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April 30, 1999
NORTHWESTERN
MUTUAL LIFE-Registered Trademark-
The Quiet Company-Registered Trademark-
Northwestern Mutual Variable Life
Whole Life
Extra Ordinary Life
Single Premium Life
This prospectus describes seven new investment divisions which we expect to
be available on June 30, 1999. We have filed an amendment to the Policy form
with the insurance commissioner of your state to include these new divisions.
If you own a Policy issued before the date when the new divisions become
available in your state, we will send you an amendment to your Policy soon
after that date. Please read the prospectus for more information.
Northwestern Mutual
Series Fund, Inc. and
Russell Insurance Funds
The Northwestern Mutual
Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, WI 53202
(414) 271-1444
PROSPECTUSES
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CONTENTS FOR THIS PROSPECTUS
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Prospectus........................ 1
Northwestern Mutual Variable
Life........................... 1
Summary of the Policies........... 2
Variable Life Insurance......... 2
The Account and its Divisions... 2
Deductions and Charges.......... 2
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...................... 5
International Equity
Portfolio...................... 5
Index 400 Stock Portfolio....... 5
Growth Stock Portfolio.......... 5
Growth and Income Stock
Portfolio...................... 5
Index 500 Stock Portfolio....... 5
Balanced Portfolio.............. 5
High Yield Bond Portfolio....... 5
Select Bond Portfolio........... 5
Money Market Portfolio.......... 5
Russell Insurance Funds.......... 5
Multi-Style Equity Fund....... 6
Aggressive Equity Fund........ 6
Non-U.S. Fund................. 6
Real Estate Securities Fund... 6
Core Bond Fund................ 6
Detailed Information about the
Policies......................... 6
Requirements for Insurance...... 6
Premiums........................ 7
Grace Period.................... 8
Allocations to the Account...... 8
Transfers Between Divisions..... 9
Deductions and Charges.......... 9
Deductions from Premiums for
Whole Life and Extra Ordinary
Life Policies.................. 9
Deductions for Single Premium
Life Policies.................. 10
Charges Against the Account
Assets......................... 10
Guarantee of Premiums,
Deductions and Charges......... 11
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Death Benefit................... 11
Variable Insurance Amount..... 11
Whole Life Policy and Single
Premium Life Policy.......... 12
Extra Ordinary Life Policy.... 13
Cash Value...................... 15
Annual Dividends................ 15
Policy Loans.................... 16
Extended Term and Paid-Up
Insurance...................... 17
Reinstatement................... 17
Right to Exchange for a Fixed
Benefit Policy................. 17
Other Policy Provisions......... 18
Owner......................... 18
Beneficiary................... 18
Incontestability.............. 18
Suicide....................... 18
Misstatement of Age or Sex.... 18
Collateral Assignment......... 18
Payment Plans................. 18
Deferral of Determination and
Payment...................... 18
Voting Rights................... 18
Substitution of Fund Shares and
Other Changes.................. 19
Reports......................... 19
Special Policy for Employers.... 19
Distribution of the Policies.... 19
Tax Treatment of Policy
Benefits....................... 19
Other Information................. 20
Management...................... 20
Regulation...................... 22
Year 2000 Issues................ 22
Legal Proceedings............... 22
Registration Statement.......... 22
Experts......................... 22
Financial Statements.............. 23
Report of Independent
Accountants (for the two years
ended December 31, 1998)....... 23
Financial Statements of the
Account (for the two years
ended December 31, 1998)....... 24
Financial Statements of
Northwestern Mutual Life (for
the three years ended December
31, 1998)...................... 30
Report of Independent
Accountants (for the three
years ended December 31,
1998).......................... 43
Appendix.......................... 44
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PROSPECTUS
NORTHWESTERN MUTUAL VARIABLE LIFE
- WHOLE LIFE
- EXTRA ORDINARY LIFE
- SINGLE PREMIUM LIFE
This prospectus describes three variable life insurance policies (the
"Policies") issued by The Northwestern Mutual Life Insurance Company: Whole
Life, Extra Ordinary Life and Single Premium Life. We have designed each Policy
to provide lifetime insurance coverage on the insured named in the Policy. You
may also surrender a Policy for its cash value during the lifetime of the
insured. We use Northwestern Mutual Variable Life Account (the "Account") to
keep the money you invest separate from our general assets. The death benefit
and cash value of a Policy will vary to reflect the investment experience the
Account.
You may allocate the net premiums to one or more of the sixteen divisions of the
Account. The assets of each division will be invested in a corresponding
Portfolio of Northwestern Mutual Series Fund, Inc. or one of 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.
We guarantee that the death benefit for a Whole Life Policy will never be less
than the face amount of the Policy, regardless of the Account's investment
experience, so long as you pay premiums when they are due and no Policy debt is
outstanding. For an Extra Ordinary Life Policy, the death benefit will never be
less than the Minimum Death Benefit stated in the Policy, so long as you pay
premiums when they are due and no Policy debt is outstanding. We have designed
the Extra Ordinary Life Policy for purchasers who intend to use all Policy
dividends to purchase paid-up additions. For a Single Premium Life Policy, the
death benefit will never be less than the face amount of the Policy, if no
Policy debt is outstanding. There is no guaranteed minimum cash value for any of
the three Policies.
In the early years of a Policy it is likely that the cash value will be less
than the premium amounts accumulated at interest. This is because of the sales
and issuance costs for a new Policy. For a Whole Life Policy or an Extra
Ordinary Life Policy we make deductions for sales costs from premiums. These
deductions are higher during the early Policy years. For a Single Premium Life
Policy we make deductions for sales costs from the cash values of Policies
surrendered during the early Policy years. Therefore you should purchase a
Policy only if you intend to keep it in force for a reasonably long period.
THE POLICIES DESCRIBED IN THIS PROSPECTUS ARE NO LONGER BEING ISSUED. THE
VARIABLE COMPLIFE-REGISTERED TRADEMARK- POLICY CURRENTLY BEING OFFERED BY
NORTHWESTERN MUTUAL LIFE IS DESCRIBED IN A SEPARATE PROSPECTUS.
IT MAY NOT BE ADVANTAGEOUS TO REPLACE EXISTING INSURANCE WITH A VARIABLE LIFE
INSURANCE POLICY. SEE DEDUCTIONS AND CHARGES AND CASH VALUE.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR
NORTHWESTERN MUTUAL SERIES FUND, INC. AND 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.
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THE PRIMARY PURPOSE OF THESE VARIABLE LIFE INSURANCE POLICIES IS TO PROVIDE
INSURANCE PROTECTION. WE MAKE NO CLAIM THAT THE POLICIES ARE IN ANY WAY SIMILAR
OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND.
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SUMMARY OF THE POLICIES
VARIABLE LIFE INSURANCE
Variable life insurance is similar in many ways to traditional fixed-benefit
whole life insurance. There are also significant differences. For both fixed and
variable insurance the owner of the policy pays level premiums for lifetime
insurance coverage on the person insured. Both kinds of insurance provide a cash
value payable upon surrender of the policy during the insured's lifetime. In
each case the cash value during the early years is ordinarily less than the sum
of the premiums paid. Various optional benefits may be added to either kind of
policy (except single premium policies) at extra cost.
The distinctive feature of the variable Policies described in this prospectus is
that we place the premiums, after certain deductions, in one or more divisions
of Northwestern Mutual Variable Life Account. The death benefit and cash value
of the Policy will increase or decrease to reflect the investment performance of
the division or divisions you select. We adjust the death benefit annually on
the Policy anniversary. We guarantee that the death benefit for a Whole Life
Policy will never be less than the face amount of the Policy, so long as you pay
premiums when they are due and no Policy debt is outstanding. For an Extra
Ordinary Life Policy, we guarantee that the death benefit will never be less
than the Minimum Death Benefit stated in the Policy, so long as you pay premiums
when they are due and no Policy debt is outstanding. We have designed the Extra
Ordinary Life Policy for purchasers who intend to use all Policy dividends to
purchase paid-up additions. For a Single Premium Life Policy, we guarantee that
the death benefit will never be less than the face amount of the Policy, if no
policy debt is outstanding. For all of the Policies, we adjust the cash value
daily. There is no guaranteed minimum cash value.
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. You may select up to six divisions at any one point in time.
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.
DEDUCTIONS AND CHARGES
FROM PREMIUMS
WHOLE LIFE POLICY AND EXTRA ORDINARY LIFE POLICY
- Deduction of 2% for state premium taxes
- Sales load of not more than 30% of the basic premium for the first Policy
year, 10% for each of the next three years and 7% in years thereafter
- Annual deduction of $35 for administrative costs
- Deduction of $5 for each $1,000 of insurance, for issuance expenses, in
first Policy year only
- Annual deduction of 1 1/2% of the basic premium for death benefit
guarantee
- For the Extra Ordinary Life Policy only, a deduction for dividends in the
approximate range of 7-17% of the gross annual premium
SINGLE PREMIUM POLICY
- A deduction of $150 when the Policy is issued
FROM THE ASSETS OF THE ACCOUNT
- A daily charge at the annual rate of .50% of the Account assets for
mortality and expense risks
- A daily charge at the annual rate of .20% of the Account assets for
federal income taxes
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SURRENDER CHARGES
- For the Single Premium Life Policy only, a deduction of up to 9% of the
premium paid if the Policy is surrendered during the first ten Policy
years
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 their average net assets of the Portfolio, based on
1998 operations. Expenses for the Portfolios and Funds which were not in
operation during 1998 are estimated.
NORTHWESTERN MUTUAL SERIES FUND, INC.
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INVESTMENT TOTAL
PORTFOLIO ADVISORY FEE OTHER EXPENSES EXPENSES
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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%
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*SMALL CAP GROWTH STOCK AND INDEX 400 STOCK PORTFOLIOS Northwestern Mutual
Investment Services. I.I.C. (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 the 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
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INVESTMENT OTHER TOTAL
FUND ADVISORY FEE* EXPENSES* EXPENSES
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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%
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*MULTI-STYLE EQUITY FUND Frank Russell Investment Company's (FRIC's) advisor,
Frank Russell Investment Management Company (FRIMCo) has voluntarily agreed to
waive 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. FRIMCo has voluntarily
agreed 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. This waiver may
be revised or eliminated at any time without notice to shareholders. 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 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 1.25% of the Fund's average
daily net assets on an annual basis. FRIMCo has voluntarily agreed 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. This waiver may be revised or
eliminated at any time without notice to shareholders. 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. FRIMCo has voluntarily agreed 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. This waiver may be revised or eliminated at
any time without notice to shareholders. 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 voluntarily 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. FRIMCo has voluntarily agreed 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. This waiver 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 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 voluntarily 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. FRIMCo has voluntarily agreed to reimburse the Fund
for all remaining expenses after fee waivers which exceed .80% of the average
daily net assets on an annual basis. This waiver may be revised or eliminated at
any time without notice to shareholders. Taking the fee waivers into account,
the actual annual total operating expenses were .80% of the average net assets
of the Core Bond Fund.
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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
income 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. However, we also use the Account for
other variable life insurance policies which are described in other
prospectuses. We no longer offer the three Policies described in this
prospectus.
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
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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. WE
EXPECT THE SMALL CAP GROWTH STOCK PORTFOLIO TO BE AVAILABLE FOR USE WITH THE
POLICIES BEGINNING ON JUNE 30, 1999.
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
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. WE EXPECT THE INDEX 400 STOCK PORTFOLIO TO BE AVAILABLE FOR USE WITH THE
POLICIES BEGINNING ON JUNE 30, 1999.
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
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5
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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 2. For
more information about the investment objectives and policies, the attendant
risk factors and expenses see the attached prospectus for the Russell Insurance
Funds. WE EXPECT THE RUSSELL INSURANCE FUNDS TO BE AVAILABLE FOR USE WITH THE
POLICIES BEGINNING ON JUNE 30, 1999.
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 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.
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DETAILED INFORMATION ABOUT THE POLICIES
REQUIREMENTS FOR INSURANCE
The minimum face amount we require for a Whole Life Policy is $20,000. If the
insured is below age 15 or over age 49 the minimum amount is $10,000. The
insured may not be older than age 70 on the date of issue. For an Extra Ordinary
Life Policy the minimum initial amount of insurance is $50,000; if the insured
is over age 70, the minimum amount is $25,000. The minimum face amount of
insurance we require for a Single Premium Life Policy is $5,000. For an Extra
Ordinary Life Policy the insured may not be younger than age l5 on the date of
issue. For the Extra Ordinary Life Policy and the Single Premium Life Policy,
the insured may not be older than age 75 on the date of issue.
Before issuing a Policy, we will require satisfactory evidence of insurability.
We consider non-smokers who meet preferred underwriting requirements select
risks. We charge a higher premium for insureds who
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do not qualify as select risks. The amount of additional premium depends on the
risk classification in which we place the insured. We consider non-smokers in
the second best classification standard plus risks. We consider the best class
of smokers standard risks.
PREMIUMS
You must pay the first premium to put a Whole Life Policy or an Extra Ordinary
Life Policy in effect. Premiums are level, fixed and payable in advance during
the insured's lifetime on a monthly, quarterly, semiannual or annual basis. You
may change the premium frequency. The change will be effective when we accept
the premium on the new frequency. Premiums you pay more often than annually
include an extra amount to compensate us for the extra processing costs and loss
of interest because we receive the money later. The amount of the premium
depends on the amount of insurance for which the Policy was issued and the
insured's age and risk classification. The amount of the premium also reflects
the sex of the insured except where state or federal law requires that premiums
and other charges and values be determined without regard to sex. We send a
notice to the owner of a Policy not less than two weeks before each premium is
due. If you select the monthly premium frequency, we may require that you make
premium payments by preauthorized check.
The following table for Whole Life Policies shows representative premiums for
male select, standard plus, and standard risks for various face amounts of
insurance.
<TABLE>
<CAPTION>
% EXCESS OF 12
FACE ANNUAL MONTHLY MONTHLY PREMIUMS
AGE AT ISSUE AMOUNT PREMIUM PREMIUM OVER ANNUAL PREMIUM
- ------------------------------------------------------------------ ---------- ---------- ------------ ---------------------
<S> <C> <C> <C> <C>
SELECT
15................................................................ $ 50,000 $ 382.50 $ 33.60 5.4%
35................................................................ 100,000 1,536.00 135.10 5.5%
55................................................................ 100,000 3,766.00 331.10 5.5%
STANDARD PLUS
15................................................................ 50,000 406.00 35.60 5.2%
35................................................................ 100,000 1,683.00 148.10 5.6%
55................................................................ 100,000 4,125.00 363.10 5.6%
STANDARD
15................................................................ 50,000 491.50 43.10 5.2%
35................................................................ 100,000 1,912.00 168.10 5.5%
55................................................................ 100,000 4,587.00 404.10 5.7%
</TABLE>
The following table for Extra Ordinary Life Policies shows representative annual
premiums for male select and standard risks for various amounts of insurance.
The amounts of insurance shown in the table are the total amounts in effect when
the Extra Ordinary Life Policy is issued, including both the Minimum Death
Benefit which we guarantee for the lifetime of the insured and the Extra Life
Protection which we guarantee for a shorter period. See "Death Benefit", p. 11,
and "Extra Ordinary Life Policy", p. 13.
--
7
<PAGE>
<TABLE>
<CAPTION>
% EXCESS OF 12
MONTHLY PREMIUMS
FACE ANNUAL MONTHLY OVER ANNUAL
AGE AT ISSUE AMOUNT PREMIUM PREMIUM PREMIUM
- ------------------------------------------------------------------ ---------- ---------- ------------ ---------------------
<S> <C> <C> <C> <C>
SELECT
15................................................................ $ 50,000 $ 261.50 $ 23.10 6.0%
35................................................................ 100,000 1,014.00 89.10 5.4%
55................................................................ 100,000 2,612.00 230.10 5.7%
STANDARD PLUS
15................................................................ 50,000 285.00 25.10 5.7%
35................................................................ 100,000 1,161.00 102.10 5.5%
55................................................................ 100,000 2,971.00 261.10 5.5%
STANDARD
15................................................................ 50,000 357.50 31.60 6.1%
35................................................................ 100,000 1,377.00 121.10 5.5%
55................................................................ 100,000 3,425.00 301.10 5.5%
</TABLE>
For a Single Premium Life Policy you may choose either a face amount of
insurance or the amount which a given amount of premium will provide. The Single
Premium Life Policy is available only for applicants who meet select or standard
plus underwriting criteria as we determine. The premiums for these Policies are
the same for both select and standard plus risks, but we expect that the
dividends will be lower for Policies issued to insureds in the standard plus
classification.
The following table for Single Premium Life Policies shows representative gross
single premiums for male select and standard plus risks for various face amounts
of Insurance:
<TABLE>
<CAPTION>
FACE AMOUNT GROSS SINGLE
AGE AT ISSUE OF INSURANCE PREMIUM
- ----------------------------- ------------ ---------------
<S> <C> <C>
15........................... $ 10,000 $ 1,498.40
35........................... 25,000 6,443.25
55........................... 50,000 23,502.00
</TABLE>
GRACE PERIOD
For the Whole Life and Extra Ordinary Life Policies there is a grace period of
31 days for any premium that is not paid when due. The Policy remains in force
during this period. If you do not pay the premium within the grace period the
Policy will terminate as of the date when the premium was due and will no longer
be in force, unless it is continued as extended term or paid-up insurance. See
"Extended Term and Paid-Up Insurance", p. 17. If you surrender a Policy, we will
pay its cash value. See "Cash Value", p. 15. If the insured dies during the
grace period we will deduct any overdue premium from the proceeds of the Policy.
If the insured dies after payment of the premium for the period which includes
the date of death, we will refund the portion of the premium for the remainder
of that period as part of the Policy proceeds.
ALLOCATIONS TO THE ACCOUNT
We place the net annual premium for a Whole Life Policy or an Extra Ordinary
Life Policy in the Account on the Policy date and on the Policy anniversary each
year. The net annual premium is the annual premium less the deductions described
below.
You determine how the net annual premium for a Whole Life or an Extra Ordinary
Life Policy is apportioned among the divisions of the Account. If you direct any
portion of a premium to a division, the division must receive at least 10% of
that premium. You may change the apportionment for future premiums by written
request at any time, but the change will be effective only when we place the net
annual premium in the Account on the next Policy anniversary, even if you are
paying premiums on an other than annual basis.
For a Single Premium Policy we place the entire single premium, less an
administrative charge of $150, in the Account on the Policy date and we
apportion the amount among the divisions of the Account as you determine.
You may apportion the Account assets supporting your Policy among as many as six
divisions of the Account at any time.
--
8
<PAGE>
TRANSFERS BETWEEN DIVISIONS
You may transfer accumulated amounts from one division of the Account to another
as often as four times in a Policy year. Transfers are effective on the date we
receive a written request at our Home Office. We reserve the right to charge a
fee to cover administrative costs of transfers. We presently charge no fee.
DEDUCTIONS AND CHARGES
The net premiums we place in the Account for Whole Life, Extra Ordinary Life and
Single Premium Life Policies are the gross premiums after the deductions
described in the next two sections below. The net premiums for Whole Life and
Extra Ordinary Life Policies exclude any extra premium we charge for insureds
who do not qualify as select risks and the extra premium for any optional
benefits. We make a charge for mortality and expense risks against the assets of
the Account. There is also a charge for taxes. See "Charges Against the Account
Assets", p. 10. In addition, the mutual funds in which the Account assets are
invested pay an investment advisory fee and certain other expenses. Mutual fund
expenses are briefly described above on page 4, and in more detail in the
attached prospectuses for the mutual funds.
DEDUCTIONS FROM PREMIUMS FOR WHOLE LIFE AND EXTRA ORDINARY LIFE POLICIES
The deductions described in this section are for Whole Life and Extra Ordinary
Life Policies only. The deductions for Single Premium Life Policies are
described under the next caption below.
For the first Policy year there is a one-time deduction of not more than $5 for
each $1,000 of insurance, based on the face amount for Whole Life or the Minimum
Death Benefit stated in the Policy for Extra Ordinary Life. This is for the
costs of processing applications, medical examinations, determining insurability
and establishing records.
There is an annual deduction of $35 for administrative costs to maintain the
Policy. Expenses include costs of premium billing and collection, processing
claims, keeping records and communicating with Policyowners.
There is a deduction each year for sales costs. This amount may be considered a
"sales load". The deduction will be not more than 30% of the basic premium (as
defined below) for the first Policy year, not more than 10% for each of the next
three years and not more than 7% each year thereafter. The basic premium for a
Policy is the gross premium which would be payable if you paid the premium
annually, less the annual deduction of $35 for administrative costs. The basic
premium is based on the cost of insurance for insureds who qualify as select
risks and does not include any extra premium amounts for insureds whom we place
in other risk classifications. The basic premium does not include the extra
premium for any optional benefits. For an Extra Ordinary Life Policy, the basic
premium does not include any extra premium for the Extra Life Protection; the
amount of term insurance included in the Extra Life Protection affects the
dividends payable on the Extra Ordinary Life Policies.
The amount of the deduction for sales costs for any Policy year is not
specifically related to sales costs we incur for that year. We expect to recover
our total sales expenses from the amounts we deduct for sales costs over the
period while the Policies are in force. 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 charge
against the assets of the Account for the mortality and expense risks we assume.
See "Charges Against the Account Assets", p. 10. To the extent that the amounts
deducted for sales costs exceed the amounts needed, we will realize a gain.
We make a deduction equal to 2% of each basic premium 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% rate is an average. The tax rate for a
particular state may be lower, higher or equal to the 2% deduction.
We guarantee that the death benefit for a Whole Life Policy will never be less
than the face amount of the Policy, regardless of the investment experience of
the Account. For an Extra Ordinary Life Policy, we guarantee that the death
benefit will never be less than the Minimum Death Benefit stated in the Policy.
For both Policies, there is a deduction of 1 1/2% from each basic premium to
compensate us for the risk that the insured may die at a point in time when the
death benefit that would ordinarily be paid is less than this guaranteed minimum
amount.
--
9
<PAGE>
For an Extra Ordinary Life Policy there is a deduction for dividends to be paid
or credited in accordance with the dividend scale in effect on the issue date of
the Policy. This deduction will vary by age of the insured and duration of the
Policy, and we expect it to be in the range of approximately 7-17% of the gross
annual premium.
The following tables illustrate the amount of net annual premium, for select and
standard risks, to be placed in the Account at the beginning of each Policy year
after the deductions described above:
WHOLE LIFE
<TABLE>
<CAPTION>
MALE AGE 35 -- SELECT RISK
ANNUAL PREMIUM
--------------------------------
BEGINNING OF POLICY YEAR $500 $1,000 $5,000
- ----------------------------- --------- --------- ----------
<S> <C> <C> <C>
1............................ $ 154.28 $ 320.16 $ 1,647.28
2 through 4.................. 402.11 834.48 4,293.51
5 and later.................. 416.05 863.41 4,442.36
</TABLE>
<TABLE>
<CAPTION>
MALE AGE 35 -- STANDARD RISK
ANNUAL PREMIUM
--------------------------------
BEGINNING OF POLICY YEAR $500 $1,000 $5,000
- ----------------------------- --------- --------- ----------
<S> <C> <C> <C>
1............................ $ 123.37 $ 256.03 $ 1,317.30
2 through 4.................. 321.57 667.33 3,433.44
5 and later.................. 332.71 690.46 3,552.48
</TABLE>
<TABLE>
<CAPTION>
EXTRA ORDINARY LIFE
MALE AGE 35 -- SELECT RISK
ANNUAL PREMIUM
--------------------------------
BEGINNING OF POLICY YEAR $500 $1,000 $5,000
- ----------------------------- --------- --------- ----------
<S> <C> <C> <C>
1............................ $ 134.23 $ 278.56 $ 1,433.21
2 through 4.................. 369.62 767.07 3,946.64
5 and later.................. 383.58 796.05 4,095.74
</TABLE>
<TABLE>
<CAPTION>
MALE AGE 35 -- STANDARD RISK
ANNUAL PREMIUM
--------------------------------
BEGINNING OF POLICY YEAR $500 $1,000 $5,000
- ----------------------------- --------- --------- ----------
<S> <C> <C> <C>
1............................ $ 97.92 $ 203.21 $ 1,045.54
2 through 4.................. 269.65 559.59 2,879.11
5 and later.................. 279.83 580.73 2,987.88
</TABLE>
DEDUCTIONS FOR SINGLE PREMIUM LIFE POLICIES
For a Single Premium Life Policy the only deduction from the single premium is
an administrative charge of $150.00. The administrative costs for issuing and
maintaining a Single Premium Life Policy are similar to those we incur with a
Whole Life Policy or an Extra Ordinary Life Policy, except for the costs of
premium billing and collection. See "Deductions from Premiums for Whole Life and
Extra Ordinary Life Policies", p. 9. We place the entire premium for a Single
Premium Life Policy, after this deduction of $150, in the Account when we issue
the Policy without any of the other deductions which apply to premiums for Whole
Life and Extra Ordinary Life Policies. There is no annual fee for a Single
Premium Life Policy.
For a Single Premium Life Policy during the first ten Policy years, the cash
value payable on surrender of the Policy is reduced by a deduction for sales
costs. The deduction during the first Policy year is not more than 9% of the
Policy's tabular cash value. See "Cash Value", p. 15. The deduction decreases
over time until it is eliminated at the end of the tenth Policy year. We intend
the deduction to recover the costs we incur in distributing Single Premium Life
Policies which are surrendered in their early years. The deduction will never be
more than 9% of the single premium paid for the Policy, excluding the
administrative charge of $150.00.
The following table illustrates the schedule for the decreasing deduction for
sales costs for a policy surrendered at the end of each of the first ten Policy
years. The illustration is for a Single Premium Life Policy, male age 35. The
schedule varies slightly by age and sex and amount of insurance.
<TABLE>
<CAPTION>
POLICY YEAR END WHEN POLICY IS DEDUCTION AS % OF
SURRENDERED TABULAR CASH VALUE
- ---------------------------------------- -----------------------
<S> <C>
1....................................... 7.9%
2....................................... 7.1
3....................................... 6.3
4....................................... 5.4
5....................................... 4.6
6....................................... 3.7
7....................................... 2.8
8....................................... 1.9
9....................................... 0.9
10 and subsequent years................. 0
</TABLE>
Since the maximum Policy loan limit for a Single Premium Life Policy is based on
the cash value payable on surrender, the amount you may borrow during the first
ten years is reduced to reflect the deduction for sales costs which we would
make if you surrendered the Policy on the date of the Policy loan. See "Policy
Loans", p. 16.
CHARGES AGAINST THE ACCOUNT ASSETS
There is a daily charge to the Account for the mortality and expense risks we
assume. The charge is at the
--
10
<PAGE>
annual rate of .50% of the assets of the Account. 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 costs we estimated. We
will realize a gain from this charge to the extent it is not needed to provide
benefits and pay expenses under the Policies. The actual mortality and expense
experience under the Policies will be the basis for determining dividends. See
"Annual Dividends", p. 15.
The Policies provide that we may make a charge for taxes against the assets of
the Account. Currently, we are making a daily charge for federal income taxes we
incur at the annual rate of .20% of the assets of the Account. We may increase,
decrease or eliminate the charge for taxes in the future. In no event will the
charge for taxes exceed that portion of our actual tax expenses which is fairly
allocable to the Policies.
GUARANTEE OF PREMIUMS, DEDUCTIONS AND CHARGES
We guarantee and may not increase the premiums, the amounts we deduct from
premiums and the charge for mortality and expense risks. These amounts will not
increase regardless of future changes in longevity or increases in expenses. The
Extra Ordinary Life Policy provides an opportunity to pay an additional amount
of premium after the guaranteed period for the Extra Life Protection has expired
if the Total Death Benefit would otherwise fall below the initial amount of
insurance. See "Extra Ordinary Life Policy", p. 13.
DEATH BENEFIT
The death benefit for a variable life insurance policy is, in part, a guaranteed
amount which will not be reduced during the lifetime of the insured so long as
you pay premiums when they are due and no policy debt is outstanding. The
remainder of the death benefit is the variable insurance amount which fluctuates
in response to actual investment results and is not guaranteed. The amount of
any paid-up additions which you have purchased with dividends is also included
in the total death benefit and, in addition, the Extra Ordinary Life Policy
provides some term insurance during the early Policy years. The relationships
among the guaranteed and variable amounts and any paid-up additions and term
insurance depend on the design of the particular Policy. See "Whole Life Policy
and Single Premium Life Policy", p. 12, and "Extra Ordinary Life Policy", p. 13.
VARIABLE INSURANCE AMOUNT. The variable insurance amount reflects, on a
cumulative basis, the investment experience of the Account divisions in which
the Policy has participated. We adjust the variable insurance amount annually on
each Policy anniversary. For the first Policy year the variable insurance amount
is zero. For any subsequent year it may be either positive or negative. If the
variable insurance amount is positive, subsequent good investment results will
produce a larger variable insurance amount and therefore an increase in the
death benefit. If the variable insurance amount is negative, subsequent good
investment results will first have to offset the negative amount before the
death benefit will increase.
In setting the premium rates for each Policy we have assumed that investment
results will cause the Account assets supporting the Policy to grow at a net
annual rate of 4%. If the assets grow at a net rate of exactly 4% for a Policy
year, the variable insurance amount will neither increase nor decrease on the
following anniversary. If the net rate of growth exceeds 4%, the variable
insurance amount will increase. If it is less than 4%, the variable insurance
amount will decrease.
The method for calculating the changes in the death benefit is described in the
Policy. The Policy includes a table of net single premiums used to convert the
investment results for a Policy into increases or decreases in the variable
insurance amount. The insurance rates in the table depend on the sex and the
attained age of the insured for each Policy year. For a Whole Life Policy, the
changes in the death benefit will be smaller for a Policy issued with a higher
premium for extra mortality risk. The net single premium for a particular
variable insurance amount is the price for that amount of paid-up whole life
insurance based on the insured's age at the Policy anniversary.
Because the variable insurance amount is adjusted only on the Policy
anniversary, we bear the risk that the insured may die before the next
anniversary after an interim period of adverse investment experience. If
investment experience during the interim period is favorable, you will forego
the benefit and we will realize a gain, unless the insured survives to the next
Policy anniversary. However, if at the date of death of the insured the value of
the Policy, considered as a net single premium, would buy more death benefit
than the amount otherwise determined under the Policy, we will pay this
increased death benefit.
--
11
<PAGE>
The cost of life insurance increases with the advancing age of the insured, and
therefore a larger dollar amount of investment earnings is required to produce
the same increase in the death benefit in the later Policy years. In general,
however, the effect of investment results on the death benefit will tend to be
greater in the later Policy years because the amount of assets invested for the
Policy will tend to increase as the Policy remains in force.
The cost of providing insurance protection under a Policy is reflected in the
cash value of the Policy. See "Cash Value", p. 15. The cost is actuarially
computed for each Policy each year, based on the insured's attained age, the
l980 Commissioners Standard Ordinary Mortality Table and the net insurance
amount at risk under the Policy. The net insurance amount at risk is the total
death benefit for the Policy minus the cash value plus any Policy debt. The cost
of insurance differs each year because the probability of death increases as the
insured advances in age and the net insurance amount at risk decreases or
increases from year to year depending on investment experience. The cost assumes
that all insureds are in the select underwriting risk classification. The
differences in the mortality rates of the various underwriting classifications
are reflected in the different premiums (or different dividend scales) for those
underwriting classifications. The cost of insurance is based on the mortality
table identified above and we guarantee it for the life of a Policy regardless
of any future changes in mortality experience.
WHOLE LIFE POLICY AND SINGLE PREMIUM LIFE POLICY. For a Whole Life Policy or a
Single Premium Life Policy the death benefit is the face amount of the Policy
plus any positive variable insurance amount in force. We adjust the death
benefit on each Policy anniversary when we determine the variable insurance
amount for the following year. The total death benefit also includes the amount
of insurance provided by any paid-up additions which you have purchased with
dividends and is reduced by the amount of any Policy debt outstanding. The death
benefit for a Whole Life Policy will not be less than the face amount so long as
you pay premiums when they are due and no Policy debt is outstanding. For a
Single Premium Life Policy the death benefit will not be less than the face
amount so long as no Policy debt is outstanding.
Paid-up additions you have purchased with dividends are not counted for purposes
of the guarantee that the death benefit of a Whole Life Policy or a Single
Premium Life Policy will never be less than the face amount of the Policy. If
the variable insurance amount is negative, the total death benefit will be the
guaranteed face amount plus the amount of insurance provided by any paid-up
additions less any Policy debt. Paid-up additions are amounts of permanent
insurance, paid for with dividends and added to a basic life insurance policy,
for which the premium for the entire lifetime of the insured has been paid.
Paid-up additions have cash surrender value and loan value.
The following example shows how the death benefit for a Whole Life Policy could
vary based on investment results. Using the Policy illustrated on page 45 and
assuming the 12% hypothetical gross investment earnings rate on assets of the
selected Portfolio of the Fund (equivalent to a net rate of 10.64% for the
Account division), and the dividend scale as illustrated, the death benefit
shown at the end of Policy year 5 would change as follows:
<TABLE>
<CAPTION>
GUARANTEED VARIABLE TOTAL
FACE INSURANCE PAID-UP DEATH
AMOUNT + AMOUNT + ADDITIONS = BENEFIT
---------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
End of Policy Year 5..... $30,979 $1,037 $ 634 $32,650
Change................... 0 +489 +214 +703
---------- --------- --------- -------
End of Policy Year 6..... $30,979 $1,526 $ 848 $33,353
</TABLE>
If instead the gross earnings rate during the sixth Policy year had been 0%
(equivalent to a net rate of -1.36%) the death benefit at the end of Policy Year
5 would change as follows:
<TABLE>
<CAPTION>
GUARANTEED VARIABLE TOTAL
FACE INSURANCE PAID-UP DEATH
AMOUNT + AMOUNT + ADDITIONS = BENEFIT
---------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
End of Policy Year 5..... $30,979 $1,037 $ 634 $32,650
Change................... 0 -395 +141 -254
---------- --------- --------- -------
End of Policy Year 6..... $30,979 $ 642 $ 775 $32,396
</TABLE>
--
12
<PAGE>
The following example shows how the death benefit for a Single Premium Life
Policy could vary based on investment results. Using the Policy illustrated on
page 49 and assuming the 12% hypothetical gross annual investment earnings rate
on assets of the selected Portfolio of the Fund (equivalent to a net rate of
10.64% for the Account division), and the dividend scale as illustrated, the
death benefit shown at the end of Policy year 5 would change as follows:
<TABLE>
<CAPTION>
GUARANTEED VARIABLE TOTAL
FACE INSURANCE PAID-UP DEATH
AMOUNT + AMOUNT + ADDITIONS = BENEFIT
---------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
End of Policy Year 5..... $25,000 $9,100 $ 427 $34,527
Change................... 0 +2,185 +151 +2,336
---------- --------- --------- -------
End of Policy Year 6..... $25,000 $11,285 $ 578 $36,863
</TABLE>
If instead the gross earnings rate during the sixth Policy year had been 0%
(equivalent to a net rate of -1.36%) the death benefit at the end of Policy Year
5 would change as follows:
<TABLE>
<CAPTION>
GUARANTEED VARIABLE TOTAL
FACE INSURANCE PAID-UP DEATH
AMOUNT + AMOUNT + ADDITIONS = BENEFIT
---------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
End of Policy Year 5..... $25,000 $9,100 $ 427 $34,527
Change................... 0 -1,764 +101 -1,663
---------- --------- --------- -------
End of Policy Year 6..... $25,000 $7,336 $ 528 $32,864
</TABLE>
EXTRA ORDINARY LIFE POLICY. The Total Death Benefit for an Extra Ordinary Life
Policy is the sum of the Minimum Death Benefit plus the amount of Extra Life
Protection in force. The Minimum Death Benefit is 60% of the total amount of
insurance for which the Policy is issued. We guarantee the Minimum Death Benefit
for the lifetime of the insured so long as you pay premiums when they are due
and no Policy debt is outstanding. The amount of Extra Life Protection is
initially 40% of the total amount of insurance. It may increase but it will not
decrease during the guaranteed period, so long as you pay premiums when they are
due, no Policy debt is outstanding, all dividends are applied to purchase
paid-up additions and no paid-up additions are surrendered for their cash value.
Extra Life Protection consists of one year term insurance, positive variable
insurance amount and paid-up additions which have been purchased with dividends.
Term insurance is life insurance which pays a death benefit only if the insured
dies during the term for which the insurance has been purchased. Term insurance
is ordinarily purchased on an annual basis at a cost which rises with the
increasing age of the insured. It has no cash surrender value or loan value. The
variable insurance amount and paid-up additions have been described; see
"Variable Insurance Amount", p. 11 and "Whole Life Policy and Single Premium
Life Policy", p. 12.
Initially the entire amount of Extra Life Protection is one year term insurance.
As the Policy remains in force one year term insurance is reduced by any
positive variable insurance amount and paid-up additions, so that the term
insurance is reduced to the amount that will maintain the Total Death Benefit at
the amount for which the Policy was issued. The term insurance is eliminated at
any time when the sum of positive variable insurance amount plus the paid-up
additions equals or exceeds the initial amount of Extra Life Protection.
We guarantee that the amount of Extra Life Protection will not be reduced during
the guaranteed period, regardless of the Account's investment experience or the
amount of any dividends paid on the Policy, so long as you pay premiums when
they are due, no Policy debt is outstanding, all dividends are applied to
purchase paid-up additions and no paid-up additions are surrendered for their
cash value. The length of the guaranteed period depends on the age of the
insured when we issued the Policy, and ranges from 37 years at age 15 to 7 years
at age 75. At age 35 the guaranteed period is 27 years.
--
13
<PAGE>
For an insured age 40 or younger, the sum of positive variable insurance amount
plus paid-up additions will exceed the initial amount of Extra Life Protection
at or before the end of the guaranteed period if the mutual fund assets which
support the Policy produce a gross investment rate of return of 8% or better and
dividends are at least equal to those we are paying on the current dividend
scale. However, neither the actual investment results nor the dividends to be
paid on the Policy are guaranteed.
After the guaranteed period expires, if the sum of positive variable insurance
amount plus the paid-up additions is less than the initial amount of Extra Life
Protection on any Policy anniversary, we may reduce the amount of term insurance
for the Policy year. We will give you notice of the reduction and you will have
an opportunity to pay an additional amount of premium in order to keep the
initial amount of insurance in force. The maximum premium rate is set forth in
the Policy. Your right to continue to purchase term insurance on this basis will
terminate as of the first Policy anniversary when you fail to pay the additional
premium when due.
The following example shows how the components of the Total Death Benefit for an
Extra Ordinary Life Policy could vary based on investment results. Using the
Policy illustrated on page 48 and the assumed 12% hypothetical gross annual
investment earnings rate on assets of the selected Portfolio or Fund (equivalent
to a net rate of 10.64% for the Account division), and the dividend scale as
illustrated, the amounts shown at the end of Policy year 5 would change as
follows:
<TABLE>
<CAPTION>
EXTRA LIFE PROTECTION
-------------------------------------------
MINIMUM VARIABLE TOTAL
DEATH TERM INSURANCE PAID-UP DEATH
BENEFIT + INSURANCE + AMOUNT + ADDITIONS = BENEFIT
------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
End of Policy Year 5..... $60,000 $36,393 $1,974 $1,633 $100,000
Change................... 0 -1,528 +939 +589 0
------- --------- --------- --------- --------
End of Policy Year 6..... $60,000 $34,865 $2,913 $2,222 $100,000
</TABLE>
If instead the gross annual earnings rate during the sixth Policy year had been
0% (equivalent to a net rate of -1.36%) the amounts at the end of Policy year 5
would change as follows:
<TABLE>
<CAPTION>
EXTRA LIFE PROTECTION
-------------------------------------------
MINIMUM VARIABLE TOTAL
DEATH TERM INSURANCE PAID-UP DEATH
BENEFIT + INSURANCE + AMOUNT + ADDITIONS = BENEFIT
------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
End of Policy Year 5..... $60,000 $36,393 $1,974 $1,633 $100,000
Change................... 0 +358 -758 +400 0
------- --------- --------- --------- --------
End of Policy Year 6..... $60,000 $36,751 $1,216 $2,033 $100,000
</TABLE>
Note that the Total Death Benefit is not affected by either investment results
or the amount of dividends paid, because the Policy is within the guaranteed
period of Extra Life Protection. But the components of Extra Life Protection are
affected by both factors. Good investment results and increases in dividends
increase the likelihood that the Total Death Benefit will begin to rise before
the guaranteed period of Extra Life Protection expires. Adverse investment
results or decreases in dividends could cause the Total Death Benefit to fall
below the amount of insurance which was initially in force, after the guaranteed
period of Extra Life Protection expires, but it cannot fall below the Minimum
Death Benefit so long as you pay premiums when they are due and no Policy debt
is outstanding.
We have designed the Extra Ordinary Life Policy for a purchaser who intends to
use all dividends to purchase paid-up additions. If you use dividends for any
other purpose, or if any paid-up additions are surrendered for their cash value,
the term insurance in force will immediately terminate, any remaining guaranteed
period of Extra Life Protection will terminate and your right to purchase term
insurance will terminate. The amount of Extra Life Protection thereafter will be
the sum of positive variable insurance amount plus any paid-up additions which
remain in force.
The following example (using the Policy illustrated on page 48, like the
examples above) shows how the Total Death Benefit would be reduced from $100,000
to
--
14
<PAGE>
$63,607, by the elimination of $36,393 of term insurance, if dividends are used
during Policy Year 6 to reduce the premium. The premium of $1,014 would be
reduced by the dividend of $126.23, based on the dividend scale as illustrated,
to a net premium of $887.77. The Total Death Benefit during Policy Year 6 would
then be as follows:
<TABLE>
<CAPTION>
Minimum Death Benefit................... $ 60,000
<S> <C>
Variable Insurance Amount............... +1,974
Variable Paid-Up Additions.............. +1,633
Term Insurance.......................... 0
---------
Total Death Benefit..................... $ 63,607
---------
---------
</TABLE>
CASH VALUE
The cash value for the Whole Life Policy, the Extra Ordinary Life Policy and the
Single Premium Life Policy will change daily in response to investment results.
No minimum cash value is guaranteed. Calculation of the cash value for any date
requires three steps. First, we note the amount shown for the preceding
anniversary in the table of cash values at the front of the Policy and we adjust
it for the time elapsed since the last Policy anniversary. The tabular cash
values are based on the assumed net investment rate of 4%, the 1980
Commissioners Standard Ordinary Mortality Table and the deductions from the
premiums. See "Deductions from Premiums for Whole Life and Extra Ordinary Life
Policies", p. 9. For the Single Premium Life Policy the calculation begins with
the adjusted tabular cash value, which reflects the deduction for sales costs if
the Policy is surrendered during the first ten years. See "Deductions for Single
Premium Life Policies", p. 10. Second, we add the net single premium for the
variable insurance amount to the tabular cash value. See the discussion of net
single premiums under "Variable Insurance Amount", p. 11. If the variable
insurance amount is negative, the net single premium is a negative amount. A
table of net single premiums for the insured at each Policy anniversary is in
the Policy. Third, we adjust the algebraic sum of the tabular cash value and the
net single premium for the variable insurance amount to reflect investment
results from the last Policy anniversary to the date for which the calculation
is being made. The cash value is increased by the value of any paid-up additions
which have been purchased with dividends.
If a portion of the premium for the current Policy year has not been paid, the
cash value of a Whole Life Policy or an Extra Ordinary Life Policy will be
reduced. There is not likely to be any cash value for a Whole Life Policy or an
Extra Ordinary Life Policy during the early part of the first year because of
the first year deductions.
The cash value for the Whole Life Policy, the Extra Ordinary Life Policy and the
Single Premium Life Policy will be reduced by the amount of any Policy debt
outstanding.
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. You may surrender a Policy
for the cash value at any time during the lifetime of the insured.
Alternatively, you may use the cash value of a Whole Life Policy or an Extra
Ordinary Life Policy to provide extended term insurance or a reduced amount of
fixed or variable paid-up insurance. See "Extended Term and Paid-Up Insurance",
p. 17.
The Policies do not include any provision for a partial surrender. By
administrative practice we will permit you to split a Policy into two Policies
and surrender one of them, so long as the new Policy meets the regular minimum
size requirements. The Policy which continues in force will be based on the age
and risk classification of the insured at the time of issuance of the original
Policy.
ANNUAL DIVIDENDS
The Policies share in divisible surplus to the extent we determine annually. We
will distribute a Policy's share annually as a dividend payable on each Policy
anniversary beginning at the end of the second year. For Single Premium Life
Policies, and some other Policies, the first distribution will be at the end of
the first year. We will not pay a dividend on a Whole Life Policy or an Extra
Ordinary Life Policy which is in force as extended term insurance.
Dividends under participating policies may be described as refunds of premiums
which adjust the cost of a policy to the actual level of cost emerging over
--
15
<PAGE>
time after the policy's issue. Thus participating policies generally have gross
premiums which are higher than those for comparable non-participating policies.
Both federal and state tax law recognize that a dividend is considered to be a
refund of a portion of the premium paid.
Dividend illustrations published at the time a life insurance policy is issued
reflect the actual recent experience of the issuing company with respect to
investment earnings, mortality and expenses. State law generally prohibits a
company from projecting or estimating future results. State law also requires
that dividends be paid out of surplus, after certain necessary amounts are set
aside, and that such surplus be apportioned equitably among participating
policies. In summary, dividends must be based on actual experience and cannot be
guaranteed at issue of a policy.
Our actuary annually examines current and recent experience and compares these
actual results with those which were assumed in determining premium rates when
each class of policies was issued. We determine classes by such factors as year
of issue, age, plan of insurance and risk classification. The actuary then
determines the amount of dividends to be equitably apportioned to each class of
policies. Following the actuary's recommendations, our Trustees adopt a dividend
scale each year, thereby authorizing the distribution of the dividend.
We have no significant actual mortality experience with variable life insurance
policies. For purposes of the current dividend scale used for the illustrations
in this prospectus, we have assumed that mortality experience in connection with
the Policies will be comparable to that actually experienced with fixed benefit
life insurance.
The prospectus illustrations show dividends being used to purchase variable
paid-up additions. We will also pay dividends in cash, or you may use them to
pay premiums or leave them to accumulate with interest; but unless you use all
dividends we pay on an Extra Ordinary Life Policy to purchase paid-up additions,
the term insurance portion of the Extra Life Protection will be terminated. See
"Extra Ordinary Life Policy", p. 13. We hold dividends you leave to accumulate
with interest in our general account and we will credit them with a rate of
interest we determine annually. The interest rate will not be less than an
annual effective rate of 3 1/2%. If a Whole Life Policy or an Extra Ordinary
Life Policy is in force as reduced fixed benefit paid-up insurance, dividends to
purchase fixed benefit paid-up additions. See "Extended Term and Paid-Up
Insurance", p. 17.
POLICY LOANS
You may borrow up to 90% of a Policy's cash value using the Policy as security.
The limit is 75% of the cash value during the first two Policy years. If a
Policy loan is already outstanding, we determine the maximum amount for any new
loan by applying these percentage limitations to the amount of cash value which
the Policy would have if there were no loan. You may take loan proceeds in cash
or, for the Whole Life and Extra Ordinary Life Policies, you may use them to pay
premiums on the Policy.
Interest on a Policy loan accrues and is payable on a daily basis. We add unpaid
interest to the amount of the loan. If the amount of the loan equals or exceeds
the Policy's cash value, the Policy will terminate. We will send you a notice at
least 31 days before the termination date. The notice will show how much you
must repay to keep the Policy in force.
You select the Policy loan interest rate. A specified annual effective rate of
8% is one choice. The other choice is a variable rate based on a corporate bond
yield index. We will adjust the variable rate annually. It will not be less than
5%.
We will take the amount of a Policy loan, including interest as it accrues, 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 those
amounts on a daily basis with an annual earnings rate equal to the Policy loan
interest rate less a charge for the mortality and expense risks we have assumed
and for expenses, including taxes. The aggregate charge is currently at the
annual rate of .85% for the 8% specified Policy loan interest rate and .85% for
the variable Policy loan interest rate. For example, the earnings rate
corresponding to the specified 8% Policy loan interest rate is currently 7.15%.
A Policy loan, even if you repay it, will have a permanent effect on the
Policy's variable insurance amount and cash value because the amounts you have
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
--
16
<PAGE>
amount is higher or lower than the rate credited to the unborrowed amount left
in the Account.
For example, using the Policy illustrated on page 47 and the 6% hypothetical
gross rate for the Account (equivalent to a net rate of 4.64%), and assuming a
Policy loan of $3,165 (90% of the cash value) at the end of Policy year 5, with
the 8% Policy loan interest rate (corresponding to a net earnings rate of
7.15%), the loan will affect the variable insurance amount and cash value
(before subtracting the loan amount and interest) at the end of the next three
Policy years as follows:
<TABLE>
<CAPTION>
VARIABLE INSURANCE
AMOUNT CASH VALUE
---------------------- ----------------------
END OF WITHOUT WITH WITHOUT WITH
POLICY YEAR LOAN LOAN LOAN LOAN
- --------------------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
5.......................... $ 177 $ 177 $ 3,517 $ 3,517
6.......................... $ 256 $ 488 $ 4,489 $ 4,571
7.......................... $ 349 $ 807 $ 5,514 $ 5,681
8.......................... $ 456 $ 1,134 $ 6,597 $ 6,852
</TABLE>
The difference results from the fact that the earnings rate for the amount of
the loan is 7.15% rather than the net rate of 4.64% for 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
we will transfer those amounts from our general account to the Account
divisions, in proportion to the amounts in the divisions, as of the same date.
EXTENDED TERM AND PAID-UP INSURANCE
If a premium for a Whole Life Policy or an Extra Ordinary Life Policy is not
paid within the 31-day grace period (see "Grace Period", p. 8), you may use the
cash value to provide a reduced amount of either fixed or variable benefit
paid-up insurance. If you choose neither of these options, and do not surrender
the Policy, the insurance will remain in force as extended term insurance.
If you use the cash value to provide a reduced amount of fixed benefit paid-up
insurance or for extended term insurance we will transfer the amount of the cash
value from the Account to our general account. Thereafter the Policy will not
participate in the Account's investment results unless the Policy is
subsequently reinstated. See "Reinstatement", below. You may select variable
benefit paid-up insurance only if the Policy meets a $1,000 cash value minimum
test.
You must select paid-up insurance within three months after the due date of the
first unpaid premium. We determine the amount of paid-up insurance by the amount
of cash value and the age and sex of the insured, using the table of net single
premiums at the attained age. Fixed benefit paid-up insurance has guaranteed
cash and loan values. Paid-up insurance remains in force for the lifetime of the
insured unless the Policy is surrendered.
If the Policy remains in force as extended term insurance the amount of
insurance will equal the Total Death Benefit prior to the date the premium was
due. The amount of cash value and the age and sex of the insured will determine
how long the insurance continues. We will, upon your request, tell you the
amount of insurance and how long the term will be. Extended term insurance is
not available if the Policy was issued with a higher premium for extra mortality
risk. Extended term insurance has a cash value but no loan value.
Using the Policy illustrated on pages 46 and 48 and assuming the 0% and 12%
hypothetical gross rates for the Account, the cash value of $3,009 or $4,097 at
the end of Policy year 5 would provide the following amounts of reduced paid-up
insurance or $100,000 of extended term insurance for the following periods:
<TABLE>
<CAPTION>
0% 12%
------------- -------------
<S> <C> <C>
Reduced Paid-up Insurance..... $10,145 $13,814
Extended Term Insurance....... 6 Years and 9 Years and
347 Days 37 Days
</TABLE>
REINSTATEMENT
If a premium for a Whole Life Policy or an Extra Ordinary Life Policy is due and
remains unpaid after the grace period expires, the Policy may be reinstated
within five years after the premium due date. The insured must provide
satisfactory evidence of insurability. We may require substantial payment. The
Policy may not be reinstated if you have surrendered it for its cash value.
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
You may exchange a Policy for a fixed benefit policy if either of the mutual
funds changes its investment adviser or if there is a material change in the
investment policies of a Portfolio or Fund. We will give
--
17
<PAGE>
you notice of any such change and you will have 60 days to make the exchange.
OTHER POLICY PROVISIONS
OWNER. The owner is identified in the Policy. The owner may exercise all rights
under the Policy while the insured is living. Ownership may be transferred to
another. Written proof of the transfer must be received by Northwestern Mutual
Life at its Home Office. In this prospectus "you" means the owner of a Policy.
BENEFICIARY. The beneficiary is the person to whom the death benefit is
payable. The beneficiary is named in the application. After the Policy is issued
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.
SUICIDE. If the insured dies by suicide within one year from the date of issue,
the amount payable under the Policy will be limited to the premiums paid.
MISSTATEMENT OF AGE OR SEX. If the age or sex of the insured has been
misstated, we will adjust benefits 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.
PAYMENT PLANS. The Policy provides a variety of payment plans for Policy
benefits. Any Northwestern Mutual Life agent authorized to sell the Policies can
explain these provisions on request.
DEFERRAL OF DETERMINATION AND PAYMENT. So long as premiums have been paid when
due, 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.
If a Whole Life Policy or an Extra Ordinary Life Policy is continued in force as
extended term or reduced paid-up insurance, we have the right to defer payment
of the cash value for up to six months from the date of a Policy loan or
surrender. If payment is deferred for 30 days or more we will pay interest at an
annual effective rate of 4%.
VOTING RIGHTS
We are the owner of the mutual fund shares 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 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
shareholders' meeting of the funds. 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 held in our general account in the same proportions as
the shares for which voting instructions are received. If the applicable laws or
regulations change so as to permit 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's cash 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 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
--
18
<PAGE>
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,
we may substitute shares of another Portfolio or Fund or another mutual fund.
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
For each Policy year (unless a Whole Life Policy or an Extra Ordinary Life
Policy is in force as extended term or fixed benefit paid-up insurance) you will
receive a statement showing the death benefit, cash value and any Policy loan
(including interest charged) as of the anniversary date. You will also receive
annual and semiannual reports for the Account and both of the mutual funds,
including financial statements.
SPECIAL POLICY FOR EMPLOYERS
The premium for the standard Policy is based in part on the sex of the insured.
The standard annuity rates for payment plans which last for the lifetime of the
payee are also based, in part, on the sex of the payee. For certain situations
where the insurance involves an employer sponsored benefit plan or arrangement,
federal law and the laws of certain states may require that premiums and annuity
rates be determined without regard to sex. Special Whole Life Policies, Extra
Ordinary Life Policies and Single Premium Life Policies are available for this
purpose. You are urged to review any questions in this area with qualified
counsel.
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 and is a Wisconsin limited liability company. Its address
is 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202. The Internal Revenue
Service Employer Identification Number of NMIS is 39-0509570.
Commissions paid to the agents on sales of the Whole Life and Extra Ordinary
Life Policies will not exceed 55% of the premium for the first year, 9% of the
premium for the second and third years, 6% of the premium for the fourth through
seventh years and 3% of the premium for the eighth through tenth years.
Thereafter a persistency fee of 2% of premiums may be paid to the agent. For the
Single Premium Life Policies commissions are 2 3/4% of the premium.
Agents who meet certain productivity and persistency standards receive
additional compensation. We may pay new agents differently during a training
period. General agents and district agents who are registered representatives of
NMIS and have supervisory responsibility for sales of the Policies receive
commission overrides and other compensation.
TAX TREATMENT OF POLICY BENEFITS
The Policies are "life insurance contracts" as that term is defined in sections
7702 and 817(h) of the Internal Revenue Code. Increases in cash value under a
Policy are not taxable until actual surrender of the Policy. Upon surrender, the
amount received is taxable at ordinary income rates under section 72(e) of the
Code to the extent it exceeds the amount of the premiums paid under the Policy
less any dividends or other amounts previously received tax-free (basis of the
Policy). Death benefits are excludable from the beneficiary's gross income under
section l0l(a) of the Code.
We believe that loans received under the Policies (except certain Single Premium
Life Policies) will be construed as indebtedness of an owner in the same manner
as loans under a fixed benefit life insurance
--
19
<PAGE>
policy and that no part of any loan under a Policy will constitute income to the
owner.
For Single Premium Life Policies issued after June 20, 1988, partial
withdrawals, Policy loans and dividends paid in cash are taxable as income to
the extent the cash value of the Policy exceeds the basis of the Policy. The
taxable portion of these distributions would also be subject to a 10% penalty if
received prior to age 59 1/2, disability or annuitization. For purposes of
determining taxable income, all Single Premium Life Policies (including any
fixed dollar single premium policies or other modified endowment contracts under
Section 7702A) issued by Northwestern Mutual Life to the Policy owner during the
same calendar year are aggregated.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend upon the
circumstances of each Policy owner or beneficiary.
The foregoing summary does not purport to be complete or to cover all
situations. You should consult counsel and other competent advisers for more
complete information.
- --------------------------------------------------------------------------------
OTHER INFORMATION
MANAGEMENT
Northwestern Mutual Life is managed by a Board of Trustees. The Trustees and
senior officers of Northwestern Mutual Life and their positions including Board
committee memberships, and their principal occupations, are as follows:
TRUSTEES
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------------------------------- ------------------------------------------------------------------------------
<S> <C>
R. Quintus Anderson (A)...................... Chairman, Aarque Capital Corporation since 1997; prior thereto, Chairman, The
Aarque Companies, Jamestown, NY (diversified metal products manufacturing)
Edward E. Barr (HR).......................... Chairman, Sun Chemical Corporation, Fort Lee, New Jersey (graphic arts) since
1998; prior thereto, President and Chief Executive Officer. President and
Chief Executive Officer, DIC Americas, Inc., Fort Lee, NJ
Gordon T. Beaham, III (OT)................... Chairman of the Board and President, Faultless Starch/Bon Ami Company, Kansas
City, MO (consumer products manufacturer)
Robert C. Buchanan (A, E, F)................. President and Chief Executive Officer, Fox Valley Corporation, Appleton, WI
(manufacturer of gift wrap and writing paper)
Robert E. Carlson (E)........................ Executive Vice President of Northwestern Mutual Life
George A. Dickerman (AM)..................... Chairman Emeritus, Spalding Sports Worldwide, Chicopee, MA (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, Wilmington, DE
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, Santa Fe, New Mexico
Stephen N. Graff (E, F, OT).................. Retired Partner, Arthur Andersen LLP (public accountants)
Patricia Albjerg Graham (HR)................. Professor, Graduate School of Education, Harvard University, Cambridge, MA,
and President, The Spencer Foundation (social and behavioral sciences)
Stephen F. Keller (HR)....................... Attorney. Former Chairman, Santa Anita Realty Enterprises since 1997; prior
thereto, Chairman
Barbara A. King (AM)......................... President, Landscape Structures, Inc., Delano, MN (manufacturer of playground
equipment
</TABLE>
--
20
<PAGE>
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------------------------------- ------------------------------------------------------------------------------
<S> <C>
J. Thomas Lewis (HR)......................... Attorney (retired), New Orleans, LA since 1998; prior thereto, Attorney with
Monroe & Lehmann, New Orleans, LA
Daniel F. McKeithan, Jr. (E, F, HR).......... President, Tamarack Petroleum Company, Inc., Milwaukee, WI (operator of oil
and gas wells); President, Active Investor Management, Inc., Milwaukee, WI
Guy A. Osborn (E, F, OT)..................... Retired Chairman of Universal Foods Corporation, Milwaukee, WI since 1997;
prior thereto, Chairman and Chief Executive Officer
Timothy D. Proctor (A)....................... Director, Worldwide Human Resources of Glaxo Wellcome plc, Greenford Middlesex
UB60NN, United Kingdom, since 1998; prior thereto, Senior Vice President Human
Resources, General Counsel & Secretary (pharmaceuticals)
Donald J. Schuenke (AM, E, F)................ Retired Chairman of Northwestern Mutual Life
H. Mason Sizemore, Jr. (AM).................. President and Chief Operating Officer, The Seattle Times, Seattle, WA
(publishing)
Harold B. Smith (OT)......................... Chairman, Executive Committee, Illinois Tool Works, Inc., Chicago, IL
(engineered components and industrial systems and consumables)
Sherwood H. Smith, Jr. (AM).................. Chairman of the Board of Carolina Power & Light since 1997; prior thereto,
Chairman of the Board and Chief Executive Officer
John E. Steuri (OT).......................... Chairman, Advanced Thermal Technologies, Little Rock, AR since 1997 (heating,
air-conditioning and humidity control). Retired since 1996 as Chairman and
Chief Executive Officer of ALLTEL Information Services, Inc., Little Rock, AR
(application software)
John J. Stollenwerk (AM, E, F)............... President and Owner, Allen-Edmonds Shoe Corporation, Port Washington, WI
Barry L. Williams (HR)....................... President and Chief Executive Officer of Williams Pacific Ventures, Inc.,
Redwood City, CA (venture capital)
Kathryn D. Wriston (A)....................... Director of various corporations, New York, NY
A -- Member, Audit Committee F -- Member, Finance Committee
AM -- Member, Agency and Marketing Committee HR -- Member, Human Resources and Public Policy Committee
OT -- Member, Operations and Technology Committee
E -- Member, Executive Committee
</TABLE>
SENIOR OFFICERS (OTHER THAN TRUSTEES)
<TABLE>
<CAPTION>
POSITION WITH
NAME NORTHWESTERN MUTUAL LIFE
- ------------------------ -----------------------------------
<S> <C>
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
</TABLE>
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21
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH
NAME NORTHWESTERN MUTUAL LIFE
- ------------------------ -----------------------------------
<S> <C>
Mason G. Ross Senior Vice President
John E. Schlifske Senior Vice President
Leonard F. Stecklein Senior Vice President
Frederic H. Sweet Senior Vice President
Dennis Tamcsin Senior Vice President
Walter J. Wojcik Senior Vice President
Gary E. Long Vice President and Controller
</TABLE>
REGULATION
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 our
internal systems in 1996. As of the date of this prospectus the necessary system
changes are substantially complete. System testing is in process and we expect
testing of all critical systems to be completed during the first six months of
1999.
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.
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 our 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.
--
22
<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
--
23
<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
--
24
<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
---
25
<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
---
26
<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
---
27
<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.
--
28
<PAGE>
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
DECEMBER 31, 1998
NOTE 8 -- Equity Values by Division are shown below:
<TABLE>
<CAPTION>
VARIABLE LIFE
POLICIES ISSUED BEFORE
OCTOBER 11, 1995
EQUITY OF:
------------------------ TOTAL
POLICYOWNERS NML EQUITY
------------- --------- ---------
<S> <C> <C> <C>
Aggressive Growth Stock Division......................................................... $ 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>
---
29
<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.
--
30
<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.
--
31
<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.
--
32
<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.
--
33
<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>
--
34
<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.
--
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
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.
--
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
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.
--
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
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
--
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
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
- --------------------------------------------- ---------------------------------------
(IN MILLIONS)
DECEMBER 31,
1998 DECEMBER 31, 1997
------------------ ------------------
<S> <C> <C> <C>
Foreign Currency Forward
Contracts................................... $601 $564
Common Stock Futures......................... 657 327
Bond Futures................................. 379 95
Options to acquire Interest Rate Swaps....... 419 530
Foreign Currency and Interest Rate Swaps..... 94 209
<CAPTION>
DERIVATIVE FINANCIAL INSTRUMENT RISKS REDUCED
- --------------------------------------------- ---------------------------------------------
<S> <C>
Foreign Currency Forward Currency exposure on foreign-denominated
Contracts................................... investments.
Common Stock Futures......................... Stock market price fluctuation.
Bond Futures................................. Bond market price fluctuation.
Options to acquire Interest Rate Swaps....... Interest rates payable on certain annuity and
insurance contracts.
Foreign Currency and Interest Rate Swaps..... 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
--
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
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
--
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
($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>
--
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
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.
--
42
<PAGE>
[LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Policyowners of
The Northwestern Mutual Life Insurance Company
We have audited the accompanying consolidated statement of financial position of
The Northwestern Mutual Life Insurance Company and its subsidiary as of December
31, 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
--
43
<PAGE>
APPENDIX
ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES AND ACCUMULATED PREMIUMS. The
tables on the following pages illustrate how the death benefit and cash value
for a Whole Life Policy, an Extra Ordinary Life Policy and a Single Premium Life
Policy would vary over time based on hypothetical investment results. The tables
assume gross (after tax) investment return rates of 0%, 6% and 12% on assets of
the Fund. The Policies illustrated are for male insureds, select risks, age 35.
The illustration for the Whole Life Policy is on page 45. The illustrations for
Extra Ordinary Life Policies are on pages 46 through 48. The illustration for
the Single Premium Life Policy is on page 49.
The death benefits and cash values would be different from those shown if the
gross investment return rate averaged 0%, 6% or 12%, but fluctuated over and
under the average rate at various points in time. The values would also be
different, depending on the Account divisions selected by the owner of the
Policy, if the return rate for the eleven Fund Portfolios averaged 0%, 6% or
12%, but the rates for each individual Portfolio varied over and under the
average.
The amounts shown as the death benefits and cash values reflect the deductions
from premiums, the charge at the annual rate of .50% of the Account's assets for
mortality and expense risks and the charge at the annual rate of .20% of the
Account's assets for taxes. The amounts shown as the cash values for the Single
Premium Life Policy reflect the deduction for sales costs during the first ten
Policy years. The amounts shown also reflect the average of the investment
advisory fees and the other Fund expenses applicable to each of the 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
"Deductions and Charges", p. 9. Thus the 0%, 6% and 12% gross hypothetical
return rates on the Fund's assets are equivalent to the net rates of -1.36%,
4.64% and 10.64% on the assets of the Account.
The second column of each table shows the amount which would accumulate if an
amount equal to the annual or single premium were invested to earn interest,
after taxes, at the stated interest rate compounded annually.
The death benefits and corresponding cash values shown for paid-up additions
purchased with dividends illustrate benefits which would be paid if investment
returns of 0%, 6% and 12% are realized, if mortality and expense experience in
the future is as currently experienced and if the current dividend scale remains
unchanged. See "Annual Dividends," p. 15. HOWEVER, THERE IS NO GUARANTEE AS TO
THE AMOUNT OF DIVIDENDS, IF ANY, THAT WILL BE PAID UNDER A POLICY. Although the
tables are based on the assumption that dividends will be used to purchase
additional paid-up death benefits, other dividend options are available. The
Extra Ordinary Life Policy is designed for a purchaser who intends to use all
dividends to purchase paid-up additions. See "Extra Ordinary Life Policy," p.
13.
A comparable illustration based on a proposed insured's age, sex and risk
classification and proposed face amount or premium is available upon request.
--
44
<PAGE>
VARIABLE WHOLE LIFE INSURANCE POLICY
MALE ISSUE AGE 35
$500 ANNUAL PREMIUM FOR SELECT UNDERWRITING RISK
FACE AMOUNT $30,979
DIVIDENDS USED TO PURCHASE PAID-UP ADDITIONS
<TABLE>
<CAPTION>
0% 6% 12%
DEATH BENEFIT* DEATH BENEFIT* DEATH BENEFIT*
---------------------------- ---------------------------- -----------------------------
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RATE OF ANNUAL INVESTMENT RATE OF ANNUAL INVESTMENT RATE OF
PREMIUM RETURN RETURN RETURN
ACCUMULATED AT ---------------------------- ---------------------------- -----------------------------
END OF 5% INTEREST BASE PAID-UP BASE PAID-UP BASE PAID-UP
POLICY YEAR PER YEAR POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL
- --------------- -------------- ------- --------- ------- ------- --------- ------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.............. $ 525 $30,979 $ 73 $31,052 $30,982 $ 73 $31,055 $31,011 $ 73 $ 31,084
2.............. 1,076 30,979 163 31,142 30,993 167 31,160 31,128 172 31,300
3.............. 1,655 30,979 267 31,246 31,012 282 31,294 31,332 297 31,629
4.............. 2,263 30,979 383 31,362 31,038 416 31,454 31,626 450 32,076
5.............. 2,901 30,979 510 31,489 31,072 570 31,642 32,016 634 32,650
6.............. 3,571 30,979 644 31,623 31,113 741 31,854 32,505 848 33,353
7.............. 4,275 30,979 789 31,768 31,161 934 32,095 33,097 1,100 34,197
8.............. 5,013 30,979 941 31,920 31,216 1,147 32,363 33,795 1,391 35,186
9.............. 5,789 30,979 1,101 32,080 31,278 1,383 32,661 34,604 1,728 36,332
10............. 6,603 30,979 1,269 32,248 31,346 1,642 32,988 35,528 2,114 37,642
15............. 11,329 30,979 2,116 33,095 31,780 3,222 35,002 42,063 4,889 46,952
20 (age 55).... 17,360 30,979 2,724 33,703 32,350 5,106 37,456 52,417 9,391 61,808
30 (age 65).... 34,880 30,979 2,915 33,894 33,826 10,067 43,893 89,590 28,514 118,104
<CAPTION>
0% 6% 12%
CASH VALUE* CASH VALUE* CASH VALUE*
---------------------------- ---------------------------- -----------------------------
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RATE OF ANNUAL INVESTMENT RATE OF ANNUAL INVESTMENT RATE OF
PREMIUM RETURN RETURN RETURN
ACCUMULATED AT ---------------------------- ---------------------------- -----------------------------
END OF 5% INTEREST BASE PAID-UP BASE PAID-UP BASE PAID-UP
POLICY YEAR PER YEAR POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL
- --------------- -------------- ------- --------- ------- ------- --------- ------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.............. $ 525 $ 91 $ 18 $ 109 $ 98 $ 18 $ 116 $ 106 $ 18 $ 124
2.............. 1,076 418 43 461 453 44 497 489 46 535
3.............. 1,655 737 74 811 820 78 898 909 82 991
4.............. 2,263 1,047 109 1,156 1,200 119 1,319 1,369 129 1,498
5.............. 2,901 1,362 151 1,513 1,606 169 1,775 1,886 188 2,074
6.............. 3,571 1,667 197 1,864 2,025 226 2,251 2,452 259 2,711
7.............. 4,275 1,963 249 2,212 2,457 295 2,752 3,070 347 3,417
8.............. 5,013 2,250 307 2,557 2,902 374 3,276 3,744 454 4,198
9.............. 5,789 2,526 370 2,896 3,361 465 3,826 4,481 582 5,063
10............. 6,603 2,794 440 3,234 3,833 570 4,403 5,287 734 6,021
15............. 11,329 3,990 855 4,845 6,409 1,302 7,711 10,567 1,977 12,544
20 (age 55).... 17,360 4,944 1,272 6,216 9,343 2,384 11,727 18,715 4,385 23,100
30 (age 65).... 34,880 6,045 1,757 7,802 16,103 6,070 22,173 49,729 17,194 66,923
</TABLE>
* Assumes no policy loan has been made.
DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALE AND EXPERIENCE AND ARE NOT
GUARANTEED. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE
INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF RETURN OF THE FUND
PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND
12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF
TIME.
--
45
<PAGE>
EXTRA ORDINARY VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 35
$100,000 OF INSURANCE ($60,000 GUARANTEED MINIMUM
+ $40,000 OF EXTRA LIFE PROTECTION GUARANTEED FOR 27 YEARS (1))
ANNUAL PREMIUM FOR SELECT UNDERWRITING RISK: $1,014.00 (2)
DIVIDENDS USED TO PURCHASE PAID-UP ADDITIONS (1)
ASSUMING 0% HYPOTHETICAL GROSS ANNUAL INVESTMENT RATE OF RETURN
<TABLE>
<CAPTION>
DEATH BENEFIT (3)
------------------------------------------------------------- CASH VALUE (3)
PREMIUMS EXTRA LIFE PROTECTION ---------------------------------
ACCUMULATED ------------------------------------ CASH
AT 5% TOTAL MINIMUM VARIABLE VARIABLE VALUE OF CASH VALUE TOTAL
END OF INTEREST PER DEATH DEATH INSURANCE PAID-UP TERM BASE OF PAID-UP CASH
POLICY YEAR YEAR BENEFIT BENEFIT AMOUNT ADDITIONS INSURANCE POLICY ADDITIONS VALUE
- --------------- ------------- ---------- ----------- ---------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.............. $ 1,065 $ 100,000 $ 60,000 $ (45) $ 158 $ 39,842 $ 152 $ 41 $ 193
2.............. 2,183 100,000 60,000 (217) 380 39,620 785 102 887
3.............. 3,356 100,000 60,000 (505) 655 39,345 1,402 182 1,584
4.............. 4,589 100,000 60,000 (898) 975 39,025 2,002 279 2,281
5.............. 5,883 100,000 60,000 (1,392) 1,331 38,669 2,614 394 3,008
6.............. 7,242 100,000 60,000 (1,976) 1,715 38,285 3,208 525 3,733
7.............. 8,669 100,000 60,000 (2,642) 2,127 37,873 3,783 672 4,455
8.............. 10,167 100,000 60,000 (3,380) 2,564 37,436 4,340 836 5,176
9.............. 11,740 100,000 60,000 (4,183) 3,028 36,972 4,877 1,019 5,896
10............. 13,392 100,000 60,000 (5,044) 3,516 36,484 5,397 1,221 6,618
15............. 22,975 100,000 60,000 (9,988) 5,994 34,006 7,720 2,423 10,143
20 (age 55).... 35,205 100,000 60,000 (15,540) 7,412 32,588 9,575 3,461 13,036
30 (age 65).... 70,737 89,667 60,000 (26,747) 6,180 23,487 11,717 3,726 15,443
</TABLE>
(1) Extra Life Protection is guaranteed to be at least $40,000 for 27 years, so
long as all premiums are paid when due, no policy loan is outstanding, all
dividends are applied to purchase paid-up additions and no paid-up additions
are surrendered for their cash value. Extra Life Protection is the sum of
any positive variable insurance amount plus variable paid-up additions plus
term insurance.
(2) If premiums were paid monthly, the monthly payments would be $89.10. The
death benefit and cash values would not be affected.
(3) Assumes no policy loan has been made.
(4) After the guaranteed period of 27 years for Extra Life Protection, the
amount of term insurance depends on the dividend scale. The amount
illustrated is based on current scale and experience and is not guaranteed.
DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALE AND EXPERIENCE AND ARE NOT
GUARANTEED. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE
INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF RETURN OF THE FUND
PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATE OF RETURN AVERAGED 0% OVER A
PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THIS HYPOTHETICAL RATE OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME.
--
46
<PAGE>
EXTRA ORDINARY VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 35
$100,000 OF INSURANCE ($60,000 GUARANTEED MINIMUM
+ $40,000 OF EXTRA LIFE PROTECTION GUARANTEED FOR 27 YEARS (1))
ANNUAL PREMIUM FOR SELECT UNDERWRITING RISK: $1,014.00 (2)
DIVIDENDS USED TO PURCHASE PAID-UP ADDITIONS (1)
ASSUMING 6% HYPOTHETICAL GROSS ANNUAL INVESTMENT RATE OF RETURN
<TABLE>
<CAPTION>
DEATH BENEFIT (3)
----------------------------------------------------- CASH VALUE (3)
PREMIUMS EXTRA LIFE PROTECTION ----------------------------
ACCUMULATED ---------------------------------- CASH CASH
AT 5% TOTAL MINIMUM VARIABLE VARIABLE VALUE VALUE OF TOTAL
END OF INTEREST DEATH DEATH INSURANCE PAID-UP TERM OF BASE PAID-UP CASH
POLICY YEAR PER YEAR BENEFIT BENEFIT AMOUNT ADDITIONS INSURANCE POLICY ADDITIONS VALUE
- -------------------- ----------- -------- ------- --------- --------- ---------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1................... $ 1,065 $100,000 $60,000 $ 5 $ 158 $39,837 $ 165 $ 41 $ 206
2................... 2,183 100,000 60,000 26 390 39,584 851 104 955
3................... 3,356 100,000 60,000 62 689 39,249 1,560 191 1,751
4................... 4,589 100,000 60,000 112 1,052 38,836 2,292 302 2,594
5................... 5,883 100,000 60,000 177 1,474 38,349 3,080 437 3,517
6................... 7,242 100,000 60,000 256 1,950 37,794 3,892 597 4,489
7................... 8,669 100,000 60,000 349 2,485 37,166 4,729 785 5,514
8................... 10,167 100,000 60,000 456 3,079 36,465 5,592 1,005 6,597
9................... 11,740 100,000 60,000 576 3,736 35,688 6,480 1,258 7,738
10.................. 13,392 100,000 60,000 708 4,458 34,834 7,396 1,549 8,945
15.................. 22,975 100,000 60,000 1,545 8,837 29,618 12,384 3,573 15,957
20 (age 55)......... 35,205 100,000 60,000 2,644 13,569 23,787 18,068 6,337 24,405
30 (age 65)......... 70,737 100,000 60,000 5,499 24,647 9,854 31,161 14,862 46,023
</TABLE>
(1) Extra Life Protection is guaranteed to be at least $40,000 for 27 years, so
long as all premiums are paid when due, no policy loan is outstanding, all
dividends are applied to purchase paid-up additions and no paid-up additions
are surrendered for their cash value. Extra Life Protection is the sum of
any positive variable insurance amount plus variable paid-up additions plus
term insurance.
(2) If premiums were paid monthly, the monthly payments would be $89.10. The
death benefit and cash values would not be affected.
(3) Assumes no policy loan has been made.
(4) After the guaranteed period of 27 years for Extra Life Protection, the
amount of term insurance depends on the dividend scale. The amount
illustrated is based on current scale and experience and is not guaranteed.
DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALE AND EXPERIENCE AND ARE NOT
GUARANTEED. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE
INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF RETURN OF THE FUND
PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATE OF RETURN AVERAGED 6% OVER A
PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THIS HYPOTHETICAL RATE OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME.
--
47
<PAGE>
EXTRA ORDINARY VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 35
$100,000 OF INSURANCE ($60,000 GUARANTEED MINIMUM
+ $40,000 OF EXTRA LIFE PROTECTION GUARANTEED FOR 27 YEARS (1))
ANNUAL PREMIUM FOR SELECT UNDERWRITING RISK: $1,014.00 (2)
DIVIDENDS USED TO PURCHASE PAID-UP ADDITIONS (1)
ASSUMING 12% HYPOTHETICAL GROSS ANNUAL INVESTMENT RATE OF RETURN
<TABLE>
<CAPTION>
DEATH BENEFIT (3)
---------------------------------------------------- CASH VALUE (3)
PREMIUMS EXTRA LIFE PROTECTION ------------------------------
ACCUMULATED --------------------------------- CASH CASH
AT 5% TOTAL MINIMUM VARIABLE VARIABLE VALUE OF VALUE OF TOTAL
END OF INTEREST DEATH DEATH INSURANCE PAID-UP TERM BASE PAID-UP CASH
POLICY YEAR PER YEAR BENEFIT BENEFIT AMOUNT ADDITIONS INSURANCE POLICY ADDITIONS VALUE
- -------------------- ----------- -------- ------- --------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1................... $ 1,065 $100,000 $60,000 $ 56 $ 158 $39,786 $ 178 $ 41 $ 219
2................... 2,183 100,000 60,000 276 400 39,324 918 107 1,025
3................... 3,356 100,000 60,000 664 725 38,611 1,727 201 1,928
4................... 4,589 100,000 60,000 1,226 1,135 37,639 2,612 325 2,937
5................... 5,883 100,000 60,000 1,974 1,633 36,393 3,613 484 4,097
6................... 7,242 100,000 60,000 2,913 2,222 34,865 4,706 680 5,386
7................... 8,669 100,000 60,000 4,051 2,913 33,036 5,899 921 6,820
8................... 10,167 100,000 60,000 5,395 3,716 30,889 7,204 1,212 8,416
9................... 11,740 100,000 60,000 6,952 4,646 28,402 8,628 1,564 10,192
10.................. 13,392 100,000 60,000 8,732 5,715 25,553 10,184 1,985 12,169
15.................. 22,975 100,000 60,000 21,333 13,442 5,225 20,387 5,435 25,822
20 (age 55)......... 35,205 127,010 60,000 41,316 25,694 0 36,129 12,000 48,129
30 (age 65)......... 70,737 247,407 60,000 113,104 74,303 0 96,048 44,805 140,853
</TABLE>
(1) Extra Life Protection is guaranteed to be at least $40,000 for 27 years, so
long as all premiums are paid when due, no policy loan is outstanding, all
dividends are applied to purchase paid-up additions and no paid-up additions
are surrendered for their cash value. Extra Life Protection is the sum of
any positive variable insurance amount plus variable paid-up additions plus
term insurance.
(2) If premiums were paid monthly, the monthly payments would be $89.10. The
death benefit and cash values would not be affected.
(3) Assumes no policy loan has been made.
DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALE AND EXPERIENCE AND ARE NOT
GUARANTEED. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE
INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF RETURN OF THE FUND
PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATE OF RETURN AVERAGED 12% OVER A
PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THIS HYPOTHETICAL RATE OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME.
--
48
<PAGE>
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 35
FACE AMOUNT $25,000
SINGLE PREMIUM FOR SELECT UNDERWRITING RISK: $6,443.25
DIVIDENDS USED TO PURCHASE PAID-UP ADDITIONS
<TABLE>
<CAPTION>
0% 6% 12%
DEATH BENEFIT* DEATH BENEFIT* DEATH BENEFIT*
----------------------------- ---------------------------- ------------------------------
ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
PREMIUMS GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT
ACCUMULATED RATE OF RETURN RATE OF RETURN RATE OF RETURN
AT 5% ----------------------------- ---------------------------- ------------------------------
END OF INTEREST BASE PAID-UP BASE PAID-UP BASE PAID-UP
POLICY YEAR PER YEAR POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL
- --------------- ----------- -------- --------- ------- ------- --------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.............. $ 6,765 $ 25,000 $ 50 $25,050 $25,154 $ 50 $25,204 $ 26,601 $ 50 $ 26,651
2.............. 7,104 25,000 92 25,092 25,309 105 25,414 28,305 116 28,421
3.............. 7,459 25,000 125 25,125 25,465 165 25,630 30,118 199 30,317
4.............. 7,832 25,000 150 25,150 25,622 230 25,852 32,047 302 32,349
5.............. 8,223 25,000 167 25,167 25,780 300 26,080 34,100 427 34,527
6.............. 8,635 25,000 176 25,176 25,939 375 26,314 36,285 578 36,863
7.............. 9,066 25,000 178 25,178 26,099 457 26,556 38,610 759 39,369
8.............. 9,520 25,000 174 25,174 26,260 545 26,805 41,084 974 42,058
9.............. 9,996 25,000 166 25,166 26,422 642 27,064 43,717 1,230 44,947
10............. 10,495 25,000 159 25,159 26,585 748 27,333 46,519 1,533 48,052
15............. 13,395 25,000 127 25,127 27,415 1,389 28,804 63,474 3,906 67,380
20 (age 55).... 17,096 25,000 101 25,101 28,275 2,186 30,461 86,629 8,300 94,929
30 (age 65).... 27,847 25,000 66 25,066 30,076 4,481 34,557 161,514 30,006 191,520
</TABLE>
<TABLE>
<CAPTION>
0% 6% 12%
CASH VALUE* CASH VALUE* CASH VALUE*
----------------------------- ---------------------------- ------------------------------
ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
PREMIUMS GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT
ACCUMULATED RATE OF RETURN RATE OF RETURN RATE OF RETURN
AT 5% ----------------------------- ---------------------------- ------------------------------
END OF INTEREST BASE PAID-UP BASE PAID-UP BASE PAID-UP
POLICY YEAR PER YEAR POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL
- --------------- ----------- -------- --------- ------- ------- --------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.............. $ 6,765 $ 5,653 $ 13 $ 5,666 $ 6,030 $ 13 $ 6,043 $ 6,406 $ 13 $ 6,419
2.............. 7,104 5,568 24 5,592 6,329 28 6,357 7,134 31 7,165
3.............. 7,459 5,489 34 5,523 6,641 45 6,686 7,934 55 7,989
4.............. 7,832 5,416 43 5,459 6,968 66 7,034 8,812 86 8,898
5.............. 8,223 5,349 49 5,398 7,308 88 7,396 9,776 126 9,902
6.............. 8,635 5,287 53 5,340 7,663 114 7,777 10,832 177 11,009
7.............. 9,066 5,232 56 5,288 8,033 144 8,177 11,989 240 12,229
8.............. 9,520 5,183 56 5,239 8,418 177 8,595 13,257 317 13,574
9.............. 9,996 5,142 55 5,197 8,819 216 9,035 14,645 414 15,059
10............. 10,495 5,108 55 5,163 9,237 259 9,496 16,164 532 16,696
15............. 13,395 4,557 51 4,608 11,086 561 11,647 25,668 1,579 27,247
20 (age 55).... 17,096 4,034 47 4,081 13,205 1,020 14,225 40,459 3,876 44,335
30 (age 65).... 27,847 3,056 39 3,095 18,136 2,702 20,838 97,394 18,093 115,487
</TABLE>
* Assumes no policy loan has been made.
DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALE AND EXPERIENCE AND ARE NOT
GUARANTEED. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE
INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF RETURN OF THE FUND
PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND
12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF
TIME.
--
49
<PAGE>
(This page has been left blank intentionally.)
--
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 the
information may be obtained, upon payment of a duplicating fee by writing the
Public Reference Section of the SEC, Washington, DC 20549-6009.
NORTHWESTERN MUTUAL LIFE
Northwestern Mutual Variable Life
Northwestern Mutual Variable Life Account
Northwestern Mutual Series Fund, Inc.
Russell Insurance Funds
90-1898 (4-99)
PROSPECTUSES
Investment Company Act File Nos. 811-3990 and 811-5371
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PRSRT STD
NORTHWESTERN U S POSTAGE
MUTUAL LIFE-Registered Trademark- PAID
PO Box 3095 MILWAUKEE WI
Milwaukee WI 53201-3095 PERMIT NO 426
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