<PAGE>
Registration No. 2-89972
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
POST-EFFECTIVE AMENDMENT NO. 21
To
FORM S-6
REGISTRATION STATEMENT
Under
The Securities Act of 1933
------------------
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
(Exact Name of Trust)
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
(Name of Depositor)
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
(Complete address of depositor's principal executive offices)
JOHN M. BREMER, Executive Vice President, General Counsel and Secretary
The Northwestern Mutual Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
(Name and complete address of agent for service)
It is proposed that this filing will become effective
immediately upon filing pursuant to paragraph (b)
-----
on (DATE) pursuant to paragraph (b)
-----
60 days after filing pursuant to paragraph (a)(1)
-----
X on April 30, 1999 pursuant to paragraph (a)(1)
----- of Rule 485
this post-effective amendment designates a new
----- effective date for a previously filed post-effective
amendment
------------------
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
CROSS-REFERENCE SHEET
Cross reference sheet showing location in Prospectus of information
required by Form N-8B-2.
Item Number Heading in Prospectus
----------- ---------------------
1 . . . . . . . . Cover Page
2 . . . . . . . . Cover Page; Northwestern Mutual Life
3 . . . . . . . . Not Applicable
4 . . . . . . . . Distribution of the Policies
5 . . . . . . . . The Account
6 . . . . . . . . The Account
9 . . . . . . . . Legal Proceedings
10(a) . . . . . . . Other Policy Provisions:
OWNER AND COLLATERAL ASSIGNMENT
10(b) . . . . . . . Annual Dividends
10(c) and (d) . . . Death Benefit, Cash Value, Policy Loans, Right to
Return Policy, Right to Exchange for a Fixed
Benefit Policy, Payment Plans
10(e) . . . . . . . Grace Period, Extended Term and Paid-Up Insurance,
Reinstatement
10(f) . . . . . . . Voting Rights
10(g) Voting Rights, Substitution of Fund Shares
and Other Charges 10(h) Voting Rights,
Substitution of Fund Shares and Other Charges
10(I) . . . . . . . Premiums, Death Benefit, Annual Dividends, Other
Policy Provisions:
PAYMENT PLANS
1 . . . . . . . . . The Account, The Funds: NORTHWESTERN MUTUAL SERIES
FUND, INC. -- 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. RUSSELL
INSURANCE FUNDS -- Multi-Style Equity Fund,
Aggressive Equity Fund, Non-U.S. Fund, Real Estate
Securities Fund, and Core Bond Fund
12 . . . . . . . . The Funds
13 . . . . . . . . The Funds, Deductions and Charges, Deductions from
Premiums for Whole Life and Extra Ordinary Life
Policies, Deductions for Single Premium Life
Policies, Charges Against the Account Assets
14 . . . . . . . . Requirements for Insurance
15 . . . . . . . . Premiums, Allocations to the Account
16 . . . . . . . . The Account, The Funds, Allocations to the
Account, Transfers Between Divisions
17 . . . . . . . . Same Captions as Items 10(a), (c), and (d)
18 . . . . . . . . The Account, Annual Dividends
i
<PAGE>
19 . . . . . . . . Reports
20 . . . . . . . . Not Applicable
21 . . . . . . . . Policy Loans
22 . . . . . . . . Not Applicable
23 . . . . . . . . Not Applicable
24 . . . . . . . . Not Applicable
25 . . . . . . . . Not Applicable
26 . . . . . . . . Not Applicable
27 . . . . . . . . Northwestern Mutual Life
28 . . . . . . . . Management
29 . . . . . . . . Not Applicable
30 . . . . . . . . Not Applicable
31 . . . . . . . . Not Applicable
32 . . . . . . . . Not Applicable
33 . . . . . . . . Not Applicable
34 . . . . . . . . Not Applicable
35 . . . . . . . . Northwestern Mutual Life
37 . . . . . . . . Not Applicable
38 . . . . . . . . Distribution of the Policies
39 . . . . . . . . Distribution of the Policies
40 . . . . . . . . The Funds
41 . . . . . . . . The Funds, Distribution of the Policies
42 . . . . . . . . Not Applicable
43 . . . . . . . . Not Applicable
44 . . . . . . . . The Funds, Requirements for Insurance, Premiums
45 . . . . . . . . Not Applicable
46 . . . . . . . . Same Captions as Items 10(c) and (d)
47 . . . . . . . . Not Applicable
48 . . . . . . . . Not Applicable
49 . . . . . . . . Not Applicable
50 . . . . . . . . The Account
51 . . . . . . . . Numerous Captions
52 . . . . . . . . Substitution of Fund Shares and Other Changes
53 . . . . . . . . Charges Against the Account Assets
54 . . . . . . . . Not Applicable
55 . . . . . . . . Not Applicable
ii
<PAGE>
PROSPECTUS
April 30, 1999
[LOGO]
The Quiet Company-Registered Trademark-
NORTHWESTERN MUTUAL VARIABLE LIFE
Whole Life
Extra Ordinary Life
Single Premium Life
(PHOTO)
Northwestern Mutual Series Fund, Inc. and
Russell Insurance Funds
The Northwestern Mutual
Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
(414) 271-1444
<PAGE>
CONTENTS FOR THIS PROSPECTUS
Page
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 . . . . . . . . . 4
International Equity Portfolio. . . . . . . . . . . 4
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. . . . . . . . . . . . . . 5
Aggressive Equity Fund . . . . . . . . . . . . . . 5
Non-U.S. Fund. . . . . . . . . . . . . . . . . . . 5
Real Estate Securities Fund. . . . . . . . . . . . 6
Core Bond Fund . . . . . . . . . . . . . . . . . . 6
Detailed Information about the Policies . . . . . . . . 6
Requirements for Insurance. . . . . . . . . . . . . . 6
Premiums. . . . . . . . . . . . . . . . . . . . . . . 6
Grace Period. . . . . . . . . . . . . . . . . . . . . 7
Allocations to the Account. . . . . . . . . . . . . . 8
Transfers Between Divisions . . . . . . . . . . . . . 8
Deductions and Charges. . . . . . . . . . . . . . . . 8
Deductions from Premiums for Whole
Life and Extra Ordinary Life Policies. . . . . . . . 8
Deductions for Single Premium
Life Policies. . . . . . . . . . . . . . . . . . . . 9
Charges Against the Account Assets. . . . . . . . . .10
Guarantee of Premiums, Deductions
and Charges. . . . . . . . . . . . . . . . . . . . .10
Death Benefit . . . . . . . . . . . . . . . . . . . .10
Page
Variable Insurance Amount . . . . . . . . . . . . .10
Whole Life Policy and Single
Premium Life Policy. . . . . . . . . . . . . . . .11
Extra Ordinary Life Policy. . . . . . . . . . . . .12
Cash Value. . . . . . . . . . . . . . . . . . . . . .14
Annual Dividends. . . . . . . . . . . . . . . . . . .14
Policy Loans. . . . . . . . . . . . . . . . . . . . .15
Extended Term and Paid-Up Insurance . . . . . . . . .15
Reinstatement . . . . . . . . . . . . . . . . . . . .16
Right to Exchange for a Fixed
Benefit Policy . . . . . . . . . . . . . . . . . . .16
Other Policy Provisions . . . . . . . . . . . . . . .16
Owner . . . . . . . . . . . . . . . . . . . . . . .16
Beneficiary . . . . . . . . . . . . . . . . . . . .16
Incontestability. . . . . . . . . . . . . . . . . .16
Suicide . . . . . . . . . . . . . . . . . . . . . .16
Misstatement of Age or Sex. . . . . . . . . . . . .16
Collateral Assignment . . . . . . . . . . . . . . .16
Payment Plans . . . . . . . . . . . . . . . . . . .16
Deferral of Determination and Payment . . . . . . .16
Voting Rights . . . . . . . . . . . . . . . . . . . .17
Substitution of Fund Shares
and Other Changes. . . . . . . . . . . . . . . . . .17
Reports . . . . . . . . . . . . . . . . . . . . . . .17
Special Policy for Employers. . . . . . . . . . . . .17
Distribution of the Policies. . . . . . . . . . . . .17
Tax Treatment of Policy Benefits. . . . . . . . . . .18
Other Information . . . . . . . . . . . . . . . . . . .18
Management. . . . . . . . . . . . . . . . . . . . . .18
Regulation. . . . . . . . . . . . . . . . . . . . . .20
Year 2000 Issues. . . . . . . . . . . . . . . . . . .20
Legal Proceedings . . . . . . . . . . . . . . . . . .21
Registration Statement. . . . . . . . . . . . . . . .21
Experts . . . . . . . . . . . . . . . . . . . . . . .21
Financial Statements. . . . . . . . . . . . . . . . . .22
Report of Independent Accountants
(for the two years ended December 31, 1998) . . . .22
Financial Statements of the Account
(for the two years ended December 31, 1998) . . . .23
Financial Statements of Northwestern Mutual Life
(for the three years ended
December 31, 1998). . . . . . . . . . . . . . . . .29
Report of Independent Accountants
(for the three years ended
December 31, 1998). . . . . . . . . . . . . . . . .42
Appendix . . . . . . . . . . . . . . . . . . . . . . .43
<PAGE>
P R O S P E C T U S
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.
1
<PAGE>
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.
- --------------------------------------------------------------------------------
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
SURRENDER CHARGES
- For the Single Premium Life Policy only, a deduction of up to 9% of
the Policy's tabular cash value if the Policy is surrendered during
the first ten Policy years
2
<PAGE>
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.
<TABLE>
<CAPTION>
NORTHWESTERN MUTUAL SERIES FUND, INC.
INVESTMENT
ADVISORY OTHER TOTAL
PORTFOLIO FEE EXPENSES EXPENSES
- --------- ----------- -------- --------
<S> <C> <C> <C>
Small Cap Growth
Stock . . . . . . . . .80% .12% .92%
Aggressive Growth
Stock . . . . . . . . .52% .00% .52%
International Equity. . .67% .09% .76%
Index 400 Stock . . . . .25% .10% .35%
Growth Stock. . . . . . .45% .01% .46%
Growth and Income
Stock . . . . . . . . .57% .01% .58%
Index 500 Stock . . . . .20% .01% .21%
Balanced. . . . . . . . .30% .00% .30%
High Yield Bond . . . . .49% .01% .50%
Select Bond . . . . . . .30% .00% .30%
Money Market. . . . . . .30% .00% .30%
</TABLE>
<TABLE>
<CAPTION>
RUSSELL INSURANCE FUNDS
INVESTMENT
ADVISORY OTHER TOTAL
FUND FEE* EXPENSES* EXPENSES
- ---- ---------- -------- --------
<S> <C> <C> <C>
Multi-Style Equity
Fund. . . . . . . . 0.78% 0.43% 1.21%
Aggressive Equity
Fund. . . . . . . . 0.95% 0.72% 1.67%
Non-U.S. Fund . . . . 0.95% 1.42% 2.37%
Real Estate Securities
Fund. . . . . . . . 0.85% 0.31% 1.16%
Core Bond Fund. . . . 0.60% 0.68% 1.28%
</TABLE>
*MULTI-STYLE EQUITY FUND Frank Russell Investment Company's (FRIC's) advisor,
Frank Russell Investment Management Company (FRIMCo) has 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 gross 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 gross 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 gross 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 ___% management fee, up to the full amount of that fee, equal to the amount
by which the Fund's total operating expenses exceed ___5% 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 ___% 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. Taking the fee waivers into account, the actual
gross annual total operating expenses were ___% of the average net assets of the
Real Estate Securities Fund.
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 gross annual total operating expenses were .80% of the
average net assets of the Core Bond Fund.
3
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY,
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT,
NORTHWESTERN MUTUAL SERIES FUND, INC. AND
RUSSELL INSURANCE FUNDS
NORTHWESTERN MUTUAL LIFE
The Northwestern Mutual Life Insurance Company is a mutual life insurance
company organized by a special act of the Wisconsin Legislature in 1857. It is
the nation's fourth largest life insurance company, based on total assets in
excess of $77 billion on December 31, 1998 and is licensed to conduct a
conventional life insurance business in the District of Columbia and in all
states of the United States. Northwestern Mutual Life sells life and disability
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 achieve this objective primarily by investing in the common stocks of
companies which can reasonably be expected to increase sales and earnings at a
pace which will exceed the growth rate of the U.S. economy over an extended
period.
AGGRESSIVE GROWTH STOCK PORTFOLIO. The investment objective of the Aggressive
Growth Stock Portfolio is to achieve long-term appreciation of capital primarily
by investing in the common stocks of companies which can reasonably be expected
to increase their sales and earnings at a pace which will exceed the growth rate
of the nation's economy over an extended period.
INTERNATIONAL EQUITY PORTFOLIO. The investment objective of the International
Equity Portfolio is long-term capital growth. It pursues its objective through
a flexible policy of investing in stocks and debt securities of companies and
governments outside the United States.
4
<PAGE>
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.
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 Insurance 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 organization researched and recommended by Frank Russell
Company ("Russell"), and an affiliate of Russell, Frank Russell Investment
Management Company ("FRIMCo"). FRIMCo also advises, operates and administers
the Russell Insurance Funds. Russell is our majority-owned subsidiary.
The investment objectives and types of investments for each of the five Russell
Insurance Funds are set forth below. There can be no assurance that the Funds
will realize their objectives. A table showing the expense ratios for each of
the Russell Insurance Funds is included in the Summary above, at page 3. For
more information about the investment objectives and policies, the attendant
risk factors and expenses see the attached prospectus for the Russell Insurance
Funds.
MULTI-STYLE EQUITY FUND. The investment objective of the Multi-Style Equity
Fund is to provide income and capital growth by investing principally in equity
securities. The Multi-Style Equity Fund invests primarily in common stocks of
medium and large capitalization companies. These companies are predominately
US-based, although the Fund may invest a limited portion of its assets in non-US
firms from time to time.
AGGRESSIVE EQUITY FUND. The investment objective of the Aggressive Equity Fund
is to provide capital appreciation by assuming a higher level of volitility 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
5
<PAGE>
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.
- --------------------------------------------------------------------------------
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 do not qualify as select
risks. The amount of additional premium depends on the risk classification in
which we place the insured. We consider nonsmokers 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.
6
<PAGE>
<TABLE>
<CAPTION>
% EXCESS OF 12
MONTHLY PREMIUMS
AGE AT FACE ANNUAL MONTHLY OVER ANNUAL
ISSUE AMOUNT PREMIUM PREMIUM PREMIUM
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SELECT
15 $ 50,000 $ 382.50 $ 33.60 5.4%
35 100,000 1,536.00 135.10 5.5%
55 100,000 3,766.00 331.10 5.5%
STANDARD PLUS
15 50,000 406.00 35.60 5.2%
35 100,000 1,683.00 148.10 5.6%
55 100,000 4,125.00 363.10 5.6%
STANDARD
15 50,000 491.50 43.10 5.2%
35 100,000 1,912.00 168.10 5.5%
55 100,000 4,587.00 404.10 5.7%
</TABLE>
The following table for Extra Ordinary Life Policies shows representative
annual premiums for male select and standard risks for various amounts of
insurance. The amounts of insurance shown in the table are the total amounts
in effect when the Extra Ordinary Life Policy is issued, including both the
Minimum Death Benefit which we guarantee for the lifetime of the insured and
the Extra Life Protection which we guarantee for a shorter period. See "Death
Benefit", p. 10, and "Extra Ordinary Life Policy", p. 12.
<TABLE>
<CAPTION>
% EXCESS OF 12
MONTHLY PREMIUMS
AGE AT FACE ANNUAL MONTHLY OVER ANNUAL
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
AGE AT AMOUNT OF GROSS SINGLE
ISSUE 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
7
<PAGE>
the date when the premium was due and will no longer be in force, unless it is
continued as extended term or paid-up insurance. See "Extended Term and Paid-Up
Insurance", p. 15. If you surrender a Policy, we will pay its cash value. See
"Cash Value", p. 14. 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.
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 3, 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
8
<PAGE>
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.
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:
<TABLE>
<CAPTION>
WHOLE LIFE
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. 8. 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. 14. 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.
9
<PAGE>
<TABLE>
<CAPTION>
POLICY YEAR END WHEN DEDUCTION AS % OF
POLICY IS 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. 15.
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 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. 14.
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. 12.
DEATH BENEFIT
The death benefit for a variable life insurance policy is, in part, a guaranteed
amount which will not be reduced during the lifetime of the insured so long as
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. 11, and "Extra Ordinary Life Policy", p. 12.
VARIABLE INSURANCE AMOUNT. The variable insurance amount reflects, on a
cumulative basis, the investment experience of the Account divisions in which
the Policy has participated. 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.
10
<PAGE>
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.
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. 14. 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 44 and
assuming the 12% hypothetical gross investment earnings rate on assets of the
selected Portfolio of the Fund (equivalent to a net rate of 10.86% 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>
End of Policy Year 5 . $30,979 $1,075 $637 $32,691
Change . . . . . . . . 0 +508 +216 +724
---------- --------- --------- -------
End of Policy Year 6 . $30,979 $1,583 $853 $33,415
</TABLE>
If instead the gross earnings rate during the sixth Policy year had been 0%
(equivalent to a net rate of -1.14%) the death benefit at the end of Policy Year
5 would change as follows:
11
<PAGE>
<TABLE>
<CAPTION>
GUARANTEED VARIABLE TOTAL
FACE INSURANCE PAID-UP DEATH
AMOUNT + AMOUNT + ADDITIONS = BENEFIT
---------- --------- --------- -------
<S> <C> <C> <C> <C>
End of Policy Year 5 . $30,979 $1,075 $637 $32,691
Change . . . . . . . . 0 -381 +142 -239
---------- --------- --------- -------
End of Policy Year 6 . $30,979 $694 $779 $32,452
</TABLE>
The following example shows how the death benefit for a Single Premium Life
Policy could vary based on investment results. Using the Policy illustrated on
page 48 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
10.86% 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>
End of Policy Year 5 . $25,000 $9,440 $433 $34,873
Change . . . . . . . . 0 +2,280 +154 +2,434
---------- --------- --------- -------
End of Policy Year 6 . $25,000 $11,720 $587 $37,307
</TABLE>
If instead the gross earnings rate during the sixth Policy year had been 0%
(equivalent to a net rate of -1.15%) 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>
End of Policy Year 5 . $25,000 $9,440 $433 $34,873
Change . . . . . . . . 0 -1,708 +104 -1,604
---------- --------- --------- -------
End of Policy Year 6 . $25,000 $7,732 $537 $33,269
</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. 10 and "Whole Life Policy and Single Premium
Life Policy", p. 11.
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.
12
<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 given 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 47 and the assumed 12% hypothetical gross annual
investment earnings rate on assets of the selected Portfolio or Fund (equivalent
to a net rate of 10.86% 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>
End of Policy Year 5 . . . $60,000 $36,318 $2,044 $1,638 $100,000
Change . . . . . . . . . . 0 -1,568 +975 +593 0
------- --------- --------- --------- ---------
End of Policy Year 6 . . . $60,000 $34,750 $3,019 $2,231 $100,000
</TABLE>
If instead the gross annual earnings rate during the sixth Policy year had been
0% (equivalent to a net rate of -1.14%) 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>
End of Policy Year 5 . . . $60,000 $36,318 $2,044 $1,638 $100,000
Change . . . . . . . . . . 0 +327 -731 +404 0
------- --------- --------- --------- ---------
End of Policy Year 6 . . . $60,000 $36,645 $1,313 $2,042 $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 46, like the
examples above) shows how the Total Death Benefit would be reduced from $100,000
to $63,682, by the elimination of $36,318 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 $126.34, based on the dividend scale as illustrated,
to a net premium of $887.66. The Total Death Benefit during Policy Year 6 would
then be as follows:
<TABLE>
<S> <C>
Minimum Death Benefit. . . . $60,000
Variable Insurance Amount. . +2,044
Variable Paid-Up Additions . +1,638
Term Insurance . . . . . . . 0
-------
Total Death Benefit . . . . .$63,682
-------
-------
</TABLE>
13
<PAGE>
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. 8. 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. 9. 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. 10. If the variable
insurance amount is negative, the net single premium is a negative amount. A
table of net single premiums for the insured at each Policy anniversary is in
the Policy. Third, 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. 15.
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 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
14
<PAGE>
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. 12. 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-l/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. 15.
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 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 46 and the 6% hypothetical
gross rate for the Account (equivalent to a net rate of 4.86%), and assuming a
Policy loan of $3,181 (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. . . . . $239 $ 239 $3,537 $3,537
6. . . . . $346 $ 559 $4,520 $4,594
7. . . . . $472 $ 893 $5,558 $5,710
8. . . . . $616 $1,240 $6,656 $6,891
</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 4.86% 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. 7), 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.
15
<PAGE>
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 45 and 47 and assuming the 0% and 12%
hypothetical gross rates for the Account, the cash value of $3,026 or $4,118 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>
0% 12%
---------- ---------
<S> <C> <C>
Reduced Paid-up $10,206 $13,888
Insurance. . . . . . . . . . .
Extended Term Insurance. . . . 6 Years and 9 Years and
360 Days 52 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 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%.
16
<PAGE>
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 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 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 the 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.
17
<PAGE>
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 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
PRINCIPAL OCCUPATION DURING LAST FIVE
NAME YEARS
- ---- -------------------------------------
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
18
<PAGE>
George A. Dickerman (AM). . . . . . . Chairman of the Board, Spalding Sports
Worldwide, Chicopee, MA (manufacturer of
sporting equipment) since 1998; prior
thereto, President
Pierre S. du Pont (AM). . . . . . . . Attorney, Richards, Layton and Finger,
Wilmington, DE
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)
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, Research Triangle
Park, NC, 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
19
<PAGE>
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 HR - Member, Human Resources
Committee and Public Policy
E - Member, Executive Committee Committee
OT - Member, Operations and
Technology Committee
SENIOR OFFICERS (OTHER THAN TRUSTEES)
POSITION WITH
NAME NORTHWESTERN MUTUAL LIFE
- -------------------------------------------------------------------------
John M. Bremer Executive Vice President, General
Counsel and Secretary
Peter W. Bruce Executive Vice President
Edward J. Zore Executive Vice President
Deborah A. Beck Senior Vice President
William H. Beckley Senior Vice President
Mark G. Doll Senior Vice President
Richard L. Hall Senior Vice President
William C. Koenig Senior Vice President and Chief
Actuary
Donald L. Mellish Senior Vice President
Mason G. Ross Senior Vice President
Leonard F. Stecklein Senior Vice President
Frederic H. Sweet Senior Vice President
Dennis Tamcsin Senior Vice President
Walter J. Wojcik Senior Vice President
Gary E. Long Vice President and Controller
REGULATION
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
20
<PAGE>
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.
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.
21
<PAGE>
VARIABLE LIFE FINANCIAL STATEMENTS
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
--
22
<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
---
23
<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
---
24
<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
---
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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.
--
26
<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>
--
27
<PAGE>
VARIABLE LIFE ACCOUNTANTS' REPORT
[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
--
28
<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.
--
29
<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.
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30
<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.
--
31
<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.
--
32
<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>
--
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
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.
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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
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.
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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
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.
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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
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
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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
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, DECEMBER 31,
1998 1997
------------------ ------------------
<S> <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
--
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
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
--
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
($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>
--
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
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.
--
41
<PAGE>
[LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Policyowners of
The Northwestern Mutual Life Insurance Company
We have audited the accompanying consolidated statement of financial position of
The Northwestern Mutual Life Insurance Company and its subsidiary as of December
31, 1998 and 1997, and the related consolidated statements of operations, of
changes in surplus and of cash flows for each of the three years in the period
ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1, these consolidated financial statements were prepared in
conformity with accounting practices prescribed or permitted by the Office of
the Commissioner of Insurance of the State of Wisconsin (statutory basis of
accounting), which practices differ from generally accepted accounting
principles. Accordingly, the consolidated financial statements are not intended
to represent a presentation in accordance with generally accepted accounting
principles. The effects on the consolidated financial statements of the
variances between the statutory basis of accounting and generally accepted
accounting principles, although not reasonably determinable, are presumed to be
material.
In our opinion, the consolidated financial statements audited by us (1) do not
present fairly in conformity with generally accepted accounting principles, the
financial position of The Northwestern Mutual Life Insurance Company and its
subsidiary at December 31, 1998 and 1997, or the results of their operations or
their cash flows for each of the three years in the period ended December 31,
1998 because of the effects of the variances between the statutory basis of
accounting and generally accepted accounting principles referred to in the
preceding paragraph and (2) do present fairly, in all material respects, the
financial position of The Northwestern Mutual Life Insurance Company and its
subsidiary at December 31, 1998 and 1997 and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1998, on the basis of accounting described in Note 1.
/s/ PricewaterhouseCoopers LLP
January 25, 1999
--
42
<PAGE>
APPENDIX
ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES AND ACCUMULATED PREMIUMS. The
tables on the following pages illustrate how the death benefit and cash value
for a Whole Life Policy, an Extra Ordinary Life Policy and a Single Premium Life
Policy would vary over time based on hypothetical investment results. The tables
assume gross (after tax) investment return rates of 0%, 6% and 12% on assets of
the Fund. The Policies illustrated are for male insureds, select risks, age 35.
The illustration for the Whole Life Policy is on page 44. The illustrations for
Extra Ordinary Life Policies are on pages 45 through 47. The illustration for
the Single Premium Life Policy is on page 48.
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 nine
Portfolios of the Fund during 1998 at the annual rate of .44% of the Fund's net
assets. See "Deductions and Charges", p. 8. Thus the 0%, 6% and 12% gross
hypothetical return rates on the Fund's assets are equivalent to the net rates
of -1.14%, 4.86% and 10.86% on the assets of the Account.
The second column of each table shows the amount which would accumulate if an
amount equal to the annual or single premium were invested to earn interest,
after taxes, at the stated interest rate compounded annually.
The death benefits and corresponding cash values shown for paid-up additions
purchased with dividends illustrate benefits which would be paid if investment
returns of 0%, 6% and 12% are realized, if mortality and expense experience in
the future is as currently experienced and if the current dividend scale remains
unchanged. See "Annual Dividends," p. 14. HOWEVER, THERE IS NO GUARANTEE AS TO
THE AMOUNT OF DIVIDENDS, IF ANY, THAT WILL BE PAID UNDER A POLICY. Although the
tables are based on the assumption that dividends will be used to purchase
additional paid-up death benefits, other dividend options are available. The
Extra Ordinary Life Policy is designed for a purchaser who intends to use all
dividends to purchase paid-up additions. See "Extra Ordinary Life Policy,"
p.12.
A comparable illustration based on a proposed insured's age, sex and risk
classification and proposed face amount or premium is available upon request.
43
<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 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 -------------------------------------------------------------------------------------------
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 $30,983 $ 73 $31,056 $31,012 $ 73 $31,085
2 1,076 30,979 163 31,142 30,998 167 31,165 31,133 172 31,305
3 1,655 30,979 267 31,246 31,023 282 31,305 31,344 298 31,642
4 2,263 30,979 384 31,363 31,059 417 31,476 31,649 452 32,101
5 2,901 30,979 512 31,491 31,105 572 31,677 32,054 637 32,691
6 3,571 30,979 647 31,626 31,161 745 31,906 32,562 853 33,415
7 4,275 30,979 793 31,772 31,227 940 32,167 33,177 1,108 34,285
8 5,013 30,979 947 31,926 31,302 1,156 32,458 33,904 1,402 35,306
9 5,789 30,979 1,110 32,089 31,386 1,395 32,781 34,747 1,743 36,490
10 6,603 30,979 1,281 32,260 31,479 1,658 33,137 35,711 2,135 37,846
15 11,329 30,979 2,148 33,127 32,069 3,271 35,340 42,559 4,968 47,527
20 (age 55) 17,360 30,979 2,785 33,764 32,849 5,217 38,066 53,488 9,614 63,102
30 (age 65) 34,880 30,979 3,057 34,036 34,895 10,436 45,331 93,239 29,689 122,928
</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 -------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 525 $ 91 $ 18 $ 109 $ 98 $ 18 $ 116 $ 106 $ 18 $ 124
2 1,076 419 43 462 454 44 498 491 46 537
3 1,655 740 74 814 823 78 901 913 82 995
4 2,263 1,052 110 1,162 1,206 119 1,325 1,375 129 1,504
5 2,901 1,370 151 1,521 1,616 169 1,785 1,897 188 2,085
6 3,571 1,680 198 1,878 2,040 228 2,268 2,469 261 2,730
7 4,275 1,980 250 2,230 2,478 297 2,775 3,095 350 3,445
8 5,013 2,271 309 2,580 2,931 377 3,308 3,780 457 4,237
9 5,789 2,553 373 2,926 3,397 469 3,866 4,530 587 5,117
10 6,603 2,826 445 3,271 3,880 576 4,456 5,350 741 6,091
15 11,329 4,057 868 4,925 6,526 1,322 7,848 10,768 2,009 12,777
20 (age 55) 17,360 5,054 1,300 6,354 9,576 2,436 12,012 19,215 4,490 23,705
30 (age 65) 34,880 6,246 1,843 8,089 16,747 6,293 23,040 51,929 17,902 69,831
</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.
44
<PAGE>
EXTRA ORDINARY VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 35
$100,000 OF INSURANCE ($60,000 GUARANTEED MINIMUM
+ $40,000 OF EXTRA LIFE PROTECTION GUARANTEED FOR 27 YEARS (1))
ANNUAL PREMIUM FOR SELECT UNDERWRITING RISK: $1,014.00 (2)
DIVIDENDS USED TO PURCHASE PAID-UP ADDITIONS (1)
ASSUMING 0% HYPOTHETICAL GROSS ANNUAL INVESTMENT RATE OF RETURN
<TABLE>
<CAPTION>
DEATH BENEFIT (3) CASH VALUE (3)
-----------------------------------------------------------------------------------
PREMIUMS EXTRA LIFE PROTECTION
ACCUMULATED --------------------------------- CASH CASH
AT TOTAL MINIMUM VARIABLE VARIABLE VALUE VALUE OF TOTAL
END OF 5% 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 $ (43) $ 158 $ 39,842 $ 153 $ 41 $ 194
2 2,183 100,000 60,000 (208) 381 39,619 788 102 890
3 3,356 100,000 60,000 (485) 657 39,343 1,408 182 1,590
4 4,589 100,000 60,000 (863) 978 39,022 2,013 280 2,293
5 5,883 100,000 60,000 (1,338) 1,336 38,664 2,630 396 3,026
6 7,242 100,000 60,000 (1,901) 1,723 38,277 3,231 527 3,758
7 8,669 100,000 60,000 (2,543) 2,139 37,861 3,814 676 4,490
8 10,167 100,000 60,000 (3,256) 2,581 37,419 4,381 842 5,223
9 11,740 100,000 60,000 (4,032) 3,051 36,949 4,928 1,027 5,955
10 13,392 100,000 60,000 (4,865) 3,546 36,454 5,459 1,232 6,691
15 22,975 100,000 60,000 (9,665) 6,076 33,924 7,851 2,457 10,308
20 (age 55) 35,205 100,000 60,000 (15,083) 7,571 32,429 9,789 3,535 13,324
30 (age 65) 70,737 91,250 60,000 (26,104) 6,514 24,736(4) 12,105 3,928 16,033
</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.
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 6% HYPOTHETICAL GROSS ANNUAL INVESTMENT RATE OF RETURN
<TABLE>
<CAPTION>
DEATH BENEFIT (3) CASH VALUE (3)
-----------------------------------------------------------------------------------
PREMIUMS EXTRA LIFE PROTECTION
ACCUMULATED --------------------------------- CASH CASH
AT TOTAL MINIMUM VARIABLE VARIABLE VALUE VALUE OF TOTAL
END OF 5% 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 $ 7 $ 158 $ 39,835 $ 166 $ 41 $ 207
2 2,183 100,000 60,000 35 390 39,575 853 104 957
3 3,356 100,000 60,000 83 690 39,227 1,566 191 1,757
4 4,589 100,000 60,000 151 1,054 38,795 2,304 302 2,606
5 5,883 100,000 60,000 239 1,479 38,282 3,098 438 3,536
6 7,242 100,000 60,000 346 1,959 37,695 3,920 600 4,520
7 8,669 100,000 60,000 472 2,499 37,029 4,768 790 5,558
8 10,167 100,000 60,000 616 3,099 36,285 5,644 1,011 6,655
9 11,740 100,000 60,000 778 3,765 35,457 6,548 1,268 7,816
10 13,392 100,000 60,000 957 4,498 34,545 7,482 1,562 9,044
15 22,975 100,000 60,000 2,096 8,970 28,934 12,607 3,627 16,234
20 (age 55) 35,205 100,000 60,000 3,605 13,887 22,508 18,517 6,485 25,002
30 (age 65) 70,737 100,000 60,000 7,562 25,845 6,593(4) 32,405 15,584 47,989
</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.
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 12% HYPOTHETICAL GROSS ANNUAL INVESTMENT RATE OF RETURN
<TABLE>
<CAPTION>
DEATH BENEFIT (3) CASH VALUE (3)
-----------------------------------------------------------------------------------
PREMIUMS EXTRA LIFE PROTECTION
ACCUMULATED --------------------------------- CASH CASH
AT TOTAL MINIMUM VARIABLE VARIABLE VALUE VALUE OF TOTAL
END OF 5% 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 $ 58 $ 158 $39,784 $ 179 $ 41 $ 220
2 2,183 100,000 60,000 285 400 39,315 920 107 1,027
3 3,356 100,000 60,000 687 725 38,588 1,734 201 1,935
4 4,589 100,000 60,000 1,269 1,137 37,594 2,625 326 2,951
5 5,883 100,000 60,000 2,044 1,638 36,318 3,633 485 4,118
6 7,242 100,000 60,000 3,019 2,231 34,750 4,738 683 5,421
7 8,669 100,000 60,000 4,201 2,929 32,870 5,947 926 6,873
8 10,167 100,000 60,000 5,599 3,741 30,660 7,271 1,221 8,492
9 11,740 100,000 60,000 7,221 4,683 28,096 8,719 1,577 10,296
10 13,392 100,000 60,000 9,078 5,767 25,155 10,304 2,003 12,307
15 22,975 100,000 60,000 22,282 13,656 4,062 20,770 5,522 26,292
20 (age 55) 35,205 129,657 60,000 43,372 26,285 0 37,090 12,276 49,366
30 (age 65) 70,737 257,373 60,000 120,126 77,247 0 100,283 46,580 146,863
</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.
47
<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 --------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 6,765 $25,000 $ 50 $ 25,050 $25,207 $ 50 $25,257 $26,654 $ 50 $26,704
2 7,104 25,000 92 25,092 25,416 106 25,522 28,417 116 28,533
3 7,459 25,000 126 25,126 25,627 166 25,793 30,297 200 30,497
4 7,832 25,000 152 25,152 25,840 232 26,072 32,302 305 32,607
5 8,223 25,000 170 25,170 26,054 303 26,357 34,440 433 34,873
6 8,635 25,000 181 25,181 26,270 381 26,651 36,720 587 37,307
7 9,066 25,000 185 25,185 26,488 465 26,953 39,151 773 39,924
8 9,520 25,000 183 25,183 26,708 557 27,265 41,743 994 42,737
9 9,996 25,000 176 25,176 26,930 658 27,588 44,507 1,258 45,765
10 10,495 25,000 168 25,168 27,154 769 27,923 47,454 1,571 49,025
15 13,395 25,000 135 25,135 28,299 1,449 29,748 65,398 4,044 69,442
20 (age 55) 17,096 25,000 109 25,109 29,494 2,311 31,805 90,149 8,676 98,825
30 (age 65) 27,847 25,000 72 25,072 32,044 4,854 36,898 171,473 31,962 203,435
</TABLE>
<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 --------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 6,765 $ 5,667 $ 13 $ 5,680 $ 6,043 $ 13 $ 6,056 $ 6,420 $ 13 $ 6,433
2 7,104 5,596 24 5,620 6,357 28 6,385 7,164 31 7,195
3 7,459 5,529 35 5,564 6,686 46 6,732 7,984 55 8,039
4 7,832 5,468 43 5,511 7,030 66 7,096 8,886 87 8,973
5 8,223 5,412 50 5,462 7,389 89 7,478 9,877 128 10,005
6 8,635 5,362 55 5,417 7,765 116 7,881 10,965 179 11,144
7 9,066 5,317 58 5,375 8,156 147 8,303 12,160 244 12,404
8 9,520 5,279 59 5,338 8,565 181 8,746 13,472 324 13,796
9 9,996 5,247 59 5,306 8,991 221 9,212 14,911 423 15,334
10 10,495 5,223 58 5,281 9,435 267 9,702 16,489 545 17,034
15 13,395 4,712 54 4,766 11,444 585 12,029 26,446 1,635 28,081
20 (age 55) 17,096 4,218 50 4,268 13,774 1,079 14,853 42,103 4,052 46,155
30 (age 65) 27,847 3,269 43 3,312 19,322 2,927 22,249 103,399 19,273 122,672
</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.
48
<PAGE>
More information about Northwestern Mutual Series Fund, Inc. is included in the
Fund's Statement of Additional Information (SAI), incorporated by reference in
this prospectus, which is available free of charge.
More information about the Fund's investments is included in the Fund's annual
and semi-annual reports, which discuss the market conditions and investment
strategies that significantly affected each Portfolio's performance during the
previous fiscal period.
To request a free copy of the Fund's SAI, or current annual or semi-annual
report, call us at 1-800-519-4665. Information about the Fund (including the
SAI) can be reviewed and copied at the Public Reference Room of the Securities
and Exchange Commission (SEC) in Washington, DC. Information on the operation
of the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. Reports and other information about the Fund are available on
the SEC's Internet site at http://www.sec.gov. Copies of this information may
be obtained, upon payment of a duplicating fee, by writing the Public Reference
Section of the SEC, Washington, DC 20549-6009.
N O R T H W E S T E R N M U T U A L L I F E
NORTHWESTERN MUTUAL VARIABLE LIFE
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
NORTHWESTERN MUTUAL SERIES FUND, INC.
RUSSELL INSURANCE FUNDS
P R O S P E C T U S
Investment Company Act File No. 811-3990
NORTHWESTERN
MUTUAL LIFE-Registered Trademark-
PO Box 3095
Milwaukee WI 53201-3095
Change Service Requested
<PAGE>
EXHIBIT INDEX
EXHIBITS FILED WITH FORM S-6
POST-EFFECTIVE AMENDMENT NO. 21 TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FOR
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
Exhibit Number Exhibit Name
- -------------- ------------
Exhibit A(5)(a) Amendment to Variable Life and Variable
EOL Policy
Exhibit A(9)(a) Form of Participation Agreement Among
Russell Insurance Funds, Russell Fund
Distributors, Inc. and The Northwestern
Mutual Life Insurance Company
Exhibit A(9)(b) Form of Administrative Service Fee
Agreement between The Northwestern
Mutual Life Insurance Company and Frank
Russell Company
Exhibit C(1) Consent of PricewaterhouseCoopers LLP
Exhibit C(6) Opinion of William C. Koenig, F.S.A.
Exhibit 27 Financial Data Schedule for period ended
December 31, 1998
The following exhibit was filed in electronic format with the Registration
Statement on Form S-6 for Northwestern Mutual Variable Life Account, File No.
333-59103, CIK 0000742277, dated July 15, 1998, and is incorporated herein by
reference.
Exhibit A(6)(b) Amended By-Laws of The Northwestern
Mutual Life Insurance Company dated
January 28, 1998
<PAGE>
PART II
CONTENTS OF REGISTRATION STATEMENT
This amendment to the registration statement comprises the following papers
and documents:
The facing sheet
The cross-reference sheet
The prospectus consisting of 48 pages
The undertaking with respect to fees and charges
The signatures
Written consents of the following persons:
PricewaterhouseCoopers LLP (filed herewith as Exhibit C(1))
William C. Koenig, F.S.A. (included in his opinion filed
herewith as Exhibit C(6))
The following exhibits:
Exhibit A(5)(a) Amendment to Variable Life and Variable EOL
Policy
Exhibit A(9)(a) Form of Participation Agreement Among Russell
Insurance Funds, Russell Fund Distributors,
Inc. and The Northwestern Mutual Life
Insurance Company
Exhibit A(9)(b) Form of Administrative Service Fee Agreement
between The Northwestern Mutual Life
Insurance Company and Frank Russell Company
Exhibit C(1) Consent of PricewaterhouseCoopers LLP
Exhibit C(6) Opinion of William C. Koenig, F.S.A.
Exhibit 27 Financial Data Schedule for period
ended December 31, 1998
The following exhibit was filed in electronic format with the
Registration Statement on Form S-6 for Northwestern Mutual Variable
Life Account, File No. 333-59103, CIK 0000742277, dated July 15, 1998,
and is incorporated herein by reference.
Exhibit A(6)(b) Amended By-Laws of The Northwestern Mutual
Life Insurance Company dated January 28, 1998
II-1
<PAGE>
UNDERTAKING
The Northwestern Mutual Life Insurance Company hereby represents that the
fees and charges deducted under the contracts registered by this registration
statement, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by the
insurance company.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Northwestern Mutual Variable Life Account, has duly caused this Amended
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Milwaukee, and State of Wisconsin, on the 25th
day of February, 1999.
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
(Registrant)
By THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
(Depositor)
Attest: JOHN M. BREMER By: JAMES D. ERICSON
------------------------- --------------------------------
John M. Bremer, Executive Vice James D. Ericson, President and
President, General Counsel Chief Executive Officer
and Secretary
By NORTHWESTERN MUTUAL INVESTMENT
SERVICES, LLC
(Depositor)
Attest: MERRILL C. LUNDBERG By: RICHARD L. HALL
------------------------- --------------------------------
Merrill C. Lundberg, Secretary Richard L. Hall,
President and CEO
Pursuant to the requirements of the Securities Act of 1933, the depositors
have duly caused this Amended Registration Statement to be signed on their
behalf by the undersigned, thereunto duly authorized, and their seals to be
hereunto affixed, all in the City of Milwaukee, and State of Wisconsin, on the
25th day of February, 1999.
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY (Depositor)
Attest: JOHN M. BREMER By: JAMES D. ERICSON
------------------------- --------------------------------
John M. Bremer, Executive Vice James D. Ericson, President and
President, General Counsel Chief Executive Officer
and Secretary
NORTHWESTERN MUTUAL INVESTMENT
SERVICES, LLC (Depositor)
Attest: MERRILL C. LUNDBERG By: RICHARD L. HALL
------------------------- --------------------------------
Merrill C. Lundberg, Secretary Richard L. Hall,
President and CEO
Pursuant to the requirements of the Securities Act of 1933, this Amended
Registration Statement has been signed by the following persons in the
capacities with the depositor and on the dates indicated:
Signature Title
- --------- -----
James D. Ericson Trustee, President and Dated February
- ------------------------- Principal Executive and 25, 1999
James D. Ericson Financial Officer
II-3
<PAGE>
GARY E. LONG Vice President, Controller
- ------------------------- and Principal Accounting
Gary E. Long Officer
HAROLD B. SMITH* Trustee
- -------------------------
Harold B. Smith
J. THOMAS LEWIS* Trustee
- -------------------------
J. Thomas Lewis
PATRICIA ALBJERG GRAHAM* Trustee
- -------------------------
Patricia Albjerg Graham
DONALD J. SCHUENKE* Trustee
- -------------------------
Donald J. Schuenke
R. QUINTUS ANDERSON* Trustee
- -------------------------
R. Quintus Anderson
STEPHEN F. KELLER* Trustee Dated February
- ------------------------- 25, 1999
Stephen F. Keller
PIERRE S. DU PONT* Trustee
- -------------------------
Pierre S. du Pont
J. E. GALLEGOS* Trustee
- -------------------------
J. E. Gallegos
KATHRYN D. WRISTON* Trustee
- -------------------------
Kathryn D. Wriston
BARRY L. WILLIAMS* Trustee
- -------------------------
Barry L. Williams
GORDON T. BEAHAM III* Trustee
- -------------------------
Gordon T. Beaham III
DANIEL F. MCKEITHAN, JR.* Trustee
- -------------------------
Daniel F. McKeithan, Jr.
ROBERT E. CARLSON* Trustee
- -------------------------
Robert E. Carlson
II-4
<PAGE>
EDWARD E. BARR* Trustee
- -------------------------
Edward E. Barr
ROBERT C. BUCHANAN* Trustee
- -------------------------
Robert C. Buchanan
SHERWOOD H. SMITH, JR.* Trustee
- -------------------------
Sherwood H. Smith, Jr.
H. MASON SIZEMORE, JR.* Trustee
- -------------------------
H. Mason Sizemore, Jr.
JOHN J. STOLLENWERK* Trustee
- -------------------------
John J. Stollenwerk
GEORGE A. DICKERMAN* Trustee
- -------------------------
George A. Dickerman
GUY A. OSBORN* Trustee Dated February
- ------------------------- 25, 1999
Guy A. Osborn
JOHN E. STEURI* Trustee
- -------------------------
John E. Steuri
STEPHEN N. GRAFF* Trustee
- -------------------------
Stephen N. Graff
BARBARA A. KING* Trustee
- -------------------------
Barbara A. King
TIMOTHY D. PROCTOR* Trustee
- -------------------------
Timorhy D. Proctor
*By: JAMES D. ERICSON
-----------------------------------
James D. Ericson, Attorney in fact,
pursuant to the Power of Attorney
attached hereto
II-5
<PAGE>
CONSENT OF ACTUARY
The Consent of William C. Koenig, F.S.A., is contained in his opinion filed
as Exhibit C(6).
CONSENT OF INDEPENDENT ACCOUNTANTS
The Consent of PricewaterhouseCoopers LLP is filed as Exhibit C(1).
II-6
<PAGE>
POWER OF ATTORNEY
The undersigned Trustees of THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
hereby constitute and appoint James D. Ericson and Robert E. Carlson, or either
of them, their true and lawful attorneys and agents to sign the names of the
undersigned Trustees to (1) the registration statement or statements to be filed
under the Securities Act of 1933 and to any instrument or document filed as part
thereof or in connection therewith or in any way related thereto, and any and
all amendments thereto in connection with variable contracts issued or sold by
The Northwestern Mutual Life Insurance Company or any separate account credited
therein and (2) the Form 10-K Annual Report or Reports of The Northwestern
Mutual Life Insurance Company and/or its separate accounts for its or their
fiscal year ended December 31, 1998 to be filed under the Securities Exchange
Act of 1934 and to any instrument or document filed as part thereof or in
connection therewith or in any way related thereto, and any and all amendments
thereto. "Variable contracts" as used herein means any contracts providing for
benefits or values which may vary according to the investment experience of any
separate account maintained by The Northwestern Mutual Life Insurance Company,
including variable annuity contracts and variable life insurance policies. Each
of the undersigned hereby ratifies and confirms all that said attorneys and
agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has subscribed these presents
this 22nd day of July, 1998.
R. QUINTUS ANDERSON Trustee
------------------------------
R. Quintus Anderson
EDWARD E. BARR Trustee
------------------------------
Edward E. Barr
GORDON T. BEAHAM III Trustee
------------------------------
Gordon T. Beaham III
ROBERT C. BUCHANAN Trustee
------------------------------
Robert C. Buchanan
ROBERT E. CARLSON Trustee
------------------------------
Robert E. Carlson
GEORGE A. DICKERMAN Trustee
------------------------------
George A. Dickerman
II-7
<PAGE>
PIERRE S. DU PONT Trustee
------------------------------
Pierre S. du Pont
JAMES D. ERICSON Trustee
------------------------------
James D. Ericson
J. E. GALLEGOS Trustee
------------------------------
J. E. Gallegos
STEPHEN N. GRAFF Trustee
------------------------------
Stephen N. Graff
PATRICIA ALBJERG GRAHAM Trustee
------------------------------
Patricia Albjerg Graham
STEPHEN F. KELLER Trustee
------------------------------
Stephen F. Keller
BARBARA A. KING Trustee
------------------------------
Barbara A. King
J. THOMAS LEWIS Trustee
------------------------------
J. Thomas Lewis
DANIEL F. MCKEITHAN, JR. Trustee
------------------------------
Daniel F. McKeithan, Jr.
GUY A. OSBORN Trustee
------------------------------
Guy A. Osborn
II-8
<PAGE>
TIMOTHY D. PROCTOR Trustee
------------------------------
Timothy D. Proctor
DONALD J. SCHUENKE Trustee
------------------------------
Donald J. Schuenke
H. MASON SIZEMORE, JR. Trustee
------------------------------
H. Mason Sizemore, Jr.
HAROLD B. SMITH Trustee
------------------------------
Harold B. Smith
SHERWOOD H. SMITH, JR. Trustee
------------------------------
Sherwood H. Smith, Jr.
JOHN E. STEURI Trustee
------------------------------
John E. Steuri
JOHN J. STOLLENWERK Trustee
------------------------------
John J. Stollenwerk
BARRY L. WILLIAMS Trustee
------------------------------
Barry L. Williams
KATHRYN D. WRISTON Trustee
------------------------------
Kathryn D. Wriston
II-9
<PAGE>
EXHIBIT A(5)(a)
AMENDMENT TO SEPARATE ACCOUNT DIVISIONS
AS OF JUNE 30, 1999, THE SECOND PARAGRAPH OF THE SEPARATE ACCOUNT SECTION
OF THE CONTRACT RELATING TO THE DIVISIONS OF THE SEPARATE ACCOUNT AND THE ASSETS
ALLOCATED TO THESE DIVISIONS IS AMENDED TO READ AS FOLLOWS:
The Separate Account is comprised of the Select Bond, International Equity,
Money Market, Balanced, Index 500 Stock, Aggressive Growth Stock, High Yield
Bond, Growth Stock, Growth and Income Stock, Index 400 Stock, Small Cap Growth
Stock, Russell Multi-Style Equity, Russell Aggressive Equity, Russell Non-US,
Russell Real Estate Securities, and Russell Core Bond Divisions. Assets
allocated to these Divisions are invested in shares of corresponding mutual
funds or portfolios of mutual funds, both of which are referred to in this
policy as Portfolios. Shares of the Portfolios are purchased for the Separate
Account at their net asset value. The Company may make available additional
Divisions and Portfolios. At any time, the assets supporting this policy may be
allocated among up to six of the Divisions of the Separate Account.
AS OF JUNE 30, 1999, THE FIFTH AND SIXTH PARAGRAPHS OF THE SEPARATE ACCOUNT
SECTION OF THE CONTRACT RELATING TO THE DIVISIONS OF THE SEPARATE ACCOUNT AND
THE ASSETS ALLOCATED TO THESE DIVISIONS ARE AMENDED TO READ AS FOLLOWS:
The Owner may exchange this policy for a fixed benefit life insurance
policy being offered at that time by the Company if the Portfolio changes its
investment advisor or has a material change in its investment objectives or
restrictions. The Company will notify the Owner if there is any such change.
The Owner may exchange this policy within 60 days after the notice or the
effective date of the change, whichever is later.
If, in the judgment of the Company, a Portfolio no longer suits the
purposes of this policy due to a change in its investment objectives or
restrictions, the Company may substitute shares of another Portfolio. Any such
substitution will be subject to any required approval of the Securities and
Exchange Commission (SEC), the Wisconsin Commissioner of Insurance or other
regulatory authority.
Secretary
NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
VLI.FUNDS.(0799)
<PAGE>
EXHIBIT A(9)(a)
PARTICIPATION AGREEMENT
AMONG
RUSSELL INSURANCE FUNDS,
RUSSELL FUND DISTRIBUTORS, INC.
AND
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THIS AGREEMENT is made and entered into as of this ____ day of
______________,by and among THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY a
Wisconsin life insurance company (hereinafter the "Company"), on its own behalf
and on behalf of each segregated asset account of the Company set forth on
Schedule A hereto as such schedule may be amended from time to time (each such
account hereinafter referred to as the "Account" and collectively as the
"Accounts"), and RUSSELL INSURANCE FUNDS, a Massachusetts Business Trust
(hereinafter the "Investment Company"), and RUSSELL FUND DISTRIBUTORS, INC. a
Washington corporation (hereinafter the "Underwriter").
WHEREAS, Investment Company engages in business as a diversified open-end
management investment company and is available to act as the investment vehicle
for separate accounts established for variable life insurance policies and
variable annuity contracts (collectively, the "Variable Insurance Products");
and
WHEREAS, the beneficial interest in the Investment Company is divided into
several series of shares, referred to individually as "Funds" and representing
the interest in a particular managed portfolio of securities and other assets;
and
WHEREAS, Investment Company is registered as an open-end management
investment company under the 1940 Act, and its shares are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Frank Russell Investment Management Company (the "Adviser") is
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable life or
annuity contracts or both under the 1933 Act, and offers or will offer for sale
certain variable life or annuity contracts or both which are or will be exempt
from registration; and
WHEREAS, each Account is a duly organized, validly existing, segregated
asset account, established by resolution of the Board of Trustees of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to one or more variable life or annuity
contracts; and
WHEREAS, the Company has registered or will register some of the Accounts
as unit investment trusts under the 1940 Act and other Accounts are exempt from
registration; and
1
<PAGE>
WHEREAS, Investment Company has received "mixed and shared funding"
exemptive relief from the Securities and Exchange Commission permitting it to
offer its shares to life insurers in connection with variable annuity contracts
and variable life insurance policies offered by such insurers which may or may
not be affiliated with each other (SEC Release IC-16160, Dec. 7, 1987); and
WHEREAS, the Underwriter is registered as a broker/dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act") and is a member in good standing of the National Association of Securities
Dealers, Inc. (hereinafter the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Funds on behalf of
each Account to fund certain of the aforesaid variable life or annuity contracts
or both, and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained and other good and valuable consideration the receipt of which
is hereby acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
ARTICLE 1. SALE OF INVESTMENT COMPANY SHARES
1.1 The Underwriter agrees to sell to the Company those shares of Investment
Company which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Investment Company or its
designee of the order for the shares of the Investment Company. For purposes of
this Section 1.1, the Company shall be the designee of the Investment Company
for receipt of such orders from each Account and receipt by such designee shall
constitute receipt by the Investment Company; provided that the Investment
Company receives notice of such order by 8:00 a.m. Pacific time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which Investment Company calculated
its net asset value pursuant to the rules of the Securities and Exchange
Commission.
1.2 The Investment Company agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Investment Company calculates its net asset
value pursuant to rules of the Securities and Exchange Commission, and the
Investment Company shall use reasonable efforts to calculate such net asset
value on each day on which the New York Stock Exchange is open for trading.
Notwithstanding the foregoing, the Board of Directors of the Investment Company
(hereinafter the "Board") may refuse to sell shares of any Fund, or suspend or
terminate the offering of shares of any Fund if such action is required by law
or by regulatory authorities having jurisdiction or is, in the sole discretion
of the Board acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, necessary in the best interests of the
shareholders of such Fund.
1.3 The Investment Company and the Underwriter agree that no shares of any Fund
will be sold to the general public.
2
<PAGE>
1.4 The Investment Company agrees to redeem for cash, on the Company's request,
any full or fractional shares of the Investment Company held by the Company,
executing such requests on a daily basis at the net asset value next computed
after receipt by the Investment Company or its designee of the request for
redemption. For purposes of this Section 1.4, the Company shall be the designee
of the Investment Company for receipt of requests for redemption from each
Account, and receipt by such designee shall constitute receipt by the Investment
Company; provided that the Investment Company receives notice of such request
for redemption by 8:00 a.m. Pacific time on the next following Business Day.
1.5 The Company agrees to purchase and redeem the shares of selected Funds
offered by the then-current prospectus of the Investment Company and in
accordance with the provisions of such prospectus. The parties agree that all
net amounts available under the variable life and annuity contracts with the
form number(s) which are listed on Schedule B attached hereto and incorporated
herein by this reference, as such Schedule B may be amended from time to time
hereafter by mutual written agreement of all the parties hereto (the
"Contracts"), may be invested in the Investment Company, in other separate
accounts of the Company, in other investment companies, in the Company's general
account, or in other funding vehicles.
1.6 The Company shall pay for Investment Company shares on the next Business
Day after an order to purchase Investment Company shares is made in accordance
with the provisions of Section 1.1 hereof. Payment shall be in federal funds
transmitted by wire.
1.7 Issuance and transfer of the Investment Company's shares will be by book
entry only. Stock certificates will not be issued to the Company or any
Account. Shares ordered from the Investment Company will be recorded in an
appropriate title for each Account.
1.8 The Investment Company shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income dividends or
capital gain distributions payable on the Investment Company's shares. The
Company hereby elects to receive all such income dividends and capital gain
distributions as are payable on the Fund shares in additional shares of that
Fund. The Company reserves the right to revoke this election and to receive all
such income dividends and capital gain distributions in cash. Investment
Company shall furnish same day notice to the Company of the number of shares so
issued as payment of such dividends and distributions.
1.9 The Investment Company shall make the net asset value per share for each
Fund available to the Company on a daily basis as soon as reasonably practical
after the net asset value per share is calculated.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that the Contracts are registered under
the 1933 Act or are exempt from registration thereunder; that the Contracts will
be issued and sold in compliance in all material respects with all applicable
Federal and State laws and that the sale of the Contracts shall comply in all
material respects with state insurance suitability requirements. The Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law and that it has legally and validly
established each
3
<PAGE>
Account prior to any issuance or sale of Contracts funded thereby as a
segregated asset account under applicable state insurance law and that each
Account is or will be registered as a unit investment trust in accordance with
the provisions of the 1940 Act to serve as a segregated investment account for
the Contracts or is exempt from registration thereunder.
2.2 The Investment Company represents and warrants that Investment Company
shares sold pursuant to this Agreement shall be registered under the 1933 and
1940 Acts, duly authorized for issuance and sold in compliance with the laws of
the State of Washington and all applicable federal and state securities laws and
that the Investment Company is and shall remain registered under the 1940 Act.
The Investment Company shall amend the Registration Statement for its shares
under the 1933 and the 1940 Acts from time to time as required in order to
effect the continuous offering of its shares. The Investment Company shall
register and qualify the shares for sale in accordance with the laws of the
various states only if and to the extent deemed advisable by the Investment
Company or the Underwriter.
2.3 The Investment Company represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended, (the "Code") and that it will make every effort to maintain
such qualification (under Subchapter M or any successor or similar provision)
and that it will notify the Company immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so qualify
in the future.
2.4 The Company represents that the Contracts are currently treated as
endowment, annuity or life insurance contracts, under applicable provisions of
the Code and that it will make every effort to maintain such treatment and that
it will notify the Investment Company and the Underwriter immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
2.5 The Investment Company currently does not intend to make any payments to
finance distribution expenses pursuant to Rule l2b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. To the extent that
it decides to finance distribution expenses pursuant to Rule 12b-1, the
Investment Company undertakes to have its board of trustees, a majority of whom
are not interested persons of the Investment Company, formulate and approve any
plan under Rule l2b-1 to finance distribution expenses.
2.6 The Investment Company makes no representation as to whether any aspect of
its operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Investment
Company shares in accordance with any applicable state laws and federal
securities laws, including without limitation the 1933 Act, the 1934 Act, and
the 1940 Act.
2.8 The Investment Company represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
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2.9 The Underwriter represents and warrants that the Adviser is and shall
remain duly registered in all material respects under all applicable federal and
state securities laws and that the Adviser shall perform its obligations for the
Investment Company in compliance in all material respects any applicable state
laws and federal securities laws.
2.10 The Investment Company and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money or securities of the Investment
Company are and shall continue to be at all times covered by a blanket fidelity
bond or similar coverage for the benefit of the Investment Company in an amount
not less than the minimal coverage as required currently by Rule 17g-(1) of the
1940 Act or related provisions as may be promulgated from time to time. The
aforesaid Bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company.
2.11 The Company represents and warrants that all of its directors, officers,
employees, investment advisers, and other entities dealing with the money or
securities of the Investment Company are and shall continue to be at all
times covered by a blanket fidelity bond or similar coverage for the benefit
of the Investment Company in an amount not less than five million dollars ($5
million). The aforesaid Bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS: VOTING
3.1 The Underwriter shall provide the Company with as many printed copies of
the Investment Company's current prospectus and Statement of Additional
Information as the Company may reasonably request. If requested by the
Company in lieu thereof, the Investment Company shall provide camera-ready
film or computer diskettes containing the Investment Company's prospectus and
Statement of Additional Information and such other assistance as is
reasonably necessary in order for the Company once each year (or more
frequently if the prospectus and/or Statement of Additional Information for
the Investment Company is amended during the year) to have the prospectus for
the Contracts and the Investment Company's prospectus printed together in one
document, and to have the Statement of Additional Information for the
Investment Company and the Statement of Additional Information for the
Contracts printed together in one document. Alternatively, the Company may
print the Investment Company's prospectus and/or its Statement of Additional
Information in combination with other fund companies' prospectuses and
statements of additional information. Except as provided in the following
three sentences, all expenses of printing and distributing Investment Company
prospectuses and Statements of Additional Information distributed by the
Company shall be the expense of the Company. For Prospectuses and Statement
of Additional Information provided by the Company to its existing owners of
Contracts in order to update disclosure as required by the 1933 Act and/or
the 1940 Act, the cost of printing shall be borne by the Investment Company.
If the Company chooses to receive camera-ready film or computer diskettes in
lieu of receiving printed copies of the Investment Company's prospectus, the
Investment Company will reimburse the Company in an amount equal to the
product of A and B where A is the number of such prospectuses distributed to
owners of the Contracts, and B is the Investment Company's per unit cost of
typesetting and printing the Invstment Company's
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prospectus. The same procedures shall be followed with respect to the
Investment Company's Statement of Additional Information.
The Company agrees to provide the Investment Company or its designee with
such information as may be reasonably requested by the Investment Company to
assure that the Investment Company's expenses do not include the cost of
printing any prospectuses or Statements of Additional Information other than
those actually distributed to existing owners of the Contracts.
3.2 The Investment Company's prospectus shall state that the Statement of
Additional Information for the Investment Company is available from the
Underwriter or the Company (or in the Fund's discretion, the Prospectus shall
state that such Statement is available from the Investment Company).
3.3 The Investment Company, at its expense, shall provide the Company with
copies of its proxy statements, reports to shareholders, and other required
communications (except for prospectuses and Statement of Additional Information,
which are covered in Section 3.1) to shareholders in such quantity as the
Company shall reasonably require for distributing to Contract owners.
3.4 The Company will provide pass-through voting privileges to all Contract
owners to the extent that and so long as the SEC continues to interpret the
Investment Company Act of 1940 as requiring pass-through voting privileges for
Contract owners. Accordingly, the Company, where applicable, will vote shares
of the Fund held in its Separate Accounts in a manner consistent with voting
instructions timely received from its Contract owners. The Company will be
responsible for assuring that each of its separate accounts that participates in
the Investment Company calculates voting privileges in a manner consistent with
other participating insurance companies. The Company will vote shares for which
it has not received timely voting instructions, as well as shares it owns, in
the same proportion as it votes those shares for which it has received voting
instructions.
3.5 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or if Rule
6e-3 is adopted, to provide exemptive relief from any provision of the
Investment Company Act of 1940 or the rules thereunder with respect to mixed and
shared funding on terms and conditions materially different from any exemptions
granted in the Investment Company's mixed and shared funding exemptive order,
then the Investment Company, and/or the Company, as appropriate, shall take such
steps as may be necessary to comply with Rule 6e-2 and Rule 6e-3(T), as amended,
and Rule 6e-3, as adopted, to the extent such Rules are applicable.
3.6 The Investment Company will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Investment Company will
either provide for annual or special meetings or comply with the requirements of
Section 16(c) of the 1940 Act (although the Investment Company is not one of the
trusts described in Section 16(c) of that Act) as well as with Sections 16(a)
and, if and when applicable, 16(b). Further, the Investment Company will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors and with whatever rules the SEC
may promulgate with respect thereto.
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ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1 The Company shall furnish, or shall cause to be furnished, to the
Investment Company or its designee, each piece of sales literature or other
promotional material, or component thereof, in which the Investment Company,
the Adviser, or the Underwriter is named, at least fifteen Business Days
prior to its use. No such material shall be used if the Investment Company
or its designee object to such use within fifteen Business Days after receipt
of such material. Once any such material has been so furnished to the
Investment Company or its designee and fifteen Business days have elapsed,
such materials need not again be so furnished absent any subsequent changes
to such material that affect the materials' discussion or presentation
relating to the Investment Company, its advisor, the Underwriter, or any of
their affiliates (other than the Company or persons that are deemed
affiliates only by virtue of being controlled by the Company). In
particular, materials that have been changed merely to update performance or
financial information need not be so furnished.
4.2 The Company shall not give any information or make any representations or
statements on behalf of the Investment Company or concerning the Investment
Company in connection with the sale of the Contracts other than the information
or representations contained in the registration statement or prospectus for the
Investment Company shares, as such registration statement and prospectus may be
amended or supplemented from time to time, or in reports or proxy statements for
the Investment Company, or in sales literature or other promotional material
approved by the Investment Company or its designee or by the Underwriter, except
with the permission of the Investment Company or the Underwriter or the designee
of either.
4.3 The Investment Company, the Underwriter, or their designees shall furnish,
or shall cause to be furnished, to the Company or its designee, each piece of
sales literature or other promotional material, or component thereof, in which
the Company or its separate Accounts are named at least fifteen Business Days
prior to its use. No such material shall be used if the Company or its designee
objects to such use within fifteen Business Days after receipt of such material.
4.4 The Investment Company and the Underwriter shall not give any information
or make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus or offering materials for the
Contracts, as such may be amended or supplemented from time to time, or in
published reports for each Account which are in the public domain or approved by
the Company for distribution to Contract owners, or in sales literature or other
promotional material approved by the Company or its designee, except with the
permission of the Company.
4.5 The Investment Company will provide to the Company at least one complete
copy of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Investment Company or its
shares, contemporaneously with the filing of such document with the Securities
and Exchange Commission or other regulatory authorities.
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4.6 The Company will provide to the Investment Company at least one complete
copy of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities. In the case of unregistered
Contracts, in lieu of providing prospectuses and Statements of Additional
Information, the Company shall provide the Investment Company with one complete
copy of the offering materials for the Contracts.
4.7 For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, electronic media, or other public media),
sales literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. POTENTIAL CONFLICTS
5.1 The parties acknowledge that Investment Company has received a "mixed and
shared funding "exemptive order from the SEC granting relief from various
provisions of the Investment Company Act of 1940 and the rules thereunder to the
extent necessary to permit Investment Company shares to be sold to and held by
Variable Insurance Products separate accounts of both affiliated and
unaffiliated participating insurance companies. The exemptive order requires
the Investment Company and each participating insurance company to comply with
conditions and undertakings substantially as provided in this Article V. The
Investment Company will not enter into a participation agreement with any other
participating insurance company unless it imposes the same conditions and
undertakings as are imposed on the Company.
5.2 The Investment Company's Board of Trustees ("Board") will monitor the
Investment Company for the existence of any material irreconcilable conflict
between the interests of Contract owners of all separate accounts investing in
the Investment Company. An irreconcilable material conflict may arise for a
variety of reasons, which may include: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling or any similar action by insurance, tax or securities regulatory
authorities; (c) an administrative or judicial decision in any relevant
proceeding; (d) the manner in which the investments of the Investment Company
are being managed; (e) a difference in voting instructions given by Contract
owners; and (f) a decision by a participating insurance company to disregard the
voting instructions of Contract owners.
5.3 The Company will report any potential or existing conflicts to the
Investment Company's Board. The Company will be responsible for assisting the
Board in carrying out its duties in this regard by providing the Board with all
information reasonably necessary for the Board to
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consider any issues raised. The responsibility includes, but is not limited to,
an obligation by the Company to inform the Board whenever it has determined to
disregard Contract owner voting instructions. These responsibilities of the
Company will be carried out with a view only to the interests of the Contract
owners.
5.4 If a majority of the Board or majority of its disinterested Trustees,
determines that a material irreconcilable conflict exists affecting the Company,
then the Company, at its expense and to the extent reasonably practicable (as
determined by a majority of the Board's disinterested Trustees), will take any
steps necessary to remedy or eliminate the irreconcilable material conflict,
including: (a) withdrawing the assets allocable to some or all of the separate
accounts from the Investment Company or any Fund thereof and reinvesting those
assets in a different investment medium, which may include another Fund of the
Investment Company, or another investment company; (b) submitting the question
as to whether such segregation should be implemented to a vote of all affected
Contract owners and as appropriate, segregating the assets of any appropriate
group (i.e., variable annuity or variable life insurance contract owners of one
or more participating insurance companies) that votes in favor of such
segregation, or offering to the affected Contract owners the option of making
such a change; and (c) establishing a new registered management investment
company (or series thereof) or managed separate account. If a material
irreconcilable conflict arises because of the Company's decision to disregard
Contract owner voting instructions, and that decision represents a minority
position or would preclude a majority vote, the Company may be required at the
election of the Investment Company, to withdraw its separate accounts'
investment in the Investment Company, and no charge or penalty will be imposed
as a result of such withdrawal. The responsibility to take such remedial action
shall be carried out with a view only to the interests of the Contract owners.
For the purposes of this Section 5.4, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict but in no event will
the Investment Company or any investment adviser of the Investment Company be
required to establish a new funding medium for any Contract. Further, the
Company shall not be required by this Section 5.4 to establish a new funding
medium for any Contract if any offer to do so has been declined by a vote of a
majority of Contract owners materially and adversely affected by the
irreconcilable material conflict.
5.5 The Board's determination of the existence of an irreconcilable material
conflict and its implications shall be made known promptly and in writing to the
Company.
5.6 No less than annually, the Company shall submit to the Board such reports,
materials or data as the Board may reasonably request so that the Board may
fully carry out its obligations. Such reports, materials, and data shall be
submitted more frequently if deemed appropriate by the Board.
ARTICLE VI. FEES AND EXPENSES
6.1 The Investment Company and the Underwriter shall pay no fee or other
compensation to the Company under this Agreement, except that if the Investment
Company or any Fund adopts and implements a plan pursuant to Rule l2b-1 to
finance distribution expenses, then the Underwriter may make payments to the
Company or to the underwriter for the Contracts if and in amounts agreed to by
the Underwriter in writing and such payments will be made out of
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existing fees otherwise payable to the Underwriter, past profits of the
Underwriter, or other resources available to the Underwriter. No such
payments shall be made directly by the Investment Company. Currently, no such
payments are contemplated.
6.2 All expenses incident to performance by the Investment Company under this
Agreement shall be paid by the Investment Company. The Investment Company shall
ensure that all its shares are registered and authorized for issuance in
accordance with applicable federal law and, if and to the extent deemed
advisable by the Investment Company, in accordance with applicable state laws
prior to their sale. The Investment Company shall bear the expenses for the
cost of registration and qualification of the Investment Company's shares,
preparation and filing of the Investment Company's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes and fees on the issuance or transfer of the Investment Company's
shares.
6.3 The Company shall bear the expenses of distributing the Investment
Company's prospectus, proxy materials, and reports to owners of Contracts issued
by the Company.
ARTICLE VII. DIVERSIFICATION
7.1 The Investment Company will at all times invest money from the Contracts
in such a manner as to ensure that the Contracts will be treated as variable
contracts under the Internal Revenue Code and the regulations issued
thereunder. Without limiting the scope of the foregoing, the Investment
Company will at all times comply with Section 817(h) of the Code and Treasury
Regulation 1.817-5, relating to the diversification requirements for variable
annuity, endowment, or life insurance contracts and any amendments or other
modifications to such Section or Regulations.
ARTICLE VIII. INDEMNIFICATION
8.1 INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Investment
Company and each member of the Board and officers and each person, if any, who
controls the Investment Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company) or litigation (including
legal and other expenses), to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or action in respect thereof)
or settlements are related to the Company's sale or acquisition of the
Investment Company's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in any Registration Statement,
prospectus or other offering materials for the Contracts or contained in the
Contracts or sales literature for the Contracts (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or
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necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or on behalf
of the Investment Company for use in any Registration Statement or prospectus
for the Contracts or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Contracts or
Investment Company's shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the Registration Statement,
prospectus or sales literature of the Investment Company not supplied by the
Company, or persons under its control) or wrongful conduct of the Company or
persons under its control, with respect to the sale or distribution of the
Contracts or Investment Company shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement, prospectus, or sales
literature of the Investment Company or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance upon information
furnished to the Investment Company by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement; or
(v) arise out of a result from any material breach of any representation
or warranty made by the Company in this Agreement or arise out of or result from
any other material breach of this Agreement by the Company, as limited by and in
accordance with the provisions of Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations or duties under this Agreement or to the
Investment Company, whichever is applicable.
8.1(c). The Company shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Company in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Company of any such claim shall not
relieve the Company from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Company shall be entitled to participate, at its own
expense, in the defense of such action. The Company also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Company to such party of the Company's election
to assume the defense thereof, the Indemnified Party shall
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bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Investment Company shares or the Contracts or the
operation of the Investment Company.
8.2 INDEMNIFICATION BY THE UNDERWRITER
8.2(a). The Underwriter agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who controls or is
controlled by the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
expenses (including legal and other expenses) to which the Indemnified Parties
may become subject under any statute, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Investment
Company's shares or the Contracts and;
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or
prospectus or sales literature of the Investment Company (or any amendment
or supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Underwriter or Investment Company by or on
behalf of the Company for use in the Registration Statement or prospectus
for the Investment Company or in the sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or Investment Company shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in any Registration Statement,
prospectus, other offering materials or sales literature for the Contracts
not supplied by the Underwriter or persons under its control) or wrongful
conduct of the Investment Company, Adviser, or Underwriter or persons under
their control, with respect to the sale or distribution of the Contracts or
Investment Company shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in any Registration Statement, prospectus, other
offering materials or sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement or statements therein not misleading, if
such statement or omission was made in reliance upon information furnished
to the Company by or on behalf of the Investment Company; or
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(iv) arise as a result of any failure by the Investment Company to provide
the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise,
to comply with the diversification requirements specified in Article VII of
this Agreement); or
(v) arise out of or result from any material breach of any representation
or warranty made by the Underwriter in this Agreement or arise out of or
result from any other material breach of this Agreement by the Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company or each Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of any Account.
8.3 INDEMNIFICATION BY THE INVESTMENT COMPANY
8.3(a). The Investment Company agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls or is controlled by the Company within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
8.3) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Investment Company) or
litigation expenses (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, at common law or
otherwise, insofar as such losses, claims,
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damages, liabilities or expenses (or actions in respect thereof) or settlements
result from the gross negligence, bad faith or willful misconduct of the Board
or any member thereof, are related to the operations of the Investment Company
and:
(i) arise as a result of any failure by the Investment Company to provide
the services and furnish the materials under the terms of this Agreement
(including a failure to comply with the diversification requirements
specified in Article VII of this Agreement); or
(ii) arise out of or result from any material breach of any representation
or warranty made by the Investment Company in this Agreement or arise out
of or result from any other material breach of this Agreement by the
Investment Company, as limited by and in accordance with the provisions of
Sections 8.3(b) and 8.3(c) hereof.
8.3(b). The Investment Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's will misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Investment Company, the Underwriter or any Account, which ever
is applicable.
8.3(c). The Investment Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Investment Company in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Investment
Company of any such claim shall not relieve the Investment Company from any
liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In case
any such action is brought against the Indemnified Parties, the Investment
Company will be entitled to participate, at its own expense, in the defense
thereof. The Investment Company also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action. After
notice from the Investment Company to such party of the Investment Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Investment
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the
Investment Company of the commencement of any litigation or proceeding against
it or any of its respective officers or directors in connection with this
Agreement, the issuance or sale of the Contracts, with respect to the operation
of any Account, or the sale or acquisition of shares of the Investment Company.
14
<PAGE>
ARTICLE IX. APPLICABLE LAW
9.1 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Washington.
9.2 To the extent they are applicable, this Agreement shall be subject to the
provisions of the 1933, 1934 and 1940 acts, and the rules and regulations and
rulings thereunder, including such exemptions from those statutes, rules and
regulations as the Securities and Exchange Commission may grant and the terms
hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION OF AGREEMENT
10.1 This Agreement shall continue in full force and effect until the first to
occur of:
(a) termination by any party for any reason by sixty (60) days advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Investment Company
and the Underwriter with respect to any fund based upon the Company's
determination that shares of such Fund are not reasonably available to meet the
requirements of the Contracts; or
(c) termination by the Company by written notice to the Investment Company
and the Underwriter with respect to any Fund in the event any of the Fund's
shares are not registered, issued, or sold materially in accordance with
applicable state or federal law or such law precludes the use of such shares as
the underlying investment media of the Contracts issued or to be issued by the
Company; or
(d) Termination by the Company by written notice to the Investment Company
and the Underwriter with respect to any Fund in the event that such Fund ceases
to qualify as a Regulated Investment Company under Subchapter M of the Code or
under any successor or similar provision, or if the Company reasonably believes
that the Investment Company may fail to so qualify; or
(e) termination by the Company by written notice to the Investment Company
and the Underwriter with respect to any Fund in the event that such Fund fails
to meet the diversification requirements specified in Article VII hereof; or
(f) termination by either the Investment Company or the Underwriter by
written notice to the Company, if either one or both of the Investment Company
or the Underwriter respectively, shall determine, in their sole judgment
exercised in good faith, that the Company or its affiliated companies has
suffered a material adverse change in its business, operations, financial
condition, or prospects since the date of this Agreement or is the subject of
material adverse publicity; or
(g) termination by the Company by written notice to the Investment Company
and the Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Investment Company or the Underwriter
has suffered a material adverse change in its
15
<PAGE>
business, operations, financial condition, or prospects since the date of this
Agreement or is the subject of material adverse publicity.
10.2 Notwithstanding any termination of this Agreement, the Investment Company
and the Underwriter shall at the option of the Company, continue to make
available additional shares of the Investment Company pursuant to the terms and
conditions of this Agreement, for all Contracts in effect on the effective date
of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investment in the Investment Company,
redeem investments in the Investment Company, or invest in the Investment
Company upon the making of additional purchase payments under the Existing
Contracts.
10.3 The Company shall not redeem Investment Company shares attributable to the
Contracts (as opposed to Investment Company shares attributable to the Company's
assets held in any of the Accounts) except (i) as necessary to implement
Contract Owner initiated transactions, or (ii) as required by state or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"). Upon request, the
Company will promptly furnish to the Investment Company and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Investment Company and the Underwriter) to the effect that
any redemption pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the Contracts,
the Company shall not prevent Existing Contract Owners from allocating payments
to a Fund that was otherwise available under the Contracts without first giving
the Investment Company or the Underwriter sixty (60) days notice of its
intention to do so.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Investment Company:
909 A. Street
Tacoma, Washington 98402
Attention: Karl J. Ege, Esq.
If to the Company:
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-4797
Attention: _________________________
If to the Underwriter:
909 A. Street
Tacoma, Washington 98402
Attention: Karl J. Ege, Esq.
16
<PAGE>
ARTICLE XII. MISCELLANEOUS
12.1 All persons dealing with the Investment Company must look solely to the
property of the Investment Company for the enforcement of any claims against the
investment Company as neither the Board, officers, agents or shareholders assume
any personal liability for obligations entered into on behalf of the Investment
Company.
12.2 Subject to the requirements of legal process and regulatory authority, each
party hereto shall treat as confidential the names and addresses of the owners
of the Contracts and all information reasonably identified as confidential in
writing by any other party hereto and, except as permitted by this Agreement,
shall not disclose, disseminate or utilize such names and addresses and other
confidential information until such time as it may come into the public domain
without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together shall constitute one and the same instrument.
12.5 If any provisions of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable life
insurance operations of the Company are being conducted in a manner consistent
with the California Variable Life Insurance Regulations and any other applicable
law or regulations.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8 This Agreement or any of the rights and obligations hereunder may not be
assigned by any party without the prior written consent of all parties hereto;
provided, however, that the Underwriter may assign this Agreement or any rights
or obligations hereunder to any affiliate of or company under common control
with the Underwriter, if such assignee is duly licensed and registered to
perform the obligations of the Underwriter under this Agreement.
17
<PAGE>
12.9 The Company shall furnish, or shall cause to be furnished, to the
Investment Company or its designee copies of the following reports:
(a) the Company's annual statement prepared under statutory accounting
principles, as soon as practical and in any event within 90 days after the end
of each fiscal year;
(b) the Company's quarterly statement (statutory), as soon as practical
and in any event within 45 days after the end of each quarterly period; and
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders or policyholders, as soon as practical after the
delivery thereof; and
12.10 The Master Trust Agreement dated 11 July 1996, as amended from time to
time, establishing the Investment Company, which is hereby referred to and a
copy of which is on file with the Secretary of The Commonwealth of
Massachusetts, provides that the name Russell Insurance Funds means the Trustees
from time to time serving (as Trustees but not personally) under said Master
Trust Agreement. It is expressly acknowledged and agreed that the obligations
of the Investment Company hereunder shall not be binding upon any of the
shareholders, Trustees, officers, employees or agents of the Investment Company,
personally, but shall bind only the trust property of the Investment Company as
provided in its Master Trust Agreement. The execution and delivery of this
Agreement have been authorized by the Trustees of the Investment Company and
signed by the President of the Investment Company, acting as such, and neither
such authorization by such Trustees nor such execution and delivery by such
officer shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the trust
property of the Investment Company as provided in its Master Trust Agreement.
IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement
to be executed in its name and on behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date first written above.
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
ATTEST: BY:
- ---------------------------------------- ------------------------------
Secretary Title:
RUSSELL INSURANCE FUNDS
ATTEST: BY:
- ---------------------------------------- ------------------------------
Secretary President
RUSSELL FUND DISTRIBUTORS,
INC.
18
<PAGE>
ATTEST: BY:
- ---------------------------------------- ------------------------------
Secretary President
19
<PAGE>
SCHEDULE A
ACCOUNTS
Name of Account Date of Resolution of Company's
Board that established the Account
NML Variable Annuity Account A February 14, 1968
NML Variable Annuity Account B February 14, 1968
NML Variable Annuity Account C July 22, 1970
Northwestern Mutual Variable Life Account November 23, 1983
20
<PAGE>
SCHEDULE B
CONTRACTS
1. Contract Form Numbers:
Variable Life:
RR.VJL.(1298) RR Series Variable Joint Life
RR.VEL.(0398) RR Series Variable Executive Life
QQ.VCL QQ Series Variable CompLife
MM 15 MM Series Variable Whole Life
MM 16 MM Series Variable Single Premium Life
MM 17 MM Series Variable Extraordinary Life
Individual Variable Annuity:
QQV.ACCT.A QQV.ACCT.B QQ Series VAs
MM V 1A MM V 1B MM V 1 MM Series VAs
LL V 1A LL V 1B LL V 1 LL Series VAs
KK V 1A KK V 1B KK V 1 KK Series VAs
JJ V 1A JJ V 1B JJ Series VAs
Group Variable Annuity
NPV.1C NN Series GPA
MP V 1C MM Series GPA
LL V 1C LL Series GPA
KK V 1C KK Series GPA
JJ V 1C JJ Series GPA
2. Funds currently available to act as investment vehicles for the
above-listed contracts:
Russell Insurance Funds: Multi-Style Equity Fund
Aggressive Equity Fund
Non-U.S. Fund
Core Bond Fund
Russell Real Estate Securities Fund
HOL03 116508
S-6's
21
<PAGE>
Exhibit A(9)(b)
February __, 1999
The Northwestern Mutual Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, WI 53202
Re: Administrative Service Fee
Gentlemen:
The purpose of this letter is to confirm certain financial arrangements
between Frank Russell Investment Management Company ("FRIMCo"), the investment
adviser to Russell Insurance Funds, a registered investment company (the
"Trust"), and The Northwestern Mutual Life Insurance Company ("NML") in
connection with NML's investment in the Trust. FRIMCo or its affiliates will
pay an administrative services fee to NML equal, on an annualized basis, to
0.10% of the aggregate net assets of the Trust attributable to NML (other
than assets attributable to NML employee and agent qualified plans). Such fee
shall be paid quarterly (on a calendar year basis) in arrears for as long as NML
owns shares in the Trust.
Sincerely,
FRANK RUSSELL INVESTMENT MANAGEMENT COMPANY
By:
---------------------------
Lynn L. Andersen
Chief Executive Officer
Agreed to and accepted:
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
By:
-----------------------
Mark G. Doll
Senior Vice President
<PAGE>
Exhibit C(1)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 21 to the Registration Statement on Form S-6 (the
"Registration Statement") of our report dated January 25, 1999, relating to the
financial statements of The Northwestern Mutual Life Insurance Company, and of
our report dated January 25, 1999, relating to the financial statements of
Northwestern Mutual Variable Life Account, which appear in such Prospectus. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
February 25, 1999
<PAGE>
Exhibit C(6)
February 25, 1999
The Northwestern Mutual Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Gentlemen:
This opinion is furnished in connection with Post-Effective Amendment No. 21 to
the Registration Statement on Form S-6, Registration No. 2-89972, of
Northwestern Mutual Variable Life Account (File No. 2-89972). The prospectus
included in Post-Effective Amendment No. 21 ("Prospectus") describes three
variable life insurance policies which are issued in connection with the Account
("Policies"): Whole Life, Extra Ordinary Life Policies and Single Premium Life
Policies. The Policy forms were prepared under my direction, and I am familiar
with the Registration Statement and Amendments and Exhibits thereto. In my
opinion:
l. The illustrations of death benefits included on pages 11, 12 and 13 of the
Prospectus, based on the assumptions stated in the illustrations, are
consistent with the provisions of the Policies.
2. The illustration of the effect of a Policy loan on the death benefit and
cash value included on page 15, based on the assumptions stated in the
illustration, is consistent with the provisions of the Policies.
3. The illustration of reduced paid-up insurance and extended term in- surance
included on page 16 of the Prospectus, based on the assumptions stated in
the illustration, is consistent with the provisions of the Policies.
4. The illustrations of cash values and death benefits included on pages 44
through 48 of the Prospectus, in the Appendix thereto, including the
amounts shown for the Base Policy and as Paid-Up Additions, based on the
assumptions stated in the illustrations, are consistent with the provi-
sions of the Policies and current dividend scale and experience. The rate
structure of the Policies has not been designed so as to make the
relationship between premiums and benefits, as shown in the illustra-
tions, appear more favorable to a prospective purchaser of a Policy for
male age 35, than to prospective purchasers of Policies for a male at other
ages or for a female.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
Prospectus.
Sincerely,
WILLIAM C. KOENIG
William C. Koenig, F.S.A.
Senior Vice President and Chief Actuary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT DECEMBER 31, 1998 FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 587,479
<INVESTMENTS-AT-VALUE> 749,935
<RECEIVABLES> 423
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 750,358
<PAYABLE-FOR-SECURITIES> 328
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 95
<TOTAL-LIABILITIES> 423
<SENIOR-EQUITY> 749,935
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 749,935
<DIVIDEND-INCOME> 24,922
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 3,933
<NET-INVESTMENT-INCOME> 20,989
<REALIZED-GAINS-CURRENT> 4,332
<APPREC-INCREASE-CURRENT> 68,780
<NET-CHANGE-FROM-OPS> 94,101
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,933
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
