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APRIL 28, 2000
NORTHWESTERN MUTUAL VARIABLE COMPLIFE(R)
Variable Whole Life Policy with Additional Protection
(PHOTO)
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CompLife(R) is a registered
service mark of
Northwestern Mutual
Life Insurance Company
NORTHWESTERN MUTUAL The Northwestern Mutual Life
SERIES FUND, INC. AND Insurance Company
RUSSELL INSURANCE FUNDS 720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
(414) 271-1444
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PROSPECTUSES
NORTHWESTERN MUTUAL(TM)
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C ONTENTS FOR THIS PROSPECTUS
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Prospectus......................................... 1
Summary............................................ 2
Variable Life Insurance....................... 2
The Account and its Divisions................. 2
The Policy.................................... 2
Premiums.................................... 2
Death Benefit............................... 2
Cash Value.................................. 2
Deductions and Charges...................... 2
From Premiums............................ 2
From Policy Value........................ 3
From the Assets of the Account........... 3
Transaction Charges...................... 3
Surrender Charges........................ 3
From the Mutual Funds.................... 3
The Northwestern Mutual Life Insurance Company,
Northwestern Mutual Variable Life Account,
Northwestern Mutual Series Fund, Inc. and
Russell Insurance Funds....................... 5
Northwestern Mutual.............................. 5
The Account...................................... 5
The Funds........................................ 5
Northwestern Mutual Series Fund, Inc............. 5
Small Cap Growth Stock Portfolio.............. 5
Aggressive Growth Stock Portfolio............. 5
International Equity Portfolio................ 5
Index 400 Stock Portfolio..................... 6
Growth Stock Portfolio........................ 6
Growth and Income Stock Portfolio............. 6
Index 500 Stock Portfolio..................... 6
Balanced Portfolio............................ 6
High Yield Bond Portfolio..................... 6
Select Bond Portfolio......................... 6
Money Market Portfolio........................ 6
Russell Insurance Funds.......................... 6
Multi-Style Equity Fund....................... 6
Aggressive Equity Fund........................ 6
Non-U.S. Fund................................. 6
Real Estate Securities Fund................... 7
Core Bond Fund................................ 7
Detailed Information About the Policy.............. 7
The Policy Design................................ 7
Requirements for Insurance....................... 7
Premiums......................................... 8
Death Benefit.................................... 9
Policy Value and Paid-Up Additional
Insurance..................................... 10
Allocations to the Account....................... 10
Deductions and Charges........................ 11
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Deductions from Premiums.................... 11
Charges Against the Policy Value............ 11
Charges Against the Account Assets.......... 11
Transaction Charges......................... 12
Surrender Charges........................... 12
Guarantee of Premiums, Deductions and Charges.... 12
Cash Value.................................... 12
Annual Dividends.............................. 13
Loans and Withdrawals......................... 13
Excess Amount................................. 14
Paid-Up Insurance............................. 14
Reinstatement................................. 14
Right to Return Policy........................ 15
Right to Exchange for a Fixed Benefit
Policy...................................... 15
Other Policy Provisions....................... 15
Owner....................................... 15
Beneficiary................................. 15
Incontestability............................ 15
Suicide..................................... 15
Misstatement of Age or Sex.................. 15
Collateral Assignment....................... 15
Payment Plans............................... 15
Deferral of Determination and Payment....... 15
Voting Rights................................. 15
Substitution of Fund Shares and Other
Changes..................................... 16
Reports....................................... 16
Special Policy for Employers.................. 16
Distribution of the Policies.................. 16
Tax Treatment of Policy Benefits.............. 17
Other Information................................ 17
Management.................................... 17
Regulation.................................... 19
Legal Proceedings............................. 19
Registration Statement........................ 19
Experts....................................... 19
Financial Statements............................. 20
Report of Independent Accountants (for the two
years ended December 31, 1999).............. 20
Financial Statements of the Account (for the
two years ended December 31, 1999).......... 21
Financial Statements of Northwestern Mutual
(for the three years ended December 31,
1999)....................................... 32
Report of Independent Accountants (for the
three years ended December 31, 1999)........ 43
Appendix......................................... 44
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Prospectus
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PROSPECTUS
NORTHWESTERN MUTUAL VARIABLE COMPLIFE(R)
VARIABLE WHOLE LIFE POLICY WITH ADDITIONAL PROTECTION
This prospectus describes the Variable CompLife(R) Policy (the "Policy") offered
by The Northwestern Mutual Life Insurance Company. We have designed the Policy
to provide lifetime insurance coverage on the insured named in the Policy. We
use Northwestern Mutual Variable Life Account (the "Account") to keep the money
you invest separate from our general assets. Both the death benefit and the cash
value provided by the Policy will vary daily to reflect the investment
experience of 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.
The Policy provides for a scheduled premium payable at least annually, but you
may pay more than the scheduled amount. In some situations you may pay less than
the scheduled amount. We guarantee that the death benefit will never be less
than the Policy's initial amount of whole life insurance, regardless of the
Account's investment experience, so long as you pay scheduled premiums when they
are due and no Policy debt is outstanding. The Policy may include insurance
which we guarantee for only a specified number of years. There is no guaranteed
minimum cash value.
In the early years of a Policy it is likely that the cash value will be less
than the premium amounts accumulated at interest. This is because of the sales
and insurance costs for a new Policy. We make deductions for sales costs and
administrative expenses 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.
You may return a Policy for a full refund for a limited period of time. See
"Right to Return Policy", p. 15.
IT MAY NOT BE ADVANTAGEOUS TO REPLACE EXISTING INSURANCE WITH A VARIABLE LIFE
INSURANCE POLICY. SEE DEDUCTIONS AND CHARGES AND CASH VALUE.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR
NORTHWESTERN MUTUAL SERIES FUND, INC. AND THE RUSSELL INSURANCE FUNDS WHICH ARE
ATTACHED HERETO, AND SHOULD BE RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1 Prospectus
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SUMMARY
The following summary provides a brief overview of the Account and the Policy.
It omits details which are included elsewhere in this prospectus, in the
attached mutual fund prospectuses and in the terms of the Policy.
VARIABLE LIFE INSURANCE
Variable life insurance is cash value life insurance and is similar in many ways
to traditional fixed benefit life insurance. Variable life insurance allows the
policyowner to direct the premiums, after certain deductions, among a range of
investment options. The variable life insurance death benefit and cash value
vary daily to reflect the performance of the selected investments. Since a
substantial part of the premium pays for the insurance risk of death you should
not consider variable life insurance unless your primary need is life insurance
protection.
THE ACCOUNT AND ITS DIVISIONS
Northwestern Mutual Variable Life Account is the investment vehicle for the
Policies. The Account has sixteen divisions. You determine how net premiums are
to be apportioned. You may select up to ten 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.
THE POLICY
PREMIUMS The Policy provides for a scheduled premium for the Minimum Guaranteed
Death Benefit and any Additional Protection you purchase as part of the Policy.
The Minimum Guaranteed Death Benefit is the initial amount of whole life
insurance provided by the Policy. Additional Protection is insurance which does
not have a lifetime guarantee, but we guarantee this insurance for a specified
period. The scheduled premium may include additional amounts to purchase
variable paid-up additional insurance or to increase Policy Value. The scheduled
premium also includes the amount required for any additional benefits that you
purchase with the Policy. You may pay optional unscheduled additional premiums,
within limits, to purchase variable paid-up additional insurance or to increase
Policy Value. You may suspend payment of premiums if we determine under a
certain set of assumptions that the Policy Value is already sufficient to cover
future insurance costs. You may have to resume payment of premiums in the future
if the Policy Value becomes insufficient. The Policy Value reflects investment
experience as well as premiums paid and the cost of insurance and other charges.
After a Policy is issued you may increase or decrease the amount of scheduled
premiums within limits. Premiums are payable at least annually.
DEATH BENEFIT We guarantee that the Minimum Guaranteed Death Benefit provided
by a Policy will be paid upon the death of the insured, regardless of investment
experience, if you have paid scheduled premiums when they are due and no Policy
debt is outstanding. The death benefit will be increased by the amount of any
Additional Protection in force. We guarantee Additional Protection for a period
which depends on the sex and risk classification and age of the insured when the
Policy is issued and on the proportions of Minimum Guaranteed Death Benefit and
Additional Protection. The death benefit will also be increased by the amount of
any variable paid-up additional insurance, any excess Policy Value and any
amount needed to meet federal income tax requirements for life insurance.
CASH VALUE The cash value of a Policy is not guaranteed and varies daily to
reflect investment experience. You may surrender a Policy for its cash value. A
surrender charge applies during the first 15 policy years. We permit partial
surrenders by administrative practice if the remaining Policy meets our minimum
size requirements.
DEDUCTIONS AND CHARGES
FROM PREMIUMS
- - Deduction of 3.5% for state and federal taxes attributable to premiums
- - Sales load of 4.5%
- - Annual charge of $84, currently expected to be reduced to $60 after ten years
- - Annual charge of $0.12 per $1,000 of Minimum Guaranteed Death Benefit
- - Annual expense charge of $0.12 per $1,000 of Minimum Guaranteed Death Benefit
and Additional Protection (currently expected to be charged for ten years
only)
- - Any extra premium charged for insureds who do not qualify as select, standard
plus or standard risks
- - Any extra premium for additional benefits purchased with the Policy
Prospectus 2
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FROM POLICY VALUE
- - An annual charge, based on the amount at risk and the attained age and risk
classification of the insured, with rates based on the 1980 CSO Mortality
Tables. This charge also applies for the values which support any paid-up
additional insurance.
- - Any surrender charges, administrative charges or decrease in Policy debt that
may result from a partial withdrawal, a decrease in the face amount of
insurance or a transfer of Policy Value to paid-up insurance
FROM THE ASSETS OF THE ACCOUNT
- - A daily charge at the annual rate of .60% of the Account assets for mortality
and expense risks
TRANSACTION CHARGES
- - Fee of up to $25 (currently waived) for transfers among the Account Divisions
- - Fee of up to $25 (currently waived) for withdrawals of Excess Amount
- - Charge for administrative costs to process a partial surrender, currently
expected to be $250
SURRENDER CHARGES
- - Surrender charges for sales and issuance expenses we deduct from Policy
proceeds if you surrender the Policy during the first 15 years. See "Surrender
Charges", p. 12.
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 .20% to 1.50% 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
1999 operations.
NORTHWESTERN MUTUAL SERIES FUND, INC.
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INVESTMENT
ADVISORY OTHER TOTAL
PORTFOLIO FEE EXPENSES EXPENSES
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Small Cap Growth Stock *... .79% .24% 1.03%
Aggressive Growth Stock.... .51% .00% .51%
International Equity....... .67% .07% .74%
Index 400 Stock*........... .25% .21% .46%
Growth Stock............... .43% .00% .43%
Growth and Income Stock.... .57% .00% .57%
Index 500 Stock............ .20% .00% .20%
Balanced................... .30% .00% .30%
High Yield Bond............ .49% .01% .50%
Select Bond................ .30% .00% .30%
Money Market............... .30% .00% .30%
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* Small Cap Growth Stock and Index 400 Stock Portfolios Northwestern Mutual
Investment Services, LLC (NMIS), investment adviser to Northwestern Mutual
Series Fund, Inc., has contractually agreed to waive, at least until December
31, 2000, a portion of its advisory fee, up to the full amount of that fee,
equal to the amount by which total operating expenses exceed (1) 1.00% of the
Small Cap Growth Stock Portfolio's average daily net assets on an annual
basis, and (2) 0.35% of the Index 400 Stock Portfolio's average daily net
assets. In addition, NMIS has voluntarily agreed to reimburse each of these
portfolios for all remaining expenses after fee waivers which exceed (1) 1.00%
in the case of the Small Cap Growth Stock Portfolio, and (2) 0.35% in the case
of the Index 400 Stock Portfolio, of the average daily net assets on an annual
basis. This waiver and reimbursement, in each case, may be revised or
eliminated at any time without notice to shareholders.
RUSSELL INSURANCE FUNDS
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INVESTMENT
ADVISORY OTHER TOTAL
FUND FEE * EXPENSES* EXPENSES
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Multi-Style Equity Fund... 0.78% 0.15% 0.93%
Aggressive Equity Fund.... 0.95% 0.39% 1.34%
Non-U.S. Fund............. 0.95% 0.55% 1.50%
Real Estate Securities
Fund.................... 0.85% 0.30% 1.15%
Core Bond Fund............ 0.60% 0.26% 0.86%
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* Multi-Style Equity Fund Frank Russell Investment Company's (FRIC's) advisor,
Frank Russell Investment Management Company (FRIMCo) has contractually agreed
to waive, at least until April 30, 2001, a portion of its 0.78% management
fee, up to the full amount of that fee, equal to the amount by which the
Fund's total operating expenses exceed 0.92% of the Fund's average daily net
assets on an annual basis and to reimburse the Fund for all remaining expenses
after fee waivers which exceed 0.92% of the average daily net assets on an
annual basis. Taking the fee waivers into account, the actual annual total
operating expenses were 0.92% of the average net assets of the Multi-Style
Fund.
Aggressive Equity Fund FRIMCo has contractually agreed to waive, at least
until April 30, 2001, a portion of its 0.95% management fee, up to the full
amount of that fee, equal to the amount by which the Fund's total operating
expenses exceed 1.25% of the Fund's average daily net assets on an annual
basis and to reimburse the Fund for all remaining expenses after fee waivers
which exceed 1.25% of the average daily net assets on an annual basis. Taking
the fee waivers into account, the actual annual total operating expenses were
1.25% of the average net assets of the Aggressive Equity Fund.
3 Prospectus
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Non-U.S. Fund FRIMCo has contractually agreed to waive, at least until April
30, 2001, a portion of its 0.95% management fee, up to the full amount of that
fee, equal to the amount by which the Fund's total operating expenses exceed
1.30% of the Fund's average daily net assets on an annual basis and to reimburse
the Fund for all remaining expenses after fee waivers which exceed 1.30% of the
average daily net assets on an annual basis. Taking the fee waivers into
account, the actual annual total operating expenses were 1.30% of the average
net assets of the Non-U.S. Fund.
Real Estate Securities Fund FRIMCo has contractually agreed to waive, at least
until April 30, 2001, a portion of its .85% management fee, up to the full
amount of that fee, equal to the amount by which the Fund's total operating
expenses exceed 1.15% of the Fund's average daily net assets on an annual basis
and to reimburse the Fund for all remaining expenses after fee waivers which
exceed 1.15% of the average daily net assets on an annual basis.
Core Bond Fund FRIMCo has contractually agreed to waive, at least until April
30, 2001, a portion of its 0.60% management fee, up to the full amount of that
fee, equal to the amount by which the Fund's total operating expenses exceed
.80% of the Fund's average daily net assets on an annual basis and to reimburse
the Fund for all remaining expenses after fee waivers which exceed .80% of the
average daily net assets on an annual basis. Taking the fee waivers into
account, the actual annual total operating expenses were .80% of the average net
assets of the Core Bond Fund.
Prospectus 4
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THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY,
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT,
NORTHWESTERN MUTUAL SERIES FUND, INC. AND
RUSSELL INSURANCE FUNDS
NORTHWESTERN MUTUAL
The Northwestern Mutual Life Insurance Company is a mutual life insurance
company organized by a special act of the Wisconsin Legislature in 1857. It is
the nation's fifth largest life insurance company, based on total assets in
excess of $85 billion on December 31, 1999 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 sells life and disability
insurance policies and annuity contracts through its own field force of
approximately 6,000 full time producing agents. The Internal Revenue Service
Employer Identification Number of Northwestern Mutual is 39-0509570.
"We" in this prospectus means Northwestern Mutual.
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, the policies issued prior to
the introduction of Variable CompLife(R) (October 11, 1995 in most states) are
different from the Variable CompLife(R) Policies described in this prospectus.
The older policies are described in a separate prospectus and are no longer
offered. We also use the Account for other variable life insurance policies
which are described in other prospectuses.
The Account is registered with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940. This registration
does not involve supervision of management or investment practices or policies.
The Account has sixteen divisions. All of the assets of each division are
invested in shares of the corresponding Portfolio or Fund described below.
THE FUNDS
NORTHWESTERN MUTUAL SERIES FUND, INC.
Northwestern Mutual Series Fund, Inc. is a mutual fund of the series type
registered under the Investment Company Act of 1940 as an open-end diversified
management investment company. The Account buys shares of each Portfolio at
their net asset value without any sales charge.
The investment adviser for the Fund is Northwestern Mutual Investment Services,
LLC ("NMIS"), our wholly-owned subsidiary. The investment advisory agreements
for the respective Portfolios provide that NMIS will provide services and bear
certain expenses of the Fund. For providing investment advisory and other
services and bearing Fund expenses, the Fund pays NMIS a fee at an annual rate
which ranges from .20% of the aggregate average daily net assets of the Index
500 Stock Portfolio to a maximum of .79% for the Small Cap Growth Stock
Portfolio, based on 1999 asset size. Other expenses borne by the Portfolios
range from 0% for the Select Bond, Money Market and Balanced Portfolios to .21%
for the Small Cap Growth Stock 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.
5 Prospectus
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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 Investment Company Act of 1940 as an open-end diversified
management investment company. The Account buys shares of each of the Russell
Insurance Funds at their net asset value without any sales charge.
The assets of each of the Russell Insurance Funds are invested by one or more
investment management organizations researched and recommended by Frank Russell
Company ("Russell"), and an affiliate of Russell, Frank Russell Investment
Management Company ("FRIMCo"). FRIMCo also advises, operates and administers the
Russell Insurance Funds. Russell is our majority-owned subsidiary.
The investment objectives and types of investments for each of the five Russell
Insurance Funds are set forth below. There can be no assurance that the Funds
will realize their objectives. A table showing the expense ratios for each of
the Russell Insurance Funds is included in the Summary above, at page 3. For
more information about the investment objectives and policies, the attendant
risk factors and expenses see the attached prospectus for the Russell Insurance
Funds.
MULTI-STYLE EQUITY FUND. The investment objective of the Multi-Style Equity
Fund is to provide income and capital growth by investing principally in equity
securities. The Multi-Style Equity Fund invests primarily in common stocks of
medium and large capitalization companies. These companies are predominately
US-based, although the Fund may invest a limited portion of its assets in non-US
firms from time to time.
AGGRESSIVE EQUITY FUND. The investment objective of the Aggressive Equity Fund
is to provide capital appreciation by assuming a higher level of volatility than
is ordinarily expected from Multi-Style Equity Fund by investing in equity
securities. The Aggressive Equity Fund invests primarily in common stocks of
small and medium capitalization companies. These companies are predominately
US-based, although the Fund may invest in non-US firms from time to time.
NON-U.S. FUND. The investment objective of the Non-U.S. Fund is to provide
favorable total return and additional diversification for US investors by
investing primarily in equity and fixed-income securities of non-US companies,
and securities issued by non-US governments. The Non-U.S. Fund invests primarily
in equity securities issued by companies domiciled outside the United States and
in
Prospectus 6
<PAGE> 9
depository receipts, which represent ownership of securities of non-US
companies.
REAL ESTATE SECURITIES FUND. The investment objective of the Real Estate
Securities Fund is to generate a high level of total return through above
average current income, while maintaining the potential for capital
appreciation. The Fund seeks to achieve its objective by concentrating its
investments in equity securities of issuers whose value is derived primarily
from development, management and market pricing of underlying real estate
properties.
CORE BOND FUND. The investment objective of the Core Bond Fund is to maximize
total return, through capital appreciation and income, by assuming a level of
volatility consistent with the broad fixed-income market, by investing in
fixed-income securities. The Core Bond Fund invests primarily in fixed-income
securities. In particular, the Fund holds debt securities issued or guaranteed
by the US government, or to a lesser extent by non-US governments, or by their
respective agencies and instrumentalities. It also holds mortgage-backed
securities, including collateralized mortgage obligations. The Fund also invests
in corporate debt securities and dollar-denominated obligations issued in the US
by non-US banks and corporations (Yankee Bonds). A majority of the Fund's
holdings are US dollar-denominated. From time to time the Fund may invest in
municipal debt obligations.
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DETAILED INFORMATION ABOUT THE POLICY
THE POLICY DESIGN
We have included this simplified description of the Variable CompLife(R) Policy
design in this section to help you understand how the Policy is constructed. It
omits details and important qualifications which are discussed in the following
sections.
The Policy combines a Minimum Guaranteed Death Benefit with Additional
Protection in an integrated policy design. The Minimum Guaranteed Death Benefit
represents permanent life insurance guaranteed for the lifetime of the insured
if premiums are paid when due and no Policy debt is outstanding. The Additional
Protection is guaranteed for a period of years which depends on the sex and risk
classification and age of the insured when the Policy is issued and the relative
proportions of Minimum Guaranteed Death Benefit and Additional Protection. For
an insured aged less than 43 the guaranteed period is not less than ten years.
It is generally longer for younger insureds and shorter for insureds who are
older, but will not be less than six years.
We place net premiums in the Account divisions you select. The net premiums
increase the Policy Value. The Policy Value is the cumulative amount invested,
adjusted for investment results, reduced by the cost of insurance. The cost of
insurance is based on the net amount at risk. This is the amount of insurance in
force less the Policy Value. The cost of insurance also reflects the attained
age of the insured each year. If you pay premiums when they are due, and
investment experience is favorable, the Policy Value will increase year by year.
We have designed the Policy so that the increase in Policy Value over time
should reduce the net amount at risk. The reduction in the net amount at risk
offsets the rising cost of the mortality risk as the age of the insured
increases, reducing the total cost of insurance which we subtract from the
Policy Value each year. This scenario depends, however, on the investment
experience which is a principal factor in determining Policy Value. Investment
experience is not guaranteed. If investment experience does not produce a
sufficient rate of return, the amount of Additional Protection will be reduced
in later Policy years, or you will need to pay additional premium to keep the
Additional Protection from falling. For a typical Policy the average annual net
investment rate of return required to maintain the initial amount of Additional
Protection, without additional premium, should be between 4% and 6%, based on
the current charges and dividend scale. Any excess Policy Value (we call it the
"Excess Amount") is simply added to the death benefit and the cash value, dollar
for dollar, unless a greater increase in the death benefit is required to meet
tax requirements for life insurance. See "Excess Amount", p. 14.
The Policy also allows you to pay additional premiums to purchase variable
paid-up additional insurance. We calculate the values for the additional
insurance separately from those which support the initial amount of insurance.
The values for the variable paid-up additional insurance do not affect the
Policy Value. We allow unscheduled additional premiums to purchase variable
paid-up additional insurance, subject to insurability of the insured when we
accept the premiums.
REQUIREMENTS FOR INSURANCE
The minimum amount we require for the Minimum Guaranteed Death Benefit is
$100,000, reduced to $50,000 if the insured is below age 15 or over age 59. If
the initial premium is at least $10,000 ($5,000 for ages below 15) the required
minimum for the Minimum Guaranteed Death Benefit is $1,000. A lower minimum may
apply in some circumstances and will apply if the Policy is purchased for an
employer-sponsored benefit plan. See "Special Policy for Employers",
7 Prospectus
<PAGE> 10
p. 16. The Minimum Guaranteed Death Benefit must always be at least $1,000.
Before issuing a Policy, we will require satisfactory evidence of insurability.
Non-smokers who meet preferred underwriting requirements are considered select
risks. Nonsmokers in the second best classification are considered standard plus
risks. The best class of smokers are considered standard risks. The premium is
different for each risk classification. We charge a higher premium for insureds
who do not qualify as select, standard plus or standard risks. The amount of
extra premium depends on the risk classification in which we place the insured.
PREMIUMS
The Policy provides for a level scheduled premium to be paid annually at the
beginning of each Policy year. Premiums are payable at our Home Office or to an
authorized Agent of Northwestern Mutual.
By administrative practice, we accept premiums on a monthly, quarterly or
semi-annual schedule. If you pay premiums more frequently than annually, we
place the scheduled net annual premium in the Account on each Policy
anniversary. We advance this amount on this date and we are reimbursed as we
receive your premium payments. You have no obligation to repay the amount that
we have advanced, but failure to pay the premiums when due will cause (a)
premium payments to be suspended (subject to the conditions described later in
this section), (b) the Policy to continue in force as a reduced amount of
paid-up insurance, or (c) the Policy to terminate. If you do not pay premiums
when they are due, we will reduce the Account assets supporting the Policy to
reflect the premiums due later in the Policy year.
Premiums you pay other than on an annual basis are increased to (1) reflect the
time value of money, based on an 8% interest rate, and (2) cover the
administrative costs to process the additional premium payments. A monthly
premium is currently equal to the annual premium times .0863 plus 50 cents.
Thus, the total of monthly premiums for a year is currently 3.56% plus $6.00
higher than a premium paid annually. You may pay monthly premiums only through
an automatic payment plan arranged with your bank. A quarterly premium is
currently equal to the annual premium times .2573 plus $2.00. A semiannual
premium is equal to the annual premium times .5096 plus $1.35.
The scheduled premium includes the premium for the Minimum Guaranteed Death
Benefit and the premium for any Additional Protection. The amount of the premium
depends on the amount of the Minimum Guaranteed Death Benefit and the amount of
Additional Protection, as well as the insured's age and risk classification. The
amount of the premium also reflects the sex of the insured except where state or
federal law requires that premiums and other charges and values be determined
without regard to sex. We send a notice to you not less than two weeks before
each premium is due.
You may select the proportions of Minimum Guaranteed Death Benefit and
Additional Protection, subject to the required minimum amount for the Minimum
Guaranteed Death Benefit. See "Requirements for Insurance", above.
Policies that include Additional Protection are subject to a minimum premium
that is equal to 70% of the premium for a Policy that consists solely of Minimum
Guaranteed Death Benefit. The premium for the Additional Protection consists of
two times the cost of term insurance (for the insured's age when the Policy was
issued) as long as this amount in combination with the premium for the Minimum
Guaranteed Death Benefit meets the 70% requirement. If this combination does not
meet the 70% requirement the premium for Additional Protection is increased to
bring the total up to the 70% level. We apply the amount by which the premium is
increased, after deductions, to increase the Policy Value. In most cases we will
also guarantee the Additional Protection for a longer period.
In addition to the premium required for the Minimum Guaranteed Death Benefit and
any Additional Protection, the scheduled premium may include additional premium
to purchase paid-up additional insurance or to increase the Policy Value. The
scheduled premium will also include the premium required for any additional
benefit included as part of the Policy.
After the Policy is issued we will reduce the additional premium included in the
scheduled premium at any time upon your request. You may increase the additional
premium included in the scheduled premium, or you may pay optional unscheduled
additional premiums, at any time before the Policy anniversary nearest to the
insured's 85th birthday, subject to our insurability requirements and issue
limits.
If the Policy includes Additional Protection, we may require an increased
premium after the guaranteed period to prevent a reduction of the amount of
Additional Protection. We determine the increased premium, if required, each
year as of the date 25 days before the Policy anniversary. You are entitled to
pay the increased premium required to keep the Additional Protection from
falling until the insured reaches age 80 but this right terminates as of the
first Policy anniversary on which you do not pay the increased premium when it
is due.
You may suspend payment of scheduled premiums, at your option, if as of 25 days
prior to the Policy anniversary on or before the due date of the premium, (1)
the Excess Amount exceeds one year's minimum premium, and (2) the Policy Value
exceeds the sum of the net single premium for the amount of insurance then in
force, plus the present value of future charges for expenses, additional
benefits, and any extra
Prospectus 8
<PAGE> 11
mortality. See "Excess Amount", p. 14. The minimum premium is the sum of the
premiums for the Minimum Guaranteed Death Benefit, the Additional Protection and
any additional benefit included in the Policy. We will calculate the net single
premium and the present value of future charges using the mortality basis for
the cost of insurance charges with 6% interest. See "Charges Against the Policy
Value", p. 11. While payment of premiums is suspended, certain charges
ordinarily deducted from premiums will reduce the Policy Value instead. You may
resume payment of scheduled premiums as of any Policy anniversary. You must
resume payment of scheduled premiums as of the next Policy anniversary if the
Excess Amount, as of 25 days prior to the Policy anniversary, is determined to
be less than one year's minimum premium. You may pay unscheduled additional
premiums while suspension of scheduled premiums is in effect, subject to our
insurability requirements and issue limits.
The Policy provides for a grace period of 31 days for any premium that is not
paid when due. The Policy remains in force during this period. If you pay a
premium during the grace period, the values for the Policy will be the same as
if you had paid the premium when it was due. If you do not pay the premium
within the grace period, and the Policy does not qualify for premium suspension,
the Policy will terminate as of the date when the premium was due and will no
longer be in force, unless it is continued as paid-up insurance. See "Paid-Up
Insurance", p. 14. If you surrender a Policy, its cash value will be paid. See
"Cash Value", p. 12.
The following table shows representative annual premiums for a Policy with an
initial amount of $400,000, divided equally between Minimum Guaranteed Death
Benefit and Additional Protection, for male select, standard plus and standard
risks, at three ages.
<TABLE>
<CAPTION>
PREMIUM FOR
MINIMUM MINIMUM
GUARANTEED GUARANTEED PREMIUM FOR
AGE AT DEATH DEATH ADDITIONAL ADDITIONAL TOTAL
ISSUE BENEFIT BENEFIT PROTECTION PROTECTION PREMIUM
- ------ ---------- ----------- ------------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
SELECT
15................................ $200,000 $1,292 $200,000 $ 588 $ 1,880
35................................ 200,000 2,610 200,000 1,010 3,620
55................................ 200,000 6,618 200,000 3,320 9,938
STANDARD PLUS
15................................ $200,000 $1,406 $200,000 $ 608 $ 2,014
35................................ 200,000 2,874 200,000 1,118 3,992
55................................ 200,000 7,196 200,000 4,428 11,624
STANDARD
15................................ $200,000 $1,612 $200,000 $ 740 $ 2,352
35................................ 200,000 3,362 200,000 1,310 4,672
55................................ 200,000 8,650 200,000 6,380 15,030
</TABLE>
DEATH BENEFIT
The death benefit for a Policy includes the Minimum Guaranteed Death Benefit,
any Additional Protection in effect, any Excess Amount and any paid-up
additional insurance. It is reduced by the amount of any Policy debt outstanding
and by an adjustment for any unpaid premiums which have been applied to purchase
paid-up additional insurance.
The Minimum Guaranteed Death Benefit you select when the Policy is issued will
neither increase nor decrease, regardless of the investment experience of the
Account divisions where assets for the Policy are held, so long as you pay
scheduled premiums when they are due and no Policy debt is outstanding. In
setting the premium rates for the Minimum Guaranteed Death Benefit we have
assumed that the Account assets will grow at a net annual rate of 4%. We bear
the risk that the rate of growth will be less. A higher rate of growth results
in an increase in the Policy Value.
The Additional Protection included in a Policy when it is issued will not
increase by reason of investment experience more favorable than the assumed 4%
net annual rate of growth. It will not decrease, regardless of investment
experience, until expiration of the guaranteed period, so long as you pay
scheduled premiums when they are due and no Policy debt is outstanding. A
condition for this guarantee is that you must use any dividends paid on the
Policy to increase Policy Value until the end of the guaranteed period unless
the Policy has an Excess Amount. See "Excess Amount" p. 14. After the guaranteed
period, the Additional Protection may be reduced unless the Policy Value exceeds
the amount defined by the formula in the Policy. We calculate
9 Prospectus
<PAGE> 12
the amount of Policy Value, and the amount of increased premium required to
prevent a reduction in the Additional Protection, 25 days before each Policy
anniversary. You may pay any increased premium required to prevent a reduction
in the Additional Protection each year until the Policy anniversary nearest the
insured's 80th birthday, but this right terminates the first time you do not pay
any required increased premium when it is due.
The Policy Value represents the total cumulative net premiums for the Minimum
Guaranteed Death Benefit and the Additional Protection, including any additional
net premiums or Policy dividends which have been used to increase the Policy
Value, adjusted for investment experience, less the cost of insurance which we
deduct from the Policy Value on each Policy anniversary. The Policy Value may
exceed the amount required to support the Minimum Guaranteed Death Benefit and
the Additional Protection. This may result from favorable investment experience
or from additional premium or Policy dividends used to increase the Policy
Value. The amount by which the Policy Value exceeds the amount needed to support
the Minimum Guaranteed Death Benefit and the Additional Protection under a
specified set of assumptions is called the Excess Amount. See "Excess Amount",
p. 14. Any Excess Amount will increase the death benefit for the Policy,
dollar-for-dollar, except as described in the next paragraph. The Policy Value
and any Excess Amount change daily.
We have designed the Policy to meet the definitional requirements for life
insurance in Section 7702 of the Internal Revenue Code. See "Tax Treatment of
Policy Benefits", p. 17. These rules require that the death benefit will never
be less than the Policy Value divided by the net single premium per dollar of
death benefit. The required difference between the death benefit and the Policy
Value is higher at younger ages than at older ages. The Policy provides for an
increase in the death benefit to the extent required to meet this test. After
the death benefit has been increased to meet this requirement an increase in the
Policy Value will cause a greater than dollar-for-dollar increase in the death
benefit, and a decrease in the Policy Value will cause a greater than
dollar-for-dollar decrease in the death benefit.
The death benefit is increased by the amount of any paid-up additional insurance
purchased with additional premium or Policy dividends. The amount and value of
the paid-up additional insurance vary daily to reflect investment experience and
are not guaranteed. The amount of any paid-up additional insurance is its value
used as a net single premium at the attained age of the insured.
POLICY VALUE AND PAID-UP ADDITIONAL INSURANCE
We determine the Policy Value and the value of any paid-up additional insurance
daily by separate calculations. An increase or decrease in the Policy Value has
no effect on the value of any paid-up additional insurance, and an increase or
decrease in the value of any paid-up additional insurance has no effect on the
Policy Value. You may increase or decrease the amount of scheduled additional
premium which you are paying to increase the Policy Value or to increase the
amount of paid-up additional insurance, and you may change the allocation for
applying this additional premium. You must make changes in the scheduled
additional premium and its allocation by written request. We may require
evidence of insurability. We do not permit increases in the scheduled additional
premium after the Policy anniversary nearest the insured's 85th birthday.
You may transfer the value of paid-up additional insurance to increase the
Policy Value by written request. This will generally result in a decrease in the
total death benefit. You may not transfer Policy Value to the value of paid-up
additional insurance.
ALLOCATIONS TO THE ACCOUNT
We place the first net annual premium for the Policy, including any net
scheduled additional premium, in the Account on the Policy date. We place the
net scheduled annual premium in the Account on each Policy anniversary
thereafter even if you are paying premiums on an other-than-annual frequency. We
will place net unscheduled premiums in the Account on the date they are received
at our Home Office. Net premiums are premiums less the deductions from premiums.
See "Deductions from Premiums", below.
We invest premiums placed in the Account prior to the initial allocation date in
the Money Market Division of the Account. The initial allocation date is
identified in the Policy and is the latest of the Policy date, 45 days after the
date of the completed application or 32 days after we approve the application.
On the initial allocation date we invest the amount in the Money Market Division
in the Account divisions as you have directed in the application for the Policy.
You may change the allocation for future net premiums at any time by written
request and the change will be effective for premiums placed in the Account
thereafter. If you allocate any portion of a premium to a division, the division
must receive at least 1% of that premium.
You may apportion the Account assets supporting your Policy among as many as ten
divisions of the Account at any one time.
You may transfer accumulated amounts from one division of the Account to another
as often as twelve times in a Policy year. Transfers are effective on the date
we receive a written request at our Home Office. We reserve the right to charge
a
Prospectus 10
<PAGE> 13
fee of up to $25 to cover administrative costs of transfers. No fee is presently
charged.
DEDUCTIONS AND CHARGES
DEDUCTIONS FROM PREMIUMS We deduct a charge for taxes attributable to premiums
from each premium. The total amount of this deduction is 3.5% of the premium. Of
this amount 2.25% is for state premium taxes. Premium taxes vary from state to
state and currently range from .5% to 3.5% of life insurance premiums. The 2.25%
rate is an average. The tax rate for a particular state may be lower, higher, or
equal to the 2.25% deduction. We do not expect to profit from this charge. The
remainder of the deduction, 1.25% of each premium, is for federal income taxes
measured by premiums. We believe that this charge does not exceed a reasonable
estimate of an increase in our federal income taxes resulting from a change in
the Internal Revenue Code relating to deferred acquisition costs.
We deduct a charge of 4.5% for sales costs from each premium. We expect to
recover our sales expenses from this amount, over the period while the Policies
are in force, and from the surrender charges described below. The amounts we
deduct for sales costs in a Policy year are not specifically related to sales
costs incurred that year. To the extent that sales expenses exceed the amounts
deducted, we will pay the expenses from our other assets. These assets may
include, among other things, any gain realized from the charge against the
assets of the Account for the mortality and expense risks we have assumed. See
"Charges Against the Account Assets", p. 11. To the extent that the amounts
deducted for sales costs exceed the amounts needed, we will realize a gain.
We deduct an annual charge of $60 from premiums each year for administrative
costs to maintain the Policy. These expenses include costs of premium billing
and collection, processing claims, keeping records and communicating with
Policyowners. We retain the right to increase this charge after 10 years, but it
is guaranteed not to exceed $84 plus 12 cents per $1,000 of both the Minimum
Guaranteed Death Benefit and the Additional Protection. We do not expect to
profit from this charge.
We deduct an annual charge from premiums each of the first 10 years to
compensate us for expenses, other than sales expenses, incurred in conjunction
with issuance of the Policy. These expenses include the costs of processing
applications, medical examinations, determining insurability and establishing
records. The annual amount of this charge is $24 plus 12 cents per $1,000 of
Minimum Guaranteed Death Benefit and Additional Protection. If you surrender the
Policy before these charges have been deducted for 10 years, the remaining
charges will be reflected in the administrative surrender charge. See "Surrender
Charges", p. 12.
We deduct an annual charge of 12 cents per $1,000 of Minimum Guaranteed Death
Benefit from premiums each year to compensate us for the risk we have assumed by
guaranteeing the Minimum Guaranteed Death Benefit, as long as you pay all
premiums when they are due, no matter how unfavorable investment performance may
be.
We will also deduct any extra amounts we charge for insureds who do not qualify
as select, standard plus or standard risks, plus the cost of any additional
benefits purchased with the Policy, to determine the net annual premium.
CHARGES AGAINST THE POLICY VALUE We deduct a cost of insurance charge from the
Policy Value on each Policy Anniversary. We determine the amount by multiplying
the net amount at risk by the cost of insurance rate. The net amount at risk is
the projected insurance amount, discounted at 4%, less the Policy Value. The
projected insurance amount is the amount of insurance at the end of the Policy
year, assuming that the Policy Value increases by the 4% annual growth rate
assumed in constructing the Policy. The cost of insurance rate reflects the
attained age of the insured. For select and standard risks, the cost of
insurance rate is based on the Commissioners 1980 Standard Ordinary Smoker and
Non-Smoker Mortality Tables. For other risks, the cost of insurance rate is
based on the Commissioners 1980 Standard Ordinary Mortality Tables. The cost of
insurance rates are included in the Policy. We also deduct a cost of insurance
charge from the cash value of any paid-up additional insurance on each Policy
anniversary. If we receive an unscheduled premium on a day other than a Policy
anniversary and the net amount at risk increases as a result, we will deduct a
cost of insurance charge on that day, reflecting the increase in the net amount
at risk and the portion of the Policy year remaining.
While payment of premiums is suspended, a portion of the annual charges which we
would ordinarily deduct from premiums will be deducted from the Policy Value
instead. We will also make this deduction on the Policy anniversary each year.
We will also reduce the Policy Value by any surrender charges, administrative
charges or decrease in Policy debt that may result from a withdrawal, a decrease
in the face amount of insurance or a change to variable benefit paid-up
insurance.
CHARGES AGAINST THE ACCOUNT ASSETS There is a daily charge to the Account for
the mortality and expense risks that we have assumed. The charge is at the
annual rate of .60% of the assets of the Account. The mortality risk is that
insureds may not live as long as we estimated. The expense risk is that expenses
of issuing and administering the Policies may exceed the estimated costs. We
will realize a gain from this charge to the extent it is not needed to provide
benefits and pay expenses under the Policies. The actual mortality and
11 Prospectus
<PAGE> 14
expense experience under the Policies will be the basis for determining
dividends. See "Annual Dividends", p. 13.
The Policies provide that a charge for taxes may be made against the assets of
the Account. We are not currently making a daily charge for federal income taxes
we have incurred. In no event will the charge for taxes exceed that portion of
our actual tax expenses which is fairly allocable to the Policies.
TRANSACTION CHARGES The Policy provides for a fee of up to $25 for a transfer
of assets among the Account divisions and for a fee of up to $25 for a
withdrawal of Excess Amount. We are currently waiving these charges.
SURRENDER CHARGES If you surrender the Policy before you have paid the premium
that is due at the beginning of the fifteenth year, we will deduct surrender
charges from the Policy Value. A table of surrender charges is in the Policy.
The surrender charges consist of an administrative surrender charge and a
premium surrender charge. The administrative surrender charge is equal to the
sum of the issue expense charges which we have not deducted. The administrative
surrender charge in the first Policy year is $216, plus $1.08 per $1,000 of
Minimum Guaranteed Death Benefit and Additional Protection. This charge grades
down linearly each year as you pay the premium (or payment of premiums is
suspended) and is zero after you have paid the premium that is due at the
beginning of the tenth Policy year (or it is suspended).
The premium surrender charge is a percentage (shown in the table below) of the
surrender charge base. If payment of the premium for a Policy year has been
suspended, the premium surrender charge percentage will be as if you had paid
the annual premium. During the first five policy years, if you pay premiums more
frequently than annually we will adjust the premium surrender charge percentages
to reflect the actual period for which you have paid premiums.
If none of the premium payments during the first five Policy years have been
suspended, the surrender charge base equals the sum of an annual premium for the
Minimum Guaranteed Death Benefit (exclusive of the Policy fee and exclusive of
any charge for extra mortality) plus a term insurance premium for the initial
amount of Additional Protection.
If any of the premium payments during the first five Policy years have been
suspended, the surrender charge base equals the lesser of (1) the sum of an
annual premium for the Minimum Guaranteed Death Benefit (exclusive of the Policy
fee and exclusive of any charge for extra mortality) plus a term insurance
premium for the initial amount of Additional Protection, and (2) the sum of the
total premiums paid (exclusive of any premiums for additional benefits purchased
with the Policy, and premiums for extra mortality, and any extra amount for
premiums paid more often than annually) divided by the number of years
(including fractions), but not more than five, for which premiums have been paid
or suspended.
<TABLE>
<CAPTION>
PREMIUM SURRENDER
FOR POLICIES CHARGE PERCENTAGE
SURRENDERED AFTER ---------------------------
PAYMENT OF THE ISSUE AGE
BEGINNING OF YEAR 65 AND UNDER ISSUE AGE 75
- ----------------- ------------ ------------
<S> <C> <C>
1 24% 24%
2 28% 25.5%
3 32% 27%
4 36% 28.5%
5 through 10 40% 30%
11 32% 24%
12 24% 18%
13 16% 12%
14 8% 6%
15 and later 0% 0%
</TABLE>
For issue ages 66 through 74, the percentages are determined by linear
interpolation between the percentages shown.
For a Policy that has a Minimum Guaranteed Death Benefit of $50,000 or more, the
surrender charges will not exceed $41.16 per $1,000 of Minimum Guaranteed Death
Benefit. For a Policy that has a Minimum Guaranteed Death Benefit of $100,000 or
more, issued for an insured ages 15-59, the surrender charges will not exceed
$22.86 per $1,000 of Minimum Guaranteed Death Benefit. The surrender charges
could equal or exceed the Policy Value but we will not apply the surrender
charges to the value of any paid-up additional insurance.
GUARANTEE OF PREMIUMS, DEDUCTIONS AND CHARGES
We guarantee and may not increase the premiums for the Minimum Guaranteed Death
Benefit and the charge for mortality and expense risks. These amounts will not
increase regardless of future changes in longevity or increases in expenses.
CASH VALUE
The cash value for the Policy will change daily in response to investment
results. No minimum cash value is guaranteed. The cash value is equal to the
Policy Value plus the value of any paid-up additional insurance, reduced by any
Policy debt outstanding and the surrender charges. If you are not paying
premiums on an annual basis we reduce the cash value for any premiums due later
in the Policy year.
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 1940, we may also determine the cash value for a Policy on any other day on
which there is
Prospectus 12
<PAGE> 15
sufficient trading in securities to materially affect the value of the
securities held by the Portfolios or Funds.
You may surrender your Policy for the cash value at any time during the lifetime
of the insured. Alternatively, you may request that we apply the cash value to
provide a reduced amount of fixed or variable paid-up insurance. See "Paid-Up
Insurance", p. 14.
We will permit partial surrenders of the Policies so long as the Policy that
remains meets the regular minimum size requirements. A partial surrender will
cause the Policy to be split into two Policies. One Policy will be surrendered;
the other will continue in force on the same terms as the original Policy except
that the premiums will be based on the reduced amount of insurance. You will
receive a new Policy document. The cash value and the death benefit will be
proportionately reduced. We will make a deduction from the Policy proceeds for a
proportionate part of the surrender charges if a partial surrender takes place
before you have paid the premium that is due at the beginning of the fifteenth
Policy year. We will make a transaction charge when a partial surrender is
effected. The amount of the transaction charge will not exceed the actual
administrative costs for the transaction. We currently expect this charge to be
$250.
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. 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
results with those which were assumed in determining premium rates when each
class of policies was issued. We determine classes by such factors as year of
issue, age, plan of insurance and risk classification. The actuary then
determines the amount of dividends to be equitably apportioned to each class of
policies. Following the actuary's recommendations, our Trustees adopt a dividend
scale each year, thereby authorizing the distribution of the dividend.
We have no significant actual mortality experience with variable life insurance
policies. For purposes of the current dividend scale used for the illustrations
in this prospectus, we have assumed that mortality experience in connection with
the Policies will be comparable to that actually experienced with fixed benefit
life insurance.
Dividends for variable life insurance are generally lower than those for
participating fixed benefit life insurance, primarily because a variable life
insurance policy provides a contractual mechanism for translation of investment
experience into a variable death benefit and variable cash value. For
participating fixed benefit life insurance the dividend includes amounts
produced by favorable investment results. Dividends based on the Minimum
Guaranteed Death Benefit for the Policies described in this prospectus are
expected be relatively low during the first 15 Policy years.
The prospectus illustrations show dividends being used to increase the Policy
Value. If the Policy has Additional Protection in force, the dividends will be
used to increase the Policy Value unless the Policy has Excess Amount. See
"Excess Amount", p. 14. If the Policy has Excess Amount, or if no Additional
Protection is in force, you may use dividends to purchase variable benefit
paid-up additional insurance, or to pay premiums, or we will pay the dividend in
cash. If the Policy is in force as fixed benefit paid-up insurance, you may use
dividends to purchase fixed benefit paid-up additional insurance or we will pay
you the dividend in cash. If the Policy is in force as variable benefit paid-up
insurance, you may use the dividends to purchase variable benefit paid-up
additional insurance or we will pay you the dividend in cash.
LOANS AND WITHDRAWALS
You may borrow up to 90% of the Policy's cash value using the Policy as
security. If a Policy loan is already outstanding, the maximum amount for any
new loan is 90% of the amount of cash value the Policy would have if there were
no loan, less the amount already borrowed. You may take loan proceeds in cash or
you may apply 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
5% is one choice. The other choice is a variable rate based on a corporate bond
yield index. We will
13 Prospectus
<PAGE> 16
adjust the variable rate annually, but 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 .90% for the 5% specified Policy loan interest rate and .90% for
the variable Policy loan interest rate. For example, the earnings rate
corresponding to the specified 5% Policy loan interest rate is currently 4.10%.
A Policy loan, even if it is repaid, will have a permanent effect on the Policy
Value and cash value because the amounts borrowed will not participate in the
Account's investment results while the loan is outstanding. The effect may be
either favorable or unfavorable depending on whether the earnings rate credited
to the loan amount is higher or lower than the rate credited to the unborrowed
amount left in the Account.
Except when the Policy is in force as fixed benefit paid-up insurance, we will
allocate a Policy loan between Policy Value and variable paid-up additional
insurance in proportion to the amount of cash value attributable to each.
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
transfer them from our general account to the Account divisions, in proportion
to the amounts in the divisions, as of the same date.
You may make a withdrawal if the Excess Amount is sufficient. See "Excess
Amount", p. 14. A withdrawal may neither decrease the Excess Amount to less than
the surrender charge which would apply if the Policy were surrendered nor reduce
the loan value to less than any Policy debt outstanding. The minimum amount for
withdrawals is $250. An administrative charge of up to $25 may apply, but we are
currently waiving that charge.
A withdrawal of Policy Value decreases the death benefit by the same amount. If
the death benefit for a Policy has been increased to meet the federal tax
requirements for life insurance, the decrease in the death benefit caused by a
subsequent withdrawal may be larger than the amount of the withdrawal.
If cumulative withdrawals exceed the cumulative additional premiums which have
been used to increase the Policy Value, with both withdrawals and premiums
increased by 4% annual interest, subsequent unfavorable investment experience
may cause the Policy to lapse unless you pay an additional unscheduled premium
to increase the Policy Value. The due date for this premium is the Policy
anniversary following written notice to you.
EXCESS AMOUNT
The Excess Amount is the amount by which the Policy Value exceeds the Tabular
Cash Value for the sum of the Minimum Guaranteed Death Benefit and any
Additional Protection in effect. The Tabular Cash Value is an amount equal to a
Policy Value calculated assuming (1) a whole life Policy with a face amount
equal to the sum of the Minimum Guaranteed Death Benefit and the Additional
Protection, (2) all premiums are paid when due, (3) no additional premiums or
dividends used to increase Policy Value, (4) a 4% level annual rate of return,
and (5) maximum Policy charges apply. If you are not paying premiums on an
annual basis, the Excess Amount is reduced for any premiums due later in the
Policy year.
PAID-UP INSURANCE
If you do not pay a premium within the 31-day grace period, and the Policy does
not qualify for suspension of premium payments, the Policy will continue in
force as a reduced amount of fixed benefit paid-up insurance. Alternatively you
may select a reduced amount of variable benefit paid-up insurance. You must make
this selection during the grace period or sooner.
If the Policy is in force as a reduced amount of fixed benefit paid-up
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. The minimum cash value for fixed benefit paid-up
insurance is $1,000. If the cash value is less than $1,000 as of the last day of
the grace period we will treat the Policy as surrendered. You may select
variable benefit paid-up insurance only if the cash value of the Policy is at
least $5,000.
We determine the amount of paid-up insurance by applying the amount of cash
value plus any Policy debt as a net single premium at the attained age. Paid-up
insurance has cash and loan values. For fixed benefit paid-up insurance the
amounts of these are guaranteed. For variable paid-up insurance neither the
death benefit or the cash value is guaranteed. Paid-up insurance remains in
force for the lifetime of the insured unless you surrender or terminate the
Policy. While the Policy is in force as either fixed or variable benefit paid-
up insurance the Minimum Guaranteed Death Benefit and any Additional Protection
will not be in effect. Any Policy debt will continue.
REINSTATEMENT
If a premium is due and remains unpaid after the grace period expires, the
Policy may be reinstated while the insured
Prospectus 14
<PAGE> 17
is alive within three years after the premium due date. The insured must provide
satisfactory evidence of insurability unless reinstatement takes place within 31
days after the end of the grace period. We may require a substantial payment.
Following reinstatement the Policy will have the same Minimum Guaranteed Death
Benefit, Additional Protection, Policy Value and paid-up additional insurance as
if minimum premiums had been paid when due. We will credit a 4% rate of
investment earnings for the period from the due date of the overdue premium to
the date of reinstatement. We will make an adjustment for any Policy debt or the
debt may be reinstated. The Policy may not be reinstated if you have surrendered
it for its cash value.
RIGHT TO RETURN POLICY
You may return a Policy for a full refund of the premium you paid within 45 days
after you sign the application for insurance, or within 10 days after you
received the Policy, or within 10 days after a Notice of Cancellation Right is
mailed or delivered to you, whichever date is latest. You may mail or deliver
the Policy to the agent who sold it or to our Home Office. If returned, we will
consider the Policy void from the beginning.
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
You may exchange a Policy for a whole life insurance policy with benefits that
do not vary with the investment experience of a separate account. You may elect
the exchange at any time within twenty-four months after the issue date of the
Policy provided premiums are duly paid. We do not require evidence of
insurability.
The new policy will be on the life of the same insured and will have the same
initial guaranteed death benefit, policy date and issue age. The premiums and
cash values will be the same as those for fixed benefit policies we issued on
the issue date of the Policy.
The exchange will be subject to an equitable cash adjustment. The amount will
recognize the difference in premiums and investment performance of the two
policies.
An exchange will be effective when we receive a proper written request, as well
as the Policy and any amount due on the exchange.
You may also 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. You will be given notice of any
such change and will have 60 days to make the exchange.
OTHER POLICY PROVISIONS
OWNER. The owner is identified in the Policy. The owner may exercise all rights
under the Policy while the insured is living. Ownership may be transferred to
another. Written proof of the transfer must be received by Northwestern Mutual
at its Home Office. In this prospectus "you" means the owner or prospective
purchaser of a Policy.
BENEFICIARY. The beneficiary is the person to whom the death benefit is
payable. The beneficiary is named in the application. After 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, less
the amount of any Policy debt and withdrawals and less the cash value of any
variable paid-up insurance surrendered.
MISSTATEMENT OF AGE OR SEX. If the age or sex of the insured has been
misstated, 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 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 Policy is in force as fixed benefit paid-up insurance, we have the right to
defer payment of the cash value for up to six months from the date of a Policy
loan or surrender. If payment is deferred for 30 days or more we will pay
interest at an annual effective rate of 4%.
VOTING RIGHTS
We are the owner of the mutual fund shares in which all assets of the Account
are invested. As the owner of the shares we will exercise our right to vote the
shares to elect directors of the funds, to vote on matters required to be
approved or ratified by mutual fund shareholders under the Investment Company
Act of 1940 and to vote on any other matters that
15 Prospectus
<PAGE> 18
may be presented to any shareholders' meeting of the funds. However, we will
vote the mutual fund shares held in the Account in accordance with instructions
from owners of the Policies. We will vote any shares held in our general account
in the same proportions as the shares for which voting instructions are
received. If the applicable laws or regulations change so as to permit us to
vote the shares in our own discretion, we may elect to do so.
The number of mutual fund shares for each division of the Account for which the
owner of a Policy may give instructions is determined by dividing the amount of
the Policy's cash value apportioned to that division, if any, by the per share
value for the corresponding Portfolio or Fund. The number will be determined as
of a date we choose, but not more than 90 days before the shareholders' meeting.
Fractional votes are counted. We will solicit voting instructions with written
materials at least 14 days before the meeting. We will vote shares as to which
we receive no instructions in the same proportion as the shares as to which we
receive instructions.
We may, if required by state insurance officials, disregard voting instructions
which would require mutual fund shares to be voted for a change in the
sub-classification or investment objectives of a Portfolio or Fund, or to
approve or disapprove an investment advisory agreement for either of the mutual
funds. We may also disregard voting instructions that would require changes in
the investment policy or investment adviser for either a Portfolio or a Fund,
provided that we reasonably determine to take this action in accordance with
applicable federal law. If we disregard voting instructions we will include a
summary of the 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 Policy is in force as 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.
This report will show the apportionment of invested assets among the Account
divisions. You will also receive annual and semiannual reports for the Account
and both of the mutual funds, including financial statements.
SPECIAL POLICY FOR EMPLOYERS
A reduced minimum amount applies for Policies where the insurance involves an
employer sponsored benefit plan or arrangement. The sum of the Minimum
Guaranteed Death Benefit and the Additional Protection must be at least $10,000,
of which the Minimum Guaranteed Death Benefit must be at least $1,000. The
premium for the Additional Protection is two times the cost of term insurance
for the insured's age when the Policy is issued.
These Policies for employers may include a provision to permit the amount of
Additional Protection to increase after issue. Any such increase amount must be
based on the terms of the benefit plan or arrangement and may not be subject to
the discretion of the insured or the insured's beneficiary. A description of the
method of determining the amount of any increase is included in the Policy.
Changes to the amount of Additional Protection will be effective on Policy
anniversaries. The surrender charge and all charges for issue and administrative
expenses will be based on the initial amount of Additional Protection.
For certain situations where the insurance involves an employer sponsored
benefit plan or arrangement, federal law and the laws of certain states may
require that premiums and annuity rates be determined without regard to sex.
Special Policies are available for this purpose. You are urged to review any
questions in this area with qualified counsel.
DISTRIBUTION OF THE POLICIES
We sell the Policies through individuals who are licensed life insurance agents
appointed by Northwestern Mutual and 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 will not exceed 40% of the premium for the first
year, 6% of the premium for the second through tenth years, and 2 3/4% of the
premium thereafter.
Agents who meet certain productivity and persistency standards receive
additional compensation. We may pay new agents differently during a training
period. General agents
Prospectus 16
<PAGE> 19
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 101(a) of the Code.
Under certain limited circumstances, all or part of a partial surrender or a
withdrawal during the first 15 years may be taxable on a "gain first basis" to
the extent that the cash value of the Policy exceeds the basis of the Policy.
This means the amount surrendered or withdrawn may be taxable even if that
amount is less than the basis of the Policy.
Loans received under the Policies (except modified endowment contracts as
described below) will not constitute income to the owner until the loan is
extinguished by surrender or lapse.
Policies will be classified as modified endowment contracts under Section 7702A
of the Internal Revenue Code if the aggregate premium paid during the first 7
years exceeds a defined "7-pay limit". Generally, this can occur if significant
additional premiums are paid or the death benefit is reduced within the first 7
years or if additional benefits are added to the Policy.
For Policies that are modified endowment contracts, withdrawals, partial
surrenders, Policy loans and dividends paid in cash are taxable as income on a
gain first basis. The taxable portion of these distributions would also be
subject to a 10% penalty if received prior to age 59 1/2, disability or
annuitization. For purposes of determining taxable income, all Policies that are
modified endowment contracts (including any fixed dollar policies that are
modified endowment contracts) issued by Northwestern Mutual to the Policyowner
during the same calendar year are aggregated.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend upon the
circumstances of each Policy owner or beneficiary.
The foregoing summary does not purport to be complete or to cover all
situations. You should consult counsel and other competent advisers for more
complete information.
- --------------------------------------------------------------------------------
OTHER INFORMATION
MANAGEMENT
Northwestern Mutual is managed by a Board of Trustees. The Trustees and senior
officers of Northwestern Mutual and their positions including Board committee
memberships, and their principal occupations, are as follows:
TRUSTEES
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------------------------------------ ------------------------------------------------------------
<S> <C>
R. Quintus Anderson (A)................... Chairman, Aarque Capital Corporation since 1997, prior
thereto; Chairman, The Aarque Companies, Jamestown, NY
(diversified metal products manufacturing)
Edward E. Barr (HR)....................... Chairman, Sun Chemical Corporation, Fort Lee, New Jersey
(graphic arts) since 1998; prior thereto, President and
Chief Executive Officer. President and Chief Executive
Officer, DIC Americas, Inc., Fort Lee, NJ
Gordon T. Beaham, III (OT)................ Chairman of the Board and President, Faultless Starch/Bon
Ami Company, Kansas City, MO (consumer products
manufacturer)
Robert C. Buchanan (A, E, F).............. President and Chief Executive Officer, Fox Valley
Corporation, Appleton, WI (manufacturer of gift wrap and
writing paper)
</TABLE>
17 Prospectus
<PAGE> 20
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------------------------------------ ------------------------------------------------------------
<S> <C>
George A. Dickerman (AM).................. Chairman Emeritus, Spalding Sports Worldwide, Chicopee, MA
(manufacturer of sporting equipment) since 1999; Chairman of
the Board from 1998 to 1999; prior thereto, President
Pierre S. du Pont (AM).................... Attorney, Richards, Layton and Finger, Wilmington, DE
James D. Ericson (AM, E, F. HR, OT)....... Chairman and Chief Executive Officer of Northwestern Mutual
since 2000; prior thereto, President and Chief Executive
Officer
J. E. Gallegos (A)........................ Attorney at Law; President, Gallegos Law Firm, Santa Fe, NM
Stephen N. Graff (A, E, F)................ Retired Partner, Arthur Andersen LLP (public accountants),
Milwaukee, WI
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,
Los Angeles, CA, 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 & Lemann, New Orleans, LA
Daniel F. McKeithan, Jr. (E, F, HR)....... President, Tamarack Petroleum Company, Inc., Milwaukee, WI
(operator of oil and gas wells); President, Active Investor
Management, Inc., Milwaukee, WI
Guy A. Osborn (E, F, OT).................. Retired Chairman of Universal Foods Corporation, Milwaukee,
WI since 1997; prior thereto, Chairman and Chief Executive
Officer
Timothy D. Proctor (A).................... Group General Counsel, Diageo plc since 2000 (multinational
branded food and drink company); Director, Worldwide Human
Resources of Glaxo Wellcome plc from 1998 to 1999
(pharmaceuticals); prior thereto, Senior Vice President
Human Resources, General Counsel & Secretary
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 Emeritus of Carolina Power & Light since 1999;
Chairman of the Board from 1997 to 1999; prior thereto,
Chairman of the Board and Chief Executive Officer
Peter M. Sommerhauser (E, F, OT).......... Partner, Godfrey & Kahn, S.C., Milwaukee, WI (attorneys)
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 Chief Executive Officer, Allen-Edmonds Shoe
Corporation, Port Washington, WI
Barry L. Williams (HR).................... President and Chief Executive Officer of Williams Pacific
Ventures, Inc., San Francisco, CA (venture capital
consulting)
Kathryn D. Wriston (A).................... Director of various corporations, New York, NY
Edward J. Zore............................ President of Northwestern Mutual since 2000; prior thereto,
Executive Vice President
</TABLE>
A -- Member, Audit Committee
AM -- Member, Agency and Marketing Committee
E -- Member, Executive Committee
F -- Member, Finance Committee
HR -- Member, Human Resources and Public Policy Committee
OT -- Member, Operations and Technology Committee
Prospectus 18
<PAGE> 21
SENIOR OFFICERS (OTHER THAN TRUSTEES)
<TABLE>
<CAPTION>
POSITION WITH
NAME NORTHWESTERN MUTUAL
- -------------------------------------------- --------------------------------------------
<S> <C>
John M. Bremer Senior Executive Vice President and
Secretary
Peter W. Bruce Senior Executive Vice President
Deborah A. Beck Executive Vice President
William H. Beckley Executive 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
Bruce L. Miller Executive Vice President
Mason G. Ross Senior Vice President
John E. Schlifske Senior Vice President
Leonard F. Stecklein Senior Vice President
Frederic H. Sweet Senior Vice President
Walter J. Wojcik Senior Vice President
Gary E. Long Vice President and Controller
</TABLE>
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.
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. The address and telephone number
are on the cover of this prospectus.
EXPERTS
The financial statements of Northwestern Mutual as of December 31, 1999 and 1998
and for each of the three years in the period ended December 31, 1999 and of the
Account as of December 31, 1999 and for each of the two years in the period
ended December 31, 1999 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.
His opinion is filed as an exhibit to the registration statement.
19 Prospectus
<PAGE> 22
[PRICEWATERHOUSECOOPERS LLC - LETTERHEAD]
Report of Independent Accountants
To the Northwestern Mutual Life Insurance Company and
Contract Owners 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 of changes in
equity present fairly, in all material respects, the financial position of
Northwestern Mutual Variable Life Account and the Small Cap Growth Stock
Division, Aggressive Growth Stock Division, International Equity Division, Index
400 Stock Division, Growth Stock Division, Growth & Income Stock Division, Index
500 Stock Division, Balanced Division, High Yield Bond Division, Select Bond
Division, Money Market Division, Russell Multi-Style Equity Division, Russell
Aggressive Equity Division, Russell Non-U.S. Division, Russell Real Estate
Securities Division and Russell Core Bond Division thereof at December 31, 1999,
the results of each of their operations for each of the two years or the period
then ended and the changes in each of their equity for the two years or the
period then ended in conformity with accounting principles generally accepted in
the United States. 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 auditing
standards generally accepted in the United States 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, 1999 with Northwestern Mutual Series Fund, Inc. and
the Russell Insurance Funds, provide a reasonable basis for the opinion
expressed above.
[PRICEWATERHOUSECOOPERS LLC]
Milwaukee, Wisconsin
January 27, 2000
Accountants' Report 20
<PAGE> 23
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
Statement of Assets and Liabilities
December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments at Market Value:
Northwestern Mutual Series Fund, Inc.
Small Cap Growth Stock
4,228 shares (cost $6,122)......................... $ 7,561
Aggressive Growth Stock
42,894 shares (cost $135,037)...................... 206,058
International Equity
68,837 shares (cost $110,160)...................... 122,508
Index 400 Stock
3,839 shares (cost $3,940)......................... 4,260
Growth Stock
47,373 shares (cost $92,844)....................... 125,759
Growth and Income Stock
66,188 shares (cost $96,173)....................... 103,251
Index 500 Stock
84,461 shares (cost $220,153)...................... 328,044
Balanced
84,819 shares (cost $140,282)...................... 188,428
High Yield Bond
21,865 shares (cost $22,132)....................... 17,965
Select Bond
13,558 shares (cost $16,226)....................... 15,328
Money Market
67,006 shares (cost $67,006)....................... 67,400
Russell Insurance Funds
Multi-Style Equity
819 shares (cost $13,258).......................... 13,738
Aggressive Equity
401 shares (cost $4,918)........................... 5,356
Non-U.S.
395 shares (cost $5,025)........................... 5,609
Real Estate Securities
131 shares (cost $1,160)........................... 1,151
Core Bond
159 shares (cost $1,580)........................... 1,536 $1,213,952
--------
Due from Sale of Fund Shares.............................. 1,180
Due from Northwestern Mutual Life Insurance Company....... 1,736
----------
Total Assets..................................... $1,216,868
==========
LIABILITIES
Due to Northwestern Mutual Life Insurance Company......... $ 1,180
Due on Purchase of Fund Shares............................ 1,736
----------
Total Liabilities................................ 2,916
----------
EQUITY (NOTE 8)
Variable Life Policies Issued Before October 11, 1995..... 479,924
Variable Complife Policies Issued On or After October 11,
1995.................................................... 717,227
Variable Executive Life Policies Issued On or After March
2, 1998................................................. 7,901
Variable Joint Life Policies Issued On or After December
10, 1998................................................ 8,900
----------
Total Equity..................................... 1,213,952
----------
Total Liabilities and Equity..................... $1,216,868
==========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
21 Variable Life Financial Statements
<PAGE> 24
NML VARIABLE LIFE ACCOUNT
<TABLE>
<CAPTION>
Statement of Operations SMALL CAP
(in thousands) GROWTH STOCK AGGRESSIVE GROWTH
COMBINED DIVISION# STOCK DIVISION
---------------------------- ------------ ----------------------------
SIX MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............................ $ 60,160 $24,922 $ 239 $ 4,628 $3,287
Mortality and Expense Risks................ 4,044 2,755 5 605 424
Taxes...................................... 1,737 1,178 3 259 181
-------- ------- ------ ------- ------
Net Investment Income...................... 54,379 20,989 231 3,764 2,682
-------- ------- ------ ------- ------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized Gain (Loss) on Investments........ 7,370 4,332 -- 1,888 523
Unrealized Appreciation (Depreciation) of
Investments During the Period............ 115,169 68,780 1,440 54,225 4,928
-------- ------- ------ ------- ------
Net Gain (Loss) on Investments............. 122,539 73,112 1,440 56,113 5,451
-------- ------- ------ ------- ------
Increase (Decrease) in Equity Derived from
Investment Activity...................... $176,918 $94,101 $1,671 $59,877 $8,133
======== ======= ====== ======= ======
</TABLE>
# The initial investment in this Division was made on June 30, 1999.
The Accompanying Notes are an Integral Part of the Financial Statements
Variable Life Financial Statements 22
<PAGE> 25
<TABLE>
<CAPTION>
INDEX 400
STOCK GROWTH & INCOME
DIVISION# INTERNATIONAL EQUITY DIVISION GROWTH STOCK DIVISION STOCK DIVISION
- ----------------- ----------------------------- --------------------------- ---------------------------
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1999 1998 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 58 $13,164 $ 3,591 $ 3,284 $ 956 $ 9,123 $ 537
4 420 308 395 211 372 234
2 180 132 170 91 159 100
---- ------- ------- ------- ------- ------- -------
52 12,564 3,151 2,719 654 8,592 203
---- ------- ------- ------- ------- ------- -------
4 504 284 595 143 514 220
321 7,108 (1,424) 16,158 10,533 (3,359) 10,574
---- ------- ------- ------- ------- ------- -------
325 7,612 (1,140) 16,753 10,676 (2,845) 10,794
---- ------- ------- ------- ------- ------- -------
$377 $20,176 $ 2,011 $19,472 $11,330 $ 5,747 $10,997
==== ======= ======= ======= ======= ======= =======
<CAPTION>
INDEX 500
STOCK DIVISION
---------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
---------------------------
<S> <C> <C>
$ 5,542 $ 4,530
1,104 671
473 287
------- -------
3,965 3,572
------- -------
1,529 1,125
42,832 31,738
------- -------
44,361 32,863
------- -------
$48,326 $36,435
======= =======
</TABLE>
23 Variable Life Financial Statements
<PAGE> 26
NML VARIABLE LIFE ACCOUNT
<TABLE>
<CAPTION>
Statement of Operations BALANCED DIVISION HIGH YIELD BOND DIVISION SELECT BOND DIVISION
(in thousands) ---------------------------- ---------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
(CONTINUED) 1999 1998 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income.................. $ 17,659 $ 8,344 $ 2,112 $ 1,489 $ 1,211 $ 743
Mortality and Expense Risks...... 769 681 70 53 62 51
Taxes............................ 330 292 30 22 27 22
-------- -------- ------- ------- ------- -------
Net Investment Income............ 16,560 7,371 2,012 1,414 1,122 670
-------- -------- ------- ------- ------- -------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized Gain (Loss) on
Investments.................... 2,596 1,893 (288) 47 33 97
Unrealized Appreciation
(Depreciation) of Investments
During the Period.............. (1,744) 14,317 (1,879) (1,828) (1,386) (58)
-------- -------- ------- ------- ------- -------
Net Gain (Loss) on Investments... 852 16,210 (2,167) (1,781) (1,353) 39
-------- -------- ------- ------- ------- -------
Increase (Decrease) in Equity
Derived from Investment
Activity....................... $ 17,412 $ 23,581 $ (155) $ (367) $ (231) $ 709
======== ======== ======= ======= ======= =======
</TABLE>
# The initial investment in this Division was made on June 30, 1999.
The Accompanying Notes are an Integral Part of the Financial Statements
Variable Life Financial Statements 24
<PAGE> 27
<TABLE>
<CAPTION>
RUSSELL RUSSELL RUSSELL RUSSELL
MONEY MARKET DIVISION MULTI-STYLE EQUITY# AGGRESSIVE EQUITY# NON-U.S.# REAL ESTATE SECURITIES#
- ------------------------------- ------------------- ------------------ ---------------- -----------------------
SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1999 1999 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$2,507 $1,445 $381 $ 19 $145 $ 35
212 122 14 4 5 1
92 51 5 3 2 1
------ ------ ---- ---- ---- ----
2,203 1,272 362 12 138 33
------ ------ ---- ---- ---- ----
-- -- (1) (4) -- --
-- -- 484 438 585 (9)
------ ------ ---- ---- ---- ----
-- -- 483 434 585 (9)
------ ------ ---- ---- ---- ----
$2,203 $1,272 $845 $446 $723 $ 24
====== ====== ==== ==== ==== ====
<CAPTION>
RUSSELL
CORE BOND#
----------------
SIX MONTHS
ENDED
DECEMBER 31,
1999
----------------
<S> <C>
$ 53
2
1
----
50
----
--
(45)
----
(45)
----
$ 5
====
</TABLE>
25 Variable Life Financial Statements
<PAGE> 28
NML VARIABLE LIFE ACCOUNT
<TABLE>
<CAPTION>
Statement of Changes in Equity SMALL CAP
(in thousands) GROWTH STOCK AGGRESSIVE GROWTH
COMBINED DIVISION# STOCK DIVISION
---------------------------- ------------ ----------------------------
SIX MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income...................... $ 54,379 $ 20,989 $ 231 $ 3,764 $ 2,682
Net Realized Gain (Loss)................... 7,370 4,332 -- 1,888 523
Net Change in Unrealized Appreciation
(Depreciation)........................... 115,169 68,780 1,440 54,225 4,928
---------- -------- ------ -------- --------
Increase (Decrease) in Equity................ 176,918 94,101 1,671 59,877 8,133
---------- -------- ------ -------- --------
EQUITY TRANSACTIONS
Policyowners' Net Payments................. 403,531 258,672 319 37,031 30,145
Policy Loans, Surrenders, and Death
Benefits................................. (54,502) (37,427) (74) (9,017) (6,454)
Mortality and Other (net).................. (61,013) (39,611) (25) (7,239) (5,193)
Transfers from Other Divisions............. 243,273 133,775 5,878 23,525 20,371
Transfers to Other Divisions............... (244,190) (133,773) (207) (17,347) (6,419)
---------- -------- ------ -------- --------
Increase in Equity Derived from Equity
Transactions............................... 287,099 181,636 5,891 26,953 32,450
---------- -------- ------ -------- --------
Net Increase in Equity....................... 464,017 275,737 7,562 86,830 40,583
EQUITY
Beginning of Period........................ 749,935 474,198 -- 119,230 78,647
---------- -------- ------ -------- --------
End of Period.............................. $1,213,952 $749,935 $7,562 $206,060 $119,230
========== ======== ====== ======== ========
</TABLE>
# The initial investment in this Division was made on June 30, 1999.
The Accompanying Notes are an Integral Part of the Financial Statements
Variable Life Financial Statements 26
<PAGE> 29
<TABLE>
<CAPTION>
INDEX 400
STOCK GROWTH & INCOME
DIVISION# INTERNATIONAL EQUITY DIVISION GROWTH STOCK DIVISION STOCK DIVISION
- ---------------- ----------------------------- --------------------------- ---------------------------
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 52 $ 12,564 $ 3,151 $ 2,719 $ 654 $ 8,592 $ 203
4 504 284 595 143 514 220
321 7,108 (1,424) 16,158 10,533 (3,359) 10,574
------ -------- ------- -------- ------- -------- -------
377 20,176 2,011 19,472 11,330 5,747 10,997
------ -------- ------- -------- ------- -------- -------
165 25,923 20,672 22,738 12,991 23,731 14,771
(43) (5,642) (4,327) (5,004) (2,859) (5,239) (2,902)
(27) (4,876) (3,785) (4,452) (2,494) (4,489) (2,847)
4,152 19,043 15,743 33,353 16,839 22,159 17,225
(364) (10,533) (5,013) (6,373) (2,015) (9,185) (3,106)
------ -------- ------- -------- ------- -------- -------
3,883 23,915 23,290 40,262 22,462 26,977 23,141
------ -------- ------- -------- ------- -------- -------
4,260 44,091 25,301 59,734 33,792 32,724 34,138
-- 78,417 53,116 66,025 32,233 70,527 36,389
------ -------- ------- -------- ------- -------- -------
$4,260 $122,508 $78,417 $125,759 $66,025 $103,251 $70,527
====== ======== ======= ======== ======= ======== =======
<CAPTION>
INDEX 500
STOCK DIVISION
---------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
---------------------------
<S> <C> <C>
$ 3,965 $ 3,572
1,529 1,125
42,832 31,738
-------- --------
48,326 36,435
-------- --------
56,388 29,665
(14,992) (8,924)
(10,807) (5,367)
72,157 37,076
(14,168) (5,443)
-------- --------
88,578 47,007
-------- --------
136,904 83,442
191,141 107,699
-------- --------
$328,045 $191,141
======== ========
</TABLE>
27 Variable Life Financial Statements
<PAGE> 30
NML VARIABLE LIFE ACCOUNT
<TABLE>
<CAPTION>
Statement of Changes in Equity BALANCED DIVISION HIGH YIELD BOND DIVISION SELECT BOND DIVISION
(in thousands) ---------------------------- ---------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
(CONTINUED) 1999 1998 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income............ $ 16,560 $ 7,371 $ 2,012 $ 1,414 $ 1,122 $ 670
Net Realized Gain (Loss)......... 2,596 1,893 (288) 47 33 97
Net Change in unrealized
Appreciation (Depreciation).... (1,744) 14,317 (1,879) (1,828) (1,386) (58)
-------- -------- ------- ------- ------- -------
Increase (Decrease) in Equity...... 17,412 23,581 (155) (367) (231) 709
-------- -------- ------- ------- ------- -------
EQUITY TRANSACTIONS
Policyowners' Net Payments....... 20,488 17,811 5,513 3,490 3,020 2,004
Policy Loans, Surrenders, and
Death Benefits................. (9,916) (8,879) (933) (690) (985) (620)
Mortality and Other (net)........ (4,412) (3,232) (928) (641) (557) (250)
Transfers from Other Divisions... 16,340 7,905 3,662 5,399 3,874 3,951
Transfers to Other Divisions..... (9,591) (5,398) (3,710) (1,476) (2,463) (2,217)
-------- -------- ------- ------- ------- -------
Increase in Equity Derived from
Equity Transactions.............. 12,909 8,207 3,604 6,082 2,889 2,868
-------- -------- ------- ------- ------- -------
Net Increase in Equity............. 30,321 31,788 3,449 5,715 2,658 3,577
EQUITY
Beginning of Period.............. 158,110 126,322 14,516 8,801 12,669 9,092
-------- -------- ------- ------- ------- -------
End of Period.................... $188,431 $158,110 $17,965 $14,516 $15,327 $12,669
======== ======== ======= ======= ======= =======
</TABLE>
# The initial investments in this Division was made on June 30, 1999.
The Accompanying Notes are an Integral Part of the Financial Statements
Variable Life Financial Statements 28
<PAGE> 31
<TABLE>
<CAPTION>
RUSSELL RUSSELL RUSSELL RUSSELL
MONEY MARKET DIVISION MULTI-STYLE EQUITY# AGGRESSIVE EQUITY# NON-U.S.# REAL ESTATE SECURITIES#
- ------------------------------- ------------------- ------------------ ---------------- -----------------------
SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1999 1999 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,203 $ 1,272 $ 362 $ 12 $ 138 $ 33
-- -- (1) (4) -- --
-- -- 484 438 585 (9)
--------- --------- ------- ------ ------ ------
2,203 1,272 845 446 723 24
--------- --------- ------- ------ ------ ------
207,164 127,123 669 28 254 49
(2,420) (1,772) (109) (34) (48) (8)
(23,000) (15,802) (114) (37) (34) (8)
13,433 9,266 13,008 5,080 4,917 1,097
(169,279) (102,686) (561) (127) (205) (6)
--------- --------- ------- ------ ------ ------
25,898 16,129 12,893 4,910 4,884 1,124
--------- --------- ------- ------ ------ ------
28,101 17,401 13,738 5,356 5,607 1,148
39,300 21,899 -- -- -- --
--------- --------- ------- ------ ------ ------
$ 67,401 $ 39,300 $13,738 $5,356 $5,607 $1,148
========= ========= ======= ====== ====== ======
<CAPTION>
RUSSELL
CORE BOND#
----------------
SIX MONTHS
ENDED
DECEMBER 31,
1999
----------------
<S> <C>
$ 50
--
(45)
------
5
------
51
(38)
(8)
1,595
(71)
------
1,529
------
1,534
--
------
$1,534
======
</TABLE>
29 Variable Life Financial Statements
<PAGE> 32
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
Notes to Financial Statements
December 31, 1999
NOTE 1 -- Northwestern Mutual Variable Life Account (the "Account") is
registered as a unit investment trust under the Investment Company Act of 1940
and is a segregated asset account of The Northwestern Mutual Life Insurance
Company ("Northwestern Mutual") used to fund variable life insurance policies.
NOTE 2 -- The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Principal
accounting policies are summarized below.
NOTE 3 -- All assets of each Division of the Account are invested in shares of
the corresponding Portfolio of Northwestern Mutual Series Fund, Inc and the
Russell Insurance Funds (collectively known as "the Funds"). The shares are
valued at the Funds' offering and redemption prices per share. The Funds are
diversified open-end investment companies registered under the Investment
Company Act of 1940.
NOTE 4 -- Dividend income from the Funds is recorded on the record date of the
dividends. Transactions in the Funds shares are accounted for on the trade date.
The basis for determining cost on sale of Funds shares is identified cost.
Purchases and sales of the Funds shares for the period ended December 31, 1999
by each Division are shown below:
<TABLE>
<CAPTION>
DIVISIONS PURCHASES SALES
--------- --------- -----
<S> <C> <C>
Small Cap Growth Stock.... $ 6,123,393 $ 1,068
Aggressive Growth Stock... 35,131,629 4,386,856
International Equity...... 38,347,289 1,854,037
Index 400 Stock........... 4,056,200 119,396
Growth Stock.............. 44,024,329 1,042,030
Growth & Income Stock..... 37,069,503 1,491,279
Index 500 Stock........... 95,056,887 2,520,734
Balanced.................. 35,493,036 6,023,989
High Yield Bond........... 7,296,571 1,680,853
Select Bond............... 6,205,815 2,193,634
Money Market.............. 73,757,754 45,658,376
Russell Multi-Style Equity
Fund.................... 13,280,682 21,745
Russell Aggressive Equity
Fund.................... 5,000,413 77,631
Russell Non-U.S. Fund..... 5,030,954 6,175
Russell Real Estate
Securities Fund......... 1,160,771 619
Russell Core Bond Fund.... 1,664,332 84,103
</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
pay their premiums. Northwestern Mutual's equity represents any unpaid portion
of net annual premiums. This applies to Variable Life and Variable Complife
policies only.
Notes to Financial Statements 30
<PAGE> 33
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
Notes to Financial Statements
December 31, 1999
(in thousands)
NOTE 8 -- Equity Values by Division are shown below:
<TABLE>
<CAPTION>
VARIABLE LIFE VARIABLE COMPLIFE
POLICIES ISSUED POLICIES ISSUED
BEFORE OCTOBER 11, 1995 ON OR AFTER OCTOBER 11, 1995
EQUITY OF: EQUITY OF:
------------------------- TOTAL ----------------------------- TOTAL
POLICYOWNERS NML EQUITY POLICYOWNERS NML EQUITY
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Small Cap Growth Stock................. $ 2,395 $ 90 $ 2,485 $ 3,094 $ 1,599 $ 4,693
Aggressive Growth Stock................ 60,387 3,459 63,846 115,775 25,627 141,402
International Equity................... 40,534 2,738 43,272 62,788 15,362 78,150
Index 400 Stock........................ 920 49 969 1,710 1,334 3,044
Growth Stock........................... 31,720 1,600 33,320 70,935 19,665 90,600
Growth and Income Stock................ 28,633 1,702 30,335 56,046 16,098 72,144
Index 500 Stock........................ 124,843 5,072 129,915 149,358 44,339 193,697
Balanced............................... 145,265 4,576 149,841 28,647 8,243 36,890
High Yield Bond........................ 4,049 332 4,381 10,475 2,941 13,416
Select Bond............................ 7,403 386 7,789 5,475 1,478 6,953
Money Market........................... 8,133 372 8,505 23,834 32,439 56,273
Russell Multi-Style Equity............. 2,095 91 2,186 6,289 3,973 10,262
Russell Aggressive Equity.............. 1,248 54 1,302 2,141 1,591 3,732
Russell Non-U.S. ...................... 1,029 42 1,071 2,659 1,460 4,119
Russell Real Estate Securities......... 302 12 314 469 324 793
Russell Core Bond...................... 368 25 393 761 298 1,059
-------- ------- -------- -------- -------- --------
$459,324 $20,600 $479,924 $540,456 $176,771 $717,227
======== ======= ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
VARIABLE EXECUTIVE LIFE VARIABLE JOINT LIFE
POLICIES ISSUED POLICIES ISSUED
ON OR AFTER MARCH 2, 1998 ON OR AFTER DECEMBER 10, 1998
-------------------------- -----------------------------
TOTAL TOTAL
EQUITY EQUITY
--------------------------------------------------------------
<S> <C> <C>
Small Cap Growth Stock.................................... $ 1 $ 374
Aggressive Growth Stock................................... 441 420
International Equity...................................... 687 393
Index 400 Stock........................................... 193 52
Growth Stock.............................................. 934 897
Growth and Income Stock................................... 122 648
Index 500 Stock........................................... 1,965 2,453
Balanced.................................................. 1,429 266
High Yield Bond........................................... 127 41
Select Bond............................................... 503 85
Money Market.............................................. 1,024 1,598
Russell Multi-Style Equity................................ 190 1,095
Russell Aggressive Equity................................. 164 155
Russell Non-U.S. ......................................... 113 304
Russell Real Estate Securities............................ 2 42
Russell Core Bond......................................... 6 77
------ ------
$7,901 $8,900
====== ======
</TABLE>
31 Notes to Financial Statements
<PAGE> 34
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 to meet its obligations
under the Policies.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Bonds..................................................... $36,792 $34,888
Common and preferred stocks............................... 7,108 6,062
Mortgage loans............................................ 13,416 12,250
Real estate............................................... 1,666 1,481
Policy loans.............................................. 7,938 7,580
Other investments......................................... 3,443 2,353
Cash and temporary investments............................ 1,159 1,275
------- -------
TOTAL INVESTMENTS....................................... 71,522 65,889
Due and accrued investment income......................... 893 827
Other assets.............................................. 1,409 1,313
Separate account assets................................... 12,161 9,966
------- -------
TOTAL ASSETS............................................ $85,985 $77,995
======= =======
LIABILITIES AND SURPLUS
Reserves for policy benefits.............................. $56,246 $51,815
Policy benefit and premium deposits....................... 1,746 1,709
Policyowner dividends payable............................. 3,100 2,870
Interest maintenance reserve.............................. 491 606
Asset valuation reserve................................... 2,371 1,994
Income taxes payable...................................... 1,192 1,161
Other liabilities......................................... 3,609 3,133
Separate account liabilities.............................. 12,161 9,966
------- -------
TOTAL LIABILITIES....................................... 80,916 73,254
Surplus................................................... 5,069 4,741
------- -------
TOTAL LIABILITIES AND SURPLUS........................... $85,985 $77,995
======= =======
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements
Consolidated Statement of Financial Position
32
<PAGE> 35
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
Consolidated Statement of Operations
(in millions)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE
Premiums and deposits..................................... $ 8,344 $ 8,021 $ 7,294
Net investment income..................................... 4,766 4,536 4,171
Other income.............................................. 970 922 861
------- ------- -------
TOTAL REVENUE......................................... 14,080 13,479 12,326
------- ------- -------
BENEFITS AND EXPENSES
Benefit payments to policyowners and beneficiaries........ 4,023 3,602 3,329
Net additions to policy benefit reserves.................. 4,469 4,521 4,026
Net transfers to separate accounts........................ 516 564 566
------- ------- -------
TOTAL BENEFITS........................................ 9,008 8,687 7,921
Operating expenses........................................ 1,287 1,297 1,138
------- ------- -------
TOTAL BENEFITS AND EXPENSES........................... 10,295 9,984 9,059
------- ------- -------
GAIN FROM OPERATIONS BEFORE DIVIDENDS AND TAXES....... 3,785 3,495 3,267
Policyowner dividends....................................... 3,091 2,869 2,636
------- ------- -------
GAIN FROM OPERATIONS BEFORE TAXES..................... 694 626 631
Income tax expense.......................................... 203 301 356
------- ------- -------
NET GAIN FROM OPERATIONS.............................. 491 325 275
Net realized capital gains.................................. 846 484 414
------- ------- -------
NET INCOME............................................ $ 1,337 $ 809 $ 689
======= ======= =======
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements
33 Consolidated Statement of Operations
<PAGE> 36
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
Consolidated Statement of Changes in Surplus
(in millions)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BEGINNING OF YEAR........................................... $4,741 $4,101 $3,515
Net income................................................ 1,337 809 689
Increase (decrease) in net unrealized gains............... 213 (147) 576
Increase in investment reserves........................... (377) (20) (526)
Charge-off of goodwill (Note 7)........................... (842) -- --
Other, net................................................ (3) (2) (153)
------ ------ ------
NET INCREASE IN SURPLUS................................... 328 640 586
------ ------ ------
END OF YEAR BALANCE......................................... $5,069 $4,741 $4,101
====== ====== ======
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements
Consolidated Statement of Changes in Surplus
34
<PAGE> 37
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
Consolidated Statement of Cash Flows
(in millions)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Insurance and annuity premiums............................ $ 9,260 $ 8,876 $ 8,093
Investment income received................................ 4,476 4,216 3,928
Disbursement of policy loans, net of repayments........... (358) (416) (360)
Benefits paid to policyowners and beneficiaries........... (4,012) (3,572) (3,316)
Net transfers to separate accounts........................ (516) (564) (565)
Policyowner dividends paid................................ (2,862) (2,639) (2,347)
Operating expenses and taxes.............................. (1,699) (1,749) (1,722)
Other, net................................................ (56) (83) 124
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES............ 4,233 4,069 3,835
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
PROCEEDS FROM INVESTMENTS SOLD OR MATURED
Bonds.................................................. 20,788 28,720 38,284
Common and preferred stocks............................ 13,331 10,359 9,057
Mortgage loans......................................... 1,356 1,737 1,012
Real estate............................................ 216 159 302
Other investments...................................... 830 768 398
------- ------- -------
36,521 41,743 49,053
------- ------- -------
COST OF INVESTMENTS ACQUIRED
Bonds.................................................. 22,849 30,873 41,169
Common and preferred stocks............................ 13,794 9,642 9,848
Mortgage loans......................................... 2,500 3,135 2,309
Real estate............................................ 362 268 202
Other investments...................................... 1,864 567 359
------- ------- -------
41,369 44,485 53,887
------- ------- -------
Net increase (decrease) in securities lending and other... 499 (624) 440
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES................ (4,349) (3,366) (4,394)
------- ------- -------
NET (DECREASE) INCREASE IN CASH AND TEMPORARY
INVESTMENTS......................................... (116) 703 (559)
Cash and temporary investments, beginning of year........... 1,275 572 1,131
------- ------- -------
Cash and temporary investments, end of year................. $ 1,159 $ 1,275 $ 572
======= ======= =======
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements
35 Consolidated Statement of Cash Flows
<PAGE> 38
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
Notes to Consolidated Statutory Financial Statements
December 31, 1999, 1998 and 1997
NOTE 1 -- BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated statutory financial statements include the
accounts of The Northwestern Mutual Life Insurance Company ("Company") and its
wholly-owned 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 ("Codification") guidance,
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 Codification that would also be effective upon implementation.
Codification provides guidance for areas where statutory accounting has been
silent and changes current statutory accounting in some areas (e.g., deferred
income taxes are recorded). The Office of the Commissioner of Insurance of the
State of Wisconsin ("OCI") intends to adopt Codification effective January 1,
2001. The Company has not determined the potential effect of Codification, and
the eventual effect of adoption could differ if changes are made prior to the
effective date of January 1, 2001.
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:
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
TEMPORARY INVESTMENTS
Temporary investments consist of debt securities that have maturities of one
year or less at acquisition.
NET INVESTMENT INCOME AND CAPITAL GAINS
Net investment income includes interest and dividends received or due and
accrued on investments, 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.
Notes to Consolidated Statutory Financial Statements
36
<PAGE> 39
Realized investment gains and losses are reported in income based upon specific
identification of securities sold. Unrealized investment gains and losses
include changes in the fair value of common stocks and changes in valuation
allowances made for bonds, preferred stocks, mortgage loans and other
investments considered by management to be impaired.
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 each of December 31,
1999 and 1998 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.
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 OCI. (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 1998 and 1997 have been reclassified to
conform to the current year presentation.
Notes to Consolidated Statutory Financial Statements
37
<PAGE> 40
NOTE 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.
Statement value, which principally represents amortized cost, and estimated fair
value of the Company's debt securities at December 31, 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
RECONCILIATION TO ESTIMATED FAIR VALUE
-----------------------------------------------
GROSS GROSS ESTIMATED
STATEMENT UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1999 VALUE GAINS LOSSES VALUE
----------------- --------- ---------- ---------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. Government and
political
obligations........ $ 3,855 $ 72 $ (167) $ 3,760
Mortgage-backed
securities......... 7,736 65 (256) 7,545
Corporate and other
debt securities.... 25,201 249 (1,088) 24,362
------- ------ ------- -------
36,792 386 (1,511) 35,667
Preferred stocks..... 85 2 -- 87
------- ------ ------- -------
Total........... $36,877 $ 388 $(1,511) $35,754
======= ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
RECONCILIATION TO ESTIMATED FAIR VALUE
-----------------------------------------------
GROSS GROSS ESTIMATED
STATEMENT UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1998 VALUE GAINS LOSSES VALUE
----------------- --------- ---------- ---------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. 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
======= ====== ======= =======
</TABLE>
The statement value and estimated fair value of debt securities by contractual
maturity at December 31, 1999 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>
STATEMENT ESTIMATED
VALUE FAIR VALUE
--------- ----------
(IN MILLIONS)
<S> <C> <C>
Due in one year or less.......... $ 931 $ 942
Due after one year through five
years.......................... 5,420 5,412
Due after five years through ten
years.......................... 11,168 10,796
Due after ten years.............. 11,622 11,059
------- -------
29,141 28,209
Mortgage-backed securities....... 7,736 7,545
------- -------
$36,877 $35,754
======= =======
</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.
The adjusted cost of common and preferred stock held by the Company at December
31, 1999 and 1998 was $4.9 billion and $4.3 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, 1999 and 1998 was $13.2
billion and $12.9 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, 1999 and 1998, real estate includes $39 million and $61 million,
respectively, acquired through foreclosure and $114 million and $120 million,
respectively, of home office real estate.
Notes to Consolidated Statutory Financial Statements
38
<PAGE> 41
REALIZED AND UNREALIZED GAINS AND LOSSES
Realized investment gains and losses for the years ended December 31, 1999, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1999
--------------------------------
NET
REALIZED
REALIZED REALIZED GAINS
GAINS LOSSES (LOSSES)
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Bonds..................... $ 219 $(404) $ (185)
Common and preferred
stocks.................. 1,270 (255) 1,015
Mortgage loans............ 22 (12) 10
Real estate............... 92 -- 92
Other invested assets..... 308 (189) 119
------ ----- ------
$1,911 $(860) 1,051
====== ===== ------
Less: Capital gains
taxes................... 244
Less: IMR (losses)
gains................... (39)
------
Net realized capital
gains................... $ 846
======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1998
--------------------------------
NET
REALIZED
REALIZED REALIZED GAINS
GAINS LOSSES (LOSSES)
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Bonds..................... $ 514 $(231) $ 283
Common and preferred
stocks.................. 885 (240) 645
Mortgage loans............ 18 (11) 7
Real estate............... 41 -- 41
Other invested assets..... 330 (267) 63
------ ----- ------
$1,788 $(749) 1,039
====== ===== ------
Less: Capital gains
taxes................... 358
Less: IMR (losses)
gains................... 197
------
Net realized capital
gains................... $ 484
======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
--------------------------------
NET
REALIZED
REALIZED REALIZED GAINS
GAINS LOSSES (LOSSES)
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Bonds..................... $ 518 $(269) $249
Common and preferred
stocks.................. 533 (150) 383
Mortgage loans............ 14 (14) --
Real estate............... 100 (2) 98
Other invested assets..... 338 (105) 233
------ ----- ----
$1,503 $(540) 963
====== ===== ----
Less: Capital gains
taxes................... 340
Less: IMR (losses)
gains................... 209
----
Net realized capital
gains................... $414
====
</TABLE>
Changes in unrealized net investment gains and losses for the years ended
December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------
1999 1998 1997
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Bonds......................... $(178) $ (97) $ 43
Common and preferred stocks... 415 29 528
Mortgage loans................ (10) (16) (7)
Real estate................... (2) -- --
Other......................... (12) (63) 12
----- ----- ----
$ 213 $(147) $576
===== ===== ====
</TABLE>
SECURITIES LENDING
The Company has entered into securities lending agreements whereby certain
securities are loaned to third parties, primarily major brokerage firms. The
Company's policy requires a minimum of 102% 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 $2.1 billion and $1.5 billion, respectively, are included in
the consolidated statements of financial position at December 31, 1999 and 1998,
and approximate the statement value of securities loaned at those dates.
INVESTMENT IN MGIC
The Company owns 11.3% (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, 1999 and 1998, the fair value of the Company's
investment in MGIC exceeded the statement value of $201 million and $180
million, respectively, by $518 million and $296 million, respectively.
In August 1998, the Company delivered 8.9 million shares of MGIC to a brokerage
firm to settle a 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.
Notes to Consolidated Statutory Financial Statements
39
<PAGE> 42
The Company held the following positions for hedging purposes at December 31,
1999 and 1998:
<TABLE>
<CAPTION>
NOTIONAL AMOUNTS
---------------------------
DECEMBER 31, DECEMBER 31,
DERIVATIVE FINANCIAL INSTRUMENT 1999 1998 RISKS REDUCED
------------------------------- ------------ ------------ -------------
(IN MILLIONS)
<S> <C> <C> <C>
Foreign Currency
Forward Contracts...................... $967 $601 Currency exposure on foreign-denominated
investments
Common Stock Futures..................... 620 657 Stock market price fluctuation.
Bond Futures............................. 50 379 Bond market price fluctuation.
Options to acquire Interest Rate Swaps... 419 419 Interest rates payable on certain annuity
and insurance contracts.
Foreign Currency and
Interest Rate Swaps.................... 203 94 Interest rates on variable rate notes and
currency exposure on foreign-denominated
bonds.
Default Swaps............................ 52 -- Default exposure on certain bond
investments.
</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 1999 and 1998. The notional amount of equity
swaps outstanding at December 31, 1999 and 1998 was $136 million and $138
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 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 1999
and 1998, net realized and unrealized gains on investments were partially offset
by net realized losses of $55 million and $104 million, respectively, and net
unrealized gains (losses) of $17 million and $(58) million, respectively, on
derivative instruments. The effect of derivative instruments in 1997 was not
material to the Company's results of operations.
NOTE 3 -- RESERVES FOR POLICY BENEFITS
Life insurance reserves on substantially all policies issued since 1978 are
based on the Commissioner's Reserve Valuation Method 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 four 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. Actual future experience could differ from these
estimates.
NOTE 4 -- EMPLOYEE AND AGENT BENEFIT PLANS
The Company sponsors noncontributory defined benefit retirement plans for all
eligible employees and agents. The
Notes to Consolidated Statutory Financial Statements
40
<PAGE> 43
expense associated with these plans is generally recorded by the Company in the
period contributions are funded. As of January 1, 1999, the most recent
actuarial valuation date available, the qualified defined benefit plans were
fully funded. The Company recorded a liability of $109 million and $98 million
for nonqualified defined benefit plans at December 31, 1999 and 1998,
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 $31 million, $29
million and $27 million of total expense related to its defined benefit and
defined contribution plans for the years ended December 31, 1999, 1998 and 1997,
respectively. The defined benefit and defined contribution plans' assets of $2.2
billion and $1.9 billion at December 31, 1999 and 1998, 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, 1999, 1998 and 1997 were a net expense
(benefit) of $5.0 million, $1.8 million and ($1.3) million, respectively.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------------ ------------------
<S> <C> <C>
Unfunded postretirement
benefit obligation
for retirees and
other fully eligible
employees (Accrued in
statement of
financial
position)............ $40 million $35 million
Estimated
postretirement
benefit obligation
for active non-vested
employees (Not
accrued until
employee vests)...... $68 million $56 million
Discount rate.......... 7% 7%
Health care cost trend 10% to an ultimate 10% to an ultimate
rate................. 5%, declining 1% 5%, declining 1%
for 5 years for 5 years
</TABLE>
If the health care cost trend rate assumptions were increased by 1%, the accrued
postretirement benefit obligation as of December 31, 1999 and 1998 would have
been increased by $6 million and $5 million, respectively.
At December 31, 1999 and 1998, the recorded postretirement benefit obligation
was reduced by $28 million and $23 million, respectively, for health care
benefit plan assets. These assets were primarily invested in the separate
accounts of the Company.
NOTE 5 -- REINSURANCE
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
to reinsurers under excess coverage and 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
coverage type.
The amounts shown in the accompanying consolidated financial statements are net
of reinsurance. Reserves for policy benefits at December 31, 1999 and 1998 were
reported net of ceded reserves of $584 million and $518 million, respectively.
The effect of reinsurance on premiums and benefits for the years ended December
31, 1999, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Direct premiums and
deposits................... $8,785 $8,426 $7,647
Premiums ceded............... (441) (405) (353)
------ ------ ------
Net premium and deposits..... $8,344 $8,021 $7,294
====== ====== ======
Benefits to policyowners and
beneficiaries.............. 9,205 $8,869 $8,057
Benefits ceded............... (197) (182) (136)
------ ------ ------
Net benefits to policyowners
and beneficiaries.......... $9,008 $8,687 $7,921
====== ====== ======
</TABLE>
In addition, the Company received $133 million, $121 million and $115 million
for the years ended December 31, 1999, 1998 and 1997, 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.
Notes to Consolidated Statutory Financial Statements
41
<PAGE> 44
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.
NOTE 6 -- INCOME TAXES
Provisions for income taxes are based on current income tax payable without
recognition of deferred taxes. The Company files a consolidated life-nonlife
federal income tax return. Federal income tax returns for years through 1995 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 taxable income can vary significantly from gain from operations
before taxes due to differences between book and tax valuation of assets and
liabilities (e.g., investments and policy benefit reserves). The Company pays a
tax that is assessed only on the surplus of mutual life insurance companies
("equity tax"), and also, the Company must capitalize and amortize, as opposed
to immediately deducting, an amount deemed to represent the cost of acquiring
new business ("DAC tax").
The Company's effective tax rate on gains from operations before taxes for the
years ended December 31, 1999, 1998 and 1997 was 29%, 48%, and 56% respectively.
In 1999, the effective rate was less than the federal corporate rate of 35% due
primarily to differences between book and tax investment income. In 1998 and
1997, the effective rate was greater than 35% due primarily to the equity tax
and DAC tax.
NOTE 7 -- RELATED PARTY TRANSACTIONS
The Company acquired Frank Russell Company ("Frank Russell") 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. This investment is accounted for using the
equity method and is included in common stocks in the consolidated statement of
financial position. In 1999, the Company charged-off directly from surplus
approximately $842 million, representing the total goodwill associated with the
acquisition. The Company has received permission from the OCI for this
charge-off. The Company has unconditionally guaranteed certain debt obligations
of Frank Russell, including $350 million of senior notes and up to $150 million
of other credit facilities.
During 1999, the Company transferred appreciated equity investments to a
wholly-owned subsidiary as a capital contribution to the subsidiary. A realized
capital gain of $287 million was recorded on this transaction based on the fair
value of the assets upon transfer.
NOTE 8 -- CONTINGENCIES
The Company has guaranteed certain obligations of its other affiliates. These
guarantees totaled approximately $101 million at December 31, 1999 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 $1.9 billion at December 31, 1999 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.
Notes to Consolidated Statutory Financial Statements
42
<PAGE> 45
[PRICEWATERHOUSECOOPERS LLP - LETTERHEAD]
R EPORT 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, 1999 and 1998, 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, 1999. 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 auditing standards generally accepted
in the United States. 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 to the financial statements, the Company prepared these
consolidated financial statements using 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
accounting principles generally accepted in the United States. 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 as of December 31, 1999 and 1998, or the results of their operations
or their cash flows for each of the three years in the period ended December 31,
1999 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 as of December 31, 1999 and 1998 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, on the basis of accounting described in Note 1.
/s/ PriceWaterhousecoopers LLP
January 24, 2000
Accountants' Report 43
<PAGE> 46
APPENDIX
ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES AND ACCUMULATED PREMIUMS. The
tables on the following pages illustrate how the death benefit and cash value
for a Policy would vary over time based on hypothetical investment results. The
tables assume gross (after tax) investment return rates of 0%, 6% and 12% on
assets of the Account. The Policies illustrated are for male insureds, select
risks, age 35. The first two illustrations, on pages 45-46, are for a policy
with a Minimum Guaranteed Death Benefit of $200,000 and no Additional
Protection, based (1) on current charges and the current dividend scale and (2)
on maximum charges and zero dividends. The other two illustrations are for a
Policy with a Minimum Guaranteed Death Benefit of $200,000 and Additional
Protection of $200,000.
The death benefits and cash values would be different from those shown if the
gross investment return rate averaged 0%, 6% or 12%, but fluctuated over and
under the average rate at various points in time. The values would also be
different, depending on the Account divisions selected by the owner of the
Policy, if the Portfolios or Funds return rate averaged 0%, 6% or 12%, but the
rates for each individual Portfolio or Fund varied over and under the average.
The amounts shown as the death benefits and cash values reflect the deductions
from premiums, deductions from Policy Value and the charge at the annual rate of
.60% of the Account's assets for mortality and expense risks. The amounts shown
as the cash values reflect the deduction of the surrender charge during the
first fifteen Policy years. The amounts shown also reflect the average of the
investment advisory fees and other expenses applicable to each of the Portfolios
and Funds at the annual rate of .66% of their net assets. See "The Funds", p. 5.
Thus the 0%, 6% and 12% gross hypothetical return rates on the Fund's assets are
equivalent to the net rates of -1.26%, 4.74% and 10.74% on the assets of the
Account.
The second column of each table shows the amount which would accumulate if an
amount equal to the annual premium were invested to earn interest, after taxes,
at a 5% interest rate compounded annually.
The death benefits and corresponding cash values shown on pages 45 and 47
illustrate benefits which we would pay 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. 13. HOWEVER, THERE IS NO GUARANTEE AS TO THE AMOUNT OF DIVIDENDS,
IF ANY, THAT WE WILL PAY UNDER A POLICY. Although the tables are based on the
assumption that dividends will be used to increase the Policy Value, other
dividend options are available. The use of dividends for other purposes during
the guaranteed period for Additional Protection may cause the guaranteed period
to terminate. See "Death Benefit", p. 9.
We will prepare a comparable illustration based on a proposed insured's age, sex
and risk classification and proposed face amount or premium upon request.
Appendix 44
<PAGE> 47
VARIABLE WHOLE LIFE WITH ADDITIONAL PROTECTION INSURANCE POLICY
MALE ISSUE AGE 35 -- SELECT UNDERWRITING RISK
$200,000 VARIABLE WHOLE LIFE, $0 ADDITIONAL PROTECTION
$2,610 ANNUAL PREMIUM(1)
CURRENT CHARGES AND DIVIDEND SCALE(2)
DIVIDENDS USED TO INCREASE POLICY VALUE
<TABLE>
<CAPTION>
DEATH BENEFIT(3) CASH SURRENDER VALUE(3)
------------------------------ ----------------------------
PREMIUM ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ACCUMULATED ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
END OF AT 5% INTEREST ------------------------------ ----------------------------
POLICY YEAR PER YEAR 0% 6% 12% 0% 6% 12%
- ----------- -------------- -------- ------- --------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,741 $200,000 200,021 200,139 901 1,019 1,136
2 5,618 200,000 200,060 200,431 2,752 3,109 3,480
3 8,639 200,000 200,118 200,899 4,561 5,284 6,064
4 11,812 200,000 200,195 201,564 6,329 7,547 8,917
5 15,143 200,000 200,294 202,456 8,051 9,899 12,062
6 18,641 200,000 200,411 203,598 9,824 12,442 15,630
7 22,313 200,000 200,556 205,033 11,549 15,080 19,556
8 26,169 200,000 200,734 206,799 13,228 17,820 23,884
9 30,218 200,000 200,951 208,943 14,862 20,669 28,661
10 34,470 200,000 201,211 211,515 16,457 23,637 33,940
15 59,136 200,000 204,524 234,256 25,567 42,344 72,076
20 90,617 200,000 211,868 311,403 33,818 65,864 136,024
25 130,796 200,000 223,245 478,073 40,168 94,823 241,250
30 (age 65) 182,076 200,000 240,400 715,956 43,890 130,508 412,469
35 247,523 200,000 269,334 1,062,685 43,553 174,483 688,439
40 331,052 200,000 316,374 1,569,971 34,736 226,644 1,124,696
45 437,658 200,000 368,476 2,317,209 7,349 286,166 1,799,591
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$1,331.41 semiannually, $673.55 quarterly, or $225.74 monthly.
(2) Dividends illustrated are based on current scale and experience and are not
guaranteed.
(3) Assumes no policy loan has been made.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND
UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER
AND THE DIFFERENT RATES OF RETURN OF THE FUND PORTFOLIOS. THE DEATH BENEFIT AND
CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME.
45 Appendix
<PAGE> 48
VARIABLE WHOLE LIFE WITH ADDITIONAL PROTECTION INSURANCE POLICY
MALE ISSUE AGE 35 -- SELECT UNDERWRITING RISK
$200,000 VARIABLE WHOLE LIFE, $0 ADDITIONAL PROTECTION
$2,610 ANNUAL PREMIUM(1)
MAXIMUM CHARGES AND ZERO DIVIDENDS
<TABLE>
<CAPTION>
DEATH BENEFIT(2) CASH SURRENDER VALUE(2)
----------------------------- ----------------------------
PREMIUM ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ACCUMULATED ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
END OF AT 5% INTEREST ----------------------------- ----------------------------
POLICY YEAR PER YEAR 0% 6% 12% 0% 6% 12%
- ----------- -------------- ------- ------- --------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,741 200,000 200,014 200,132 895 1,012 1,130
2 5,618 200,000 200,046 200,416 2,739 3,095 3,465
3 8,639 200,000 200,096 200,872 4,542 5,262 6,038
4 11,812 200,000 200,162 201,521 6,304 7,514 8,873
5 15,143 200,000 200,249 202,390 8,021 9,854 11,996
6 18,641 200,000 200,354 203,504 9,794 12,386 15,536
7 22,313 200,000 200,484 204,897 11,516 15,007 19,421
8 26,169 200,000 200,638 206,605 13,190 17,724 23,691
9 30,218 200,000 200,819 208,663 14,812 20,536 28,381
10 34,470 200,000 201,024 211,112 16,381 23,450 33,538
15 59,136 200,000 202,537 231,095 24,092 40,357 68,915
20 90,617 200,000 205,046 285,062 28,878 59,042 124,518
25 130,796 200,000 208,876 420,175 30,617 80,454 212,033
30 (age 65) 182,076 200,000 214,415 601,198 27,427 104,523 346,356
35 247,523 200,000 222,125 845,898 15,135 130,829 547,998
40 331,052 200,000 232,559 1,178,418 0 159,033 844,195
45 437,658 200,000 246,356 1,631,754 0 188,446 1,267,253
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$1,331.41 semiannually, $673.55 quarterly, or $225.74 monthly.
(2) Assumes no policy loan has been made.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND
UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER
AND THE DIFFERENT RATES OF RETURN OF THE FUND PORTFOLIOS. THE DEATH BENEFIT AND
CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME.
Appendix 46
<PAGE> 49
VARIABLE WHOLE LIFE WITH ADDITIONAL PROTECTION INSURANCE POLICY
MALE ISSUE AGE 35 -- SELECT UNDERWRITING RISK
$200,000 VARIABLE WHOLE LIFE PLUS $200,000 ADDITIONAL PROTECTION(1)
$3,620 ANNUAL PREMIUM(2)
CURRENT CHARGES AND DIVIDEND SCALE(3)
DIVIDENDS USED TO INCREASE POLICY VALUE
<TABLE>
<CAPTION>
DEATH BENEFIT(4) CASH SURRENDER VALUE(4)
----------------------------- ----------------------------
PREMIUM ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ACCUMULATED ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
END OF AT 5% INTEREST ----------------------------- ----------------------------
POLICY YEAR PER YEAR 0% 6% 12% 0% 6% 12%
- ----------- -------------- ------- ------- --------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 3,801 400,000 400,000 400,000 1,343 1,495 1,648
2 7,792 400,000 400,000 400,000 3,944 4,417 4,908
3 11,983 400,000 400,000 400,000 6,491 7,458 8,503
4 16,383 400,000 400,000 400,000 8,985 10,626 12,469
5 21,003 400,000 400,000 400,000 11,415 13,916 16,839
6 25,854 400,000 400,000 400,000 13,891 17,443 21,767
7 30,948 400,000 400,000 400,000 16,297 21,099 27,187
8 36,296 400,000 400,000 400,000 18,639 24,893 33,160
9 41,912 400,000 400,000 400,000 20,919 28,838 39,752
10 47,809 400,000 400,000 401,333 23,147 32,950 47,043
15 82,020 400,000 400,000 423,375 35,180 58,140 99,015
20 125,684 400,000 400,000 477,445 45,132 88,871 185,437
25 181,411 400,000 400,000 651,812 51,120 125,398 328,924
30 (age 65) 252,534 395,465 400,000 977,145 51,379 168,832 562,943
35 343,307 364,419 403,552 1,451,214 43,843 220,960 940,140
40 459,160 330,617 429,362 2,144,716 22,153 282,310 1,536,432
45 607,020 211,272 468,606 3,166,179 0 352,786 2,458,917
</TABLE>
(1) Additional Protection is guaranteed to be $100,000 for at least 15 years, so
long as all premiums are paid when due and all dividends are used to
increase Policy Value.
(2) If premiums are paid more frequently than annually the payments would be
$1,846.10 semiannually, $933.43 quarterly, or $312.91 monthly.
(3) Dividends illustrated are based on current scale and experience and are not
guaranteed.
(4) Assumes no policy loan has been made.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND
UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER
AND THE DIFFERENT RATES OF RETURN OF THE FUND PORTFOLIOS. THE DEATH BENEFIT AND
CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME.
47 Appendix
<PAGE> 50
VARIABLE WHOLE LIFE WITH ADDITIONAL PROTECTION INSURANCE POLICY
MALE ISSUE AGE 35 -- SELECT UNDERWRITING RISK
$200,000 VARIABLE WHOLE LIFE PLUS $200,000 ADDITIONAL PROTECTION(1)
$3,620 ANNUAL PREMIUM(2)
MAXIMUM CHARGES AND ZERO DIVIDENDS
<TABLE>
<CAPTION>
DEATH BENEFIT(3) CASH SURRENDER VALUE(3)
----------------------------- ----------------------------
PREMIUM ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ACCUMULATED ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
END OF AT 5% INTEREST ----------------------------- ----------------------------
POLICY YEAR PER YEAR 0% 6% 12% 0% 6% 12%
- ----------- -------------- ------- ------- --------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 3,801 400,000 400,000 400,000 1,164 1,316 1,469
2 7,792 400,000 400,000 400,000 3,571 4,033 4,512
3 11,983 400,000 400,000 400,000 5,911 6,842 7,848
4 16,383 400,000 400,000 400,000 8,181 9,744 11,504
5 21,003 400,000 400,000 400,000 10,375 12,739 15,508
6 25,854 400,000 400,000 400,000 12,606 15,942 20,012
7 30,948 400,000 400,000 400,000 14,749 19,232 24,931
8 36,296 400,000 400,000 400,000 16,806 22,615 30,313
9 41,912 400,000 400,000 400,000 18,768 26,084 36,199
10 47,809 400,000 400,000 400,000 20,636 29,647 42,648
15 82,020 400,000 400,000 410,613 29,066 49,499 86,253
20 125,684 333,952 400,000 445,801 33,673 69,731 153,793
25 181,411 283,402 400,000 518,053 35,287 89,532 261,209
30 (age 65) 252,534 250,500 400,000 744,954 32,093 105,438 429,175
35 343,307 230,680 400,000 1,051,808 20,040 109,608 681,392
40 459,160 218,221 227,808 1,468,440 0 131,534 1,051,961
45 607,020 211,257 227,808 2,036,184 0 150,474 1,581,341
</TABLE>
(1) Additional Protection is guaranteed to be $100,000 for at least 15 years, so
long as all premiums are paid when due and all dividends are used to
increase Policy Value.
(2) If premiums are paid more frequently than annually the payments would be
$1,846.10 semiannually, $933.43 quarterly, or $312.91 monthly.
(3) Assumes no policy loan has been made.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND
UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER
AND THE DIFFERENT RATES OF RETURN OF THE FUND PORTFOLIOS. THE DEATH BENEFIT AND
CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME.
Appendix 48
<PAGE> 51
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 1-888-455-2232. 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.
- --------------------------------------------------------------------------------
NORTHWESTERN MUTUAL
NORTHWESTERN MUTUAL VARIABLE COMPLIFE(R)
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
NORTHWESTERN MUTUAL SERIES FUND, INC.
RUSSELL INSURANCE FUNDS
90-1944 (4/2000)
PROSPECTUSES
Investment Company Act File Nos. 811-3990 and 811-5371
NORTHWESTERN MUTUAL(TM)
PO Box 3095
Milwaukee WI 53201-3095
Change Service Requested
