
initial allocation date we invest the amount in the Money Market Division in the
Account divisions as you have directed in the application for the Policy. You
may change the allocation for future net premiums at any time by written request
and the change will be effective for premiums we place in the Account
thereafter. Allocation must be in whole percentages.
You may transfer accumulated amounts from one division of the Account to
another. Transfers are effective on the date we receive a written request at our
Home Office. We reserve the right to charge a fee of up to $25, to cover
administrative costs of transfers, if there are more than twelve transfers in a
Policy year. We are currently waiving these charges.
DEDUCTIONS AND CHARGES
DEDUCTIONS FROM PREMIUMS We deduct a charge for taxes attributable to premiums
from each premium.
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<PAGE>
The total amount of this deduction is 3.6% of the premium. Of this amount 2.35%
is for state premium taxes. Premium taxes vary from state to state and currently
range from .5% to 3.5% of life insurance premiums. The 2.35% rate is an average.
The tax rate for a particular state may be lower, higher, or equal to the 2.35%
deduction. We do 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. We believe that this charge does not exceed a reasonable estimate of
our federal income taxes attributable to the treatment of deferred acquisition
costs.
We deduct a charge for sales costs from each premium. The charge is 15% of
premiums paid during the first Policy year up to the Target Premium, 6.8% of
premiums paid during each of Policy years 2-6 up to the Target Premium, and 3%
of all other premiums. The Target Premium is based on the modified endowment
contract seven-pay limit for the Specified Amount and the age and sex of the
insured. See "Modified Endowment Contracts", p. 12. To the extent that sales
expenses exceed the amounts deducted, we will pay the expenses from our other
assets. These assets may include, among other things, any gain realized from the
monthly charge against the Policy Value for the mortality and expense risks we
have assumed, as described below.
CHARGES AGAINST THE POLICY VALUE We deduct a cost of insurance charge from the
Policy Value on each monthly processing date. We determine the amount by
multiplying the net amount at risk by the cost of insurance rate. The net amount
at risk is equal to the death benefit currently in effect less the Policy Value.
The cost of insurance rate reflects the issue age, policy duration and risk
classification of the insured. The maximum cost of insurance rates are included
in the Policy.
We also deduct a charge for the mortality and expense risks we have assumed. The
maximum amount of the charge is equal to an annual rate of .90% (0.07500%
monthly rate) of the Policy Value, less any Policy debt. Currently the charge is
equal to an annual rate of .75% (0.06250% monthly rate) of Policy Value, less
any Policy debt, for the first ten Policy years and .30% (0.0250% monthly rate)
thereafter. The mortality risk is that insureds may not live as long as we
estimated. The expense risk is that expenses of issuing and administering the
Policies may exceed the estimated costs. We will realize a gain from this charge
to the extent it is not needed to provide benefits and pay expenses under the
Policies.
We deduct a monthly administrative charge of not more than $15 for the first
Policy year and $10 thereafter. Currently this charge will be $5 after the first
Policy year. This charge is for administrative expenses, including costs of
premium collection, processing claims, keeping records and communicating with
Policyowners. We do not expect to profit from this charge.
We deduct a charge for the expenses and taxes associated with the Policy debt,
if any. The aggregate charge is at the current annual rate of 0.75% (0.06250%
monthly rate) of the Policy debt for the first ten Policy years and 0.20%
(0.01667% monthly rate) thereafter.
The Policy provides for transaction fees to be deducted from the Policy Value on
the dates on which transactions take place. These charges are $25 for changes in
the Specified Amount, withdrawals or transfers of assets among the divisions of
the Account if more than twelve transfers take place in a Policy year. The fee
for a change in the death benefit option is $250. Currently we are waiving all
of these fees.
We will apportion deductions from the Policy Value among the divisions of the
Account in proportion to the amounts invested in the divisions.
EXPENSES OF THE FUNDS The investment performance of each division of the Account
reflects all expenses borne by the corresponding Portfolio or Fund. The expenses
are summarized above on page 3. See the attached mutual fund prospectuses for
more information about those expenses.
POLICIES ISSUED PRIOR TO NOVEMBER 1, 1999 For Policies issued prior to November
1, 1999, including Policies issued after that date in states where the current
Policy form has not been approved, the deduction from premiums for sales costs
is 15% of premiums paid during the first Policy year up to the Target Premium
and 3% of all other premiums.
CASH VALUE
You may surrender a Policy for the cash value at any time during the lifetime of
the insured. The cash value for the Policy will change daily in response to
investment results. No minimum cash value is guaranteed. The cash value is equal
to the Policy Value reduced by any Policy debt outstanding. During the first
Policy year the cash value is increased by the amount of sales load previously
deducted from premiums, during the second Policy year the cash value is
increased by 66.67% of previous sales load deductions and during the third
Policy year the cash value is increased by 33.33% of the previous sales load
deductions. This increase in cash value during the first three Policy years does
not apply if the Policy is in a grace period on the date on which you surrender
the Policy. This increase in cash value is not available in New Jersey. The cash
values shown in the illustrations on pages 47 - 50 are not correct for Policy
Years 1, 2 and 3 for Policies sold in New Jersey. Corrected illustrations are
available upon request.
8
<PAGE>
We determine the cash value for a Policy 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, we may also determine the cash value for a Policy on any other day on
which there is sufficient trading in securities to materially affect the value
of the securities held by the Portfolios or Funds.
For Policies issued prior to November 1, 1999, including Policies issued after
that date in states where the current Policy form has not been approved, the
cash value is equal to the Policy Value reduced by any Policy debt outstanding.
During the first policy year the cash value is increased by the amount of sales
load previously deducted from premiums, and during the second Policy year the
cash value is increased by 50% of previous sales load deductions. The increase
in cash value during the first two Policy years does not apply if the Policy is
in a grace period on the date on which you surrender the Policy. This increase
in cash value is not available in New Jersey. See "Policies Issued Prior to
November 1, 1999", p. 8.
POLICY LOANS
You may borrow up to 90% of the Policy Value using the Policy as security. If a
Policy loan is already outstanding, the maximum amount for any new loan is 90%
of the Policy Value, less the amount already borrowed.
Interest on a Policy loan accrues and is payable on a daily basis at an annual
effective rate of 5%. We add unpaid interest to the amount of the loan. If the
amount of the loan equals or exceeds the Policy Value on a monthly processing
date, the Policy will enter the grace period. See "Termination and
Reinstatement", below. We will send you a notice at least 61 days before the
termination date. The notice will show how much you must pay to keep the Policy
in force.
We will take the amount of a Policy loan from the Account divisions in
proportion to the amounts in the divisions. We will transfer the amounts
withdrawn to our general account and will credit them on a daily basis with an
annual earnings rate equal to the 5% Policy loan interest rate. A Policy loan,
even if you repay it, will have a permanent effect on the Policy Value because
the amounts borrowed will not participate in the Account's investment results
while the loan is outstanding. The effect may be either favorable or unfavorable
depending on whether the earnings rate credited to the loan amount is higher or
lower than the rate credited to the unborrowed amount left in the Account.
You may repay a Policy loan, and any accrued interest outstanding, in whole or
in part, at any time. We will credit payments as of the date we receive them and
will transfer those amounts from our general account to the Account divisions,
in proportion to the premium allocation in effect, as of the same date.
A Policy loan may have important tax consequences. See "Tax Considerations",
p. 11.
WITHDRAWALS OF POLICY VALUE
You may make a withdrawal of Policy Value. A withdrawal may not reduce the loan
value to less than any Policy debt outstanding. The loan value is 90% of the
Policy Value, less any Policy debt already outstanding. Following a withdrawal
the remaining Policy Value, less any Policy debt outstanding, must be at least
three times the current monthly charges for the cost of insurance and other
expenses. The minimum amount for withdrawals is $250. We permit up to four
withdrawals in a Policy year. An administrative charge of up to $25 may apply,
but we are currently waiving this charge.
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 will be larger than the amount of the withdrawal. If
Option A or Option C is in effect a withdrawal of Policy Value will reduce the
Specified Amount by the amount of the withdrawal. Following a withdrawal the
remaining death benefit must be at least the minimum amount that we would
currently issue.
We will take the amount withdrawn from Policy Value from the Account divisions
in proportion to the amounts in the divisions. The Policy makes no provision for
repayment of amounts withdrawn. A withdrawal of Policy Value may have important
tax consequences. See "Tax Considerations", p. 11.
TERMINATION AND REINSTATEMENT
If the Policy Value, less any Policy debt outstanding, is less than the monthly
charges for the cost of insurance and other expenses on any monthly processing
date, we allow a grace period of 61 days for the payment of sufficient premium
to keep the Policy in force. The grace period begins on the date that we send
you a notice. The notice will state the minimum amount of premium required to
keep the Policy in force and the date by which you must pay the premium. The
Policy will terminate unless you pay the required amount before the grace period
expires.
After a Policy has terminated, it may be reinstated within one year. The insured
must provide satisfactory evidence of insurability. The minimum amount of
premium required for reinstatement will be the monthly charges that were due
when the Policy terminated plus the charges for three more months.
9
<PAGE>
Reinstatement of a Policy will be effective on the first monthly processing date
after an application for reinstatement is received at our Home Office, subject
to our approval. Any Policy debt that was outstanding when the Policy terminated
will also be reinstated.
The Policy Value when a Policy is reinstated is equal to the premium paid, after
the deduction for taxes and sales load, less the sum of all monthly charges for
the cost of insurance and other expenses for the grace period and for the
current month. We will allocate the Policy Value among the Account divisions
based on the allocation for premiums currently in effect.
A Policy may not be reinstated after the Policy has been surrendered for its
cash value.
See "Tax Considerations", p. 11, for a discussion of the tax effects associated
with termination and reinstatement of a Policy.
RIGHT TO RETURN POLICY
You may return a Policy within 45 days after you signed the application for
insurance or within 10 days (or later where required by state law) after you
receive the Policy, whichever is later. You may mail or deliver the Policy to
the agent who sold it or to our Home Office. If you return it, we will consider
the Policy void from the beginning. We will refund the sum of the amounts
deducted from the premium paid plus the value of the Policy in the Account on
the date we receive the returned Policy. In some states, the amount we refund
will not be less than the premium you paid.
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. We must receive written proof of the transfer at our Home Office. "You"
in this prospectus means the owner or prospective purchaser of a Policy.
BENEFICIARY. The beneficiary is the person to whom the death benefit is payable.
The beneficiary is named in the application. After we issue the Policy you may
change the beneficiary in accordance with the Policy provisions.
INCONTESTABILITY. We 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. We will not
contest an increase in the amount of insurance that was subject to insurability
requirements after the increased amount has been in force during the lifetime of
the insured for two years from the date of issuance of the increase.
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. If the insured dies by suicide
within one year of the date of issuance of an increase in the amount of
insurance, which was subject to insurability requirements, the amount payable
with respect to the increase will be limited to the amounts charged for the cost
of insurance and other expenses attributable to the increase.
MISSTATEMENT OF AGE OR SEX. If the age or sex of the insured has been misstated,
we will adjust the charges for cost of insurance and other expenses under a
Policy to reflect the correct age and sex.
COLLATERAL ASSIGNMENT. You may assign a Policy as collateral security. We are
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 our Home Office.
DEFERRAL OF DETERMINATION AND PAYMENT. We will ordinarily pay Policy benefits
within seven days after we receive all required documents at our Home Office.
However, we may defer determination and payment of benefits 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.
DIVIDENDS. The Policies will share in divisible surplus to the extent we
determine annually. Since we do not expect the Policies to contribute to
divisible surplus, we do not expect to pay any dividends.
VOTING RIGHTS
We are the owner of the shares of both mutual funds in which all assets of the
Account are invested. As the owner of the shares we will exercise our right to
vote the shares to elect directors of the mutual funds, 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 mutual fund shareholders' meeting. However, we will vote the
mutual fund shares held in the Account in accordance with instructions from
owners of the Policies. We will vote any shares of the mutual funds held in our
general account in the same proportions as the shares for which we have received
voting instructions. If the applicable laws or regulations change so as to
permit us to vote the shares in our own discretion, we may elect to do so.
The number of mutual fund shares for each division of the Account for which the
owner of a Policy may give instructions is determined by dividing the amount of
the Policy Value apportioned to that division, if any, by the per share value
for the corresponding Portfolio or Fund. The number will be determined as of a
date
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<PAGE>
we choose, but not more than 90 days before the shareholders' meeting.
Fractional votes are counted. We will solicit voting instructions with written
materials at least 14 days before the meeting. We will vote shares as to which
we receive no instructions in the same proportion as the shares as to which we
receive instructions.
We may, if required by state insurance officials, disregard voting instructions
which would require mutual fund shares to be voted for a change in the
sub-classification or investment objectives of a Portfolio or Fund, or to
approve or disapprove an investment advisory agreement for either of the mutual
funds. We may also disregard voting instructions that would require changes in
the investment policy or investment adviser for either a Portfolio or a Fund,
provided that we reasonably determine to take this action in accordance with
applicable federal law. If we disregard voting instructions, we will include a
summary of the action and reasons therefor in the next semiannual report to the
owners of the Policies.
SUBSTITUTION OF FUND SHARES AND OTHER CHANGES
If, in our judgment, a Portfolio or Fund becomes unsuitable for continued use
with the Policies because of a change in investment objectives or restrictions,
shares of another Portfolio or Fund 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. We have also reserved the right, subject to
applicable federal and state law, to operate the Account or any of its divisions
as a management company under the Investment Company Act of 1940, or in any
other form permitted, or to terminate registration of the Account if
registration is no longer required, and to change the provisions of the Policies
to comply with any applicable laws.
REPORTS
At least once each Policy year you will receive a statement showing the death
benefit, cash value, Policy Value and any Policy loan, including loan interest.
This report will show the apportionment of invested assets among the Account
divisions. You will also receive annual and semiannual reports for the Account
and both of the mutual funds, including financial statements.
DISTRIBUTION OF THE POLICIES
We sell the Policies through individuals who, in addition to being licensed life
insurance agents of Northwestern Mutual Life, are registered representatives of
Northwestern Mutual Investment Services LLC ("NMIS"), our wholly-owned
subsidiary. NMIS is a registered broker-dealer under the Securities Exchange Act
of 1934 and is a member of the National Association of Securities Dealers. NMIS
was organized in 1968 as a Wisconsin corporation. Its address is 720 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202. The Internal Revenue Service
Employer Identification Number of NMIS is 39-0509570.
Commissions paid to the agents will not exceed 15% of the premium for the first
year, 5.75% of the premium for years 2-6, and 2.75% of the premium thereafter.
During the sixth Policy year and thereafter agents will receive compensation at
the annual rate of .20% of the cash value of a Policy.
General agents and district agents who are registered representatives of NMIS
and have supervisory responsibility for sales of the Policies receive commission
overrides and other compensation.
TAX CONSIDERATIONS
GENERAL The following discussion provides a general description of federal
income tax considerations relating to the Policy. The discussion is based on
current provisions of the Internal Revenue Code ("Code") as currently
interpreted by the Internal Revenue Service. We do not intend this as tax
advice. The discussion is not exhaustive, it does not address the likelihood of
future changes in federal income tax law or interpretations thereof, and it does
not address state or local tax considerations which may be significant in the
purchase and ownership of a Policy.
LIFE INSURANCE QUALIFICATION Section 7702 of the Code defines life insurance for
federal income tax purposes. The Code provides two alternative tests for
determining whether the death benefit is a sufficient multiple of the Policy
Value. See "Choice of Tests for Tax Purposes", p. 6. We have designed the Policy
to comply with these rules. We will return premiums that would cause a Policy to
be disqualified as life insurance.
Section 817(h) of the Code authorizes the Secretary of the Treasury to set
standards for diversification of the investments underlying variable life
insurance policies. Final regulations have been issued pursuant to this
authority. Failure to meet the diversification requirements would disqualify the
Policies as life insurance for purposes of Section 7702 of the Code. We intend
to comply with these requirements.
The Treasury Department, in connection with the diversification requirements,
stated that it expected to issue guidance about circumstances where a
policyowner's control of separate account assets would cause the policyowner,
and not the life insurance company, to be treated as the owner of those assets.
These guidelines have not been issued. If the owner of a Policy were treated as
the owner of the Fund shares
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<PAGE>
held in the Account, the income and gains related to those shares would be
included in the owner's gross income for federal income tax purposes. We believe
that we own the assets of the Account under current federal income tax law.
TAX TREATMENT OF LIFE INSURANCE While a Policy is in force, increases in the
Policy Value as a result of investment experience are not subject to federal
income tax until there is a distribution as defined by the Code. The death
benefit received by a beneficiary will not be subject to federal income tax.
Unless the Policy is a modified endowment contract, as described below, we
believe that a loan received under a Policy will be construed as indebtedness of
the owner and no part of the loan will be treated as a distribution subject to
current federal income tax. Interest paid by individual owners of the Policies
will ordinarily not be deductible. You should consult a qualified tax adviser as
to the deductibility of interest paid, or accrued, by other purchasers of the
Policies. See "Other Tax Considerations", p. 13.
As a general rule, the proceeds from a withdrawal of Policy Value will be
taxable only to the extent that the withdrawal exceeds the basis of the Policy.
The basis of the Policy is generally equal to the premiums paid less any amounts
previously received as tax-free distributions. In certain circumstances, a
withdrawal of Policy Value during the first 15 Policy years may be taxable to
the extent that the Policy Value exceeds the basis of the Policy. This means
that the amount withdrawn may be taxable even if that amount is less than the
basis of the Policy. In addition, if a Policy terminates while a Policy loan is
outstanding, the cancellation of the loan and accrued interest will be treated
as a distribution from the Policy and may be taxable under these rules.
Special tax rules may apply when ownership of a Policy is transferred. You
should seek qualified tax advice if you plan a transfer of ownership.
MODIFIED ENDOWMENT CONTRACTS A Policy will be classified as a modified endowment
contract if the cumulative premium paid during the first seven Policy years
exceeds a defined "seven-pay" limit. The seven-pay limit is based on a
hypothetical life insurance policy issued on the same insured person and for the
same initial death benefit which, under specified conditions (which include the
absence of expense and administrative charges) will be fully paid for after
seven level annual payments. A Policy will be treated as a modified endowment
contract unless cumulative premiums paid under the Policy, at all times during
the first seven Policy years, are less than or equal to the cumulative seven-pay
premiums which would have been paid under the hypothetical policy on or before
such times.
Whenever there is a "material change" under a Policy, it will generally be
treated as a new contract for purposes of determining whether the Policy is a
modified endowment contract, and subjected to a new seven-pay period and a new
seven-pay limit. The new seven-pay limit would be determined taking into account
the Policy Value of the Policy at the time of such change. A materially changed
Policy would be considered a modified endowment contract if it failed to satisfy
the new seven-pay limit. A material change could occur as a result of a change
in the death benefit option, a change in the Specified Amount, and certain other
changes.
If the benefits are reduced during the first seven Policy years after entering
into the Policy (or within seven years after a material change), for example, by
requesting a decrease in the Specified Amount or, in some cases, by making a
withdrawal of Policy Value, the seven-pay premium limit will be redetermined
based on the reduced level of benefits and applied retroactively for purposes of
the seven-pay test. If the premiums previously paid are greater than the
calculated seven-pay premium level limit, the Policy will become a modified
endowment contract. A life insurance policy which is received in exchange for a
modified endowment contract will also be considered a modified endowment
contract.
If a Policy is a modified endowment contract, any distribution from the Policy
will be taxed on a gain-first basis. Distributions for this purpose include a
loan (including any increase in the loan amount to pay interest on an existing
loan or an assignment or a pledge to secure a loan) or a withdrawal of Policy
Value. Any such distributions will be considered taxable income to the extent
the Policy Value exceeds the basis in the Policy. For modified endowment
contracts, the basis would be increased by the amount of any prior loan under
the Policy that was considered taxable income. For purposes of determining the
taxable portion of any distribution, all modified endowment contracts issued by
Northwestern Mutual Life to the same policyowner (excluding certain qualified
plans) during any calendar year are to be aggregated. The Secretary of the
Treasury has authority to prescribe additional rules to prevent avoidance of
gain-first taxation on distributions from modified endowment contracts.
A 10% penalty tax will apply to the taxable portion of a distribution from a
modified endowment contract. The penalty tax will not, however, apply to
distributions (i) to taxpayers 59 1/2 years of age or older, (ii) in the case of
a disability (as defined in the Code) or (iii) received as part of a series of
substantially equal periodic annuity payments for the life (or life expectancy)
of the taxpayers or the joint lives (or joint life expectancies) of the taxpayer
and his beneficiaries. If a Policy is surrendered, the excess, if
12
<PAGE>
any, of the Policy Value over the basis of the Policy will be subject to federal
income tax and, unless one of the above exceptions applies, the 10% penalty tax.
The exceptions generally do not apply to life insurance policies owned by
corporations or other entities. If a Policy terminates while there is a Policy
loan, the cancellation of the loan and accrued loan interest will be treated as
a distribution to the extent not previously treated as such and could be subject
to tax, including the penalty tax, as described under the above rules.
If a Policy becomes a modified endowment contract, distributions that occur
during the Policy year it becomes a modified endowment contract and any
subsequent Policy year will be taxed as described in the two preceding
paragraphs. In addition, distributions from a Policy within two years before it
becomes a modified endowment contract will be subject to tax in this manner.
This means that a distribution made from a Policy that is not a modified
endowment contract could later become taxable as a distribution from a modified
endowment contract. The Secretary of the Treasury has been authorized to
prescribe rules which would treat similarly other distributions made in
anticipation of a policy becoming a modified endowment contract.
OTHER TAX CONSIDERATIONS Business-owned life insurance may be subject to certain
additional rules. Section 264(a)(1) of the Code generally disallows a deduction
for premiums paid on Policies by anyone who is directly or indirectly a
beneficiary under the Policy. Increases in Policy Value may also be subject to
tax under the corporation alternative minimum tax provisions.
Section 264(a)(4) of the Code limits the Policyowner's deduction for interest on
loans taken against life insurance policies to interest on an aggregate total of
$50,000 of loans per covered life only with respect to life insurance policies
covering key persons. Generally, a key person means an officer or a 20% owner.
However, the number of key persons will be limited to the greater of (a) five
individuals, or (b) the lesser of 5% of the total officers and employees of the
taxpayer or 20 individuals. Deductible interest for these Policies will be
subject to limits based on current market rates.
In addition, Section 264(f) disallows a proportionate amount of a business'
interest deduction based on the amount of unborrowed cash value of non-exempt
life insurance policies held in relation to other business assets. Exempt
policies include policies held by natural persons unless the business is a
direct or indirect beneficiary under the policy and policies owned by a business
and insuring employees, directors, officers and 20% owners (as well as joint
policies insuring 20% owners and their spouses).
Finally, life insurance subject to a split dollar arrangement is taxable to the
employee in the amount of the annual value of the economic benefit to the
employee measured by the issuer's lowest one-year term rates as defined by
various Internal Revenue Service rulings or the government's P.S. 58 table
rates. There is also a risk that the accrued earnings in equity split dollar
policies may be taxable in the year earned. Although the Internal Revenue
Service has not issued a formal ruling on this issue, it issued a technical
advise memorandum in 1996 to this effect (which is applicable only to the
taxpayer under audit) and is currently reviewing the taxation of split dollar
arrangements generally.
Depending on the circumstances, the exchange of a Policy, a change in the death
benefit option, a Policy loan, a withdrawal of Policy Value, a change in
ownership or an assignment of the Policy may have federal income tax
consequences. In addition, federal, state and local transfer, estate,
inheritance, and other tax consequences of Policy ownership, premium payments
and receipt of Policy proceeds depend on the circumstances of each Policyowner
or beneficiary. If you contemplate any such transaction you should consult a
qualified tax adviser.
- --------------------------------------------------------------------------------
OTHER INFORMATION
MANAGEMENT
Northwestern Mutual Life is managed by a Board of Trustees. The Trustees and
senior officers of Northwestern Mutual Life and their positions including Board
committee memberships, and their principal occupations, as of the date of this
prospectus, are listed below. Unless otherwise indicated, the business address
of each Trustee and senior officer is c/o The Northwestern Mutual Life Insurance
Company, 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202.
TRUSTEES
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ---- -------------------------------------------
<S> <C>
R. Quintus Anderson (A)........................ Chairman, Aarque Capital Corporation since 1997; prior thereto,
Chairman, The Aarque Companies, 111 West Second Street, P.O. Box
310, Jamestown, NY 14702-0310 (diversified metal
13
<PAGE>
products manufacturing)
Edward E. Barr (HR)............................ Chairman, Sun Chemical Corporation, 222 Bridge Plaza South, Fort
Lee, New Jersey 07024 (graphic arts) since 1998; prior thereto,
President and Chief Executive Officer. President and Chief
Executive Officer, DIC Americas, Inc., Fort Lee, NJ
Gordon T. Beaham, III (OT)..................... Chairman of the Board and President, Faultless Starch/Bon Ami
Company, 1025 West Eighth Street, Kansas City, MO 64101
(consumer products manufacturer)
Robert C. Buchanan (A, E, F)................... President and Chief Executive Officer, Fox Valley Corporation,
100 West Lawrence Street, P.O. Box 727, Appleton, WI 54911
(manufacturer of gift wrap and writing paper)
Robert E. Carlson (E).......................... Executive Vice President of Northwestern Mutual Life
George A. Dickerman (AM)....................... Chairman Emeritus, Spalding Sports Worldwide, 425 Meadow Street,
P.O. Box 901, Chicopee, MA 01021-0901 (manufacturer of sporting
equipment) since 1999; Chairman of the Board from 1998 to 1999;
prior thereto, President
Pierre S. du Pont (AM)......................... Attorney, Richards, Layton and Finger, P.O. Box 551, 1 Rodney
Square, Wilmington, DE 1989
James D. Ericson (AM, E, F. HR, OT)............ President and Chief Executive Officer of Northwestern Mutual
Life
J. E. Gallegos (A)............................. Attorney at Law; President, Gallegos Law Firm, 460 St. Michaels
Drive, Building 300, Santa Fe, NM 87505
Stephen N. Graff (E, F, OT).................... Retired Partner, Arthur Andersen LLP (public accountants).
Address: 805 Lone Tree Road, Elm Grove, WI 53122-2014
Patricia Albjerg Graham (HR)................... Professor, Graduate School of Education, Harvard University, 420
Gutman, Cambridge, MA 02138. President, The Spencer Foundation
(social and behavioral sciences)
Stephen F. Keller (HR)......................... Attorney. Former Chairman, Santa Anita Realty Enterprises since
1997; prior thereto, Chairman. Address: 101 South Las Palmas
Avenue, Los Angeles, CA 90004
Barbara A. King (AM)........................... President, Landscape Structures, Inc., Rt 3, 601 - 7th Street
South, Delano, MN 55328 (manufacturer of playground equipment)
J. Thomas Lewis (HR)........................... Attorney (retired), 228 St. Charles Avenue, Suite 1024, New
Orleans, LA 70130, since 1998; prior thereto, Attorney, Monroe &
Lemann, New Orleans, LA
Daniel F. McKeithan, Jr. (E, F, HR)............ President, Tamarack Petroleum Company, Inc., 777 East Wisconsin
Avenue, Milwaukee, WI 53202 (operator of oil and gas wells);
President, Active Investor Management, Inc., Milwaukee, WI
Guy A. Osborn (E, F, OT)....................... Retired Chairman of Universal Foods Corporation, 433 East
Michigan Street, Milwaukee, WI 53202 since 1997; prior thereto,
Chairman and Chief Executive Officer
Timothy D. Proctor (A)......................... Director, Worldwide Human Resources of Glaxo Wellcome plc, Glaxo
Wellcome House, Berkeley Avenue, Greenford, Middlesex UB6 0NN,
United Kingdom, since 1998; prior thereto, Senior Vice President
Human Resources, General Counsel & Secretary of Glaxo Wellcome,
Inc. (pharmaceuticals)
14
<PAGE>
H. Mason Sizemore, Jr. (AM).................... President and Chief Operating Officer, The Seattle Times,
Fairview Avenue North and John Street, P.O. Box 70, Seattle, WA
98109 (publishing)
Harold B. Smith (OT)........................... Chairman, Executive Committee, Illinois Tool Works, Inc., 3600
West Lake Avenue, Glenview, IL 60025-5811 (engineered components
and industrial systems and consumables)
Sherwood H. Smith, Jr. (AM).................... Chairman Emeritus of Carolina Power & Light, 411 Fayetteville
Street Mall, P.O. Box 1551, Raleigh, NC 27602, since 1999;
Chairman of the Board from 1997 to 1999; prior thereto, Chairman
of the Board and Chief Executive Officer
Peter M. Sommerhauser.......................... Partner, Godfrey & Kahn, S.C. (attorneys), 780 North Water
Street, Milwaukee, WI 53202-3590
John E. Steuri (OT)............................ Chairman, Advanced Thermal Technologies, 2102 Riverfront Drive,
Suite 120, Little Rock, AR 72202-1747 since 1997 (heating,
air-conditioning and humidity control). Retired since 1996 as
Chairman and Chief Executive Officer of ALLTEL Information
Services, Inc., Little Rock, AR (application software).
John J. Stollenwerk (AM, E, F)................. President and Chief Executive Officer, Allen-Edmonds Shoe
Corporation, 201 East Seven Hills Road, P.O. Box 998, Port
Washington, WI 53074-0998
Barry L. Williams (HR)......................... President and Chief Executive Officer of Williams Pacific
Ventures, Inc., 100 First Street, Suite 2350, San Francisco, CA
94105-2634 (venture capital consulting)
Kathryn D. Wriston (A)......................... Director of various corporations. Address: c/o Shearman &
Sterling, 599 Lexington Avenue, Room 1126, New York, NY 10022
A -- Member, Audit Committee F -- Member, Finance Committee
AM -- Member, Agency and Marketing HR -- Member, Human Resources and Public Policy
Committee Committee
E -- Member, Executive Committee OT -- Member, Operations and Technology Committee
</TABLE>
SENIOR OFFICERS (OTHER THAN TRUSTEES)
<TABLE>
<CAPTION>
POSITION WITH
NAME NORTHWESTERN MUTUAL LIFE
- ------------------------------- -----------------------------------------------
<S> <C>
John M. Bremer Executive Vice President, General Counsel
and Secretary
Peter W. Bruce Executive Vice President
Edward J. Zore Executive Vice President
Deborah A. Beck Senior Vice President
William H. Beckley Senior Vice President
Mark G. Doll Senior Vice President
Richard L. Hall Senior Vice President
William C. Koenig Senior Vice President and Chief Actuary
Donald L. Mellish Senior Vice President
Mason G. Ross Senior Vice President
John E. Schlifske Senior Vice President
Leonard F. Stecklein Senior Vice President
Frederic H. Sweet Senior Vice President
Walter J. Wojcik Senior Vice President
Gary E. Long Vice President and Controller
</TABLE>
15
<PAGE>
REGULATION
We are subject to the laws of Wisconsin governing insurance companies and to
regulation by the Wisconsin Commissioner of Insurance. We file an annual
statement in a prescribed form 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.
We are also subject to the insurance laws and regulations of the other
jurisdictions in which we are licensed to operate.
YEAR 2000 ISSUES
Since early 1996 we have been preparing for the computer requirements associated
with the approaching turn of the century. We completed assessment of internal
systems in 1996. As of the date of this prospectus the necessary system changes
are substantially complete. System testing is in process. Testing of all
critical systems has been completed.
The work on these computer systems extends to software packages we purchase from
vendors. In addition, we have been communicating formally with our business
partners to identify and assess potential exposure that could result from their
failure to address these computer issues on a timely basis. Each of our
departments has prepared a contingency plan.
We and our business partners bear all of the costs of identifying and resolving
the computer systems issues associated with the year 2000. These costs will have
no effect on the performance of the Account. The Policies permit charges for
administrative expenses to be increased up to the guaranteed maximum rates.
However, we do not expect our costs for year 2000 compliance to have any
significant effect on the benefits or values provided by the Policies.
We believe that our computer systems will be ready for the year 2000 well in
advance of the deadline. By their nature, however, the issues in this area carry
the risk of unforeseen problems, both at Northwestern Mutual Life and at all the
other sites where supporting functions and interaction take place. There can be
no assurance that these problems will not have a material adverse impact on the
operations of Northwestern Mutual Life and the Account.
LEGAL PROCEEDINGS
We are engaged in litigation of various kinds which in our 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
We have filed a registration statement with the Securities and Exchange
Commission, Washington, D.C. 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, 1998 and
1997 and for each of the three years in the period ended December 31, 1998 and
of the Account as of December 31, 1998 and for each of the two years in the
period ended December 31, 1998 included in this prospectus have been so included
in reliance on the reports of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting. Actuarial matters included in this prospectus have been examined by
William C. Koenig, F.S.A., Senior Vice President and Chief Actuary of
Northwestern Mutual Life. His opinion is filed as an exhibit to the registration
statement.
16
<PAGE>
VARIABLE LIFE FINANCIAL STATEMENTS
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
Financial Statements
JUNE 30, 1999
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
<TABLE>
<S> <C> <C>
ASSETS
Invesments at Market Value:
Northwestern Mutual Series Fund, Inc.
Small Cap Growth Stock
2 shares (cost $2)......................... $ 2
Aggressive Growth Stock
39,011 shares (cost $119,280).............. 143,443
International Equity
61,024 shares (cost $97,271)............... 98,859
Index 400 Stock
0 shares (cost $0)......................... --
Growth Stock
38,876 shares (cost $72,073)............... 95,168
Growth and Income Stock
57,448 shares (cost $82,928)............... 92,205
Index 500 Stock
72,881 shares (cost $178,292).............. 263,173
Balanced
83,288 shares (cost $135,310).............. 177,654
High Yield Bond
17,706 shares (cost $18,701)............... 16,644
Select Bond
12,580 shares (cost $15,175)............... 14,317
Money Market
49,763 shares (cost $49,591)............... 49,764
Russell Insurance Funds
Multi-Style Equity
4 shares (cost $70)........................ 70
Aggressive Equity
2 shares (cost $19)........................ 19
Non-U.S.
0 shares (cost $1)......................... 1
Real Estate Securities
0 shares (cost $5)......................... 5
Core Bond
0 shares (cost $1)......................... 1 $ 951,325
---------
Due from Sale of Fund Shares.................................. 843
Due from Northwestern Mutual Life Insurance Company........... 674
---------
Total Assets.................................................. $ 952,842
---------
---------
LIABILITIES
Due to Northwestern Mutual Life Insurance Company........... $ 843
Due on Purchase of Fund Shares.............................. 674
---------
Total Liabilities....................................... 1,517
---------
EQUITY (NOTE 8)
Variable Life Policies Issued Before October 11, 1995....... 435,942
Variable Complife Policies Issued On or After October 11,
1995....................................................... 507,755
Variable Executive Life Policies Issued On or After March 2,
1998....................................................... 5,206
Variable Joint Life Policies Issued On or After December 10,
1998....................................................... 2,422
---------
Total Equity............................................ 951,325
---------
Total Liabilities and Equity............................ $ 952,842
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
(Amounts as of June 30, 1999 in these Financial Statements
are prepared from unaudited figures.)
17
<PAGE>
VARIABLE LIFE FINANCIAL STATEMENTS
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
Statement of Operations and Changes in Equity
(IN THOUSANDS)
<TABLE>
<CAPTION>
SMALL CAP
GROWTH AGGRESSIVE GROWTH
COMBINED STOCK STOCK DIVISION
---------------------------------- DIVISION # ----------------------------------
SIX MONTHS ---------- SIX MONTHS
ENDED YEAR ENDED AS OF ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, JUNE 30, DECEMBER 31,
1999 1998 1999 1999 1998
--------------- --------------- ---------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............... $ 54,702 $ 24,922 $ -- $ 4,627 $ 3,287
Mortality and Expense Risks... 1,720 2,755 -- 253 424
Taxes......................... 737 1,178 -- 109 181
--------------- --------------- ----- --------------- ---------------
Net Investment Income
(Loss)...................... 52,245 20,989 -- 4,265 2,682
--------------- --------------- ----- --------------- ---------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized Gain (Loss) on
Investments............... 3,990 4,332 -- 1,158 523
Unrealized Appreciation
(Depreciation) of
Investments
During the Period......... 19,976 68,780 -- 7,338 4,928
--------------- --------------- ----- --------------- ---------------
Net Gain (Loss) on
Investments............... 23,966 73,112 -- 8,496 5,451
--------------- --------------- ----- --------------- ---------------
Increase (Decrease) in Equity
Derived from Investment
Activity.................... 76,211 94,101 -- 12,761 8,133
--------------- --------------- ----- --------------- ---------------
EQUITY TRANSACTIONS
Policyowners' Net
Payments.................. 180,464 258,672 -- 17,347 30,145
Policy Loans, Surrenders,
and Death Benefits........ (27,176) (37,427) -- (4,590) (6,454)
Mortality and Other (net)... (28,109) (39,611) -- (3,260) (5,193)
Transfers from Other
Divisions................. 105,950 133,775 2 11,383 20,371
Transfers to Other
Divisions................. (105,950) (133,773) -- (9,552) (6,419)
--------------- --------------- ----- --------------- ---------------
Increase in Equity
Derived from Equity
Transactions................ 125,179 181,636 2 11,328 32,450
--------------- --------------- ----- --------------- ---------------
Net Increase in Equity........ 201,390 275,737 2 24,089 40,583
EQUITY
Beginning of Period......... 749,935 474,198 -- 119,230 78,647
--------------- --------------- ----- --------------- ---------------
End of Period............... $ 951,325 $ 749,935 $ 2 $ 143,319 $ 119,230
--------------- --------------- ----- --------------- ---------------
--------------- --------------- ----- --------------- ---------------
<CAPTION>
INTERNATIONAL EQUITY DIVISION
--------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1999 1998
-------------- --------------
<S> <C> <C>
INVESTMENT INCOME
Dividend Income............... $ 13,164 $ 3,591
Mortality and Expense Risks... 181 308
Taxes......................... 77 132
-------------- --------------
Net Investment Income
(Loss)...................... 12,906 3,151
-------------- --------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized Gain (Loss) on
Investments............... 362 284
Unrealized Appreciation
(Depreciation) of
Investments
During the Period......... (3,665) (1,424)
-------------- --------------
Net Gain (Loss) on
Investments............... (3,303) (1,140)
-------------- --------------
Increase (Decrease) in Equity
Derived from Investment
Activity.................... 9,603 2,011
-------------- --------------
EQUITY TRANSACTIONS
Policyowners' Net
Payments.................. 12,499 20,672
Policy Loans, Surrenders,
and Death Benefits........ (2,808) (4,327)
Mortality and Other (net)... (2,349) (3,785)
Transfers from Other
Divisions................. 8,617 15,743
Transfers to Other
Divisions................. (5,052) (5,013)
-------------- --------------
Increase in Equity
Derived from Equity
Transactions................ 10,907 23,290
-------------- --------------
Net Increase in Equity........ 20,510 25,301
EQUITY
Beginning of Period......... 78,417 53,116
-------------- --------------
End of Period............... $ 98,927 $ 78,417
-------------- --------------
-------------- --------------
</TABLE>
# The initial investments in the Small Cap Growth Stock and the Index 400 Stock
Divisions were made on June 30, 1999.
The Accompanying Notes are an Integral Part of the Financial Statements
18
<PAGE>
VARIABLE LIFE FINANCIAL STATEMENTS
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
Statement of Operations and Changes in Equity
(IN THOUSANDS)
<TABLE>
<CAPTION>
INDEX 400 GROWTH & INCOME
STOCK GROWTH STOCK DIVISION STOCK DIVISION
DIVISION # -------------------------------- --------------------------------
----------- SIX MONTHS SIX MONTHS
AS OF ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1999 1999 1998 1999 1998
----------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............... $ -- $ 2,344 $ 956 $ 9,123 $ 537
Mortality and Expense Risks... -- 165 211 166 234
Taxes......................... -- 70 91 71 100
----------- -------------- -------------- -------------- --------------
Net Investment Income
(Loss)...................... -- 2,109 654 8,886 203
----------- -------------- -------------- -------------- --------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized Gain (Loss) on
Investments............... -- 443 143 303 220
Unrealized Appreciation
(Depreciation) of
Investments
During the Period......... -- 6,337 10,533 (1,170) 10,574
----------- -------------- -------------- -------------- --------------
Net Gain (Loss) on
Investments............... -- 6,780 10,676 (867) 10,794
----------- -------------- -------------- -------------- --------------
Increase (Decrease) in
Equity Derived from
Investment Activity....... -- 8,889 11,330 8,019 10,997
----------- -------------- -------------- -------------- --------------
EQUITY TRANSACTIONS
Policyowners' Net
Payments.................. -- 10,075 12,991 11,036 14,771
Policy Loans, Surrenders,
and Death Benefits........ -- (2,472) (2,859) (2,977) (2,902)
Mortality and Other (net)... -- (2,052) (2,494) (2,138) (2,847)
Transfers from Other
Divisions................. -- 16,978 16,839 11,227 17,225
Transfers to Other
Divisions................. -- (2,279) (2,015) (3,495) (3,106)
----------- -------------- -------------- -------------- --------------
Increase in Equity
Derived from Equity
Transactions................ -- 20,250 22,462 13,653 23,141
----------- -------------- -------------- -------------- --------------
Net Increase in Equity........ -- 29,139 33,792 21,672 34,138
EQUITY
Beginning of Period......... -- 66,025 32,233 70,527 36,389
----------- -------------- -------------- -------------- --------------
End of Period............... $ -- $ 95,164 $ 66,025 $ 92,199 $ 70,527
----------- -------------- -------------- -------------- --------------
----------- -------------- -------------- -------------- --------------
<CAPTION>
INDEX 500
STOCK DIVISION
----------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
INVESTMENT INCOME
Dividend Income............... $ 5,542 $ 4,530
Mortality and Expense Risks... 464 671
Taxes......................... 199 287
--------------- ---------------
Net Investment Income
(Loss)...................... 4,879 3,572
--------------- ---------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized Gain (Loss) on
Investments............... 937 1,125
Unrealized Appreciation
(Depreciation) of
Investments
During the Period......... 19,801 31,738
--------------- ---------------
Net Gain (Loss) on
Investments............... 20,738 32,863
--------------- ---------------
Increase (Decrease) in
Equity Derived from
Investment Activity....... 25,617 36,435
--------------- ---------------
EQUITY TRANSACTIONS
Policyowners' Net
Payments.................. 25,444 29,665
Policy Loans, Surrenders,
and Death Benefits........ (7,497) (8,924)
Mortality and Other (net)... (4,920) (5,367)
Transfers from Other
Divisions................. 38,147 37,076
Transfers to Other
Divisions................. (4,600) (5,443)
--------------- ---------------
Increase in Equity
Derived from Equity
Transactions................ 46,574 47,007
--------------- ---------------
Net Increase in Equity........ 72,191 83,442
EQUITY
Beginning of Period......... 191,141 107,699
--------------- ---------------
End of Period............... $ 263,332 $ 191,141
--------------- ---------------
--------------- ---------------
</TABLE>
# The initial investments in the Small Cap Growth Stock and the Index 400 Stock
Divisions were made on June 30, 1999.
The Accompanying Notes are an Integral Part of the Financial Statements
19
<PAGE>
VARIABLE LIFE FINANCIAL STATEMENTS
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
Statement of Operations and Changes in Equity
(IN THOUSANDS)
<TABLE>
<CAPTION>
SELECT BOND
BALANCED DIVISION HIGH YIELD BOND DIVISION DIVISION
---------------------------------- -------------------------------- --------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
1999 1998 1999 1998 1999
--------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............... $ 17,659 $ 8,344 $ 18 $ 1,489 $ 1,211
Mortality and Expense Risks... 340 681 32 53 29
Taxes......................... 146 292 14 22 12
--------------- --------------- -------------- -------------- --------------
Net Investment Income (Loss).. 17,173 7,371 (28) 1,414 1,170
---------------- --------------- -------------- -------------- --------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized Gain (Loss) on
Investments............... 844 1,893 (140) 47 83
Unrealized Appreciation
(Depreciation) of
Investments
During the Period......... (7,549) 14,317 231 (1,828) (1,347)
--------------- --------------- -------------- -------------- --------------
Net Gain (Loss) on (6,705) 16,210 91 (1,781) (1,264)
Investments............... --------------- --------------- -------------- -------------- --------------
Increase (Decrease) in
Equity Derived from
Investment Activity....... 10,468 23,581 63 (367) (94)
--------------- --------------- -------------- -------------- --------------
EQUITY TRANSACTIONS
Policyowners' Net
Payments.................. 9,724 17,811 2,632 3,490 1,546
Policy Loans, Surrenders,
and Death Benefits........ (4,648) (8,879) (462) (690) (536)
Mortality and Other (net). (2,206) (3,232) (445) (641) (268)
Transfers from Other
Divisions............... 9,885 7,905 2,166 5,399 2,398
Transfers to Other
Divisions............... (3,631) (5,398) (1,805) (1,476) (1,434)
--------------- --------------- -------------- -------------- --------------
Increase in Equity
Derived from Equity
Transactions.............. 9,124 8,207 2,086 6,082 1,706
--------------- --------------- -------------- -------------- --------------
Net Increase in Equity...... 19,592 31,788 2,149 5,715 1,612
EQUITY
Beginning of Period....... 158,110 126,322 14,516 8,801 12,669
--------------- --------------- -------------- -------------- --------------
End of Period............. $ 177,702 $ 158,110 $ 16,665 $ 14,516 $ 14,281
--------------- --------------- -------------- -------------- --------------
--------------- --------------- -------------- -------------- --------------
<CAPTION>
MONEY MARKET DIVISION
---------------------------------
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1999 1998
-------------- -------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend Income.............. $ 743 $ 1,014 $ 1,445
Mortality and Expense Risks.. 51 90 122
Taxes........................ 22 39 51
-------------- -------------- ---------------
Net Investment Income (Loss). 670 885 1,272
-------------- -------------- ---------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized Gain (Loss) on
Investments............... 97 -- --
Unrealized Appreciation
(Depreciation) of
Investments
During the Period......... (58) -- --
-------------- -------------- ---------------
Net Gain (Loss) on 39 -- --
Investments............... -------------- -------------- ---------------
Increase (Decrease) in
Equity Derived from
Investment Activity....... 709 885 1,272
-------------- -------------- ---------------
EQUITY TRANSACTIONS
Policyowners' Net
Payments.................. 2,004 90,065 127,123
Policy Loans, Surrenders,
and Death Benefits........ (620) (1,186) (1,772)
Mortality and Other (net). (250) (10,471) (15,802)
Transfers from Other
Divisions............... 3,951 5,147 9,266
Transfers to Other
Divisions............... (2,217) (74,102) (102,686)
-------------- -------------- ---------------
Increase in Equity
Derived from Equity
Transactions.............. 2,868 9,453 16,129
-------------- -------------- ---------------
Net Increase in Equity...... 3,577 10,338 17,401
EQUITY
Beginning of Period....... 9,092 39,300 21,899
-------------- -------------- ---------------
End of Period............. $ 12,669 $ 49,638 $ 39,300
-------------- -------------- ---------------
-------------- -------------- ---------------
</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>
RUSSELL
RUSSELL RUSSELL REAL
MULTI-STYLE AGGRESSIVE RUSSELL ESTATE RUSSELL
EQUITY EQUITY NON-U.S. SECURITIES CORE BOND
DIVISION # DIVISION # DIVISION # DIVISION # DIVISION #
----------- ---------- ---------- ---------- -----------
AS OF AS OF AS OF AS OF AS OF
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1999 1999 1999 1999
----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............... $ -- $ -- $ -- $ -- $ --
Mortality and Expense Risks... -- -- -- -- --
Taxes......................... -- -- -- -- --
----- ----- --- --- ---
Net Investment Income
(Loss)...................... -- -- -- -- --
----- ----- --- --- ---
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized Gain (Loss) on
Investments............... -- -- -- -- --
Unrealized Appreciation
(Depreciation) of
Investments
During the Period......... -- -- -- -- --
----- ----- --- --- ---
Net Gain (Loss) on
Investments............... -- -- -- -- --
----- ----- --- --- ---
Increase (Decrease) in
Equity Derived from
Investment Activity....... -- -- -- -- --
----- ----- --- --- ---
EQUITY TRANSACTIONS
Policyowners' Net
Payments.................. 70 19 1 5 1
Policy Loans, Surrenders,
and Death Benefits........ -- -- -- -- --
Mortality and Other (net)... -- -- -- -- --
Transfers from Other
Divisions................. -- -- -- -- --
Transfers to Other
Divisions................. -- -- -- -- --
----- ----- --- --- ---
Increase in Equity
Derived from Equity
Transactions................ 70 19 1 5 1
----- ----- --- --- ---
Net Increase in Equity........ 70 19 1 5 1
EQUITY
Beginning of Period......... -- -- -- -- --
----- ----- --- --- ---
End of Period............... $ 70 $ 19 $ 1 $ 5 $ 1
----- ----- --- --- ---
----- ----- --- --- ---
</TABLE>
# The initial investments in the Russell Multi-Style, Aggressive, Non-U.S.,
Real Estate Securities, and Core Bond Divisions were made on June 30, 1999.
The Accompanying Notes are an Integral Part of the Financial Statements
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
Notes to Financial Statements
JUNE 30, 1999
NOTE 1 -- Northwestern Mutual Variable Life Account (the "Account") is
registered as a unit investment trust under the Investment Company Act of 1940
and is a segregated asset account of The Northwestern Mutual Life Insurance
Company ("Northwestern Mutual") used to fund variable life insurance policies.
NOTE 2 -- The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Principal
accounting policies are summarized below.
NOTE 3 -- All assets of each Division of the Account are invested in shares of
the corresponding Portfolio of Northwestern Mutual Series Fund, Inc. and the
Russell Insurance Funds (collectively known as "the Funds"). The shares are
valued at the Fund's offering and redemption price per share. The Funds are a
diversified open-end investment company registered under the Investment Company
Act of 1940.
NOTE 4 -- Dividend income from the Funds is recorded on the record date of the
dividends. Transactions in the Funds shares are accounted for on the trade date.
The basis for determining cost on sale of the Funds shares is identified cost.
Purchases and sales of the Funds shares for the period ended June 30, 1999 by
each Division are shown below:
<TABLE>
<CAPTION>
PURCHASES SALES
------------- ------------
<S> <C> <C>
Small Cap Growth Stock
Division...................... $ 2,438 $ --
Aggressive Growth Division...... 18,620,297 2,903,038
International Equity Division... 25,024,772 1,278,144
Index 400 Stock Division........ -- --
Growth Stock Division........... 23,145,256 781,453
Growth & Income Stock
Division...................... 23,329,664 785,922
Index 500 Stock Division........ 528,545,556 1,586,316
Balanced Division............... 28,151,125 1,902,661
High Yield Bond Division........ 2,877,703 840,133
Select Bond Division............ 4,423,175 1,512,428
Money Market Division........... 33,804,804 23,341,955
Russell Multi-Style Equity
Division...................... 70,358 --
Russell Aggressive Equity
Division...................... 19,194 --
Russell Non-U.S. Division....... 588 --
Russell Real Estate Securities
Division...................... 5,240 --
Russell Core Bond Division...... 394 --
</TABLE>
NOTE 5 -- A deduction for mortality and expense risks is determined daily and
paid to Northwestern Mutual. Generally, for Variable Life policies issued before
October 11, 1995, and Variable Complife policies issued on or after October 11,
1995 the deduction is at an annual rate of .50% and .60%, respectively, of the
net assets of the Account. A deduction for the mortality and expense risks for
the Variable Executive Life policies issued on or after March 3, 1998 is
determined monthly at an annual rate of .75% of the amount invested in the
Account for the Policy for the first ten Policy years, and .30% thereafter. 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, single or other premiums
before accounts are allocated to the Account. These deductions are for (1) sales
load, (2) administrative expenses, (3) taxes and (4) a risk charge for the
guaranteed minimum death benefit.
Additional mortality costs are deducted from the policy annually and are paid to
Northwestern Mutual to cover the cost of providing insurance protection. This
cost is actuarially calculated based upon the insured's age, the 1980
Commissioners Standard Ordinary Mortality Table and the amount of insurance
provided under the policy.
NOTE 6 -- Northwestern Mutual is taxed as a "life insurance company" under the
Internal Revenue Code. The variable life insurance policies which are funded in
the Account are taxed as part of the operations of Northwestern Mutual. Policies
provide that a charge for taxes may be made against the assets of the Account.
Generally, for Variable Life policies issued before October 11, 1995,
Northwestern Mutual charges the Account at an annual rate of .20% of the
Account's net assets and reserves the right to increase, decrease or eliminate
the charge for taxes in the future. Generally, for Variable Complife policies
issued on or after October 11, 1995, and for Variable Executive Life policies
issued on or after March 3, 1998, 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's equity represents any unpaid portion
of net annual premiums. This applies to Variable Life and Variable Complife
policies only.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
Notes to Financial Statements
(in thousands)
JUNE 30, 1999
NOTE 8 -- Equity Values by Division are shown below:
<TABLE>
<CAPTION>
VARIABLE LIFE
POLICIES ISSUED BEFORE
OCTOBER 11, 1995
EQUITY OF:
------------------------ TOTAL
POLICYOWNERS NML EQUITY
------------- --------- ---------
<S> <C> <C> <C>
Small Cap Growth Stock Division.......................................................... $ -- $ -- $ --
Aggressive Growth Stock Division......................................................... 45,452 3,370 48,822
International Equity Division............................................................ 36,147 2,779 38,926
Index 400 Stock Division................................................................. -- -- --
Growth Stock Division.................................................................... 28,201 1,528 29,729
Growth and Income Stock Division......................................................... 29,274 1,681 30,955
Index 500 Stock Division................................................................. 114,555 5,230 119,785
Balanced Division........................................................................ 143,478 4,870 148,348
High Yield Bond Division................................................................. 4,545 354 4,899
Select Bond Division..................................................................... 7,506 429 7,935
Money Market Division.................................................................... 6,270 273 6,543
Russell Multi-Style Equity Division...................................................... -- -- --
Russell Aggressive Equity Division....................................................... -- -- --
Russell Non-U.S. Division................................................................ -- -- --
Russell Real Estate Securities Division.................................................. -- -- --
Russell Core Bond Division............................................................... -- -- --
------------- --------- ---------
$ 415,428 $ 20,514 $ 435,942
------------- --------- ---------
------------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
VARIABLE COMPLIFE
POLICIES ISSUED ON OR
AFTER OCTOBER 11, 1995
EQUITY OF:
------------------------ TOTAL
POLICYOWNERS NML EQUITY
------------- --------- ---------
<S> <C> <C> <C>
Small Cap Growth Stock Division......................................................... $ 2 $ -- $ 2
Aggressive Growth Stock Division........................................................ 73,147 21,141 94,288
International Equity Division........................................................... 45,627 13,655 59,282
Index 400 Stock Division................................................................ -- -- --
Growth Stock Division................................................................... 48,211 16,506 64,717
Growth and Income Stock Division........................................................ 45,419 15,597 61,016
Index 500 Stock Division................................................................ 103,997 37,203 141,200
Balanced Division....................................................................... 21,445 6,879 28,324
High Yield Bond Division................................................................ 8,596 3,011 11,607
Select Bond Division.................................................................... 4,523 1,350 5,873
Money Market Division................................................................... 17,694 23,656 41,350
Russell Multi-Style Equity Division..................................................... 70 -- 70
Russell Aggressive Equity Division...................................................... 19 -- 19
Russell Non-U.S. Division............................................................... 1 -- 1
Russell Real Estate Securities Division................................................. 5 -- 5
Russell Core Bond Division.............................................................. 1 -- 1
------------- --------- ---------
$ 368,757 $ 138,998 $ 507,755
------------- --------- ---------
------------- --------- ---------
</TABLE>
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
Notes to Financial Statements
(in thousands)
JUNE 30, 1999
<TABLE>
<CAPTION>
VARIABLE EXECUTIVE LIFE VARIABLE JOINT LIFE
POLICIES ISSUED ON OR POLICIES ISSUED ON OR
AFTER MARCH 2, 1998 AFTER DECEMBER 10, 1998
----------------------- -------------------------
TOTAL TOTAL
EQUITY EQUITY
----------------------- -------------------------
<S> <C> <C>
Small Cap Growth Stock Division............................................. $ -- $ --
Aggressive Growth Stock Division............................................ 338 56
International Equity Division............................................... 602 47
Index 400 Stock Division.................................................... -- --
Growth Stock Division....................................................... 638 69
Growth and Income Stock Division............................................ 126 107
Index 500 Stock Division.................................................... 1,477 672
Balanced Division........................................................... 967 12
High Yield Bond Division.................................................... 132 7
Select Bond Division........................................................ 454 54
Money Market Division....................................................... 472 1,398
Russell Multi-Style Equity Division......................................... -- --
Russell Aggressive Equity Division.......................................... -- --
Russell Non-U.S. Division................................................... -- --
Russell Real Estate Securities Division..................................... -- --
Russell Core Bond Division.................................................. -- --
-------- --------
$ 5,206 $ 2,422
-------- --------
-------- --------
</TABLE>
24
<PAGE>
[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, Index 500 Stock Division, Balanced Division, High Yield Bond Division,
Select Bond Division, and the Money Market Division thereof at December 31,
1998, the results of each of their operations and the changes in each of their
equity for each of the two years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of The Northwestern Mutual Life Insurance
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material 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, 1998 with
Northwestern Mutual Series Fund, Inc., provide a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
January 25, 1999
25
<PAGE>
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
FINANCIAL STATEMENTS
DECEMBER 31, 1998
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
<TABLE>
<S> <C> <C>
ASSETS
Investments at Market Value:
Northwestern Mutual Series Fund, Inc.
Aggressive Growth Stock
34,420 shares (cost $102,404).............. $ 119,230
International Equity
46,760 shares (cost $73,163)............... 78,416
Growth Stock
29,383 shares (cost $49,267)............... 66,025
Growth and Income Stock
43,428 shares (cost $60,081)............... 70,528
Index 500 Stock
58,115 shares (cost $126,062).............. 191,141
Balanced
71,092 shares (cost $108,217).............. 158,110
High Yield Bond
15,509 shares (cost $16,804)............... 14,516
Select Bond
10,143 shares (cost $12,181)............... 12,669
Money Market
39,300 shares (cost $39,300)............... 39,300 $ 749,935
---------
Due from Sale of Fund Shares.................................. 95
Due from Northwestern Mutual Life Insurance Company........... 328
---------
Total Assets............................................ $ 750,358
---------
---------
LIABILITIES
Due to Northwestern Mutual Life Insurance Company........... $ 95
Due on Purchase of Fund Shares.............................. 328
---------
Total Liabilities....................................... 423
---------
EQUITY (NOTE 8)
Variable Life Policies Issued Before October 11, 1995....... 392,772
Variable Complife Policies Issued On or After October 11,
1995....................................................... 356,862
Variable Executive Life Policies Issued On or After March 2,
1998....................................................... 301
---------
Total Equity............................................ 749,935
---------
Total Liabilities and Equity............................ $ 750,358
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
26
<PAGE>
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH INTERNATIONAL EQUITY
COMBINED STOCK DIVISION 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,
1998 1997 1998 1997 1998 1997
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............... $ 24,922 $ 24,262 $ 3,287 $3,345 $ 3,591 $ 1,286
Mortality and Expense Risks... 2,755 1,788 424 271 308 197
Taxes......................... 1,178 767 181 116 132 85
------------- ------------- ------------- ------------- ------------- -------------
Net Investment Income......... 20,989 21,707 2,682 2,958 3,151 1,004
------------- ------------- ------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized Gain on
Investments............... 4,332 4,871 523 231 284 203
Unrealized Appreciation
(Depreciation) of
Investments During the
Period.................... 68,780 42,532 4,928 5,109 (1,424) 2,358
------------- ------------- ------------- ------------- ------------- -------------
Net Gain (Loss) on
Investments............... 73,112 47,403 5,451 5,340 (1,140) 2,561
------------- ------------- ------------- ------------- ------------- -------------
Increase in Equity Derived
from Investment
Activity.................. 94,101 69,110 8,133 8,298 2,011 3,565
------------- ------------- ------------- ------------- ------------- -------------
EQUITY TRANSACTIONS
Policyowners' Net
Deposits.................. 258,672 170,672 30,145 21,502 20,672 12,656
Policy Loans, Surrenders,
and Death Benefits........ (37,427) (23,728) (6,454) (4,003) (4,327) (2,787)
Mortality and Other (net)... (39,611) (28,427) (5,193) (3,791) (3,785) (2,368)
Transfers from Other
Divisions................. 133,775 86,366 20,371 19,008 15,743 14,866
Transfers to Other
Divisions................. (133,773) (86,366) (6,419) (4,091) (5,013) (2,149)
------------- ------------- ------------- ------------- ------------- -------------
Increase in Equity Derived
from Equity Transactions.... 181,636 118,517 32,450 28,625 23,290 20,218
------------- ------------- ------------- ------------- ------------- -------------
Net Increase in Equity........ 275,737 187,627 40,583 36,923 25,301 23,783
EQUITY
Beginning of Year........... 474,198 286,571 78,647 41,724 53,116 29,333
------------- ------------- ------------- ------------- ------------- -------------
End of Year................. $749,935 $474,198 $119,230 $78,647 $78,417 $53,116
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
27
<PAGE>
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
GROWTH & INCOME INDEX 500
GROWTH STOCK DIVISION STOCK DIVISION STOCK DIVISION
----------------------------- ----------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997 1998 1997
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............... $ 956 $ 1,413 $ 537 $ 7,776 $ 4,530 $ 2,579
Mortality and Expense Risks... 211 105 234 120 671 395
Taxes......................... 91 45 100 52 287 169
------------- ------------- ------------- ------------- ------------- -------------
Net Investment Income......... 654 1,263 203 7,604 3,572 2,015
------------- ------------- ------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized Gain on
Investments............... 143 172 220 173 1,125 2,375
Unrealized Appreciation
(Depreciation) of
Investments During the
Period.................... 10,533 4,151 10,574 (1,823) 31,738 17,772
------------- ------------- ------------- ------------- ------------- -------------
Net Gain (Loss) on
Investments............... 10,676 4,323 10,794 (1,650) 32,863 20,147
------------- ------------- ------------- ------------- ------------- -------------
Increase in Equity Derived
from Investment
Activity.................. 11,330 5,586 10,997 5,954 36,435 22,162
------------- ------------- ------------- ------------- ------------- -------------
EQUITY TRANSACTIONS
Policyowners' Net
Deposits.................. 12,991 7,334 14,771 7,537 29,665 19,733
Policy Loans, Surrenders,
and Death Benefits........ (2,859) (1,314) (2,902) (1,842) (8,924) (5,039)
Mortality and Other (net)... (2,494) (1,329) (2,847) (1,457) (5,367) (4,127)
Transfers from Other
Divisions................. 16,839 8,851 17,225 10,673 37,076 20,024
Transfers to Other
Divisions................. (2,015) (1,341) (3,106) (1,104) (5,443) (3,783)
------------- ------------- ------------- ------------- ------------- -------------
Increase in Equity Derived
from Equity Transactions.... 22,462 12,201 23,141 13,807 47,007 26,808
------------- ------------- ------------- ------------- ------------- -------------
Net Increase in Equity........ 33,792 17,787 34,138 19,761 83,442 48,970
EQUITY
Beginning of Year........... 32,233 14,446 36,389 16,628 107,699 58,729
------------- ------------- ------------- ------------- ------------- -------------
End of Year................. $66,025 $32,233 $70,527 $36,389 $191,141 $107,699
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
28
<PAGE>
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCED DIVISION HIGH YIELD BOND DIVISION SELECT BOND DIVISION
----------------------------- ----------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997 1998 1997
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............... $ 8,344 $ 5,105 $ 1,489 $1,370 $ 743 $ 436
Mortality and Expense Risks... 681 558 53 29 51 35
Taxes......................... 292 239 22 12 22 15
------------- ------------- ------------- ------------- ------------- -------------
Net Investment Income......... 7,371 4,308 1,414 1,329 670 386
------------- ------------- ------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized Gain on
Investments............... 1,893 1,655 47 26 97 36
Unrealized Appreciation
(Depreciation) of
Investments During the
Period.................... 14,317 15,262 (1,828) (531) (58) 234
------------- ------------- ------------- ------------- ------------- -------------
Net Gain (Loss) on
Investments............... 16,210 16,917 (1,781) (505) 39 270
------------- ------------- ------------- ------------- ------------- -------------
Increase in Equity Derived
from Investment
Activity.................. 23,581 21,225 (367) 824 709 656
------------- ------------- ------------- ------------- ------------- -------------
EQUITY TRANSACTIONS
Policyowners' Net
Deposits.................. 17,811 15,394 3,490 1,922 2,004 1,820
Policy Loans, Surrenders,
and Death Benefits........ (8,879) (7,260) (690) (349) (620) (311)
Mortality and Other (net)... (3,232) (3,395) (641) (339) (250) (560)
Transfers from Other
Divisions................. 7,905 4,266 5,399 3,276 3,951 2,000
Transfers to Other
Divisions................. (5,398) (4,734) (1,476) (425) (2,217) (756)
------------- ------------- ------------- ------------- ------------- -------------
Increase in Equity Derived
from Equity Transactions.... 8,207 4,271 6,082 4,085 2,868 2,193
------------- ------------- ------------- ------------- ------------- -------------
Net Increase in Equity........ 31,788 25,496 5,715 4,909 3,577 2,849
EQUITY
Beginning of Year........... 126,322 100,826 8,801 3,892 9,092 6,243
------------- ------------- ------------- ------------- ------------- -------------
End of Year................. $158,110 $126,322 $14,516 $8,801 $12,669 $9,092
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
<CAPTION>
MONEY MARKET DIVISION
-----------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
INVESTMENT INCOME
Dividend Income............... $ 1,445 $ 952
Mortality and Expense Risks... 122 78
Taxes......................... 51 34
------------- -------------
Net Investment Income......... 1,272 840
------------- -------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized Gain on
Investments............... -- --
Unrealized Appreciation
(Depreciation) of
Investments During the
Period.................... -- --
------------- -------------
Net Gain (Loss) on
Investments............... -- --
------------- -------------
Increase in Equity Derived
from Investment
Activity.................. 1,272 840
------------- -------------
EQUITY TRANSACTIONS
Policyowners' Net
Deposits.................. 127,123 82,774
Policy Loans, Surrenders,
and Death Benefits........ (1,772) (823)
Mortality and Other (net)... (15,802) (11,061)
Transfers from Other
Divisions................. 9,266 3,402
Transfers to Other
Divisions................. (102,686) (67,983)
------------- -------------
Increase in Equity Derived
from Equity Transactions.... 16,129 6,309
------------- -------------
Net Increase in Equity........ 17,401 7,149
EQUITY
Beginning of Year........... 21,899 14,750
------------- -------------
End of Year................. $39,300 $21,899
------------- -------------
------------- -------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
29
<PAGE>
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 -- Northwestern Mutual Variable Life Account (the "Account") is
registered as a unit investment trust under the Investment Company Act of 1940
and is a segregated asset account of The Northwestern Mutual Life Insurance
Company ("Northwestern Mutual") used to fund variable life insurance policies.
NOTE 2 -- The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Principal
accounting policies are summarized below.
NOTE 3 -- All assets of each Division of the Account are invested in shares of
the corresponding Portfolio of Northwestern Mutual Series Fund, Inc. (the
"Fund"). The shares are valued at the Fund's offering and redemption price per
share. The Fund is a diversified open-end investment company registered under
the Investment Company Act of 1940.
NOTE 4 -- Dividend income from the Fund is recorded on the record date of the
dividends. Transactions in Fund shares are accounted for on the trade date. The
basis for determining cost on sale of Fund shares is identified cost. Purchases
and sales of Fund shares for the year ended December 31, 1998 by each Division
are shown below:
<TABLE>
<CAPTION>
PURCHASES SALES
--------------- ---------------
<S> <C> <C>
Aggressive Growth Division...... $ 36,381,397 $ 1,248,015
International Equity Division... 27,429,118 990,001
Growth Stock Division........... 23,393,892 279,458
Growth & Income Stock
Division........................ 24,059,882 715,896
Index 500 Stock Division........ 52,625,759 2,046,627
Balanced Division............... 20,647,579 5,068,597
High Yield Bond Division........ 8,131,249 635,946
Select Bond Division............ 5,351,461 1,813,834
Money Market Division........... 47,332,350 29,930,945
</TABLE>
NOTE 5 -- A deduction for mortality and expense risks is determined daily and
paid to Northwestern Mutual. Generally, for Variable Life policies issued before
October 11, 1995, and Variable Complife policies issued on or after October 11,
1995 the deduction is at an annual rate of .50% and .60%, respectively, of the
net assets of the Account. A deduction for the mortality and expense risks for
the Variable Executive Life policies issued on or after March 3, 1998 is
determined monthly at an annual rate of .75% of the amount invested in the
Account for the Policy for the first ten Policy years, and .30% thereafter. 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, single or other premiums
before amounts are allocated to the Account. These deductions are for (1) sales
load, (2) administrative expenses, (3) taxes and (4) a risk charge for the
guaranteed minimum death benefit.
Additional mortality costs are deducted from the policy annually and are paid to
Northwestern Mutual to cover the cost of providing insurance protection. This
cost is actuarially calculated based upon the insured's age, the 1980
Commissioners Standard Ordinary Mortality Table and the amount of insurance
provided under the policy.
NOTE 6 -- Northwestern Mutual is taxed as a "life insurance company" under the
Internal Revenue Code. The variable life insurance policies which are funded in
the Account are taxed as part of the operations of Northwestern Mutual. Policies
provide that a charge for taxes may be made against the assets of the Account.
Generally, for Variable Life policies issued before October 11, 1995,
Northwestern Mutual charges the Account at an annual rate of .20% of the
Account's net assets and reserves the right to increase, decrease or eliminate
the charge for taxes in the future. Generally, for Variable Complife policies
issued on or after October 11, 1995, and for Variable Executive Life policies
issued on or after March 3, 1998, there is no charge being made against the
assets of the Account for federal income taxes, but Northwestern Mutual reserves
the right to charge for taxes in the future.
NOTE 7 -- The Account is credited for the policyowners' net annual premiums at
the respective policy anniversary dates regardless of when policyowners actually
paid their premiums. Northwestern Mutual's equity represents any unpaid portion
of net annual premiums. This applies to Variable Life and Variable Complife
policies only.
30
<PAGE>
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(IN THOUSANDS)
NOTE 8 -- Equity Values by Division are shown below:
<TABLE>
<CAPTION>
VARIABLE LIFE
POLICIES ISSUED BEFORE
OCTOBER 11, 1995
EQUITY OF:
------------------------ TOTAL
POLICYOWNERS NML EQUITY
------------- --------- ----------
<S> <C> <C> <C>
Aggressive Growth Stock Division....................................................... $ 42,391 $ 3,793 $ 46,184
International Equity Division.......................................................... 32,539 3,074 35,613
Growth Stock Division.................................................................. 22,888 1,510 24,398
Growth and Income Stock Division....................................................... 26,309 1,808 28,117
Index 500 Stock Division............................................................... 95,615 4,943 100,558
Balanced Division...................................................................... 134,029 5,006 139,035
High Yield Bond Division............................................................... 4,916 428 5,344
Select Bond Division................................................................... 6,911 417 7,328
Money Market Division.................................................................. 5,918 277 6,195
------------- --------- ----------
$ 371,516 $ 21,256 $ 392,772
------------- --------- ----------
------------- --------- ----------
</TABLE>
<TABLE>
<CAPTION>
VARIABLE COMPLIFE
POLICIES ISSUED ON OR
AFTER OCTOBER 11, 1995
EQUITY OF:
------------------------- TOTAL
POLICYOWNERS NML EQUITY
------------- ---------- ----------
<S> <C> <C> <C>
Aggressive Growth Stock Division...................................................... $ 54,132 $ 18,846 $ 72,978
International Equity Division......................................................... 31,302 11,492 42,794
Growth Stock Division................................................................. 30,575 11,026 41,601
Growth and Income Stock Division...................................................... 30,515 11,841 42,356
Index 500 Stock Division.............................................................. 65,609 24,890 90,499
Balanced Division..................................................................... 14,142 4,909 19,051
High Yield Bond Division.............................................................. 6,565 2,594 9,159
Select Bond Division.................................................................. 4,161 1,171 5,332
Money Market Division................................................................. 13,154 19,938 33,092
------------- ---------- ----------
$ 250,155 $ 106,707 $ 356,862
------------- ---------- ----------
------------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
VARIABLE EXECUTIVE LIFE
POLICIES ISSUED ON OR
AFTER MARCH 2, 1998
-------------------------
TOTAL
EQUITY
-------------------------
<S> <C>
Aggressive Growth Stock Division...................................................................... $ 67
International Equity Division......................................................................... 10
Growth Stock Division................................................................................. 25
Growth and Income Stock Division...................................................................... 55
Index 500 Stock Division.............................................................................. 84
Balanced Division..................................................................................... 24
High Yield Bond Division.............................................................................. 13
Select Bond Division.................................................................................. 9
Money Market Division................................................................................. 14
-----
$ 301
-----
-----
</TABLE>
31
<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,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Bonds......................................... $ 34,888 $ 32,359
Common and preferred stocks................... 6,576 6,524
Mortgage loans................................ 12,250 10,835
Real estate................................... 1,481 1,372
Policy loans.................................. 7,580 7,163
Other investments............................. 1,839 2,026
Cash and temporary investments................ 1,275 572
Due and accrued investment income............. 827 795
Other assets.................................. 1,313 1,275
Separate account assets....................... 9,966 8,160
--------- ---------
Total assets.............................. $ 77,995 $ 71,081
--------- ---------
--------- ---------
LIABILITIES AND SURPLUS
Reserves for policy benefits.................. $ 51,815 $ 47,343
Policy benefit and premium deposits........... 1,709 1,624
Policyowner dividends payable................. 2,870 2,640
Interest maintenance reserve.................. 606 461
Asset valuation reserve....................... 1,994 1,974
Income taxes payable.......................... 1,161 1,043
Other liabilities............................. 3,133 3,735
Separate account liabilities.................. 9,966 8,160
--------- ---------
Total liabilities......................... 73,254 66,980
Surplus....................................... 4,741 4,101
--------- ---------
Total liabilities and surplus............. $ 77,995 $ 71,081
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<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,
---------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
REVENUE
Premium income................................ $ 8,021 $ 7,294 $ 6,667
Net investment income......................... 4,536 4,171 3,836
Other income.................................. 922 861 759
--------- --------- ---------
Total revenue............................. 13,479 12,326 11,262
--------- --------- ---------
BENEFITS AND EXPENSES
Benefit payments to policyowners and
beneficiaries................................ 3,602 3,329 2,921
Net additions to policy benefit reserves...... 4,521 4,026 3,701
Net transfers to separate accounts............ 564 566 579
--------- --------- ---------
Total benefits............................ 8,687 7,921 7,201
Operating expenses............................ 1,297 1,138 1,043
--------- --------- ---------
Total benefits and expenses............... 9,984 9,059 8,244
--------- --------- ---------
Gain from operations before dividends and taxes... 3,495 3,267 3,018
Policyowner dividends............................. 2,869 2,636 2,341
--------- --------- ---------
Gain from operations before taxes................. 626 631 677
Income tax expense................................ 301 356 452
--------- --------- ---------
Net gain from operations.......................... 325 275 225
Net realized capital gains........................ 484 414 395
--------- --------- ---------
Net income................................ $ 809 $ 689 $ 620
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN SURPLUS
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
BEGINNING OF YEAR BALANCE......................... $4,101 $3,515 $2,786
Net income...................................... 809 689 620
Increase (decrease) in net unrealized gains..... (147) 576 295
Increase in investment reserves................. (20) (526) (176)
Other, net...................................... (2) (153) (10)
------- ------- -------
Net increase in surplus......................... 640 586 729
------- ------- -------
END OF YEAR BALANCE............................... $4,741 $4,101 $3,515
------- ------- -------
------- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<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,
----------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Insurance and annuity premiums.................. $ 8,876 $ 8,093 $ 7,361
Investment income received...................... 4,216 3,928 3,634
Disbursement of policy loans, net of
repayments..................................... (416) (360) (326)
Benefits paid to policyowners and
beneficiaries.................................. (3,572) (3,316) (2,912)
Net transfers to separate accounts.............. (564) (565) (579)
Policyowner dividends paid...................... (2,639) (2,347) (2,105)
Operating expenses and taxes.................... (1,749) (1,722) (1,663)
Other, net...................................... (83) 124 (59)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES..... 4,069 3,835 3,351
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
PROCEEDS FROM INVESTMENTS SOLD OR MATURED
Bonds......................................... 28,720 38,284 31,942
Common and preferred stocks................... 10,359 9,057 4,570
Mortgage loans................................ 1,737 1,012 1,253
Real estate................................... 159 302 178
Other investments............................. 768 398 316
-------- -------- --------
41,743 49,053 38,259
-------- -------- --------
COST OF INVESTMENTS ACQUIRED
Bonds......................................... 30,873 41,169 35,342
Common and preferred stocks................... 9,642 9,848 4,463
Mortgage loans................................ 3,135 2,309 2,455
Real estate................................... 268 202 125
Other investments............................. 567 359 255
-------- -------- --------
44,485 53,887 42,640
-------- -------- --------
NET INCREASE (DECREASE) IN SECURITIES LENDING
AND OTHER...................................... (624) 440 1,617
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES......... (3,366) (4,394) (2,764)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY
INVESTMENTS...................................... 703 (559) 587
CASH AND TEMPORARY INVESTMENTS, BEGINNING OF
YEAR............................................. 572 1,131 544
-------- -------- --------
CASH AND TEMPORARY INVESTMENTS, END OF YEAR....... $ 1,275 $ 572 $ 1,131
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
1. PRINCIPAL ACCOUNTING POLICIES
The accompanying consolidated statutory financial statements include the
accounts of The Northwestern Mutual Life Insurance Company ("Company") and its
wholly-owned life insurance subsidiary, Northwestern Long Term Care Insurance
Company ("Subsidiary"). The Company and its Subsidiary offer life, annuity,
disability income and long term care products to the personal, business, estate
and tax-qualified markets.
The consolidated financial statements have been prepared using accounting
policies prescribed or permitted by the Office of the Commissioner of Insurance
of the State of Wisconsin ("statutory basis of accounting").
In 1998, the National Association of Insurance Commissioners ("NAIC") adopted
the Codification of Statutory Accounting Principles, which will replace the
current Accounting Practices and Procedures manual as the NAIC's primary
guidance on statutory accounting. The NAIC is now considering amendments to the
codification guidance that would also be effective upon its planned
implementation effective January 1, 2001. It is expected that the Office of the
Commissioner of Insurance of the State of Wisconsin ("OCI") will adopt the
codification, but it is not known whether the OCI will make any changes to that
guidance. The potential effect of the codification on the Company will depend
upon the guidance adopted by the OCI.
Financial statements prepared on the statutory basis of accounting vary from
financial statements prepared on the basis of Generally Accepted Accounting
Principles ("GAAP") primarily because on a GAAP basis (1) policy acquisition
costs are deferred and amortized, (2) investment valuations and insurance
reserves are based on different assumptions, (3) funds received under
deposit-type contracts are not reported as premium revenue, and (4) deferred
taxes are provided for temporary differences between book and tax basis of
certain assets and liabilities. The effects on the financial statements of the
differences between the statutory basis of accounting and GAAP are material to
the Company.
The preparation of financial statements in conformity with the statutory basis
of accounting requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual future results could differ from these estimates.
INVESTMENTS
The Company's investments are valued on the following bases:
<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 fair value, preferred stocks
are generally carried at cost, and unconsolidated
subsidiaries are recorded using the equity method
Mortgage loans -- Amortized cost
Real estate -- Lower of cost, less depreciation and encumbrances, or
estimated net realizable value
Policy loans -- Unpaid principal balance, which approximates fair value
Other investments -- Consists primarily of joint venture investments which are
valued at equity in ventures' net assets
Cash and temporary investments -- Amortized cost, which approximates fair value
</TABLE>
36
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
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 share of joint venture income. Net investment income
is reduced by investment management expenses, real estate depreciation,
depletion related to energy assets and costs associated with securities lending.
INTEREST MAINTENANCE RESERVE
The Company is required to maintain an interest maintenance reserve ("IMR"). The
IMR is used to defer realized gains and losses, net of tax, on fixed income
investments resulting from changes in interest rates. Net realized gains and
losses deferred to the IMR are amortized into investment income over the
approximate remaining term to maturity of the investment sold.
INVESTMENT RESERVES
The Company is required to maintain an asset valuation reserve ("AVR"). The AVR
establishes a general reserve for invested asset valuation using a formula
prescribed by state regulations. The AVR is designed to stabilize surplus
against potential declines in the value of investments. In addition, the Company
maintained a $200 million voluntary investment reserve at December 31, 1998 and
1997 to absorb potential investment losses exceeding those considered by the AVR
formula. Increases or decreases in these investment reserves are recorded
directly to surplus.
SEPARATE ACCOUNTS
Separate account assets and related policy liabilities represent the segregation
of funds deposited by "variable" life insurance and annuity policyowners.
Policyowners bear the investment performance risk associated with variable
products. Separate account assets are invested at the direction of the
policyowner in a variety of Company-managed mutual funds. Variable product
policyowners also have the option to invest in a fixed interest rate annuity in
the general account of the Company. Separate account assets are reported at fair
value.
PREMIUM REVENUE AND OPERATING EXPENSES
Life insurance premiums are recognized as revenue at the beginning of each
policy year. Annuity and disability income premiums are recognized when received
by the Company. Operating expenses, including costs of acquiring new policies,
are charged to operations as incurred.
OTHER INCOME
Other income includes considerations on supplementary contracts, ceded
reinsurance expense allowances and miscellaneous policy charges.
37
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
BENEFIT PAYMENTS TO POLICYOWNERS AND BENEFICIARIES
Benefit payments to policyowners and beneficiaries include death, surrender and
disability benefits, matured endowments and supplementary contract payments.
RESERVES FOR POLICY BENEFITS
Reserves for policy benefits are determined using actuarial estimates based on
mortality and morbidity experience tables and valuation interest rates
prescribed by the Office of the Commissioner of Insurance of the State of
Wisconsin. See Note 3.
POLICYOWNER DIVIDENDS
Almost all life insurance policies, and certain annuity and disability income
policies, issued by the Company are participating. Annually, the Company's Board
of Trustees approves dividends payable on participating policies in the
following fiscal year, which are accrued and charged to operations when
approved.
RECLASSIFICATION
Certain financial statement balances for 1997 and 1996 have been reclassified to
conform to the current year presentation.
2. INVESTMENTS
DEBT SECURITIES
Debt securities consist of all bonds and fixed-maturity preferred stocks. The
estimated fair values of debt securities are based upon quoted market prices, if
available. For securities not actively traded, fair values are estimated using
independent pricing services or internally developed pricing models. The Company
records unrealized losses for debt securities considered impaired.
38
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
Statement value, which principally represents amortized cost, and estimated fair
value of the Company's debt securities at December 31, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
RECONCILIATION TO ESTIMATED FAIR VALUE
---------------------------------------
GROSS GROSS ESTIMATED
STATEMENT UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1998 VALUE APPRECIATION DEPRECIATION VALUE
- -------------------------------------------------- --------- ------------ ------------ ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
US Government and political obligations........... $ 3,904 $ 461 $ (11) $ 4,354
Mortgage-backed securities........................ 7,357 280 (15) 7,622
Corporate and other debt securities............... 23,627 1,240 (382) 24,485
--------- ------------ ------ ---------
34,888 1,981 (408) 36,461
Preferred stocks.................................. 189 4 (1) 192
--------- ------------ ------ ---------
Total............................................. $35,077 $1,985 $(409) $36,653
--------- ------------ ------ ---------
--------- ------------ ------ ---------
<CAPTION>
RECONCILIATION TO ESTIMATED FAIR VALUE
---------------------------------------
GROSS GROSS ESTIMATED
STATEMENT UNREALIZED UNREALIZED FAIR
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
--------- ------------ ------ ---------
--------- ------------ ------ ---------
</TABLE>
The statement value of debt securities by contractual maturity at December 31,
1998 and 1997 is shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
(IN MILLIONS)
<S> <C> <C>
Due in one year or less........................... $ 655 $ 605
Due after one year through five years............. 5,031 4,878
Due after five years through ten years............ 10,286 9,760
Due after ten years............................... 11,748 10,268
------------ ------------
27,720 25,511
Mortgage-backed securities........................ 7,357 7,015
------------ ------------
$35,077 $32,526
------------ ------------
------------ ------------
</TABLE>
STOCKS
The estimated fair values of common and perpetual preferred stocks are based
upon quoted market prices, if available. For securities not actively traded,
fair values are estimated using independent pricing services or internally
developed pricing models.
39
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
The adjusted cost of common and preferred stock held by the Company at December
31, 1998 and 1997 was $4.8 billion and $5.0 billion, respectively.
MORTGAGE LOANS AND REAL ESTATE
Mortgage loans are collateralized by properties located throughout the United
States and Canada. The Company attempts to minimize mortgage loan investment
risk by diversification of geographic locations and types of collateral
properties.
The fair value of mortgage loans as of December 31, 1998 and 1997 was
approximately $12.9 billion and $11.5 billion, respectively. The fair value of
the mortgage loan portfolio is estimated by discounting the future estimated
cash flows using current interest rates of debt securities with similar credit
risk and maturities, or utilizing net realizable values.
At December 31, 1998 and 1997, real estate includes $61 million acquired through
foreclosure at each date and $120 million and $124 million, respectively, of
home office real estate. In 1998, 1997 and 1996, the Company recorded unrealized
losses of $5 million, $2 million and $43 million, respectively, for the excess
of statement value over fair value of certain real estate investments and
mortgage loans.
REALIZED GAINS AND LOSSES
Realized investment gains and losses for the years ended December 31, 1998, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------------ ------------------------------ ------------------------------
NET NET NET
REALIZED REALIZED REALIZED
REALIZED REALIZED GAINS REALIZED REALIZED GAINS REALIZED REALIZED GAINS
GAINS LOSSES (LOSSES) GAINS LOSSES (LOSSES) GAINS LOSSES (LOSSES)
-------- -------- -------- -------- -------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bonds......................... $ 514 $ (231) $ 283 $ 518 $ (269) $ 249 $ 396 $ (383) $ 13
Common and preferred stocks... 885 (240) 645 533 (150) 383 580 (115) 465
Mortgage loans................ 18 (11) 7 14 (14) - 2 (15) (13)
Real estate................... 41 - 41 100 (2) 98 36 - 36
Other investments............. 330 (267) 63 338 (105) 233 204 (51) 153
-------- -------- -------- -------- -------- -------- -------- -------- --------
1,788 (749) 1,039 1,503 (540) 963 1,218 (564) 654
-------- -------- -------- -------- -------- -------- -------- -------- --------
Less: Capital gains taxes..... 358 340 224
Less: IMR deferrals........... 197 209 35
-------- -------- --------
Net realized capital gains.... $ 484 $ 414 $ 395
-------- -------- --------
-------- -------- --------
</TABLE>
SECURITIES LENDING
The Company has entered into a securities lending agreement whereby certain
securities are loaned to third parties, primarily major brokerage firms. The
Company's policy requires a minimum of 102 percent of the fair value of the
loaned securities as collateral, calculated on a daily basis in the form of
either cash or securities. Collateral assets received and related liability due
to counterparties of $1.5 billion are included in the consolidated
40
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
statements of financial position for each of the periods ended at December 31,
1998 and 1997, and approximate the statement value of securities loaned at those
dates.
INVESTMENT IN MGIC
The Company owns 11.0% (11.9 million shares) of the outstanding common stock of
MGIC Investment Corporation ("MGIC"). This investment is accounted for using the
equity method. At December 31, 1998 and 1997, the fair value of the Company's
investment in MGIC exceeded the statement value of $180 million and $273
million, respectively, by $296 million and $768 million, respectively.
In July 1995, the Company entered into a forward contract with a brokerage firm
to deliver 8.9 million to 10.7 million shares of MGIC (or cash in an amount
equal to the market value of the MGIC shares at contract maturity) in August,
1998, in exchange for a fixed cash payment of $247 million ($24 per share). The
Company's objective in entering into the forward contract was to hedge against
depreciation in the value of its MGIC holdings during the contract period below
the initial spot price of $24, while partially participating in appreciation, if
any, during the forward contract's duration. In August 1998, the Company
delivered 8.9 million shares to settle the forward contract. In conjunction with
the settlement, the Company recorded a $114 million realized gain.
DERIVATIVE FINANCIAL INSTRUMENTS
In the normal course of business, the Company enters into transactions to reduce
its exposure to fluctuations in interest rates, foreign currency exchange rates
and market volatility. These hedging strategies include the use of forwards,
futures, options and swaps.
The Company held the following positions for hedging purposes at December 31,
1998 and 1997:
<TABLE>
<CAPTION>
DERIVATIVE FINANCIAL INSTRUMENT NOTIONAL AMOUNTS RISKS REDUCED
- --------------------------------------------- --------------------------- ---------------------------------------------
(IN MILLIONS)
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C> <C>
Foreign Currency Forward Currency exposure on foreign-denominated
Contracts................................... $601 $564 investments.
Common Stock Futures......................... 657 327 Stock market price fluctuation.
Bond Futures................................. 379 95 Bond market price fluctuation.
Options to acquire Interest Rate Swaps....... 419 530 Interest rates payable on certain annuity and
insurance contracts.
Foreign Currency and Interest Rate Swaps..... 94 209 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.
In addition to the use of derivatives for hedging purposes, equity swaps were
held for investment purposes during 1997 and 1998. The notional amount of equity
swaps outstanding at December 31, 1998 and 1997 was $188 million and $143
million, respectively.
Foreign currency forwards, foreign currency swaps, stock futures and equity
swaps are reported at fair value. Resulting gains and losses on these contracts
are unrealized until expiration of the contract. There is no statement
41
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
value reported for interest rate swaps, bond futures and options to acquire
interest rate swaps prior to the settlement of the contract, at which time
realized gains and losses are deferred to IMR. Changes in the value of
derivative instruments are expected to offset gains and losses on the hedged
investments. During 1998, net realized and unrealized gains on investments were
partially offset by net realized losses of $104 million and net unrealized
losses of $58 million on derivative instruments. The effect of derivative
instruments in 1997 and 1996 was not material to the Company's results of
operations.
3. RESERVES FOR POLICY BENEFITS
Life insurance reserves on substantially all policies issued since 1978 are
based on the Commissioner's Reserve Valuation Method with interest rates ranging
from 3 1/2% to 5 1/2%. Other life policy reserves are primarily based on the net
level premium method employing various mortality tables at interest rates
ranging from 2% to 4 1/2%.
Deferred annuity reserves on contracts issued since 1985 are valued primarily
using the Commissioner's Annuity Reserve Valuation Method with interest rates
ranging from 3 1/2% to 6 1/4%. Other deferred annuity reserves are based on
contract value. Immediate annuity reserves are based on present values of
expected benefit payments at interest rates ranging from 3 1/2% to 7 1/2%.
Active life reserves for disability income ("DI") policies issued since 1987 are
primarily based on the two-year preliminary term method using a 4% interest rate
and the 1985 Commissioner's Individual Disability Table A ("CIDA") for
morbidity. Active life reserves for prior DI policies are based on the net level
premium method, a 3% to 4% interest rate and the 1964 Commissioner's Disability
Table for morbidity. Disabled life reserves for DI policies are based on the
present values of expected benefit payments primarily using the 1985 CIDA
(modified for Company experience in the first two years of disability) with
interest rates ranging from 3% to 5 1/2%.
Use of these actuarial tables and methods involves estimation of future
mortality and morbidity based on past experience. Actual future experience could
differ from these estimates.
4. EMPLOYEE AND AGENT BENEFIT PLANS
The Company sponsors noncontributory defined benefit retirement plans for all
eligible employees and agents. The expense associated with these plans is
generally recorded by the Company in the period contributions to the plans are
funded. As of January 1, 1998, the most recent actuarial valuation date
available, the qualified defined benefit plans were fully funded. The Company
recorded a liability of $98 million and $87 million for nonqualified defined
benefit plans at December 31, 1998 and 1997, respectively. In addition, the
Company has a contributory 401(k) plan for eligible employees and a
noncontributory defined contribution plan for all full-time agents. The
Company's contributions are expensed in the period contributions are made to the
plans. The Company recorded $29 million, $27 million and $25 million of total
expense related to its defined benefit and defined contribution plans for the
years ended December 31, 1998, 1997 and 1996, respectively. The defined benefit
and defined contribution plans' assets of $1.9 billion and $1.7 billion at
December 31, 1998 and 1997, respectively, were primarily invested in the
separate accounts of the Company.
In addition to pension and retirement benefits, the Company provides certain
health care and life insurance benefits ("postretirement benefits") for retired
employees. Substantially all employees may become eligible for these benefits if
they reach retirement age while working for the Company. Postretirement benefit
costs for the years ended December 31, 1998, 1997 and 1996 were a net expense
(benefit) of $1.8 million, ($1.3) million and
42
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
($12.0) million, respectively. Net benefits were primarily a result of favorable
differences between actuarial assumptions and actual experience.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
-------------------- --------------------
<S> <C> <C>
Unfunded postretirement
benefit obligation for
retirees and other fully
eligible employees (Accrued
in statement of financial
position).................... $35 million $34 million
Estimated postretirement
benefit obligation for active
non-vested employees (Not
accrued until employee
vests)....................... $56 million $50 million
Discount rate................. 7% 7%
Health care cost trend rate... 10% to an ultimate 10% to an ultimate
5%, declining 1% for 5%, declining 1% for
5 years 5 years
</TABLE>
If the health care cost trend rate assumptions were increased by 1%, the accrued
postretirement benefit obligation as of December 31, 1998 and 1997 would have
been increased by $5 million and $4 million, respectively.
At December 31, 1998 and 1997, the recorded postretirement benefit obligation
was reduced by $23 million and $20 million, respectively, for assets funded for
postretirement health care benefits.
5. REINSURANCE
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
to reinsurers under excess coverage and coinsurance contracts. The Company
retains a maximum of $25 million of coverage per individual life and $35 million
maximum of coverage per joint life. The Company has an excess reinsurance
contract for disability income policies with retention limits varying based upon
on coverage type.
The amounts shown in the accompanying consolidated financial statements are net
of reinsurance. Policy benefit reserves at December 31, 1998 and 1997 were
reported net of ceded reserves of $518 million and $435 million, respectively.
The effect of reinsurance on premiums and benefits for the years ended December
31, 1998, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Direct premiums................................... $8,426 $7,647 $7,064
Premiums ceded.................................... (405) (353) (397)
------- ------- -------
Net premium revenue............................... $8,021 $7,294 $6,667
------- ------- -------
------- ------- -------
Benefits to policyowners and beneficiaries........ $8,869 $8,057 $7,348
Benefits ceded.................................... (182) (136) (147)
------- ------- -------
Net benefits to policyowners and beneficiaries.... $8,687 $7,921 $7,201
------- ------- -------
------- ------- -------
</TABLE>
43
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
In addition, the Company received $121 million, $115 million and $93 million for
the years ended December 31, 1998, 1997 and 1996, respectively, from reinsurers
representing allowances for reimbursement of commissions and other expenses.
These amounts are included in other income in the consolidated statement of
operations.
Reinsurance contracts do not relieve the Company from its obligations to
policyowners. Failure of reinsurers to honor their obligations could result in
losses to the Company; consequently, allowances are established for amounts
deemed uncollectible. The Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk arising from similar
geographic regions, activities or economic characteristics of the reinsurers to
minimize its exposure to significant losses from reinsurer insolvencies.
6. INCOME TAXES
Provisions for income taxes are based on current income tax payable without
recognition of deferred taxes. The Company files a consolidated life-nonlife
federal income tax return. Federal income tax returns for years through 1988 are
closed as to further assessment of tax. Adequate provision has been made in the
financial statements for any additional taxes which may become due with respect
to the open years.
The Company's effective tax rate on gains from operations before taxes for the
years ended December 31, 1998, 1997 and 1996 was 48%, 56%, and 67% respectively.
The Company's effective tax rate exceeds the federal corporate rate of 35%
primarily because, (1) the Company pays a tax that is assessed only on the
surplus of mutual life insurance companies ("equity tax"), and (2) the Company
must capitalize and amortize (as opposed to immediately deducting) an amount
deemed to represent the cost of acquiring new business ("DAC tax").
7. ACQUISITION OF FRANK RUSSELL COMPANY
Pursuant to an Agreement and Plan of Merger, dated as of August 10, 1998, the
Company acquired Frank Russell Company effective January 1, 1999 for a purchase
price of approximately $950 million. Frank Russell is a leading investment
management and consulting firm, providing investment advice, analytical tools
and investment vehicles to institutional and individual investors in more than
30 countries.
In connection with its acquisition of Frank Russell Company, the Company will be
required in 1999 to charge-off directly from surplus approximately $341 million,
which represents the amount of acquisition goodwill less 10% of the Company's
surplus at December 31, 1998. In addition, the Company will request permission
from the OCI to charge-off the remaining $474 million of acquisition goodwill in
1999 and currently intends to do so.
In connection with the acquisition, the Company has unconditionally guaranteed
certain debt obligations of Frank Russell Company, including $350 million of
senior notes and up to $150 million of other credit facilities.
8. CONTINGENCIES
The Company has guaranteed certain obligations of its affiliates. These
guarantees totaled approximately $133 million at December 31, 1998 and are
generally supported by the underlying net asset values of the affiliates.
In addition, the Company routinely makes commitments to fund mortgage loans or
other investments in the normal course of business. These commitments aggregated
to $2.1 billion at December 31, 1998 and were extended at market interest rates
and terms.
The Company is engaged in various legal actions in the normal course of its
investment and insurance operations. In the opinion of management, any losses
resulting from such actions would not have a material effect on the Company's
financial position.
44
<PAGE>
[LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Policyowners of
The Northwestern Mutual Life Insurance Company
We have audited the accompanying consolidated statement of financial position of
The Northwestern Mutual Life Insurance Company and its subsidiary as of December
31, 1998 and 1997, and the related consolidated statements of operations, of
changes in surplus and of cash flows for each of the three years in the period
ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1, these consolidated financial statements were prepared in
conformity with accounting practices prescribed or permitted by the Office of
the Commissioner of Insurance of the State of Wisconsin (statutory basis of
accounting), which practices differ from generally accepted accounting
principles. Accordingly, the consolidated financial statements are not intended
to represent a presentation in accordance with generally accepted accounting
principles. The effects on the consolidated financial statements of the
variances between the statutory basis of accounting and generally accepted
accounting principles, although not reasonably determinable, are presumed to be
material.
In our opinion, the consolidated financial statements audited by us (1) do not
present fairly in conformity with generally accepted accounting principles, the
financial position of The Northwestern Mutual Life Insurance Company and its
subsidiary at December 31, 1998 and 1997, or the results of their operations or
their cash flows for each of the three years in the period ended December 31,
1998 because of the effects of the variances between the statutory basis of
accounting and generally accepted accounting principles referred to in the
preceding paragraph and (2) do present fairly, in all material respects, the
financial position of The Northwestern Mutual Life Insurance Company and its
subsidiary at December 31, 1998 and 1997 and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1998, on the basis of accounting described in Note 1.
/s/ PricewaterhouseCoopers LLP
January 25, 1999
45
<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 investment return rates of 0%, 6% and 12% on assets of the
Account. The Policies illustrated are on a sex-neutral basis, age 45, $500,000
Specified Amount and death benefit Option A with a $10,000 annual planned
premium. These illustrations, on pages 47-50, are for a Policy issued to a
guaranteed issue, non-Tobacco risk using 1) the guideline premium/cash value
corridor test, and 2) the cash value accumulation test for the definition of
life insurance, based on both current charges and on maximum charges.
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 Portfolio or Funds return rate averaged 0%, 6% or 12%, but the
rates for each individual Portfolio or Fund varied over and under the average.
The amounts shown as the death benefits and cash values reflect the deductions
from premiums and deductions from Policy Value. The amounts shown as the cash
values reflect the fact that the Company will refund a portion of the sales load
for a policy surrendered during the first three years. The amounts shown also
reflect the average of the investment advisory fees and other expenses
applicable to each of the Portfolios and Funds at the annual rate of .66% of
their net assets. In calculating this average rate we used the actual expenses
for 1998 for the nine Portfolios which were in operation, and estimated expense
ratios which we expect the two new Portfolios and five Funds to incur in 1999 on
an annualized basis. See "The Funds", p. 3. Thus the 0%, 6% and 12% gross
hypothetical return rates on the Fund's assets are equivalent to the net rates
of -.66%, 5.34% and 11.34% 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 47 and 49
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. HOWEVER, CURRENT MONTHLY COST OF INSURANCE AND EXPENSE CHARGES MAY
CHANGE SUBJECT TO THE STATED MAXIMUM CHARGES.
A comparable illustration based on a proposed insured's age, sex and risk
classification and proposed face amount or premium is available upon request.
46
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
SEX-NEUTRAL ISSUE AGE 45 -- GUARANTEED ISSUE NON-TOBACCO
$500,000 SPECIFIED AMOUNT
DEATH BENEFIT OPTION A
$10,000 ANNUAL PREMIUM
GUIDELINE PREMIUM / CASH VALUE CORRIDOR TEST
CURRENT CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT CASH VALUE
------------------- ----------------
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 10,500 500,000 500,000 500,000 8,650 9,107 9,565
2 21,525 500,000 500,000 500,000 16,536 17,949 19,417
3 33,101 500,000 500,000 500,000 23,812 26,697 29,812
4 45,256 500,000 500,000 500,000 30,428 35,317 40,805
5 58,019 500,000 500,000 500,000 37,850 45,288 53,974
6 71,420 500,000 500,000 500,000 45,075 55,625 68,446
7 85,491 500,000 500,000 500,000 52,485 66,750 84,791
8 100,266 500,000 500,000 500,000 59,705 78,307 102,797
9 115,779 500,000 500,000 500,000 66,689 90,271 122,605
10 132,068 500,000 500,000 500,000 73,496 102,722 144,471
15 226,575 500,000 500,000 500,000 106,079 175,967 299,370
20(age 65) 347,193 500,000 500,000 686,313 132,415 267,160 562,551
25 501,135 500,000 500,000 1,162,093 150,098 383,527 1,001,804
30 697,608 500,000 574,705 1,855,317 152,295 537,107 1,733,941
35 948,363 500,000 770,513 3,108,671 124,530 733,822 2,960,639
40 1,268,398 500,000 1,025,331 5,225,510 29,011 976,505 4,976,676
45 1,676,852 0 1,330,468 8,637,029 0 1,267,113 8,225,741
</TABLE>
ASSUMES NO POLICY LOAN OR WITHDRAWAL HAS BEEN MADE.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND
UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER
TO THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE DIFFERENT RATES OF RETURN OF
THE VARIABLE ACCOUNT.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN DIFFERENT
AMOUNTS OR FREQUENCIES THAN SHOWN. NO REPRESENTATIONS CAN BE MADE THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
A PERIOD OF TIME.
47
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
SEX-NEUTRAL ISSUE AGE 45 -- GUARANTEED ISSUE NON-TOBACCO
$500,000 SPECIFIED AMOUNT
DEATH BENEFIT OPTION A
$10,000 ANNUAL PREMIUM
GUIDELINE PREMIUM / CASH VALUE CORRIDOR TEST
GUARANTEED CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT CASH VALUE
------------------- ----------------
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 10,500 500,000 500,000 500,000 7,235 7,646 8,059
2 21,525 500,000 500,000 500,000 13,556 14,787 16,070
3 33,101 500,000 500,000 500,000 19,182 21,648 24,320
4 45,256 500,000 500,000 500,000 24,123 28,247 32,896
5 58,019 500,000 500,000 500,000 29,734 35,945 43,234
6 71,420 500,000 500,000 500,000 35,070 43,805 54,483
7 85,491 500,000 500,000 500,000 40,461 52,188 67,121
8 100,266 500,000 500,000 500,000 45,536 60,731 80,897
9 115,779 500,000 500,000 500,000 50,305 69,452 95,954
10 132,068 500,000 500,000 500,000 54,669 78,269 112,358
15 226,575 500,000 500,000 500,000 70,430 124,252 221,623
20 (age 65) 347,193 500,000 500,000 500,000 73,324 172,853 403,530
25 501,135 500,000 500,000 818,835 54,587 221,356 705,893
30 697,608 0 500,000 1,274,359 0 267,336 1,190,990
35 948,363 0 500,000 2,077,499 0 303,894 1,978,571
40 1,268,398 0 500,000 3,378,145 0 322,617 3,217,281
45 1,676,852 0 500,000 5,377,664 0 282,033 5,121,585
</TABLE>
ASSUMES NO POLICY LOAN OR WITHDRAWAL HAS BEEN MADE.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND
UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER
TO THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE DIFFERENT RATES OF RETURN OF
THE VARIABLE ACCOUNT.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN DIFFERENT
AMOUNTS OR FREQUENCIES THAN SHOWN. NO REPRESENTATIONS CAN BE MADE THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
A PERIOD OF TIME.
48
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
SEX-NEUTRAL ISSUE AGE 45 -- GUARANTEED ISSUE NON-TOBACCO
$500,000 SPECIFIED AMOUNT
DEATH BENEFIT OPTION A
$10,000 ANNUAL PREMIUM
CASH VALUE ACCUMULATION TEST
CURRENT CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT CASH VALUE
------------------- ----------------
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 10,500 500,000 500,000 500,000 8,650 9,107 9,565
2 21,525 500,000 500,000 500,000 16,536 17,949 19,417
3 33,101 500,000 500,000 500,000 23,812 26,697 29,812
4 45,256 500,000 500,000 500,000 30,428 35,317 40,805
5 58,019 500,000 500,000 500,000 37,850 45,288 53,974
6 71,420 500,000 500,000 500,000 45,075 55,625 68,446
7 85,491 500,000 500,000 500,000 52,485 66,750 84,791
8 100,266 500,000 500,000 500,000 59,705 78,307 102,797
9 115,779 500,000 500,000 500,000 66,689 90,271 122,605
10 132,068 500,000 500,000 500,000 73,496 102,722 144,471
15 226,575 500,000 500,000 596,989 106,079 175,967 298,924
20 (age 65) 347,193 500,000 500,000 970,030 132,415 267,160 551,055
25 501,135 500,000 598,451 1,502,610 150,098 380,699 955,870
30 697,608 500,000 731,964 2,266,834 152,295 514,753 1,594,151
35 948,363 500,000 874,576 3,376,804 124,530 667,887 2,578,764
40 1,268,398 500,000 1,023,301 4,967,770 29,011 836,600 4,061,401
45 1,676,852 0 1,176,221 7,227,052 0 1,013,903 6,229,718
</TABLE>
ASSUMES NO POLICY LOAN OR WITHDRAWAL HAS BEEN MADE.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND
UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER
TO THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE DIFFERENT RATES OF RETURN OF
THE VARIABLE ACCOUNT.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN DIFFERENT
AMOUNTS OR FREQUENCIES THAN SHOWN. NO REPRESENTATIONS CAN BE MADE THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
A PERIOD OF TIME.
49
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
SEX-NEUTRAL ISSUE AGE 45 -- GUARANTEED ISSUE NON-TOBACCO
$500,000 SPECIFIED AMOUNT
DEATH BENEFIT OPTION A
$10,000 ANNUAL PREMIUM
CASH VALUE ACCUMULATION TEST
GUARANTEED CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT CASH VALUE
------------------- ----------------
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 10,500 500,000 500,000 500,000 7,235 7,646 8,059
2 21,525 500,000 500,000 500,000 13,556 14,787 16,070
3 33,101 500,000 500,000 500,000 19,182 21,648 24,320
4 45,256 500,000 500,000 500,000 24,123 28,247 32,896
5 58,019 500,000 500,000 500,000 29,734 35,945 43,234
6 71,420 500,000 500,000 500,000 35,070 43,805 54,483
7 85,491 500,000 500,000 500,000 40,461 52,188 67,121
8 100,266 500,000 500,000 500,000 45,536 60,731 80,897
9 115,779 500,000 500,000 500,000 50,305 69,452 95,954
10 132,068 500,000 500,000 500,000 54,669 78,269 112,358
15 226,575 500,000 500,000 500,000 70,430 124,252 221,623
20(age 65) 347,193 500,000 500,000 696,306 73,324 172,853 395,557
25 501,135 500,000 500,000 1,024,623 54,587 221,356 651,804
30 697,608 0 500,000 1,452,646 0 267,336 1,021,573
35 948,363 0 500,000 2,016,044 0 303,894 1,539,592
40 1,268,398 0 500,000 2,761,970 0 322,617 2,258,049
45 1,676,852 0 500,000 3,755,006 0 282,033 3,236,815
</TABLE>
ASSUMES NO POLICY LOAN OR WITHDRAWAL HAS BEEN MADE.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND
UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER
TO THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE DIFFERENT RATES OF RETURN OF
THE VARIABLE ACCOUNT.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN DIFFERENT
AMOUNTS OR FREQUENCIES THAN SHOWN. NO REPRESENTATIONS CAN BE MADE THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
A PERIOD OF TIME.
50
<PAGE>
More information about Northwestern Mutual Series Fund, Inc. is included in the
Fund's Statement of Additional Information (SAI), incorporated by reference in
this prospectus, which is available free of charge.
More information about the Fund's investments is included in the Fund's annual
and semi-annual reports, which discuss the market conditions and investment
strategies that significantly affected each Portfolio's performance during the
previous fiscal period.
To request a free copy of the Fund's SAI, or current annual or semi-annual
report, call us at 1-800-519-4665. Information about the Fund (including the
SAI) can be reviewed and copied at the Public Reference Room of the Securities
and Exchange Commission (SEC) in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
Reports and other information about the Fund are available on the SEC's Internet
site at http://www.sec.gov. Copies of this information may be obtained, upon
payment of a duplicating fee, by writing the Public Reference Section of the
SEC, Washington, DC 20549-6009.
N O R T H W E S T E R N M U T U A L L I F E
NORTHWESTERN MUTUAL VARIABLE EXECUTIVE LIFE
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
NORTHWESTERN MUTUAL SERIES FUND, INC.
RUSSELL INSURANCE FUNDS
P R O S P E C T U S
Investment Company Act File Nos. 811-3990 and 811-5371
NORTHWESTERN
MUTUAL LIFE-Registered Trademark-
PO Box 3095
Milwaukee WI 53201-3095
Change Service Requested
<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 53 pages
The undertaking with respect to fees and charges
The signatures
Written consents of the following persons:
PricewaterhouseCoopers 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 A(3)(c) Schedules of sales commissions
Exhibit A(5)(a) Flexible Premium Variable Life Insurance
Policy, RR.VEL. (0398), with application and
supplement application, including Policy
amendment (sex-neutral)
Exhibit A(5)(b) Flexible Premium Variable Life Insurance
Policy, RR.VEL. (0398), with application and
supplement application, including Policy
amendment (sex-distinct)
Exhibit A(5)(d) Application forms are included in Exhibits
A(5)(a) and A(5)(b) above
Exhibit C(1) Consent of PricewaterhouseCoopers LLP
Exhibit C(6) Opinion and consent of William C. Koenig,
F.S.A.
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, 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 7th day of September, 1999.
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, LLC
(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 7th day of September, 1999.
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, LLC (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
- ----------------------------- Principal Executive and September 7,
James D. Ericson Financial Officer 1999
II-2
<PAGE>
GARY E. LONG Vice President, Controller
- ---------------------------- and Principal Accounting
Gary E. Long Officer
HAROLD B. SMITH* Trustee
- ----------------------------
Harold B. Smith
J. THOMAS LEWIS* Trustee
- ----------------------------
J. Thomas Lewis
PATRICIA ALBJERG GRAHAM* Trustee
- ----------------------------
Patricia Albjerg Graham
R. QUINTUS ANDERSON* Trustee
- ----------------------------
R. Quintus Anderson
STEPHEN F. KELLER* Trustee Dated September
- ---------------------------- 7, 1999
Stephen F. Keller
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 September
- ---------------------------- 7, 1999
Guy A. Osborn
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
PETER M. SOMMERHAUSER* Trustee
- ----------------------------
Peter M. Sommerhauser
*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 PricewaterhouseCoopers 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, 1999 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 28th day of July, 1999.
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
TIMOTHY D. PROCTOR Trustee
-------------------------------
Timothy D. Proctor
II-7
<PAGE>
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.
PETER M. SOMMERHAUSER Trustee
-------------------------------
Peter M. Sommerhauser
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 EXECUTIVE LIFE
Exhibit Number Exhibit Name
- -------------- ------------
Exhibit A(3)(c) Schedules of sales commissions
Exhibit A(5)(a) Flexible Premium Variable Life Insurance
Policy, RR.VEL. (0398), with application and
supplement application, including Policy
amendment (sex-neutral)
Exhibit A(5)(b) Flexible Premium Variable Life Insurance
Policy, RR.VEL. (0398), with application and
supplement application, including Policy
amendment (sex-distinct)
Exhibit A(5)(d) Application forms are included in Exhibits
A(5)(a) and A(5)(b) above
Exhibit C(1) Consent of PricewaterhouseCoopers LLP
Exhibit C(6) Opinion and consent of William C. Koenig,
F.S.A.
<PAGE>
Exhibit A(3)(c)
STANDARD FULL-TIME SPECIAL AND SOLICITING AGENTS' COMMISSION AND FEE SCHEDULE
VARIABLE EXECUTIVE LIFE
1. For purposes of this Subsection:
(a) "Writing Agent" means the Agent whose name appears on the
application as Agent of Record or the Agent who has been given
credit by the written consent of the original Agent of Record.
(b) "Servicing Agent" means the Writing Agent unless his
contract has terminated or he is no longer servicing the
business, or the Agent who has been appointed to service the
business in the event the Writing Agent has terminated or is
no longer able to service the business.
(c) "Band 1 Contract" means Variable Executive Life contracts
where the anticipated first-year premium is less than $25
million.
(d) "Band 2 Contract" means Variable Executive Life contracts
where the anticipated first-year premium is $25 million or
more.
(e) "Internal 1035 Exchange" means a Variable Executive Life
contract issued in lieu of another NML life insurance policy
on the same insured.
(f) "Cash Value Rollover" means the cash value on an inforce
NML contract that is deposited into a Variable Executive Life
contract at time of issue, pursuant to a 1035 exchange.
(g) "Target premium" means the premium level over which the
compensation rates vary in the first policy year for Band 1
contracts.
2. First-year commissions
(a) Band 1 Contracts - Writing Agent shall be entitled to
receive commissions equal to 15% of first-year premium up to
the Target Premium plus 2.75% of first-year premium in excess
of the Target Premium on Variable Executive Life policies and
contracts issued upon applications procured by him pursuant to
his Agent's contract.
(b) Band 2 Contracts - Writing Agent shall be entitled to
receive commissions equal to 0.75% of first-year premium on
Variable Executive Life policies and contracts issued upon
applications procured by him pursuant to his Agent's contract.
1
<PAGE>
3. Service Fees
(a) Band 1 Contracts - Servicing Agent shall be entitled to
receive service fees equal to 5.75% of premiums paid up to the
Target Premium in policy years two through six plus 2.75% of
all other premiums paid in policy years two and subsequent on
Band 1 Variable Executive Life policies and contracts.
(b) Band 2 Contracts - Servicing Agent shall be entitled to
receive service fees equal to 0.75% of second and subsequent
policy year premiums paid on Band 2 Variable Executive Life
policies and contracts.
4. Trail Compensation
Commencing at the end of policy year six and in each
subsequent policy year, Servicing Agent shall be entitled to
receive service fees equal to 0.2% of the cash value at the
end of the policy year on Band 1 and Band 2 Variable Executive
Life policies and contracts.
5. Internal 1035 Exchanges
(a) Cash Value Rollovers - No compensation will be paid on
Cash Value Rollovers.
(b) Band 1 Contracts - On premium other than cash value
rollovers, Writing Agent shall be entitled to receive
commissions equal to 2.75% of first-year premium on Band 1
Variable Executive Life policies and contracts issued upon
applications procured by him pursuant to his Agent's contract.
In addition, Servicing Agent shall be entitled to receive
service fees equal to 5.75% of premiums paid up to the Target
Premium in policy years two through six plus 2.75% of all
other premiums paid in policy years two and subsequent on Band
1 Variable Executive Life policies and contracts.
(c) Band 2 Contracts - On premium other than cash value
rollovers, Writing Agent shall be entitled to receive
commissions equal to 0.75% of first-year premium on Band 2
Variable Executive Life policies and contracts issued upon
applications procured by him pursuant to his Agent's contract.
In addition, Servicing Agent shall be entitled to receive
service fees equal to 0.75% of second and subsequent policy
year premiums on Band 2 Variable Executive Life policies and
contracts.
(d) Trail compensation - Servicing Agent shall also be
entitled to receive service fees on Internal 1035 Exchanges,
as described in Subsection 4 above
2
<PAGE>
6. Commission Chargebacks
Commissions and service fees will be charged back for full
surrenders in policy years one, two and three, according to
the following schedule:
<TABLE>
<CAPTION>
Full Surrender In Chargeback
Policy Month Percentage
----------------- ----------
<S> <C>
1-12 100.0%
13 96.0%
14 92.0%
15 88.0%
16 84.0%
17 80.0%
18 76.0%
19 72.0%
20 68.0%
21 64.0%
22 60.0%
23 56.0%
24 52.0%
25 48.0%
26 44.0%
27 40.0%
28 36.0%
29 32.0%
30 28.0%
31 24.0%
32 20.0%
33 16.0%
34 12.0%
35 8.0%
36 4.0%
37+ 0.0%
</TABLE>
3
<PAGE>
Exhibit A(5)(a)
- -------------------------------------------------------------------------------
The Northwestern Mutual Life Insurance Company agrees to pay the benefits
provided in this policy,
subject to its terms and conditions.
Signed at Milwaukee, Wisconsin on the Date of Issue.
/s/ /s/
PRESIDENT AND CEO SECRETARY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
ELIGIBLE FOR ANNUAL DIVIDENDS
Insurance payable at death of Insured.
Flexible premiums.
Benefits reflect investment results.
Variable benefits described in Sections 1, 3, 6, 7 and 8.
THE DEATH BENEFIT MAY INCREASE OR DECREASE DAILY DEPENDING ON INVESTMENT
RESULTS. THERE IS NO GUARANTEED MINIMUM DEATH BENEFIT.
THE CASH VALUE UNDER THIS POLICY MAY INCREASE OR DECREASE DAILY DEPENDING ON
INVESTMENT RESULTS. THERE IS NO GUARANTEED MINIMUM CASH VALUE.
RIGHT TO RETURN POLICY. Please read this policy carefully. The policy may be
returned by the Owner for any reason within (1) ten days after it was received
or (2) forty-five days after the application was signed, whichever is later.
The policy may be returned to your agent or to the Home Office of the Company at
720 East Wisconsin Avenue, Milwaukee, WI 53202. If returned, the policy will
be considered void from the beginning. The Company will refund the sum of (a)
the difference between any premium paid and the amount allocated to the Separate
Account plus (b) the value of the policy in the Separate Account on the date the
returned policy is received.
RR.VEL.(0398)
[LOGO]
- -------------------------------------------------------------------------------
INSURED John J. Doe AGE AND SEX 35 Male-SN
POLICY DATE March 1, 1998 POLICY NUMBER 10 000 000
PLAN Flexible Premium SPECIFIED AMOUNT $1,000,000
Variable Life
RR.VEL.(0398)
<PAGE>
THIS POLICY IS A LEGAL CONTRACT BETWEEN THE OWNER AND
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY.
READ YOUR POLICY CAREFULLY.
GUIDE TO POLICY PROVISIONS
BENEFITS AND PREMIUMS
SECTION 1. THE CONTRACT
Life Insurance Benefit payable on death of Insured. Incontestability.
Suicide. Definition of dates. Insurability requirements. Reports to
Owner.
SECTION 2. OWNERSHIP
Rights of the Owner. Assignment as collateral.
SECTION 3. DEATH BENEFIT
Description of death benefit options. Changes to death benefits.
SECTION 4. PREMIUMS, TRANSFERS AND REINSTATEMENT
Payment of premiums. Calculation and allocation of net premiums. Transfer
of assets. Premium limitations. Grace period of 61 days to pay premium.
How to reinstate the policy.
SECTION 5. DIVIDENDS
Annual dividends. Use of dividends. Dividend at death.
SECTION 6. THE SEPARATE ACCOUNT
The Separate Account and the Divisions. Valuation of assets.
SECTION 7. DETERMINATION OF VALUES
Policy Value. Monthly Policy Charge.
SECTION 8. CASH VALUE AND SURRENDER
Cash value. Surrender. Deferral of payments.
SECTION 9. LOANS AND WITHDRAWALS
Policy loans. Interest on loans. Withdrawals.
SECTION 10. BENEFICIARIES
Naming and change of beneficiaries. Marital deduction provision for spouse
of Insured. Succession in interest of beneficiaries.
APPLICATION
RR.VEL.(0398)
<PAGE>
BENEFITS AND PREMIUMS
DATE OF ISSUE - MARCH 1, 1998
Plan: Flexible Premium Variable Life
Specified Amount: $1,000,000
Death Benefit Option: Specified Amount (Option A)
Definition of Life Insurance Test: Guideline Premium/Cash Value Corridor Test
The minimum premium (Section 4.4) is $25.00.
The maximum premium under the Guideline Premium/Cash Value Corridor Test:
Guideline Single Premium = $ 169,461.00
Guideline Annual Level Premium = $ 13,992.00
The minimum withdrawal amount (Section 9.5) is $250.00.
This policy is issued in a select premium class.
DIRECT BENEFICIARY XYZ Corporation
OWNER XYZ Corporation
INSURED John J. Doe AGE AND SEX 35 Male-SN
POLICY DATE March 1, 1998 POLICY NUMBER 10 000 000
PLAN Flexible Premium SPECIFIED AMOUNT $1,000,000
Variable Life
RP.VEL.(0398) Page 3
POLICY NUMBER 10 000 000
<PAGE>
SCHEDULE OF MAXIMUM CHARGES
The Premium Expense Charge (Section 4.2) is the sum of the following:
1. Sales Load:
<TABLE>
<CAPTION>
Premium Paid First Policy Year Policy Years 2-6 Policy Years 7+
------------ ----------------- ---------------- ---------------
<S> <C> <C> <C>
Up to $ 39,090.00 15% 86.8% 3%
In Excess of $ 39,090.00 3% 3% 3%
</TABLE>
2. Federal Deferred Acquisition Cost Charge l.25% of premium
3. Premium Tax Charge 2.35% of premium
The Premium Expense Charge for Deferred
Acquisition Cost and Premium Tax may
change to reflect changes in tax law.
Maximum Monthly Policy Charges:
The maximum Monthly Administrative Charge (Section 7.3) is $15 in the
first policy year and $10 thereafter.
The maximum Monthly Mortality and Expense Risk Charge (Section 7.4) is
.075% of the amount invested for this policy in the Separate Account.
Maximum Transaction Charges:
The maximum charge for death benefit option changes (Section 3.2) is
$250.00 per change.
The maximum charge for Specified Amount changes (Section 3.3) is
$25.00 per change for more than one change during any policy year.
The maximum transfer fee (Section 4.3) is $25.00 per transfer for more
than 12 transfers during any policy year.
The maximum withdrawal charge (Section 9.5) is $25.00 per withdrawal.
RP.VEL.(1199) Page 4
POLICY NUMBER 10 000 000
<PAGE>
TABLE OF GUARANTEED MAXIMUM COST OF INSURANCE RATES
MONTHLY RATES PER $1.00
(Section 7.5)
<TABLE>
<CAPTION>
Attained Age Monthly Rate Attained Age Monthly Rate Attained Age Monthly Rate
<S> <C> <C> <C> <C> <C>
35 .00017 60 .00123 85 .01178
36 .00018 61 .00133 86 .01285
37 .00019 62 .00146 87 .01396
38 .00021 63 .00160 88 .01510
39 .00022 64 .00175 89 .01629
40 .00024 65 .00193 90 .01754
41 .00026 66 .00211 91 .01888
42 .00029 67 .00230 92 .02034
43 .00031 68 .00250 93 .02200
44 .00033 69 .00272 94 .02411
45 .00036 70 .00297 95 .02707
46 .00039 71 .00325 96 .03175
47 .00042 72 .00357 97 .03981
48 .00045 73 .00394 98 .05478
49 .00049 74 .00436 99 .08333
50 .00053 75 .00482
51 .00058 76 .00530
52 .00063 77 .00581
53 .00068 78 .00633
54 .00075 79 .00688
55 .00081 80 .00749
56 .00089 81 .00816
57 .00096 82 .00893
58 .00104 83 .00980
59 .00113 84 .01076
</TABLE>
RP.VEL.(0398) Page 5
POLICY NUMBER 10 000 000
<PAGE>
GUIDELINE PREMIUM/CASH VALUE CORRIDOR PERCENTAGES
The Corridor Percentages are used to determine the Minimum Death Benefit under
the Guideline Premium/Cash Value Corridor Test (Section 3.1).
<TABLE>
<CAPTION>
Attained Age Attained Age Attained Age
Corridor % Corridor % Corridor %
<S> <C> <C> <C> <C> <C>
35 250 60 130 85 105
36 250 61 128 86 105
37 250 62 126 87 105
38 250 63 124 88 105
39 250 64 122 89 105
40 250 65 120 90 105
41 243 66 119 91 104
42 236 67 118 92 103
43 229 68 117 93 102
44 222 69 116 94 101
45 215 70 115 95+ 100
46 209 71 113
47 203 72 111
48 197 73 109
49 191 74 107
50 185 75 105
51 178 76 105
52 171 77 105
53 164 78 105
54 157 79 105
55 150 80 105
56 146 81 105
57 142 82 105
58 138 83 105
59 134 84 105
</TABLE>
RP.VEL.(0398) Page 6
POLICY NUMBER 10 000 000
<PAGE>
POLICY NUMBER 10 000 000
SEPARATE ACCOUNT DIVISIONS
(Section 6)
Select Bond Division
International Equity Division
Money Market Division
Balanced Division
Index 500 Stock Division
Aggressive Growth Stock Division
High Yield Bond Division
Growth Stock Division
Growth & Income Stock Division
Index 400 Stock Division
Small Cap Growth Stock Division
Russell Multi-Style Equity Division
Russell Aggressive Equity Division
Russell Non-US Division
Russell Real Estate Securities Division
Russell Core Bond Division
The Initial Allocation Date (Section 4.3) is July 1, 1999.
RR.VEL.(0799) Page 7
<PAGE>
SECTION 1. THE CONTRACT
1.1 LIFE INSURANCE BENEFIT
The Northwestern Mutual Life Insurance Company will pay a benefit on the
death of the Insured while this policy is in force. Subject to the terms and
conditions of the policy:
- payment of the death proceeds will be made after proof of the death of
the Insured is received at the Home Office; and
- payment will be made to the beneficiary or other payee under
Section 10.
The amount of the death proceeds will be:
- the death benefit (Section 3.1); less
- the amount of any policy debt (Section 9.3); less
- any Monthly Policy Charges due and unpaid if the Insured dies during
the grace period (Section 4.5).
These amounts will be determined as of the date of death.
The Company will pay interest on the death proceeds from the date of death
until the proceeds are withdrawn in cash. Interest will be at a rate of not less
than 2%, or at any higher rate required by state law.
1.2 ENTIRE CONTRACT; CHANGES
This policy, including the attached application and any amendments,
endorsements or riders, is the entire contract. Statements in the application
are representations and not warranties. A change in the policy is valid only if
it is approved in writing by an officer of the Company. The Company may require
that the policy be sent to it for endorsement to show a change. No agent has
the authority to change the policy or to waive any of its terms.
RP.VEL.(0398)
8
<PAGE>
1.3 INCONTESTABILITY
The Company will not contest this policy after the policy has been in
force, during the lifetime of the Insured, for two years from the Date of Issue.
An increase in the amount of insurance after the Date of Issue, which occurred
upon the request of the Owner and was subject to the Company's insurability
requirements, will be incontestable after the increase has been in force, during
the lifetime of the Insured, for two years from the date of issuance of the
increase. In issuing the insurance, the Company has relied on the application.
While the insurance is contestable, the Company, on the basis of a misstatement
in the application, may rescind the insurance or deny a claim.
1.4 SUICIDE
If the Insured dies by suicide within one year from the Date of Issue, the
amount payable by the Company will be limited to the premiums paid, less the
amount of any policy debt and withdrawals. If the Insured dies by suicide within
one year from the date of issuance of an increase in the amount of insurance,
which occurred upon the request of the Owner and was subject to the Company's
insurability requirements, the amount payable with respect to such increase will
be limited to the Monthly Policy Charges attributable to the increase.
1.5 POLICY DATE AND DATE OF ISSUE
Monthly processing dates and policy months, years and anniversaries are
computed from the Policy Date. The contestable and suicide periods begin with
the Date of Issue. These dates are shown on page 3.
1.6 MISSTATEMENT OF AGE
If the age of the Insured has been misstated, the policy will be modified
by recalculating all Monthly Policy Charges based on the correct age.
1.7 PAYMENTS BY THE COMPANY
All payments by the Company under this policy are payable at its Home
Office.
1.8 INSURABILITY REQUIREMENTS
To make some changes under this policy, the Insured must meet the Company's
insurability requirements. These requirements are as follows:
- evidence of insurability must be given that is satisfactory to the
Company; and
- under the Company's underwriting standards, the Insured is in an
underwriting classification that is the same as, or is better than,
the one for this policy.
SECTION 2. OWNERSHIP
2.1 THE OWNER
The Owner is named on page 3. The Owner, the Owner's successor or the
Owner's transferee may exercise policy rights without the consent of any
beneficiary, except to the extent the Owner's rights are restricted by a
designation of an irrevocable beneficiary.
2.2 TRANSFER OF OWNERSHIP
The Owner may transfer the ownership of this policy. Written proof of
transfer satisfactory to the Company must be received at its Home Office. The
transfer will then take effect as of the date that it was signed. The Company
may require that the policy be sent to it for endorsement to show the transfer.
2.3 COLLATERAL ASSIGNMENT
The Owner may assign this policy as collateral security. The Company is
not responsible for the validity or effect of the collateral assignment. The
Company will not be responsible to an assignee for any payment or other action
taken by the Company before receipt of the assignment in writing at its Home
Office.
The interest of any beneficiary will be subject to any collateral
assignment made either before or after the beneficiary is named.
The collateral assignee is not an Owner. The collateral assignment is not
a transfer of ownership. Ownership can be transferred only by complying with
Section 2.2.
RR.VEL.(0398)
9
<PAGE>
SECTION 3. DEATH BENEFIT
3.1 DEATH BENEFIT OPTIONS
This policy provides for three death benefit options. The option in effect
is shown on page 3.
SPECIFIED AMOUNT (OPTION A) - The death benefit before the policy anniversary
nearest the Insured's 100th birthday is the greater of:
- the Specified Amount; or
- the Minimum Death Benefit.
SPECIFIED AMOUNT PLUS POLICY VALUE (OPTION B) - The death benefit before the
policy anniversary nearest the Insured's 100th birthday is the greater of:
- the Specified Amount plus the Policy Value; or
- the Minimum Death Benefit.
SPECIFIED AMOUNT PLUS PREMIUMS PAID (OPTION C) - The death benefit before the
policy anniversary nearest the Insured's 100th birthday is the greater of:
- the Specified Amount plus the sum of the premiums paid; or
- the Minimum Death Benefit.
MINIMUM DEATH BENEFIT. The Minimum Death Benefit is the amount required by the
Internal Revenue Code (IRC), as amended, to maintain this policy as life
insurance. The test in effect for determining compliance with the IRC definition
of life insurance is shown on page 3 and will be either:
(1) the Guideline Premium/Cash Value Corridor Test: the Minimum Death Benefit
equals the Policy Value multiplied by the corridor percentage shown on page
6 at the Insured's attained age; or
(2) the Cash Value Accumulation Test: the Minimum Death Benefit equals the
Policy Value divided by the Net Single Premium shown on page 6 at the
Insured's attained age.
AGE 100 AND LATER. The death benefit on and after the policy anniversary
nearest the Insured's 100th birthday will be equal to the Policy Value
regardless of the death benefit option in effect.
3.2 DEATH BENEFIT OPTION CHANGES
Subject to approval by the Company, the Owner may change the death benefit
option upon written request. This change will be effective on the first monthly
processing date following receipt of the request at the Home Office. The
Company reserves the right to charge for a death benefit option change. This
charge will be deducted from the Policy Value and will not exceed the amount
shown on page 4. A change will not be allowed if the Specified Amount following
a change would be less than the minimum amount the Company would issue at the
time of change.
CHANGES TO OPTION A. The death benefit option may be changed to Option A at
any time. On the effective date of change, the Specified Amount will be changed
as follows:
(1) If the change is from Option B to Option A, the Specified Amount after the
change will be equal to the Specified Amount before the change plus the
Policy Value on the effective date of the change.
(2) If the change is from Option C to Option A, the Specified Amount after the
change will be equal to the Specified Amount before the change plus the sum
of the premiums paid as of the effective date of the change.
CHANGES TO OPTION B OR OPTION C. The death benefit option may be changed to
Option B or Option C at any time before the policy anniversary nearest the
Insured's 75th birthday. All changes to Option B or Option C will be subject to
the Company's insurability requirements (Section 1.8). On the effective date of
change, the Specified Amount will be changed as follows:
(1) If the change is from Option A to Option B, the Specified Amount after the
change will be equal to the Specified Amount before the change minus the
Policy Value on the effective date of the change.
(2) If the change is from Option A to Option C, the Specified Amount after the
change will be equal to the Specified Amount before the change minus the
sum of the premiums paid as of the effective date of the change.
(3) If the change is from Option B to Option C, the Specified Amount after the
change will be equal to the Specified Amount before the change plus (a) the
Policy Value on the effective date of the change, minus (b) the sum of the
premiums paid as of the effective date of the change.
(4) If the change is from Option C to Option B, the Specified Amount after the
change will be equal to the Specified Amount before the change plus (a)
the sum of the premiums paid as of the effective date of the change, minus
(b) the Policy Value on the effective date of the change.
RR.VEL.(0398)
10
<PAGE>
3.3 SPECIFIED AMOUNT CHANGES
Subject to approval by the Company, the Owner may change the Specified
Amount upon written request. This change will be effective on the first monthly
processing date following receipt of the request at the Home Office. The
Company reserves the right to charge for more than one Specified Amount change
in a policy year. This charge will be deducted from the Policy Value and will
not exceed the amount shown on page 4.
INCREASES. An increase will be made only if, at the time the increase is
applied for:
- the insurance in force, as increased, will be within the Company's
issue limits;
- the Company's insurability requirements (Section 1.8) are met; and
- the increase request is received prior to the policy anniversary
nearest the Insured's 75th birthday.
DECREASES. A decrease will not be allowed if the Specified Amount following the
decrease would be less than the minimum amount the Company would issue at the
time of change.
SECTION 4. PREMIUMS, TRANSFERS AND REINSTATEMENT
4.1 PREMIUM PAYMENT
All premiums after the first are payable at the Home Office or to an
authorized agent. Premiums may be paid to the Company at any time and in any
amount subject to the limitations described in Section 4.4. A receipt signed by
an officer of the Company will be furnished on request.
4.2 NET PREMIUM
The net premium is the amount of each premium paid that is available for
allocation to the Divisions of the Separate Account. The amount of the net
premium will be:
- the premium paid; less
- the Premium Expense Charge.
The Premium Expense Charge will consist of the amounts shown on page 4.
4.3 ALLOCATION OF NET PREMIUMS AND SUBSEQUENT TRANSFERS
The initial net premium and any additional net premiums received prior to
the Initial Allocation Date will be allocated to the Money Market Division on
the date the premiums are received in the Home Office. The Initial Allocation
Date is shown on page 7.
On the Initial Allocation Date, amounts in the Money Market Division will
be allocated in accordance with the application. This allocation will remain in
effect for later net premiums unless changed by the Owner by written request.
Any change in allocation will be in effect for net premiums credited to the
policy following the receipt of the written request at the Home Office.
Allocations must be in whole percentages.
On or after the Initial Allocation Date, the Owner may transfer the amounts
invested in any of the Divisions. The transfer will take effect on the date a
written request is received in the Home Office. The Company reserves the right
to charge for more than twelve transfers in a policy year. This charge will be
deducted from the Policy Value and will not exceed the amount shown on page 4.
4.4 PREMIUM LIMITATIONS
Premiums may be paid to the Company at any time before the policy
anniversary that is nearest the Insured's 95th birthday. The minimum premium
the Company will accept is shown on page 3.
The Company will not accept any premium that causes this policy not to
qualify as a life insurance policy under the Internal Revenue Code, as amended.
Further, the Company reserves the right to make distributions from this policy
as necessary to continue to qualify the policy as life insurance under the
Internal Revenue Code.
A premium payment that would increase the policy's death benefit more than
it increases the Policy Value will be accepted only if:
- the insurance in force, as increased, will be within the Company's
issue limits;
- the Company's insurability requirements (Section 1.8) are met; and
- the premium payment is received prior to the policy anniversary
nearest the Insured's 75th birthday.
4.5 GRACE PERIOD
If the Policy Value less the amount of any policy debt on a monthly
processing date is not sufficient to cover the current Monthly Policy Charge, a
grace period of 61 days will be allowed for the payment of sufficient premium to
keep the policy in force. The minimum premium that must be paid is three times
the Monthly Policy Charge due when the insufficiency occurred.
The grace period will begin on the date the Company sends written notice of
the insufficiency. The grace period will end 61 days after the notice is sent.
The notice will state the date the grace period ends and the amount of premium
required to keep the policy in force. Upon receipt of payment, the Company will
allocate the net premium, less any Monthly Policy Charges due and unpaid, to the
Divisions of the Separate Account according to the allocation of net premiums
currently in effect.
The policy will remain in force during the grace period. If sufficient
premium is not paid by the end of the grace period, the policy will terminate
with no value.
If the Insured dies during the grace period, any Monthly Policy Charges due
and unpaid will be deducted from the death proceeds of the policy.
RR.VEL.(0398)
11
<PAGE>
4.6 REINSTATEMENT
If it has terminated under Section 4.5, the policy may be reinstated not
more than one year after the end of the grace period, subject to approval by the
Company. To reinstate the policy the Company's insurability requirements
(Section 1.8) must be met and sufficient premium to cover the following must be
paid:
- all Monthly Policy Charges that were due and unpaid before the end of
the grace period; plus
- three times the Monthly Policy Charge due on the effective date of
reinstatement.
On the date the policy is reinstated, the Policy Value will be equal to the
net premium less the sum of all Monthly Policy Charges that were due and unpaid
before the end of the grace period and the Monthly Policy Charge on the
effective date of reinstatement. The Company will allocate the Policy Value to
the Divisions of the Separate Account according to the allocation of net
premiums currently in effect. Any policy debt on the date of termination will
also be reinstated and added to the Policy Value.
If the Company approves the application for reinstatement, the effective
date of the reinstated policy will be the first monthly processing date
following receipt at the Home Office of the reinstatement application.
This policy may not be reinstated if the policy was surrendered.
SECTION 5. DIVIDENDS
5.1 ANNUAL DIVIDENDS
This policy will share in the divisible surplus of the Company to the
extent it contributes to this surplus. This surplus is determined each year.
This policy's share will be credited as a dividend on the policy anniversary.
Since this policy is not expected to contribute to divisible surplus, it is
not expected that any dividends will be paid.
5.2 USE OF DIVIDENDS
Annual dividends may be paid in cash or used to increase the Policy Value.
Dividends used to increase the Policy Value will be allocated to the Divisions
of the Separate Account according to the allocation of net premiums currently in
effect. If no direction is given for the use of dividends, they will be used
to increase the Policy Value.
5.3 DIVIDEND AT DEATH
If a dividend is payable for the period from the beginning of the policy
year to the date of the Insured's death, the dividend is payable as part of the
policy proceeds.
RR.VEL.(0398)
12
<PAGE>
SECTION 6. THE SEPARATE ACCOUNT
6.1 DESCRIPTION
Northwestern Mutual Variable Life Account (the Separate Account) is
registered as a unit investment trust under the Investment Company Act of 1940.
The Separate Account has several Divisions, as shown on page 7. Assets of the
Separate Account are invested in shares of Northwestern Mutual Series Fund, Inc.
(the Fund). The Fund is registered under the Investment Company Act of 1940 as
an open-end, diversified investment company. The Fund has one Portfolio for
each Division. Assets of each Division of the Separate Account are invested in
shares of the corresponding Portfolio of the Fund. Shares of the Fund are
purchased for the Separate Account at their net asset value. The Company may
make available additional Divisions and Portfolios.
Assets will be allocated to the Separate Account to support the operation
of this and other variable life insurance policies. Assets may also be
allocated for other purposes, but not to support the operation of any contracts
or policies other than variable life insurance. Income and realized and
unrealized gains and losses from assets in the Separate Account are credited to
or charged against it without regard to other income, gains or losses of the
Company.
The assets of the Separate Account will be valued on each valuation day.
They are the property of the Company. The portion of these assets equal to
policy reserves and liabilities will not be charged with liabilities arising out
of any other business the Company may conduct. The Company reserves the right
to transfer assets of the Separate Account in excess of these reserves and
liabilities to its General Account.
The Owner may exchange this policy for a fixed benefit life insurance
policy if the Fund changes its investment advisor or if a Portfolio has a
material change in its investment objectives or restrictions. The Company will
notify the Owner if there is any such change. The Owner may exchange this
policy within 60 days after the notice or the effective date of the change,
whichever is later.
If, in the judgment of the Company, a Portfolio no longer suits the
purposes of this policy due to a change in its investment objectives or
restrictions, the Company may substitute shares of another Portfolio of the Fund
or shares of another mutual fund. Any such substitution will be subject to any
required approval of the Securities and Exchange Commission (SEC), the Wisconsin
Commissioner of Insurance or other regulatory authority.
The Company also may, to the extent permitted by applicable laws and
regulations (including any order of the SEC), make changes as follows:
- the Separate Account or a Division may be operated as a management
company under the Investment Company Act of 1940, or in any other form
permitted by law, if deemed by the Company to be in the best interest
of the policyowners.
- the Separate Account may be deregistered under the Investment Company
Act of 1940 in the event registration is no longer required.
- the provisions of this and other policies may be modified to comply
with any other applicable federal or state laws.
In the event of a substitution or change, the Company may make appropriate
endorsement of this and other policies having an interest in the Separate
Account and take other actions as may be necessary to effect the substitution or
change.
6.2 VALUATION DAY AND VALUATION PERIOD
A valuation day is any day on which the assets of the Separate Account are
valued. A valuation period is a valuation day and any immediately preceding
days which are not valuation days.
Assets are valued as the close of trading on the New York Stock Exchange on
each day the Exchange is open. Each Division's share of amounts allocated,
transferred or added to a Division or deducted, loaned, transferred or withdrawn
from a Division, on any day, will be determined as of the end of the valuation
period that contains that day.
SECTION 7. DETERMINATION OF VALUES
7.1 POLICY VALUE
On the Policy Date, the Policy Value is equal to the net premium less the
Monthly Policy Charge. On any day after that, the Policy Value is equal to what
it was on the previous day plus any of these items applicable on that day:
- any increase due to investment results of all amounts invested in all
Divisions for the Policy Value;
- interest on the policy debt at an annual rate equal to the loan
interest rate;
- the net premium, if a premium is paid;
- any policy dividend directed to increase the Policy Value; and
minus any of these items applicable on that day:
- any decrease due to investment results of all amounts invested in all
Divisions for the Policy Value;
- the Monthly Policy Charge;
- on any monthly processing date on which there is a policy debt, a
charge for expenses and taxes associated with the debt;
- any withdrawals; and
- any transaction charges that may result from a withdrawal, a transfer,
a change in the Specified Amount or a change in the death benefit
option.
The Monthly Policy Charge, any charge for expenses and taxes associated
with policy debt, withdrawals and any transaction charges will be deducted from
the Policy Value. The deduction will be allocated to each Division in
proportion to the amounts in each Division.
7.2 MONTHLY POLICY CHARGE
A Monthly Policy Charge is deducted from the Policy Value on each monthly
processing date and is equal to the sum of the following:
- the Monthly Administrative Charge;
- the Mortality and Expense Risk Charge; and
- the Cost of Insurance Charge.
RR.VEL.(0398)
13
<PAGE>
7.3 MONTHLY ADMINISTRATIVE CHARGE
A Monthly Administrative Charge is deducted from the Policy Value on each
monthly processing date as part of the Monthly Policy Charge. The maximum
Monthly Administrative Charge is shown on page 4.
7.4 MORTALITY AND EXPENSE RISK CHARGE
A charge for the mortality and expense risk the Company assumes is deducted
from the Policy Value on each monthly processing date as part of the Monthly
Policy Charge. The maximum Monthly Mortality and Expense Risk Charge is shown on
page 4.
7.5 COST OF INSURANCE CHARGE
A Cost of Insurance Charge is deducted from the Policy Value on each
monthly processing date as part of the Monthly Policy Charge. The Cost of
Insurance Charge is the cost of insurance rate times the net amount at risk.
The cost of insurance rate is based on the attained age of the Insured. The
maximum cost of insurance rates are shown on page 5. The net amount at risk is
(a) minus (b) where:
(a) is the death benefit on the monthly processing date, after deduction
of the Monthly Administrative Charge and the Mortality and Expense
Risk Charge, divided by 1.0032737; and
(b) is the Policy Value on the monthly processing date after deduction of
the Monthly Administrative Charge and the Mortality and Expense Risk
Charge.
SECTION 8. CASH VALUE AND SURRENDER
8.1 CASH VALUE
The cash value of this policy is equal to:
- the Policy Value; less
- any policy debt.
8.2 SURRENDER
The Owner may surrender this policy for its cash value. A written
surrender of all claims, satisfactory to the Company, will be required. The
date of surrender will be the date of receipt at the Home Office of the written
surrender. The policy will terminate, and the cash value will be determined, as
of the end of the valuation period which includes the date of surrender. The
Company may require that the policy be sent to it.
8.3 DEFERRAL OF PAYMENTS
The Company reserves the right:
- to defer determination of the cash value and payment of the cash
value;
- to defer payment of a loan or withdrawal; and
- to defer determination of a change in the amount of variable insurance
or other variable amounts payable on death, and, if such determination
has been deferred, to defer payment of the death benefit;
during any period when:
- the New York Stock Exchange is closed or trading on the New York Stock
Exchange is restricted as determined by the SEC; or
- the SEC declares that an emergency exists as a result of which the
sale or determination of investment results is not reasonably
practicable; or
- the SEC, by order, permits deferral for the protection of the
Company's policyowners.
RR.VEL.(0398)
14
<PAGE>
SECTION 9. LOANS AND WITHDRAWALS
9.1 POLICY LOANS
The Owner may obtain a loan from the Company in an amount that, when added
to existing policy debt, is not more than the loan value.
On the date a loan is made, the amount invested for this policy in the
Separate Account will be reduced by the amount of the loan. The reduction will
be allocated to each Division in proportion to the amounts in each Division. On
the date a loan repayment is made, or the date accrued interest is paid, the
amount invested for this policy in the Separate Account will be increased by the
amount of the payment. The increase will be allocated to the Divisions of the
Separate Account according to the allocation of net premiums currently in
effect.
9.2 LOAN VALUE
The loan value is 90% of the Policy Value on the date of the loan.
9.3 POLICY DEBT
Policy debt consists of all outstanding loans and accrued interest. It may
be paid to the Company at any time. Any policy debt will be deducted from the
policy proceeds.
If the policy debt equals or exceeds the Policy Value on a monthly
processing date, the policy will terminate with no value subject to the
conditions of the Grace Period (Section 4.5).
9.4 LOAN INTEREST
Interest accrues and is payable on a daily basis from the date of the loan.
Unpaid interest is added to policy debt.
Interest is payable at an annual effective rate of 5%.
9.5 WITHDRAWALS
The Owner may make a withdrawal of the Policy Value. The Company reserves
the right to charge for withdrawals. This charge will be deducted from the
Policy Value and will not exceed the amount shown on page 4. However, the Owner
may not:
- withdraw an amount which would reduce the loan value to less than the
policy debt;
- withdraw an amount which would reduce the death benefit to less than
the minimum amount the Company would issue at the time of withdrawal;
- withdraw an amount which would reduce the cash value to less than
three times the most recent Monthly Policy Charge;
- withdraw less than the minimum withdrawal amount shown on page 3; or
- make more than four withdrawals in a policy year.
When a withdrawal from the Policy Value is made, the amount invested for
this policy in the Separate Account will be reduced by the amount of the
withdrawal. The reduction will be allocated to each Division in proportion to
the amounts in each Division. If the death benefit option in effect at the time
of withdrawal is either Option A or Option C, the Specified Amount will be
reduced by the lesser of:
- the amount of the withdrawal; or
- the excess, if any, of the Specified Amount over the result of (a)
minus (b) where:
(a) is the death benefit immediately prior to the withdrawal; and
(b) is the amount of the withdrawal.
RR.VEL.(0398)
15
<PAGE>
SECTION 10. BENEFICIARIES
10.1 DEFINITION OF BENEFICIARIES
The term "beneficiaries" as used in this policy includes direct
beneficiaries, contingent beneficiaries and further payees.
10.2 NAMING AND CHANGE OF BENEFICIARIES
BY OWNER. The Owner may name and change the beneficiaries of death proceeds:
- while the Insured is living.
- during the first 60 days after the date of death of the Insured, if
the Insured was not the Owner immediately prior to the Insured's
death. A change made during this 60 days may not be revoked.
BY DIRECT BENEFICIARY. A direct beneficiary may name and change the contingent
beneficiaries and further payees of the direct beneficiary's share of the
proceeds:
- if the direct beneficiary is the Owner; or
- if, at any time after the death of the Insured, no contingent
beneficiary or further payee of that share is living.
These direct beneficiary rights are subject to the Owner's rights during
the 60 days after the date of death of the Insured.
BY SPOUSE (MARITAL DEDUCTION PROVISION).
- POWER TO APPOINT. The spouse of the Insured will have the power alone
and in all events to appoint all amounts payable to the spouse under
the policy if:
a. immediately before the Insured's death, the Insured was the
Owner; and
b. the spouse is a direct beneficiary; and
c. the spouse survives the Insured.
Under this power, the spouse can appoint:
a. to the estate of the spouse; or
b. to any other persons as contingent beneficiaries and further
payees.
- EFFECT OF EXERCISE. As to the amounts appointed, the exercise of this
power will:
c. revoke any other designation of beneficiaries;
d. revoke any election of payment plan as it applies to them; and
e. cause any provision to the contrary in Section 10 of the policy
to be of no effect.
EFFECTIVE DATE. A naming or change of a beneficiary will be made on receipt at
the Home Office of a written request that is acceptable to the Company. The
request will then take effect as of the date that it was signed. The Company is
not responsible for any payment or other action that is taken by it before the
receipt of the request. The Company may require that the policy be sent to it
to be endorsed to show the naming or change.
10.3 SUCCESSION IN INTEREST OF BENEFICIARIES
DIRECT BENEFICIARIES. The proceeds of this policy will be payable in equal
shares to the direct beneficiaries who survive and receive payment. If a direct
beneficiary dies before receiving all or part of the direct beneficiary's full
share, the unpaid portion will be payable in equal shares to the other direct
beneficiaries who survive and receive payment.
CONTINGENT BENEFICIARIES. At the death of all of the direct beneficiaries, the
proceeds will be payable in equal shares to the contingent beneficiaries who
survive and receive payment. If a contingent beneficiary dies before receiving
all or part of the contingent's full share, the unpaid portion will be payable
in equal shares to the other contingent beneficiaries who survive and receive
payment.
FURTHER PAYEES. At the death of all of the direct and contingent beneficiaries,
the proceeds will be paid in one sum:
- in equal shares to the further payees who survive and receive payment;
or
- if no further payees survive and receive payment, to the estate of the
last to die of all of the direct and contingent beneficiaries who
survive the Insured.
OWNER OR THE OWNER'S ESTATE. If no beneficiaries are alive when the Insured
dies, the proceeds will be paid to the Owner or to the Owner's estate.
10.4 GENERAL
TRANSFER OF OWNERSHIP. A transfer of ownership of itself will not change the
interest of a beneficiary.
CLAIMS OF CREDITORS. So far as allowed by law, no amount payable under this
policy will be subject to the claims of creditors of a beneficiary.
<PAGE>
AMENDMENT TO FLEXIBLE PREMIUM
VARIABLE LIFE INSURANCE POLICY
AS OF THE DATE OF ISSUE, SECTION 8.1 CASH VALUE, IS AMENDED AS FOLLOWS:
During the first policy year, if the policy is not in a grace period, the
cash value of this policy is equal to:
- the Policy Value; plus
- [100%] of the sum of Sales Loads (page 4) deducted from premiums paid
to date; less
- any policy debt.
During the second policy year, if the policy is not in a grace period, the
cash value of this policy is equal to:
- the Policy Value; plus
- [66.67%] of the sum of Sales Loads (page 4) deducted from premiums paid
to date; less
- any policy debt.
During the third policy year, if the policy is not in a grace period, the
cash value of this policy is equal to:
- the Policy Value; plus
- [33.33%] of the sum of Sales Loads (page 4) deducted from premiums paid
to date; less
- any policy debt.
During the fourth and later policy years and any time the policy is in a
grace period; the cash value of this policy is equal to:
- the Policy Value; less
- any policy debt.
Secretary
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
RR.VEL RSL.(1199)
<PAGE>
AMENDMENT TO SECTION 6 THE SEPARATE ACCOUNT
FOR FLEXIBLE PREMIUM VARIABLE LIFE
AS OF THE DATE OF ISSUE, THE FIRST PARAGRAPH OF SECTION 6.1 IS AMENDED TO
READ AS FOLLOWS:
Northwestern Mutual Variable Life Account (the Separate Account) is
registered as a unit investment trust under the Investment Company Act of 1940.
The Separate Account has several Divisions, as shown on page 7. Assets of the
Separate Account are invested in shares of mutual funds or portfolios of mutual
funds, both of which are referred to in this policy as Portfolios. Shares of the
Portfolios are purchased for the Separate Account at their net asset value. The
Company may make available additional Divisions and Portfolios.
AS OF THE DATE OF ISSUE, THE FOURTH AND FIFTH PARAGRAPHS OF SECTION 6.1 ARE
AMENDED TO READ AS FOLLOWS:
The Owner may exchange this policy for a fixed benefit life insurance
policy being offered at that time by the Company if the Portfolio changes its
investment advisor or has a material change in its investment objectives or
restrictions. The Company will notify the Owner if there is any such change.
The Owner may exchange this policy within 60 days after the notice or the
effective date of the change, whichever is later.
If, in the judgment of the Company, a Portfolio no longer suits the
purposes of this policy due to a change in its investment objectives or
restrictions, the Company may substitute shares of another Portfolio. Any such
substitution will be subject to any required approval of the Securities and
Exchange Commission (SEC), the Wisconsin Commissioner of Insurance or other
regulatory authority.
Secretary
NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
VEL.FUNDS.(0799)
<PAGE>
POLICY APPLICATION SUPPLEMENT FOR
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INSURED:
----------------
POLICY:
Specified Amount: $
---------------
Death Benefit Option:
---------------
Definition of Life Insurance Test:
---------------
Initial Premium: $
---------------
Reminder Premium: $
---------------
Reminder Mode:
---------------
- --------------------------------------------------------------------------------
For Home Office Use Only
Underwriting Amount: $
---------------
Illustrated Cumulative Premiums:
Year 5: $ Year 15: $
--------------- ---------------
Year 10: $ Year 20: $
--------------- ---------------
VEL,
---------------
- --------------------------------------------------------------------------------
Illustration No.
--------------
90-1 VEL.Supp.(0799) Page 1 of 3
<PAGE>
THE DEATH BENEFIT MAY INCREASE OR DECREASE DAILY DEPENDING ON INVESTMENT
RESULTS. THERE IS NO GUARANTEED MINIMUM DEATH BENEFIT.
THE CASH VALUE UNDER THIS POLICY MAY INCREASE OR DECREASE DAILY DEPENDING ON
INVESTMENT RESULTS. THERE IS NO GUARANTEED MINIMUM CASH VALUE.
ALLOCATION OF NET PREMIUMS
This allocation will apply to all net premiums and loan repayments. Use whole
percentages only. If monthly dollar cost averaging is desired, complete both
this section and the monthly dollar cost averaging section below. Only
allocations to the Money Market Division are utilized for dollar cost averaging
purposes.
<TABLE>
<CAPTION>
<S> <C>
Money Market Division % Growth & Income Stock Division %
---- ----
Select Bond Division % Index 400 Stock Division %
---- ----
International Equity Division % Small Cap Growth Stock Division %
---- ----
Balanced Division % Russell Multi-Style Equity Division %
---- ----
Index 500 Stock Division % Russell Aggressive Equity Division %
---- ----
Aggressive Growth Stock Division % Russell Non-US Division %
---- ----
High Yield Bond Division % Russell Real Estate Securities Division %
---- ----
Growth Stock Division % Russell Core Bond Division %
---- ----
Total 100%
----
----
</TABLE>
MONTHLY DOLLAR COST AVERAGING
To elect monthly dollar cost averaging complete the following section.
Transfer the following amount from the Money Market Division on each monthly
processing date and allocate it among the other Divisions as specified below:
$__________. If the amount specified is larger than the balance in the Money
Market Division, the entire balance will be transferred. Use whole percentages
only.
<TABLE>
<CAPTION>
<S> <C>
Select Bond Division % Growth & Income Stock Division %
---- ----
International Equity Division % Index 400 Stock Division %
---- ----
Balanced Division % Small Cap Growth Stock Division %
---- ----
Index 500 Stock Division % Russell Multi-Style Equity Division %
---- ----
Aggressive Growth Stock Division % Russell Aggressive Equity Division %
---- ----
High Yield Bond Division % Russell Non-US Division %
---- ----
Growth Stock Division % Russell Real Estate Securities Division %
---- ----
Russell Core Bond Division %
----
Total 100%
----
----
</TABLE>
Insured:
---------------------
Illustration No.
--------------
90-1 VEL.Supp.(0799) Page 2 of 3
<PAGE>
THIS PAGE WILL BE REQUIRED ONLY IF THE INSURED HAS INVESTMENT RESPONSIBILITY.
SUITABILITY
Northwestern Mutual Life is required to make the following inquiries for
purposes of determining the suitability of this sale. Responses will be kept
confidential.
TOTAL ANNUAL INCOME (all sources) $
--------------------
TOTAL NET WORTH $
--------------------------------------
YEARS OF EXPERIENCE WITH THE FOLLOWING:
Less than Five or
Five More
None Years Years
---------- --------- ----------
Mutual Funds
---------- --------- ----------
Individual Common Stocks
---------- --------- ----------
Variable Annuities
---------- --------- ----------
Variable Life Insurance
---------- --------- ----------
Signature of Insured:
-------------------------------------------------
Insured:
----------------------
Illustration No.
--------------
90-1 VEL.Supp.(0799) Page 3 of 3
HOL03 116608
<PAGE>
<TABLE>
<S><C>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY -------------------------
720 E. WISCONSIN AVENUE, MILWAUKEE, WISCONSIN 53202 POLICY NUMBER
EMPLOYER SPONSORED LIFE INSURANCE APPLICATION ------------------------------
/ / Companion policies PLAN GROUP NUMBER
INSURED
- ----------------------------------------------------------------------------------------------------------------------------------
1 Has an application or informal inquiry ever been made to Northwestern Mutual Life for annuity, life, long term care, or
disability insurance on the life of the Insured? / / Yes / / No If yes, the last policy number is
-----------------------------------------------------------------------------------------------------------------------------
A. / / Mr. / / Mrs. / / Ms. / / Dr. / / Other B. / / MALE
---------------- / / FEMALE
-----------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
C. BIRTHDATE: (Month, Day Year) D. STATE OF BIRTH (or Foreign Country): E. TAXPAYER IDENTIFICATION NUMBER:
-- --
---------------------------- ------------------------------------ ------------------------------
-----------------------------------------------------------------------------------------------------------------------------
F. PRIMARY RESIDENCE:
STREET OR PO BOX:
----------------------------------------------------------------------------------
CITY, STATE, ZIP (Country if other than U.S.A.):
-------------------------------------------------------------
E-MAIL ADDRESS:
------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
APPLICANT
- ----------------------------------------------------------------------------------------------------------------------------------
2 Select ONLY ONE: / /Insured at Insured's Address OR / /Other (Complete A, B and C)
A. / / Mr. / / Mrs. / / Ms. / / Dr. / / Other
----------------- / / MALE
PERSONAL NAME: / / FEMALE
---------------------------------------------------------
(FIRST, MIDDLE INITIAL, LAST)
RELATIONSHIP TO INSURED:
--------------------------------------- ----------------------------------------
OR MONTH DAY YEAR
BUSINESS/TRUST:
-----------------------------------------------------------------------------------------
TYPE OF ORGANIZATION: / / Trust / / Corporation / / Partnership / / Other type of Business
------------------------------
AUTHORIZED COMPANY
REP/TRUSTEE NAME:
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
B. TAXPAYER IDENTIFICATION NUMBER:
--------------------------------
-----------------------------------------------------------------------------------------------------------------------------
C. ADDRESS: STREET OR PO BOX:
--------------------------------------------------------------------------------------------
CITY, STATE, ZIP (Country if other than U.S.A.):
----------------------------------------------------------------------------
E-MAIL ADDRESS:
----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
PREMIUM PAYER
- ----------------------------------------------------------------------------------------------------------------------------------
3 Select ONLY ONE: / /ISA (Omit A through D below) OR / /Insured (Complete D only) / /Applicant (Complete D only)
/ /Owner (Complete D only) / / Other (Complete A, B, C and D)
A. / / Mr. / / Mrs. / / Ms. / / Dr. / / Other
----------------- / / MALE
PERSONAL NAME: / / FEMALE
---------------------------------------------------------
(FIRST, MIDDLE INITIAL, LAST)
BIRTHDATE
------------------------
MONTH DAY YEAR
OR
BUSINESS/TRUST: `
-----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
B. TAXPAYER IDENTIFICATION NUMBER: C. DAYTIME TELEPHONE NUMBER:
------------------------------ Area Code ( )
---------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Send premium and other notices regarding this policy to:
D. ADDRESS: / / Insured's Address / /Applicant's Address OR
STREET OR PO BOX:
----------------------------------------------------------------------------------------
CITY, STATE, ZIP (Country if other than U.S.A.):
-----------------------------------------------------------------------
E-MAIL ADDRESS:
----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S><C>
4-7 (Reserved)
- ----------------------------------------------------------------------------------------------------------------------------------
8. SPECIAL DATE
PREPAID:
/ / Short term - Policy Date will coincide with ISA Payment Date. (For monthly ISA only)
/ / Short term to: / / Date to save age / /
---------------------------- --------------------------
MONTH DAY YEAR MONTH DAY YEAR
NON-PREPAID:
/ / Specified future date: / / Date to save age / /
-------------------- --------------------------
MONTH DAY YEAR MONTH DAY YEAR
- ----------------------------------------------------------------------------------------------------------------------------------
POLICY APPLIED FOR
- ----------------------------------------------------------------------------------------------------------------------------------
9. FIRST POLICY INFORMATION SECOND POLICY INFORMATION
/ / APPLICATION SUPPLEMENT (REQUIRED FOR COMPLIFE AND / / APPLICATION SUPPLEMENT (REQUIRED FOR COMPLIFE AND
ALL VARIABLE LIFE PRODUCTS) ALL VARIABLE LIFE PRODUCTS)
OR OR
A. PLAN: A. PLAN:
------------------------------------------- -------------------------------------------
AMOUNT: $ AMOUNT: $
----------------------------------------- -----------------------------------------
B. ADDITIONAL BENEFITS: B. ADDITIONAL BENEFITS:
/ / Waiver of Premium / / Waiver of Premium
/ / Accidental Death $ (BENEFIT AMOUNT) / / Accidental Death $ (BENEFIT AMOUNT)
---------- ----------
/ / Other / / Other
------------------------------------- -------------------------------------
C. ANNUAL DIVIDENDS: C. ANNUAL DIVIDENDS:
/ / Reduce current premium / / Reduce current premium
/ / Purchase paid-up additions / / Purchase paid-up additions
/ / Accumulate at interest / / Accumulate at interest
/ / Be paid in cash / / Be paid in cash
/ / Be used for a combination of options above / / Be used for a combination of options above
(COMPLETE FORM 18-1364-01) (COMPLETE FORM 18-1364-01)
D. POLICY LOAN INTEREST RATE OPTION: D. POLICY LOAN INTEREST RATE OPTION:
/ / 8% / / Variable Rate / / 8% / / Variable Rate
10. If an additional benefit cannot be approved, should 10. If an additional benefit cannot be approved, should
the company issue a policy without the benefit? the company issue a policy without the benefit?
/ / Yes / / No / / Yes / / No
11. Shall the Premium Loan provision, if available, be- 11. Shall the Premium Loan provision, if available, be-
come operative according to its terms? come operative according to its terms?
/ / Yes / / No / / Yes / / No
12. PREMIUM FREQUENCY: 12. PREMIUM FREQUENCY:
/ / Annually / / Semiannually / / Quarterly / / Annually / / Semiannually / / Quarterly
/ / Single / / Single
- ----------------------------------------------------------------------------------------------------------------------------------
13-14 (Reserved)
BENEFICIARY OWNER
- ----------------------------------------------------------------------------------------------------------------------------------
15. A. DIRECT BENEFICIARY 16. The OWNER will be: (SELECT ONLY ONE)
----------------------------------------------------- / / A. Insured
FIRST MIDDLE INITIAL LAST / / B. Applicant
RELATIONSHIP TO INSURED / / C. Other
-------------------------------------
FIRST MIDDLE INITIAL LAST
-----------------------------------------------------
FIRST MIDDLE INITIAL LAST
RELATIONSHIP TO INSURED -------------------------------------
RELATIONSHIP TO INSURED
-----------------------------------------------------
FIRST MIDDLE INITIAL LAST / / D. SEE ATTACHED SUPPLEMENT FORM.
RELATIONSHIP TO INSURED (To be used in place of designations above.)
RESIDENCE OF OWNER
B. CONTINGENT BENEFICIARY / / Insured's address in 1F.
/ / Premium Payer's address in 3D or
----------------------------------------------------- ------------------------------------------------
FIRST MIDDLE INITIAL LAST STREET OR PO BOX
RELATIONSHIP TO INSURED
------------------------------------------------
CITY, STATE AND ZIP CODE (COUNTRY IF OTHER
----------------------------------------------------- THAN U.S.A.)
FIRST MIDDLE INITIAL LAST
RELATIONSHIP TO INSURED
/ / and all (other) children of the insured.
(SELECT TO INCLUDE ALL OF THE CHILDREN OR TO ADD TO OWNER'S TAXPAYER IDENTIFICATION NUMBER
THE CONTINGENT BENEFICIARIES NAMED. NOTE: THE WORD
CHILDREN INCLUDES CHILD OR ANY LEGALLY ADOPTED CHILD.)
(See TIN Instructions)
C. / / SEE ATTACHED SUPPLEMENT FORM -----------------------------
(TO BE USED IN PLACE OF DESIGNATIONS ABOVE)
</TABLE>
<PAGE>
INSURED
----------------------------------------------------------------
FIRST MIDDLE INITIAL LAST
CONDITIONAL LIFE INSURANCE AGREEMENT
- --------------------------------------------------------------------------------
17. Has the premium for the policy applied for been given to the agent in
exchange for the Conditional Life Insurance Agreement
with the same number as this application? . . . . . . . . / /Yes / /No
18-19 (Reserved)
INSURANCE HISTORY
- --------------------------------------------------------------------------------
20. Does the Insured have any other life insurance in force, pending or
contemplated in other companies?. . . . . . . . . . . . . / /Yes / /No
If yes, indicate Company Name, Individual (Ind) or Group (Grp) and identify
the amount of In Force, Pending or Contemplated.
<TABLE>
<CAPTION>
LIFE INSURANCE AMOUNTS
-----------------------------------------------------------------------------------------------------------------
Ind or Contemplated Accidental Death
Company Name Grp In Force Amount Pending Amount Amount Amount
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
</TABLE>
21 As a result of this purchase will the values or benefits of any other life
insurance policy or annuity contract, on any life, be
affected in any way? . . . . . . . . . . . . . . . . . . ./ /Yes / /No
NOTE TO AGENT: VALUES OR BENEFITS ARE AFFECTED IF ANY QUESTION ON THE
DEFINITION OF REPLACEMENT SUPPLEMENT COULD BE ANSWERED "YES."
If "yes", this transaction is a replacement of life insurance or annuity.
The agent must:
- submit required papers and sale materials AND
- provide required disclosure notices to the applicant.
The applicant must answer the questions:
- on the Definition of Replacement Supplement AND
- A, B, and C below.
Will this insurance:
A. replace Northwestern Mutual Life? . . . . . . . . . ./ /Yes / /No
B. replace other Companies?. . . . . . . . . . . / /Yes / /No
C. result in 1035 exchange?. . . . . . . . . . . . . . ./ /Yes / /No
<PAGE>
- --------------------------------------------------------------------------------
It is agreed that:
(1) If the premium is not paid when the application is signed, no insurance
will be in effect. The insurance will take effect at the time the policy is
delivered and the premium is paid, if: the Insured is living at the time;
and the answers and statements in the underwriting questionnaire are then
true to the best of the Insured's knowledge and belief.
(2) If the premium is paid when the application is taken, no life insurance
will be in effect except as provided in the Conditional Life Insurance
Agreement.
(3) If the policy is issued in an extra premium class, acceptance of the policy
will amend it so that extended term insurance can be in force only if: the
Company gives its consent; or the loan value is not large enough to grant a
premium loan. If a premium is not paid within the grace period and extended
term insurance cannot be in force, paid-up insurance will be selected.
(4) No agent is authorized to make or alter contracts or to waive any of the
Company's rights or requirements.
- --------------------------------------------------------------------------------
THE OWNER OF THE POLICY APPLIED FOR HEREIN CERTIFIES, UNDER PENALTIES OF
PERJURY, (1) THAT THE TAXPAYER IDENTIFICATION NUMBER GIVEN FOR THE OWNER ON THE
SECOND PAGE OF THIS APPLICATION IS THE OWNER'S CORRECT TAXPAYER IDENTIFICATION
NUMBER (OR THE OWNER IS WAITING FOR A NUMBER TO BE ISSUED) AND (2) THE OWNER IS
NOT SUBJECT TO BACKUP WITHHOLDING EITHER BECAUSE THE OWNER HAS NOT BEEN NOTIFIED
BY THE INTERNAL REVENUE SERVICE (IRS) THAT THE OWNER IS SUBJECT TO BACKUP
WITHHOLDING AS A RESULT OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR THE
IRS HAS NOTIFIED THE OWNER THAT THE OWNER IS NO LONGER SUBJECT TO BACKUP
WITHHOLDING. (SEE TAXPAYER IDENTIFICATION NUMBER INSTRUCTIONS.)
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.
- --------------------------------------------------------------------------------
THE SIGNATURES BELOW APPLY TO THE APPLICATION, POLICY APPLICATION SUPPLEMENT AND
THE CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER.
- ------------------------------------ ---------------------------------------
SIGNATURE OF APPLICANT SIGNATURE OF OWNER (IF OTHER THAN
APPLICANT)
Signed by Applicant at:
--------------------- ---------------------------------------
CITY, COUNTY, & STATE SIGNATURE OF LICENSED AGENT
Date signed by Applicant
------------------------
MONTH DAY YEAR
<PAGE>
IT IS RECOMMENDED THAT YOU ...
read your policy.
notify your Northwestern Mutual agent or the Company at 720 East Wisconsin
Avenue, Milwaukee, WI 53202, of an address change.
call your Northwestern Mutual agent for information--particularly on a
suggestion to terminate or exchange this policy for another policy or plan.
ELECTION OF TRUSTEES
The members of The Northwestern Mutual Life Insurance Company are its
policyholders of insurance policies and deferred annuity contracts. The members
exercise control through a Board of Trustees. Elections to the Board are held
each year at the annual meeting of members. Members are entitled to vote in
person or by proxy.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
ELIGIBLE FOR ANNUAL DIVIDENDS
Insurance payable at death of Insured.
Flexible premiums.
Benefits reflect investment results.
Variable benefits described in Sections 1, 3, 6, 7 and 8.
THE DEATH BENEFIT MAY INCREASE OR DECREASE DAILY DEPENDING ON INVESTMENT
RESULTS. THERE IS NO GUARANTEED MINIMUM DEATH BENEFIT.
THE CASH VALUE UNDER THIS POLICY MAY INCREASE OR DECREASE DAILY DEPENDING ON
INVESTMENT RESULTS. THERE IS NO GUARANTEED MINIMUM CASH VALUE.
RR.VEL.(0398)
<PAGE>
Exhibit A(5)(b)
- -------------------------------------------------------------------------------
The Northwestern Mutual Life Insurance Company agrees to pay the benefits
provided in this policy,
subject to its terms and conditions.
Signed at Milwaukee, Wisconsin on the Date of Issue.
/s/ /s/
PRESIDENT AND CEO SECRETARY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
ELIGIBLE FOR ANNUAL DIVIDENDS
Insurance payable at death of Insured.
Flexible premiums.
Benefits reflect investment results.
Variable benefits described in Sections 1, 3, 6, 7 and 8.
THE DEATH BENEFIT MAY INCREASE OR DECREASE DAILY DEPENDING ON INVESTMENT
RESULTS. THERE IS NO GUARANTEED MINIMUM DEATH BENEFIT.
THE CASH VALUE UNDER THIS POLICY MAY INCREASE OR DECREASE DAILY DEPENDING ON
INVESTMENT RESULTS. THERE IS NO GUARANTEED MINIMUM CASH VALUE.
RIGHT TO RETURN POLICY. Please read this policy carefully. The policy may be
returned by the Owner for any reason within (1) ten days after it was received
or (2) forty-five days after the application was signed, whichever is later.
The policy may be returned to your agent or to the Home Office of the Company at
720 East Wisconsin Avenue, Milwaukee, WI 53202. If returned, the policy will
be considered void from the beginning. The Company will refund the sum of (a)
the difference between any premium paid and the amount allocated to the Separate
Account plus (b) the value of the policy in the Separate Account on the date the
returned policy is received.
RR.VEL.(0398)
[LOGO]
- -------------------------------------------------------------------------------
INSURED John J. Doe AGE AND SEX 35 Male
POLICY DATE March 1, 1998 POLICY NUMBER 10 000 000
PLAN Flexible Premium SPECIFIED AMOUNT $1,000,000
Variable Life
RR.VEL.(0398)
<PAGE>
THIS POLICY IS A LEGAL CONTRACT BETWEEN THE OWNER AND
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY.
READ YOUR POLICY CAREFULLY.
GUIDE TO POLICY PROVISIONS
BENEFITS AND PREMIUMS
SECTION 1. THE CONTRACT
Life Insurance Benefit payable on death of Insured.
Incontestability. Suicide. Definition of dates. Insurability
requirements. Reports to Owner.
SECTION 2. OWNERSHIP
Rights of the Owner. Assignment as collateral.
SECTION 3. DEATH BENEFIT
Description of death benefit options. Changes to death benefits.
SECTION 4. PREMIUMS, TRANSFERS AND REINSTATEMENT
Payment of premiums. Calculation and allocation of net premiums.
Transfer of assets. Premium limitations. Grace period of 61 days
to pay premium. How to reinstate the policy.
SECTION 5. DIVIDENDS
Annual dividends. Use of dividends. Dividend at death.
SECTION 6. THE SEPARATE ACCOUNT
The Separate Account and the Divisions. Valuation of assets.
SECTION 7. DETERMINATION OF VALUES
Policy Value. Monthly Policy Charge.
SECTION 8. CASH VALUE AND SURRENDER
Cash value. Surrender. Deferral of payments.
SECTION 9. LOANS AND WITHDRAWALS
Policy loans. Interest on loans. Withdrawals.
SECTION 10. BENEFICIARIES
Naming and change of beneficiaries. Marital deduction provision for
spouse of Insured. Succession in interest of beneficiaries.
APPLICATION
<PAGE>
BENEFITS AND PREMIUMS
DATE OF ISSUE - MARCH 1, 1998
Plan: Flexible Premium Variable Life
Specified Amount: $1,000,000
Death Benefit Option: Specified Amount (Option A)
Definition of Life Insurance Test: Guideline Premium/Cash Value Corridor Test
The minimum premium (Section 4.4) is $25.00.
The maximum premium under the Guideline Premium/Cash Value Corridor Test:
Guideline Single Premium = $ 176,024.00
Guideline Annual Level Premium = $ 14,536.00
The minimum withdrawal amount (Section 9.5) is $250.00.
This policy is issued in a select premium class.
DIRECT BENEFICIARY XYZ Corporation
OWNER XYZ Corporation
INSURED John J. Doe AGE AND SEX 35 Male
POLICY DATE March 1, 1998 POLICY NUMBER 10 000 000
<PAGE>
PLAN Flexible Premium SPECIFIED AMOUNT $1,000,000
Variable Life
Page 3
POLICY NUMBER 10 000 000
SCHEDULE OF MAXIMUM CHARGES
The Premium Expense Charge (Section 4.2) is the sum of the following:
1. Sales Load:
<TABLE>
<CAPTION>
Premium Paid First Policy Year Policy Years 2-6 Policy Years 7+
------------ ----------------- ---------------- ---------------
<S> <C> <C> <C>
Up to $ 40,260.00 15% 6.8% 3%
In Excess of $ 40,260.00 3% 3% 3%
</TABLE>
2. Federal Deferred Acquisition Cost Charge l.25% of premium
3. Premium Tax Charge 2.35% of premium
The Premium Expense Charge for Deferred Acquisition Cost and
Premium Tax may change to reflect changes in tax law.
Maximum Monthly Policy Charges:
The maximum Monthly Administrative Charge (Section 7.3) is $15 in the
first policy year and $10 thereafter.
The maximum Monthly Mortality and Expense Risk Charge (Section 7.4) is
.075% of the amount invested for this policy in the Separate Account.
Maximum Transaction Charges:
The maximum charge for death benefit option changes (Section 3.2) is
$250.00 per change.
The maximum charge for Specified Amount changes (Section 3.3) is
$25.00 per change for more than one change during any policy year.
The maximum transfer fee (Section 4.3) is $25.00 per transfer for more
than 12 transfers during any policy year.
The maximum withdrawal charge (Section 9.5) is $25.00 per withdrawal.
RR. VEL. (1199)
<PAGE>
Page 4
POLICY NUMBER 10 000 000
TABLE OF GUARANTEED MAXIMUM COST OF INSURANCE RATES
MONTHLY RATES PER $1.00
(Section 7.5)
<TABLE>
<CAPTION>
Attained Age Monthly Rate Attained Age Monthly Rate Attained Age Monthly Rate
<S> <C> <C> <C> <C> <C>
35 .00018 60 .00134 85 .01275
36 .00019 61 .00146 86 .01384
37 .00020 62 .00160 87 .01496
38 .00022 63 .00175 88 .01611
39 .00023 64 .00193 89 .01727
40 .00025 65 .00212 90 .01848
41 .00027 66 .00232 91 .01975
42 .00030 67 .00254 92 .02112
43 .00032 68 .00277 93 .02268
44 .00035 69 .00301 94 .02466
45 .00038 70 .00329 95 .02750
46 .00041 71 .00361 96 .03205
47 .00044 72 .00397 97 .04002
48 .00048 73 .00439 98 .05483
49 .00052 74 .00485 99 .08333
50 .00056 75 .00535
51 .00061 76 .00588
52 .00066 77 .00643
53 .00073 78 .00699
54 .00080 79 .00759
55 .00087 80 .00824
56 .00096 81 .00896
57 .00104 82 .00977
58 .00113 83 .01069
59 .00123 84 .01169
</TABLE>
<PAGE>
Page 5
POLICY NUMBER 10 000 000
GUIDELINE PREMIUM/CASH VALUE CORRIDOR PERCENTAGES
The Corridor Percentages are used to determine the Minimum Death Benefit under
the Guideline Premium/Cash Value Corridor Test (Section 3.1).
<TABLE>
<CAPTION>
Attained Age Attained Age Attained Age
Corridor % Corridor % Corridor %
<S> <C> <C> <C> <C> <C>
35 250 60 130 85 105
36 250 61 128 86 105
37 250 62 126 87 105
38 250 63 124 88 105
39 250 64 122 89 105
40 250 65 120 90 105
41 243 66 119 91 104
42 236 67 118 92 103
43 229 68 117 93 102
44 222 69 116 94 101
45 215 70 115 95+ 100
46 209 71 113
47 203 72 111
48 197 73 109
49 191 74 107
50 185 75 105
51 178 76 105
52 171 77 105
53 164 78 105
54 157 79 105
55 150 80 105
56 146 81 105
57 142 82 105
58 138 83 105
59 134 84 105
</TABLE>
<PAGE>
POLICY NUMBER 10 000 000
SEPARATE ACCOUNT DIVISIONS
(Section 6)
Select Bond Division
International Equity Division
Money Market Division
Balanced Division
Index 500 Stock Division
Aggressive Growth Stock Division
High Yield Bond Division
Growth Stock Division
Growth & Income Stock Division
Index 400 Stock Division
Small Cap Growth Stock Division
Russell Multi-Style Equity Division
Russell Aggressive Equity Division
Russell Non-US Division
Russell Real Estate Securities Division
Russell Core Bond Division
The Initial Allocation Date (Section 4.3) is July 1, 1999.
RR.VEL.(0799) Page 7
<PAGE>
SECTION 1. THE CONTRACT
1.1 LIFE INSURANCE BENEFIT
The Northwestern Mutual Life Insurance Company will pay a benefit on the
death of the Insured while this policy is in force. Subject to the terms and
conditions of the policy:
- payment of the death proceeds will be made after proof of the death of
the Insured is received at the Home Office; and
- payment will be made to the beneficiary or other payee under
Section 10.
The amount of the death proceeds will be:
- the death benefit (Section 3.1); less
- the amount of any policy debt (Section 9.3); less
- any Monthly Policy Charges due and unpaid if the Insured dies during
the grace period (Section 4.5).
These amounts will be determined as of the date of death.
The Company will pay interest on the death proceeds from the date of death
until the proceeds are withdrawn in cash. Interest will be at a rate of not less
than 2%, or at any higher rate required by state law.
1.2 ENTIRE CONTRACT; CHANGES
This policy, including the attached application and any amendments,
endorsements or riders, is the entire contract. Statements in the application
are representations and not warranties. A change in the policy is valid only if
it is approved in writing by an officer of the Company. The Company may require
that the policy be sent to it for endorsement to show a change. No agent has
the authority to change the policy or to waive any of its terms.
8
<PAGE>
1.3 INCONTESTABILITY
The Company will not contest this policy after the policy has been in
force, during the lifetime of the Insured, for two years from the Date of Issue.
An increase in the amount of insurance after the Date of Issue, which occurred
upon the request of the Owner and was subject to the Company's insurability
requirements, will be incontestable after the increase has been in force, during
the lifetime of the Insured, for two years from the date of issuance of the
increase. In issuing the insurance, the Company has relied on the application.
While the insurance is contestable, the Company, on the basis of a misstatement
in the application, may rescind the insurance or deny a claim.
1.4 SUICIDE
If the Insured dies by suicide within one year from the Date of Issue, the
amount payable by the Company will be limited to the premiums paid, less the
amount of any policy debt and withdrawals. If the Insured dies by suicide within
one year from the date of issuance of an increase in the amount of insurance,
which occurred upon the request of the Owner and was subject to the Company's
insurability requirements, the amount payable with respect to such increase will
be limited to the Monthly Policy Charges attributable to the increase.
1.5 POLICY DATE AND DATE OF ISSUE
Monthly processing dates and policy months, years and anniversaries are
computed from the Policy Date. The contestable and suicide periods begin with
the Date of Issue. These dates are shown on page 3.
1.6 MISSTATEMENT OF AGE OR SEX
If the age or sex of the Insured has been misstated, the policy will be
modified by recalculating all Monthly Policy Charges based on the correct age
and sex.
1.7 PAYMENTS BY THE COMPANY
<PAGE>
All payments by the Company under this policy are payable at its Home
Office.
1.8 INSURABILITY REQUIREMENTS
To make some changes under this policy, the Insured must meet the Company's
insurability requirements. These requirements are as follows:
- evidence of insurability must be given that is satisfactory to the
Company; and
- under the Company's underwriting standards, the Insured is in an
underwriting classification that is the same as, or is better than,
the one for this policy.
<PAGE>
1.9 REPORTS TO OWNER
At least once each policy year, the Company will send to the Owner:
- a statement of the death benefit, the Policy Value, and any policy
debt, including loan interest.
- a report of the Separate Account, including financial statements.
- any other information required by law.
SECTION 2. OWNERSHIP
2.1 THE OWNER
The Owner is named on page 3. The Owner, the Owner's successor or the
Owner's transferee may exercise policy rights without the consent of any
beneficiary, except to the extent the Owner's rights are restricted by a
designation of an irrevocable beneficiary.
2.2 TRANSFER OF OWNERSHIP
The Owner may transfer the ownership of this policy. Written proof of
transfer satisfactory to the Company must be received at its Home Office. The
transfer will then take effect as of the date that it was signed. The Company
may require that the policy be sent to it for endorsement to show the transfer.
2.3 COLLATERAL ASSIGNMENT
The Owner may assign this policy as collateral security. The Company is
not responsible for the validity or effect of the collateral assignment. The
Company will not be responsible to an assignee for any payment or other action
taken by the Company before receipt of the assignment in writing at its Home
Office.
The interest of any beneficiary will be subject to any collateral
assignment made either before or after the beneficiary is named.
The collateral assignee is not an Owner. The collateral assignment is not
a transfer of ownership. Ownership can be transferred only by complying with
Section 2.2.
9
<PAGE>
SECTION 3. DEATH BENEFIT
3.1 DEATH BENEFIT OPTIONS
This policy provides for three death benefit options. The option in effect
is shown on page 3.
SPECIFIED AMOUNT (OPTION A) - The death benefit before the policy anniversary
nearest the Insured's 100th birthday is the greater of:
- the Specified Amount; or
- the Minimum Death Benefit.
SPECIFIED AMOUNT PLUS POLICY VALUE (OPTION B) - The death benefit before the
policy anniversary nearest the Insured's 100th birthday is the greater of:
- the Specified Amount plus the Policy Value; or
- the Minimum Death Benefit.
SPECIFIED AMOUNT PLUS PREMIUMS PAID (OPTION C) - The death benefit before the
policy anniversary nearest the Insured's 100th birthday is the greater of:
-the Specified Amount plus the sum of the premiums paid; or
- the Minimum Death Benefit.
MINIMUM DEATH BENEFIT. The Minimum Death Benefit is the amount required by the
Internal Revenue Code (IRC), as amended, to maintain this policy as life
insurance. The test in effect for determining compliance with the IRC definition
of life insurance is shown on page 3 and will be either:
<PAGE>
(1) the Guideline Premium/Cash Value Corridor Test: the Minimum Death Benefit
equals the Policy Value multiplied by the corridor percentage shown on page
6 at the Insured's attained age; or
(2) the Cash Value Accumulation Test: the Minimum Death Benefit equals the
Policy Value divided by the Net Single Premium shown on page 6 at the
Insured's attained age.
AGE 100 AND LATER. The death benefit on and after the policy anniversary
nearest the Insured's 100th birthday will be equal to the Policy Value
regardless of the death benefit option in effect.
3.2 DEATH BENEFIT OPTION CHANGES
Subject to approval by the Company, the Owner may change the death benefit
option upon written request. This change will be effective on the first monthly
processing date following receipt of the request at the Home Office. The
Company reserves the right to charge for a death benefit option change. This
charge will be deducted from the Policy Value and will not exceed the amount
shown on page 4. A change will not be allowed if the Specified Amount following
a change would be less than the minimum amount the Company would issue at the
time of change.
CHANGES TO OPTION A. The death benefit option may be changed to Option A at
any time. On the effective date of change, the Specified Amount will be changed
as follows:
(1) If the change is from Option B to Option A, the Specified Amount after the
change will be equal to the Specified Amount before the change plus the
Policy Value on the effective date of the change.
(2) If the change is from Option C to Option A, the Specified Amount after the
change will be equal to the Specified Amount before the change plus the sum
of the premiums paid as of the effective date of the change.
CHANGES TO OPTION B OR OPTION C. The death benefit option may be changed to
Option B or Option C at any time before the policy anniversary nearest the
Insured's 75th birthday. All changes to Option B or Option C will be subject to
the Company's insurability requirements (Section 1.8). On the effective date of
change, the Specified Amount will be changed as follows:
(1) If the change is from Option A to Option B, the Specified Amount after the
change will be equal to the Specified Amount before the change minus the
Policy Value on the effective date of the change.
(2) If the change is from Option A to Option C, the Specified Amount after the
change will be equal to the Specified Amount before the change minus the
sum of the premiums paid as of the effective date of the change.
(3) If the change is from Option B to Option C, the Specified Amount after the
change will be equal to the Specified Amount before the change plus (a) the
Policy Value on the effective date of the change, minus (b) the sum of the
premiums paid as of the effective date of the change.
(4) If the change is from Option C to Option B, the Specified Amount after the
change will be equal to the Specified Amount before the change plus (a)
the sum of the premiums paid as of the effective date of the change, minus
(b) the Policy Value on the effective date of the change.
10
<PAGE>
3.3 SPECIFIED AMOUNT CHANGES
Subject to approval by the Company, the Owner may change the Specified
Amount upon written request. This change will be effective on the first monthly
processing date following receipt of the request at the Home Office. The
Company reserves the right to charge for more than one Specified Amount change
in a policy year. This charge will be deducted from the Policy Value and will
not exceed the amount shown on page 4.
INCREASES. An increase will be made only if, at the time the increase is
applied for:
- the insurance in force, as increased, will be within the Company's
issue limits;
- the Company's insurability requirements (Section 1.8) are met; and
- the increase request is received prior to the policy anniversary
nearest the Insured's 75th birthday.
DECREASES. A decrease will not be allowed if the Specified Amount following the
decrease would be less than the minimum amount the Company would issue at the
time of change.
SECTION 4. PREMIUMS, TRANSFERS AND REINSTATEMENT
4.1 PREMIUM PAYMENT
All premiums after the first are payable at the Home Office or to an
authorized agent. Premiums may be paid to the Company at any time and in any
amount subject to the limitations described in Section 4.4. A receipt signed by
an officer of the Company will be furnished on request.
<PAGE>
4.2 NET PREMIUM
The net premium is the amount of each premium paid that is available for
allocation to the Divisions of the Separate Account. The amount of the net
premium will be:
- the premium paid; less
- the Premium Expense Charge.
The Premium Expense Charge will consist of the amounts shown on page 4.
4.3 ALLOCATION OF NET PREMIUMS
AND SUBSEQUENT TRANSFERS
The initial net premium and any additional net premiums received prior to
the Initial Allocation Date will be allocated to the Money Market Division on
the date the premiums are received in the Home Office. The Initial Allocation
Date is shown on page 7.
On the Initial Allocation Date, amounts in the Money Market Division will
be allocated in accordance with the application. This allocation will remain in
effect for later net premiums unless changed by the Owner by written request.
Any change in allocation will be in effect for net premiums credited to the
policy following the receipt of the written request at the Home Office.
Allocations must be in whole percentages.
On or after the Initial Allocation Date, the Owner may transfer the amounts
invested in any of the Divisions. The transfer will take effect on the date a
written request is received in the Home Office. The Company reserves the right
to charge for more than twelve transfers in a policy year. This charge will be
deducted from the Policy Value and will not exceed the amount shown on page 4.
4.4 PREMIUM LIMITATIONS
Premiums may be paid to the Company at any time before the policy
anniversary that is nearest the Insured's 95th birthday. The minimum premium
the Company will accept is shown on page 3.
The Company will not accept any premium that causes this policy not to
qualify as a life insurance policy under the Internal Revenue Code, as amended.
Further, the Company reserves the right to make distributions from this policy
as necessary to continue to qualify the policy as life insurance under the
Internal Revenue Code.
A premium payment that would increase the policy's death benefit more than
it increases the Policy Value will be accepted only if:
- the insurance in force, as increased, will be within the Company's
issue limits;
- the Company's insurability requirements (Section 1.8) are met; and
- the premium payment is received prior to the policy anniversary
nearest the Insured's 75th birthday.
4.5 GRACE PERIOD
If the Policy Value less the amount of any policy debt on a monthly
processing date is not sufficient to cover the current Monthly Policy Charge, a
grace period of 61 days will be allowed for the payment of sufficient premium to
keep the policy in force. The minimum premium that must be paid is three times
the Monthly Policy Charge due when the insufficiency occurred.
The grace period will begin on the date the Company sends written notice of
the insufficiency. The grace period will end 61 days after the notice is sent.
The notice will state the date the grace period ends and the amount of premium
required to keep the policy in force. Upon receipt of payment, the Company will
allocate the net premium, less any Monthly Policy Charges due and unpaid, to the
Divisions of the Separate Account according to the allocation of net premiums
currently in effect.
The policy will remain in force during the grace period. If sufficient
premium is not paid by the end of the grace period, the policy will terminate
with no value.
If the Insured dies during the grace period, any Monthly Policy Charges due
and unpaid will be deducted from the death proceeds of the policy.
11
<PAGE>
4.6 REINSTATEMENT
If it has terminated under Section 4.5, the policy may be reinstated not
more than one year after the end of the grace period, subject to approval by the
Company. To reinstate the policy the Company's insurability requirements
(Section 1.8) must be met and sufficient premium to cover the following must be
paid:
- all Monthly Policy Charges that were due and unpaid before the end of
the grace period; plus
- three times the Monthly Policy Charge due on the effective date of
reinstatement.
On the date the policy is reinstated, the Policy Value will be equal to the
net premium less the sum of all Monthly Policy Charges that were due and unpaid
before the end of the grace period and the Monthly Policy Charge on the
effective date of reinstatement. The Company will allocate the Policy Value to
the Divisions of the Separate Account according to the allocation of net
premiums currently in effect. Any policy debt on the date of termination will
also be reinstated and added to the Policy Value.
If the Company approves the application for reinstatement, the effective
date of the reinstated policy will be the first monthly processing date
following receipt at the Home Office of the reinstatement application.
This policy may not be reinstated if the policy was surrendered.
SECTION 5. DIVIDENDS
5.1 ANNUAL DIVIDENDS
This policy will share in the divisible surplus of the Company to the
extent it contributes to this surplus. This surplus is determined each year.
This policy's share will be credited as a dividend on the policy anniversary.
Since this policy is not expected to contribute to divisible surplus, it is
not expected that any dividends will be paid.
5.2 USE OF DIVIDENDS
Annual dividends may be paid in cash or used to increase the Policy Value.
Dividends used to increase the Policy Value will be allocated to the Divisions
of the Separate Account according to the allocation of net premiums currently in
effect. If no direction is given for the use of dividends, they will be used
to increase the Policy Value.
5.3 DIVIDEND AT DEATH
If a dividend is payable for the period from the beginning of the policy
year to the date of the Insured's death, the dividend is payable as part of the
policy proceeds.
12
<PAGE>
SECTION 6. THE SEPARATE ACCOUNT
6.1 DESCRIPTION
Northwestern Mutual Variable Life Account (the Separate Account) is
registered as a unit investment trust under the Investment Company Act of 1940.
The Separate Account has several Divisions, as shown on page 7. Assets of the
Separate Account are invested in shares of Northwestern Mutual Series Fund, Inc.
(the Fund). The Fund is registered under the Investment Company Act of 1940 as
an open-end, diversified investment company. The Fund has one Portfolio for
each Division. Assets of each Division of the Separate Account are invested in
shares of the corresponding Portfolio of the Fund. Shares of the Fund are
purchased for the Separate Account at their net asset value. The Company may
make available additional Divisions and Portfolios.
Assets will be allocated to the Separate Account to support the operation
of this and other variable life insurance policies. Assets may also be
allocated for other purposes, but not to support the operation of any contracts
or policies other than variable life insurance. Income and realized and
unrealized gains and losses from assets in the Separate Account are credited to
or charged against it without regard to other income, gains or losses of the
Company.
The assets of the Separate Account will be valued on each valuation day.
They are the property of the Company. The portion of these assets equal to
policy reserves and liabilities will not be charged with liabilities arising out
of any other business the Company may conduct. The Company reserves the right
to transfer assets of the Separate Account in excess of these reserves and
liabilities to its General Account.
<PAGE>
The Owner may exchange this policy for a fixed benefit life insurance
policy if the Fund changes its investment advisor or if a Portfolio has a
material change in its investment objectives or restrictions. The Company will
notify the Owner if there is any such change. The Owner may exchange this
policy within 60 days after the notice or the effective date of the change,
whichever is later.
If, in the judgment of the Company, a Portfolio no longer suits the
purposes of this policy due to a change in its investment objectives or
restrictions, the Company may substitute shares of another Portfolio of the Fund
or shares of another mutual fund. Any such substitution will be subject to any
required approval of the Securities and Exchange Commission (SEC), the Wisconsin
Commissioner of Insurance or other regulatory authority.
The Company also may, to the extent permitted by applicable laws and
regulations (including any order of the SEC), make changes as follows:
- the Separate Account or a Division may be operated as a management
company under the Investment Company Act of 1940, or in any other form
permitted by law, if deemed by the Company to be in the best interest
of the policyowners.
- the Separate Account may be deregistered under the Investment Company
Act of 1940 in the event registration is no longer required.
- the provisions of this and other policies may be modified to comply
with any other applicable federal or state laws.
In the event of a substitution or change, the Company may make appropriate
endorsement of this and other policies having an interest in the Separate
Account and take other actions as may be necessary to effect the substitution or
change.
6.2 VALUATION DAY AND
VALUATION PERIOD
A valuation day is any day on which the assets of the Separate Account are
valued. A valuation period is a valuation day and any immediately preceding
days which are not valuation days.
Assets are valued as the close of trading on the New York Stock Exchange on
each day the Exchange is open. Each Division's share of amounts allocated,
transferred or added to a Division or deducted, loaned, transferred or withdrawn
from a Division, on any day, will be determined as of the end of the valuation
period that contains that day.
SECTION 7. DETERMINATION OF VALUES
7.1 POLICY VALUE
On the Policy Date, the Policy Value is equal to the net premium less the
Monthly Policy Charge. On any day after that, the Policy Value is equal to what
it was on the previous day plus any of these items applicable on that day:
- any increase due to investment results of all amounts invested in all
Divisions for the Policy Value;
- interest on the policy debt at an annual rate equal to the loan
interest rate;
- the net premium, if a premium is paid;
- any policy dividend directed to increase the Policy Value; and
minus any of these items applicable on that day:
- any decrease due to investment results of all amounts invested in all
Divisions for the Policy Value;
- the Monthly Policy Charge;
- on any monthly processing date on which there is a policy debt, a
charge for expenses and taxes associated with the debt;
- any withdrawals; and
- any transaction charges that may result from a withdrawal, a transfer,
a change in the Specified Amount or a change in the death benefit
option.
The Monthly Policy Charge, any charge for expenses and taxes associated
with policy debt, withdrawals and any transaction charges will be deducted from
the Policy Value. The deduction will be allocated to each Division in
proportion to the amounts in each Division.
7.2 MONTHLY POLICY CHARGE
A Monthly Policy Charge is deducted from the Policy Value on each monthly
processing date and is equal to the sum of the following:
- the Monthly Administrative Charge;
<PAGE>
- the Mortality and Expense Risk Charge; and
- the Cost of Insurance Charge.
13
<PAGE>
7.3 MONTHLY ADMINISTRATIVE CHARGE
A Monthly Administrative Charge is deducted from the Policy Value on each
monthly processing date as part of the Monthly Policy Charge. The maximum
Monthly Administrative Charge is shown on page 4.
7.4 MORTALITY AND EXPENSE RISK CHARGE
A charge for the mortality and expense risk the Company assumes is deducted
from the Policy Value on each monthly processing date as part of the Monthly
Policy Charge. The maximum Monthly Mortality and Expense Risk Charge is shown on
page 4.
7.5 COST OF INSURANCE CHARGE
A Cost of Insurance Charge is deducted from the Policy Value on each
monthly processing date as part of the Monthly Policy Charge. The Cost of
Insurance Charge is the cost of insurance rate times the net amount at risk.
The cost of insurance rate is based on the attained age of the Insured. The
maximum cost of insurance rates are shown on page 5. The net amount at risk is
(a) minus (b) where:
(a) is the death benefit on the monthly processing date, after deduction
of the Monthly Administrative Charge and the Mortality and Expense
Risk Charge, divided by 1.0032737; and
(b) is the Policy Value on the monthly processing date after deduction of
the Monthly Administrative Charge and the Mortality and Expense Risk
Charge.
SECTION 8. CASH VALUE AND SURRENDER
8.1 CASH VALUE
The cash value of this policy is equal to:
- the Policy Value; less
- any policy debt.
8.2 SURRENDER
The Owner may surrender this policy for its cash value. A written
surrender of all claims, satisfactory to the Company, will be required. The
date of surrender will be the date of receipt at the Home Office of the written
surrender. The policy will terminate, and the cash value will be determined, as
of the end of the valuation period which includes the date of surrender. The
Company may require that the policy be sent to it.
8.3 DEFERRAL OF PAYMENTS
The Company reserves the right:
- to defer determination of the cash value and payment of the cash
value;
- to defer payment of a loan or withdrawal; and
- to defer determination of a change in the amount of variable insurance
or other variable amounts payable on death, and, if such determination
has been deferred, to defer payment of the death benefit;
during any period when:
- the New York Stock Exchange is closed or trading on the New York Stock
Exchange is restricted as determined by the SEC; or
- the SEC declares that an emergency exists as a result of which the
sale or determination of investment results is not reasonably
practicable; or
- the SEC, by order, permits deferral for the protection of the
Company's policyowners.
14
<PAGE>
SECTION 9. LOANS AND WITHDRAWALS
9.1 POLICY LOANS
The Owner may obtain a loan from the Company in an amount that, when added
to existing policy debt, is not more than the loan value.
On the date a loan is made, the amount invested for this policy in the
Separate Account will be reduced by the amount of the loan. The reduction will
be allocated to each Division in proportion to the amounts in each Division. On
the date a loan repayment is made, or the date accrued interest is paid, the
amount invested for this policy in the Separate Account will be increased by the
amount of the payment. The increase will be allocated to the Divisions of the
Separate Account according to the allocation of net premiums currently in
effect.
9.2 LOAN VALUE
The loan value is 90% of the Policy Value on the date of the loan.
9.3 POLICY DEBT
Policy debt consists of all outstanding loans and accrued interest. It may
be paid to the Company at any time. Any policy debt will be deducted from the
policy proceeds.
If the policy debt equals or exceeds the Policy Value on a monthly
processing date, the policy will terminate with no value subject to the
conditions of the Grace Period (Section 4.5).
9.4 LOAN INTEREST
Interest accrues and is payable on a daily basis from the date of the loan.
Unpaid interest is added to policy debt.
Interest is payable at an annual effective rate of 5%.
9.5 WITHDRAWALS
The Owner may make a withdrawal of the Policy Value. The Company reserves
the right to charge for withdrawals. This charge will be deducted from the
Policy Value and will not exceed the amount shown on page 4. However, the Owner
may not:
- withdraw an amount which would reduce the loan value to less than the
policy debt;
- withdraw an amount which would reduce the death benefit to less than
the minimum amount the Company would issue at the time of withdrawal;
- withdraw an amount which would reduce the cash value to less than
three times the most recent Monthly Policy Charge;
- withdraw less than the minimum withdrawal amount shown on page 3; or
- make more than four withdrawals in a policy year.
When a withdrawal from the Policy Value is made, the amount invested for
this policy in the Separate Account will be reduced by the amount of the
withdrawal. The reduction will be allocated to each Division in proportion to
the amounts in each Division. If the death benefit option in effect at the time
of withdrawal is either Option A or Option C, the Specified Amount will be
reduced by the lesser of:
- the amount of the withdrawal; or
- the excess, if any, of the Specified Amount over the result of (a)
minus (b) where:
(a) is the death benefit immediately prior to the withdrawal; and
(b) is the amount of the withdrawal.
15
SECTION 10. BENEFICIARIES
<PAGE>
10.1 DEFINITION OF BENEFICIARIES
The term "beneficiaries" as used in this policy includes direct
beneficiaries, contingent beneficiaries and further payees.
10.2 NAMING AND CHANGE OF BENEFICIARIES
BY OWNER. The Owner may name and change the beneficiaries of death proceeds:
- while the Insured is living.
- during the first 60 days after the date of death of the Insured, if
the Insured was not the Owner immediately prior to the Insured's
death. A change made during this 60 days may not be revoked.
BY DIRECT BENEFICIARY. A direct beneficiary may name and change the contingent
beneficiaries and further payees of the direct beneficiary's share of the
proceeds:
- if the direct beneficiary is the Owner; or
- if, at any time after the death of the Insured, no contingent
beneficiary or further payee of that share is living.
These direct beneficiary rights are subject to the Owner's rights during
the 60 days after the date of death of the Insured.
BY SPOUSE (MARITAL DEDUCTION PROVISION).
- POWER TO APPOINT. The spouse of the Insured will have the power alone
and in all events to appoint all amounts payable to the spouse under
the policy if:
a. immediately before the Insured's death, the Insured was the
Owner; and
b. the spouse is a direct beneficiary; and
c. the spouse survives the Insured.
Under this power, the spouse can appoint:
a. to the estate of the spouse; or
b. to any other persons as contingent beneficiaries and further
payees.
- EFFECT OF EXERCISE. As to the amounts appointed, the exercise of this
power will:
c. revoke any other designation of beneficiaries;
d. revoke any election of payment plan as it applies to them; and
e. cause any provision to the contrary in Section 10 of the policy
to be of no effect.
EFFECTIVE DATE. A naming or change of a beneficiary will be made on receipt at
the Home Office of a written request that is acceptable to the Company. The
request will then take effect as of the date that it was signed. The Company is
not responsible for any payment or other action that is taken by it before the
receipt of the request. The Company may require that the policy be sent to it
to be endorsed to show the naming or change.
10.3 SUCCESSION IN INTEREST OF
BENEFICIARIES
DIRECT BENEFICIARIES. The proceeds of this policy will be payable in equal
shares to the direct beneficiaries who survive and receive payment. If a direct
beneficiary dies before receiving all or part of the direct beneficiary's full
share, the unpaid portion will be payable in equal shares to the other direct
beneficiaries who survive and receive payment.
CONTINGENT BENEFICIARIES. At the death of all of the direct beneficiaries, the
proceeds will be payable in equal shares to the contingent beneficiaries who
survive and receive payment. If a contingent beneficiary dies before receiving
all or part of the contingent's full share, the unpaid portion will be payable
in equal shares to the other contingent beneficiaries who survive and receive
payment.
FURTHER PAYEES. At the death of all of the direct and contingent beneficiaries,
the proceeds will be paid in one sum:
- in equal shares to the further payees who survive and receive payment;
or
- if no further payees survive and receive payment, to the estate of the
last to die of all of the direct and contingent beneficiaries who
survive the Insured.
OWNER OR THE OWNER'S ESTATE. If no beneficiaries are alive when the Insured
dies, the proceeds will be paid to the Owner or to the Owner's estate.
10.4 GENERAL
TRANSFER OF OWNERSHIP. A transfer of ownership of itself will not change the
interest of a beneficiary.
<PAGE>
CLAIMS OF CREDITORS. So far as allowed by law, no amount payable under this
policy will be subject to the claims of creditors of a beneficiary.
<PAGE>
AMENDMENT TO FLEXIBLE PREMIUM
VARIABLE LIFE INSURANCE POLICY
AS OF THE DATE OF ISSUE, SECTION 8.1 CASH VALUE, IS AMENDED AS FOLLOWS:
During the first policy year, if the policy is not in a grace period, the
cash value of this policy is equal to:
- the Policy Value; plus
- [100%] of the sum of Sales Loads (page 4) deducted from premiums paid
to date; less
- any policy debt.
During the second policy year, if the policy is not in a grace period, the
cash value of this policy is equal to:
- the Policy Value; plus
- [66.67%] of the sum of Sales Loads (page 4) deducted from premiums
paid to date; less
- any policy debt.
During the third policy year, if the policy is not in a grace period, the
cash value of this policy is equal to:
- the Policy Value; plus
- [33.33%] of the sum of Sales Loads (page 4) deducted from premiums
paid to date; less
- any policy debt.
During the fourth and later policy years and any time the policy is in a
grace period; the cash value of this policy is equal to:
- the Policy Value; less
- any policy debt.
Secretary
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
(page 21)
RR.VEL (1199)
<PAGE>
AMENDMENT TO SECTION 6 THE SEPARATE ACCOUNT
FOR FLEXIBLE PREMIUM VARIABLE LIFE
AS OF THE DATE OF ISSUE, THE FIRST PARAGRAPH OF SECTION 6.1 IS AMENDED TO
READ AS FOLLOWS:
Northwestern Mutual Variable Life Account (the Separate Account) is
registered as a unit investment trust under the Investment Company Act of 1940.
The Separate Account has several Divisions, as shown on page 7. Assets of the
Separate Account are invested in shares of mutual funds or portfolios of mutual
funds, both of which are referred to in this policy as Portfolios. Shares of the
Portfolios are purchased for the Separate Account at their net asset value. The
Company may make available additional Divisions and Portfolios.
AS OF THE DATE OF ISSUE, THE FOURTH AND FIFTH PARAGRAPHS OF SECTION 6.1 ARE
AMENDED TO READ AS FOLLOWS:
The Owner may exchange this policy for a fixed benefit life insurance
policy being offered at that time by the Company if the Portfolio changes its
investment advisor or has a material change in its investment objectives or
restrictions. The Company will notify the Owner if there is any such change.
The Owner may exchange this policy within 60 days after the notice or the
effective date of the change, whichever is later.
If, in the judgment of the Company, a Portfolio no longer suits the
purposes of this policy due to a change in its investment objectives or
restrictions, the Company may substitute shares of another Portfolio. Any such
substitution will be subject to any required approval of the Securities and
Exchange Commission (SEC), the Wisconsin Commissioner of Insurance or other
regulatory authority.
Secretary
NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
VEL.FUNDS.(0799)
<PAGE>
POLICY APPLICATION SUPPLEMENT FOR
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INSURED:
----------------
POLICY:
Specified Amount: $
---------------
Death Benefit Option:
---------------
Definition of Life Insurance Test:
---------------
Initial Premium: $
---------------
Reminder Premium: $
---------------
Reminder Mode:
---------------
- --------------------------------------------------------------------------------
For Home Office Use Only
Underwriting Amount: $
---------------
Illustrated Cumulative Premiums:
Year 5: $ Year 15: $
--------------- ---------------
Year 10: $ Year 20: $
--------------- ---------------
VEL,
---------------
- --------------------------------------------------------------------------------
Illustration No.
--------------
90-1 VEL.Supp.(0799) Page 1 of 3
<PAGE>
THE DEATH BENEFIT MAY INCREASE OR DECREASE DAILY DEPENDING ON INVESTMENT
RESULTS. THERE IS NO GUARANTEED MINIMUM DEATH BENEFIT.
THE CASH VALUE UNDER THIS POLICY MAY INCREASE OR DECREASE DAILY DEPENDING ON
INVESTMENT RESULTS. THERE IS NO GUARANTEED MINIMUM CASH VALUE.
ALLOCATION OF NET PREMIUMS
This allocation will apply to all net premiums and loan repayments. Use whole
percentages only. If monthly dollar cost averaging is desired, complete both
this section and the monthly dollar cost averaging section below. Only
allocations to the Money Market Division are utilized for dollar cost averaging
purposes.
<TABLE>
<CAPTION>
<S> <C>
Money Market Division % Growth & Income Stock Division %
----- -----
Select Bond Division % Index 400 Stock Division %
----- -----
International Equity Division % Small Cap Growth Stock Division %
----- -----
Balanced Division % Russell Multi-Style Equity Division %
----- -----
Index 500 Stock Division % Russell Aggressive Equity Division %
----- -----
Aggressive Growth Stock Division % Russell Non-US Division %
----- -----
High Yield Bond Division % Russell Real Estate Securities Division %
----- -----
Growth Stock Division % Russell Core Bond Division %
----- -----
Total 100%
----
----
</TABLE>
MONTHLY DOLLAR COST AVERAGING
To elect monthly dollar cost averaging complete the following section.
Transfer the following amount from the Money Market Division on each monthly
processing date and allocate it among the other Divisions as specified below:
$__________. If the amount specified is larger than the balance in the Money
Market Division, the entire balance will be transferred. Use whole percentages
only.
<TABLE>
<CAPTION>
<S> <C>
Select Bond Division % Growth & Income Stock Division %
----- -----
International Equity Division % Index 400 Stock Division %
----- -----
Balanced Division % Small Cap Growth Stock Division %
----- -----
Index 500 Stock Division % Russell Multi-Style Equity Division %
----- -----
Aggressive Growth Stock Division % Russell Aggressive Equity Division %
----- -----
High Yield Bond Division % Russell Non-US Division %
----- -----
Growth Stock Division % Russell Real Estate Securities Division %
----- -----
Russell Core Bond Division %
-----
Total 100%
----
----
</TABLE>
Insured:
---------------------
Illustration No.
--------------
90-1 VEL.Supp.(0799) Page 2 of 3
<PAGE>
THIS PAGE WILL BE REQUIRED ONLY IF THE INSURED HAS INVESTMENT RESPONSIBILITY.
SUITABILITY
Northwestern Mutual Life is required to make the following inquiries for
purposes of determining the suitability of this sale. Responses will be kept
confidential.
TOTAL ANNUAL INCOME (all sources) $
--------------------
TOTAL NET WORTH $
--------------------------------------
YEARS OF EXPERIENCE WITH THE FOLLOWING:
Less than Five or
Five More
None Years Years
---------- --------- ----------
Mutual Funds
---------- --------- ----------
Individual Common Stocks
---------- --------- ----------
Variable Annuities
---------- --------- ----------
Variable Life Insurance
---------- --------- ----------
Signature of Insured:
-------------------------------------------------
Insured:
----------------------
Illustration No.
--------------
90-1 VEL.Supp.(0799) Page 3 of 3
Insured:
Illustration No.
HOL03 116608
<PAGE>
<TABLE>
<CAPTION>
<S><C>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY / / / / / / / / /
720 E. WISCONSIN AVENUE, MILWAUKEE, WISCONSIN 53202 POLICY NUMBER
EMPLOYER SPONSORED LIFE INSURANCE APPLICATION / / / / / / / / / / / /
/ / Companion policies PLAN GROUP NUMBER
INSURED
- ------------------------------------------------------------------------------------------------------------------------------------
1 Has an application or informal inquiry ever been made to Northwestern Mutual Life for annuity, life, long term care, or
disability insurance on the life of the Insured? / / Yes / / No If yes, the last policy number is
-------------------------------------------------------------------------------------------------------------------------------
A. / / Mr. / / Mrs. / / Ms. / / Dr. / / Other B. / / MALE
-------------------------- / / FEMALE
/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
-------------------------------------------------------------------------------------------------------------------------------
C. BIRTHDATE: (Month, Day Year) D. STATE OF BIRTH (or Foreign Country): E. TAXPAYER IDENTIFICATION NUMBER:
/ / / / / / / / / / / / / / / / / / - / / / - / / / / /
------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
F. PRIMARY RESIDENCE:
STREET OR PO BOX:
--------------------------------------------------------------------------------------------
CITY, STATE, ZIP (Country if other than U.S.A.):
------------------------------------------------------------------------
E-MAIL ADDRESS:
--------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
APPLICANT
- ------------------------------------------------------------------------------------------------------------------------------------
2 Select ONLY ONE: / / Insured at Insured's Address OR / / Other (Complete A, B and C)
A. / / Mr. / / Mrs. / / Ms. / / Dr. / / Other
----------------------------------------
/ / MALE
PERSONAL NAME: / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / FEMALE
(FIRST, MIDDLE INITIAL, LAST)
RELATIONSHIP TO INSURED: BIRTHDATE: / / / / / / / / / / /
OR --------------------------------------------------- MONTH DAY YEAR
BUSINESS/TRUST NAME: / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
TYPE OF ORGANIZATION: / / Trust / / Corporation / / Partnership / / Other type of Business
------------
AUTHORIZED COMPANY
REP/TRUSTEE NAME:
------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
B. TAXPAYER IDENTIFICATION NUMBER: / / / / / / / / / / / / / / / / / /
-------------------------------------------------------------------------------------------------------------------------------
C. ADDRESS: STREET OR PO BOX:
---------------------------------------------------------------------------------------
CITY, STATE, ZIP (Country if other than U.S.A.):
------------------------------------------------------------------------
E-MAIL ADDRESS:
---------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
PREMIUM PAYER
- ------------------------------------------------------------------------------------------------------------------------------------
3 Select ONLY ONE: / / ISA (Omit A through D below) OR / / Insured (Complete D only) / / Applicant (Complete D only)
/ / Owner (Complete D only) / / Other (Complete A, B, C and D)
A. / / Mr. / / Mrs. / / Ms. / / Dr. / / Other
------------------------------
/ / MALE
PERSONAL NAME: / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / FEMALE
(FIRST, MIDDLE INITIAL, LAST)
BIRTHDATE / / / / / / / / / /
MONTH DAY YEAR
OR
BUSINESS/TRUST NAME: / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
-------------------------------------------------------------------------------------------------------------------------------
B. TAXPAYER IDENTIFICATION NUMBER: C. DAYTIME TELEPHONE NUMBER:
/ / / / / / / / / / / / / / / / Area Code ( )
------------------------------------------
</TABLE>
(page 22)
<PAGE>
<TABLE>
<CAPTION>
<S><C>
-------------------------------------------------------------------------------------------------------------------------------
Send premium and other notices regarding this policy to:
D. ADDRESS: / / Insured's Address / / Applicant's Address OR
STREET OR PO BOX:
---------------------------------------------------------------------------------------
CITY, STATE, ZIP (Country if other than U.S.A.):
------------------------------------------------------------------------
E-MAIL ADDRESS:
---------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(page 23)
<PAGE>
<TABLE>
<CAPTION>
<S><C>
4-7 (Reserved)
- ------------------------------------------------------------------------------------------------------------------------------------
8. SPECIAL DATE
PREPAID:
/ / Short term - Policy Date will coincide with ISA Payment Date. (For monthly ISA only)
/ / Short term to: / / / / / / / / / / / / Date to save age / / / / / / / / / / / /
MONTH DAY YEAR MONTH DAY YEAR
NON-PREPAID
/ / Specified future date: / / / / / / / / / / / / Date to save age / / / / / / / / / / / /
MONTH DAY YEAR MONTH DAY YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
POLICY APPLIED FOR
- ------------------------------------------------------------------------------------------------------------------------------------
9. FIRST POLICY INFORMATION
/ / APPLICATION SUPPLEMENT (REQUIRED FOR COMPLIFE AND ALL VARIABLE LIFE PRODUCTS)
OR
A. PLAN:
---------------------------------------------------------------------------------------------------------------------
AMOUNT: $
----------------------------------------------------------------------------------------------------------------
B. ADDITIONAL BENEFITS:
/ / Waiver of Premium
/ / Accidental Death $ ____________ (BENEFIT AMOUNT)
/ / Other
----------------------------------------------------------------------------------------------------------------
C. ANNUAL DIVIDENDS:
/ / Reduce current premium
/ / Purchase paid-up additions
/ / Accumulate at interest
/ / Be paid in cash
/ / Be used for a combination of options above
(COMPLETE FORM 18-1364-01)
D. POLICY LOAN INTEREST RATE OPTION:
/ / 8% / / Variable Rate
10. If an additional benefit cannot be approved, should the company issue a policy without the benefit? / / Yes / / No
11. Shall the Premium Loan provision, if available, become operative according to its terms? / / Yes / / No
12. PREMIUM FREQUENCY:
/ / Annually / / Semiannually / / Quarterly / / Single
- ------------------------------------------------------------------------------------------------------------------------------------
SECOND POLICY INFORMATION
/ / APPLICATION SUPPLEMENT (REQUIRED FOR COMPLIFE AND ALL VARIABLE LIFE PRODUCTS)
OR
A. PLAN:
---------------------------------------------------------------------------------------------------------------------
AMOUNT: $
----------------------------------------------------------------------------------------------------------------
B. ADDITIONAL BENEFITS:
/ / Waiver of Premium
/ / Accidental Death $ ____________ (BENEFIT AMOUNT)
/ / Other
----------------------------------------------------------------------------------------------------------------
C. ANNUAL DIVIDENDS:
/ / Reduce current premium
/ / Purchase paid-up additions
/ / Accumulate at interest
/ / Be paid in cash
/ / Be used for a combination of options above
(COMPLETE FORM 18-1364-01)
D. POLICY LOAN INTEREST RATE OPTION:
/ / 8% / / Variable Rate
10. If an additional benefit cannot be approved, should the company issue a policy without the benefit? / / Yes / / No
11. Shall the premium Loan provision, if available, become operative according to its terms? / / Yes / / No
12. PREMIUM FREQUENCY:
/ / Annually / / Semiannually / / Quarterly / / Single
- ------------------------------------------------------------------------------------------------------------------------------------
13-14 (Reserved)
BENEFICIARY
- ------------------------------------------------------------------------------------------------------------------------------------
15. A. DIRECT BENEFICIARY
-------------------------------------------------------------------------------------------------------------------------------
FIRST MIDDLE INITIAL LAST
RELATIONSHIP TO INSURED
-------------------------------------------------------------------------------------------------------------------------------
FIRST MIDDLE INITIAL LAST
RELATIONSHIP TO INSURED
-------------------------------------------------------------------------------------------------------------------------------
FIRST MIDDLE INITIAL LAST
RELATIONSHIP TO INSURED
B. CONTINGENT BENEFICIARY
-------------------------------------------------------------------------------------------------------------------------------
FIRST MIDDLE INITIAL LAST
RELATIONSHIP TO INSURED
-------------------------------------------------------------------------------------------------------------------------------
FIRST MIDDLE INITIAL LAST
RELATIONSHIP TO INSURED
/ / and all (other) children of the insured.
(SELECT TO INCLUDE ALL OF THE CHILDREN OR TO ADD TO THE CONTINGENT BENEFICIARIES NAMED. NOTE: THE WORD "CHILDREN" INCLUDES
CHILD OR ANY LEGALLY ADOPTED CHILD.)
C. / / SEE ATTACHED SUPPLEMENT FORM
(TO BE USED IN PLACE OF DESIGNATIONS ABOVE)
- ------------------------------------------------------------------------------------------------------------------------------------
OWNER
- ------------------------------------------------------------------------------------------------------------------------------------
16. The OWNER will be: (SELECT ONLY ONE)
/ / A. Insured
/ / B. Applicant
/ / C. Other
----------------------------------------------------------------------------------------------------------------
FIRST MIDDLE INITIAL LAST
----------------------------------------------------------------------------------------------------------------
RELATIONSHIP TO INSURED
/ / D. SEE ATTACHED SUPPLEMENT FORM.
(To be used in place of designations above.)
RESIDENCE OF OWNER
/ / Insured's address in 1F.
/ / Premium Payer's address in 3D or
(page 24)
<PAGE>
--------------------------------------------------------------------------------------------------------------------------
STREET OR PO BOX
--------------------------------------------------------------------------------------------------------------------------
CITY, STATE AND ZIP CODE (COUNTRY IF OTHER THAN U.S.A.)
OWNER'S TAXPAYER IDENTIFICATION NUMBER
/ / / / / / / / / / / / (See TIN Instructions)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(page 25)
<PAGE>
<TABLE>
<CAPTION>
<S><C>
INSURED / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
FIRST MIDDLE INITIAL LAST
CONDITIONAL LIFE INSURANCE COMPANY
- ------------------------------------------------------------------------------------------------------------------------------------
17. Has the premium for the policy applied for been given to the agent in exchange for the Conditional Life Insurance Agreement
with the same number as this application? / / Yes / / No
18-19 (Reserved)
INSURANCE HISTORY
- ------------------------------------------------------------------------------------------------------------------------------------
20. Does the Insured have any other life insurance in force, pending or contemplated in other companies? / / Yes / / No
If yes, indicate Company Name, Individual (Ind) or Group (Grp) and identify the amount of In Force, Pending or Contemplated.
LIFE INSURANCE AMOUNTS
-------------------------------------------------------------------------------------------------------------------------------
Ind or Contemplated Accidental Death
Company Name Grp In Force Amount Pending Amount Amount Amount
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
21. As a result of this purchase will the values or benefits of any other life insurance policy or annuity contract, on any life,
be affected in any way?....................................................................................../ / Yes / / No
NOTE TO AGENT: VALUES OR BENEFITS ARE AFFECTED IF ANY QUESTION ON THE DEFINITION OF REPLACEMENT SUPPLEMENT COULD BE ANSWERED
"YES."
If "yes", this transaction is a replacement of life insurance or annuity.
The agent must:
- submit required papers and sale materials AND
- provide required disclosure notices to the applicant.
The applicant must answer the questions:
- on the Definition of Replacement Supplement AND
- A, B, and C below.
Will this insurance:
A. replace Northwestern Mutual Life?........................................................................./ / Yes / / No
B. replace other Companies?................................................................................../ / Yes / / No
C. result in 1035 exchange?................................................................................../ / Yes / / No
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
It is agreed that:
(1) If the premium is not paid when the application is signed, no insurance
will be in effect. The insurance will take effect at the time the policy is
delivered and the premium is paid, if: the Insured is living at the time;
and the answers and statements in the underwriting questionnaire are then
true to the best of the Insured's knowledge and belief.
(2) If the premium is paid when the application is taken, no life insurance
will be in effect except as provided in the Conditional Life Insurance
Agreement.
(3) If the policy is issued in an extra premium class, acceptance of the policy
will amend it so that extended term insurance can be in force only if: the
Company gives its consent; or the loan value is not large enough to grant a
premium loan. If a premium is not paid within the grace period and extended
term insurance cannot be in force, paid-up insurance will be selected.
(4) No agent is authorized to make or alter contracts or to waive any of the
Company's rights or requirements.
- --------------------------------------------------------------------------------
THE OWNER OF THE POLICY APPLIED FOR HEREIN CERTIFIES, UNDER PENALTIES OF
PERJURY, (1) THAT THE TAXPAYER IDENTIFICATION NUMBER GIVEN FOR THE OWNER ON THE
SECOND PAGE OF THIS APPLICATION IS THE OWNER'S CORRECT TAXPAYER IDENTIFICATION
NUMBER (OR THE OWNER IS WAITING FOR A NUMBER TO BE ISSUED) AND (2) THE OWNER IS
NOT SUBJECT TO BACKUP WITHHOLDING EITHER BECAUSE THE OWNER HAS NOT BEEN NOTIFIED
BY THE INTERNAL REVENUE SERVICE (IRS) THAT THE OWNER IS SUBJECT TO BACKUP
WITHHOLDING AS A RESULT OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR THE
IRS HAS NOTIFIED THE OWNER THAT THE OWNER IS NO LONGER SUBJECT TO BACKUP
WITHHOLDING. (SEE TAXPAYER IDENTIFICATION NUMBER INSTRUCTIONS.)
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.
- --------------------------------------------------------------------------------
THE SIGNATURES BELOW APPLY TO THE APPLICATION, POLICY APPLICATION SUPPLEMENT AND
THE CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER.
- ---------------------------------------- -----------------------------------
SIGNATURE OF APPLICANT SIGNATURE OF OWNER
(IF OTHER THAN APPLICANT)
Signed by
Applicant at:
--------------------- -----------------------------------
CITY, COUNTY, & STATE SIGNATURE OF LICENSED AGENT
Date signed by Applicant
/ / / / / / / / / /
MONTH DAY YEAR
<PAGE>
IT IS RECOMMENDED THAT YOU ...
read your policy.
notify your Northwestern Mutual agent or the Company at 720 East Wisconsin
Avenue, Milwaukee, WI 53202, of an address change.
call your Northwestern Mutual agent for information--particularly on a
suggestion to terminate or exchange this policy for another policy or plan.
ELECTION OF TRUSTEES
The members of The Northwestern Mutual Life Insurance Company are its
policyholders of insurance policies and deferred annuity contracts. The members
exercise control through a Board of Trustees. Elections to the Board are held
each year at the annual meeting of members. Members are entitled to vote in
person or by proxy.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
ELIGIBLE FOR ANNUAL DIVIDENDS
Insurance payable at death of Insured.
Flexible premiums.
Benefits reflect investment results.
Variable benefits described in Sections 1, 3, 6, 7 and 8.
THE DEATH BENEFIT MAY INCREASE OR DECREASE DAILY DEPENDING ON INVESTMENT
RESULTS. THERE IS NO GUARANTEED MINIMUM DEATH BENEFIT.
THE CASH VALUE UNDER THIS POLICY MAY INCREASE OR DECREASE DAILY DEPENDING ON
INVESTMENT RESULTS. THERE IS NO GUARANTEED MINIMUM CASH VALUE.
<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 25, 1999, relating to
the financial statements of The Northwestern Mutual Life Insurance Company, and
of our report dated January 25, 1999, 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.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
September 7, 1999
<PAGE>
Exhibit C(6)
September 7, 1999
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. 333-36865, of
Northwestern Mutual Variable Life Account. The prospectus included in
Post-Effective Amendment No. 3 ("Prospectus") describes the Flexible Premium
Variable Life Insurance Policy to be issued in connection with the Account
("Policy"). 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
47 through 50 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 charges and experience. The
Policy has not been designed so as to make the illustration appear more
favorable for a prospective purchaser, age 45 on the sex-neutral basis
shown, than for purchasers at other ages on a sex-neutral basis or for
a male or a female.
2. With respect to the charge of 1.25% of premiums for federal income
taxes measured by premiums, described on page 8 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,
WILLIAM C. KOENIG
William C. Koenig
Senior Vice President
and Chief Actuary
