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APRIL 28, 2000
NORTHWESTERN MUTUAL VARIABLE LIFE
Whole Life
Extra Ordinary Life
Single Premium Life
(PHOTO)
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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
Northwestern Mutual Variable Life............. 1
Summary of the Policies............................ 2
Variable Life Insurance....................... 2
The Account and its Divisions................. 2
Deductions and Charges........................ 2
The Northwestern Mutual Life Insurance Company,
Northwestern Mutual Variable Life Account,
Northwestern Mutual Series Fund, Inc. and Russell
Insurance Funds.................................. 4
Northwestern Mutual.............................. 4
The Account...................................... 4
The Funds........................................ 4
Northwestern Mutual Series Fund, Inc............. 4
Small Cap Growth Stock Portfolio.............. 4
Aggressive Growth Stock Portfolio............. 5
International Equity Portfolio................ 5
Index 400 Stock Portfolio..................... 5
Growth Stock Portfolio........................ 5
Growth and Income Stock Portfolio............. 5
Index 500 Stock Portfolio..................... 5
Balanced Portfolio............................ 5
High Yield Bond Portfolio..................... 5
Select Bond Portfolio......................... 5
Money Market Portfolio........................ 5
Russell Insurance Funds.......................... 5
Multi-Style Equity Fund....................... 6
Aggressive Equity Fund........................ 6
Non-U.S. Fund................................. 6
Real Estate Securities Fund................... 6
Core Bond Fund................................ 6
Detailed Information about the Policies............ 6
Requirements for Insurance....................... 6
Premiums......................................... 7
Grace Period..................................... 8
Allocations to the Account....................... 8
Transfers Between Divisions...................... 8
Deductions and Charges........................... 8
Deductions from Premiums for Whole Life and Extra
Ordinary Life Policies........................ 8
Deductions for Single Premium Life Policies...... 10
Charges against the Account Assets............... 10
Guarantee of Premiums, Deductions and Charges.... 10
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Death Benefit.................................... 10
Variable Insurance Amount..................... 11
Whole Life Policy and Single Premium Life
Policy...................................... 11
Extra Ordinary Life Policy.................... 13
Cash Value....................................... 14
Annual Dividends................................. 15
Policy Loans..................................... 16
Extended Term and Paid-Up Insurance.............. 17
Reinstatement.................................... 17
Right to Exchange for a Fixed Benefit Policy..... 17
Other Policy Provisions.......................... 17
Owner......................................... 17
Beneficiary................................... 17
Incontestability.............................. 17
Suicide....................................... 17
Misstatement of Age or Sex.................... 17
Collateral Assignment......................... 17
Payment Plans................................. 18
Deferral of Determination and Payment......... 18
Voting Rights.................................... 18
Substitution of Fund Shares and Other Changes.... 18
Reports.......................................... 18
Special Policy for Employers..................... 19
Distribution of the Policies..................... 19
Tax Treatment of Policy Benefits................. 19
Other Information.................................. 20
Management.................................... 20
Regulation.................................... 21
Legal Proceedings............................. 21
Registration Statement........................ 21
Experts....................................... 21
Financial Statements............................... 22
Report of Independent Accountants (for the two
years ended December 31, 1999)................ 22
Financial Statements of the Account (for the two
years ended December 31, 1999)................ 23
Financial Statements of Northwestern Mutual (for
the three years ended December 31, 1999)...... 34
Report of Independent Accountants (for the three
years ended December 31, 1999)................ 45
Appendix........................................... 46
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Prospectus
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PROSPECTUS
NORTHWESTERN MUTUAL VARIABLE LIFE
- - Whole Life
- - Extra Ordinary Life
- - Single Premium Life
This prospectus describes three variable life insurance policies (the
"Policies") issued by The Northwestern Mutual Life Insurance Company: Whole
Life, Extra Ordinary Life and Single Premium Life. We have designed each Policy
to provide lifetime insurance coverage on the insured named in the Policy. You
may also surrender a Policy for its cash value during the lifetime of the
insured. We use Northwestern Mutual Variable Life Account (the "Account") to
keep the money you invest separate from our general assets. The death benefit
and cash value of a Policy will vary to reflect the investment experience the
Account.
You may allocate the net premiums to one or more of the sixteen divisions of the
Account. The assets of each division will be invested in a corresponding
Portfolio of Northwestern Mutual Series Fund, Inc. or one of the Russell
Insurance Funds. The prospectuses for these mutual funds, attached to this
prospectus, describe the investment objectives for all of the Portfolios and
Funds.
We guarantee that the death benefit for a Whole Life Policy will never be less
than the face amount of the Policy, regardless of the Account's investment
experience, so long as you pay premiums when they are due and no Policy debt is
outstanding. For an Extra Ordinary Life Policy, the death benefit will never be
less than the Minimum Death Benefit stated in the Policy, so long as you pay
premiums when they are due and no Policy debt is outstanding. We have designed
the Extra Ordinary Life Policy for purchasers who intend to use all Policy
dividends to purchase paid-up additions. For a Single Premium Life Policy, the
death benefit will never be less than the face amount of the Policy, if no
Policy debt is outstanding. There is no guaranteed minimum cash value for any of
the three Policies.
In the early years of a Policy it is likely that the cash value will be less
than the premium amounts accumulated at interest. This is because of the sales
and issuance costs for a new Policy. For a Whole Life Policy or an Extra
Ordinary Life Policy we make deductions for sales costs from premiums. These
deductions are higher during the early Policy years. For a Single Premium Life
Policy we make deductions for sales costs from the cash values of Policies
surrendered during the early Policy years. Therefore you should purchase a
Policy only if you intend to keep it in force for a reasonably long period.
THE POLICIES DESCRIBED IN THIS PROSPECTUS ARE NO LONGER BEING ISSUED. THE
VARIABLE COMPLIFE(R) POLICY CURRENTLY BEING OFFERED BY NORTHWESTERN MUTUAL IS
DESCRIBED IN A SEPARATE PROSPECTUS.
IT MAY NOT BE ADVANTAGEOUS TO REPLACE EXISTING INSURANCE WITH A VARIABLE LIFE
INSURANCE POLICY. SEE DEDUCTIONS AND CHARGES AND CASH VALUE.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR
NORTHWESTERN MUTUAL SERIES FUND, INC. AND RUSSELL INSURANCE FUNDS WHICH ARE
ATTACHED HERETO, AND SHOULD BE RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1 Prospectus
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THE PRIMARY PURPOSE OF THESE VARIABLE LIFE INSURANCE POLICIES IS TO PROVIDE
INSURANCE PROTECTION. WE MAKE NO CLAIM THAT THE POLICIES ARE IN ANY WAY SIMILAR
OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND.
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SUMMARY OF THE POLICIES
VARIABLE LIFE INSURANCE
Variable life insurance is similar in many ways to traditional fixed-benefit
whole life insurance. There are also significant differences. For both fixed and
variable insurance the owner of the policy pays level premiums for lifetime
insurance coverage on the person insured. Both kinds of insurance provide a cash
value payable upon surrender of the policy during the insured's lifetime. In
each case the cash value during the early years is ordinarily less than the sum
of the premiums paid. Various optional benefits may be added to either kind of
policy (except single premium policies) at extra cost.
The distinctive feature of the variable Policies described in this prospectus is
that we place the premiums, after certain deductions, in one or more divisions
of Northwestern Mutual Variable Life Account. The death benefit and cash value
of the Policy will increase or decrease to reflect the investment performance of
the division or divisions you select. We adjust the death benefit annually on
the Policy anniversary. We guarantee that the death benefit for a Whole Life
Policy will never be less than the face amount of the Policy, so long as you pay
premiums when they are due and no Policy debt is outstanding. For an Extra
Ordinary Life Policy, we guarantee that the death benefit will never be less
than the Minimum Death Benefit stated in the Policy, so long as you pay premiums
when they are due and no Policy debt is outstanding. We have designed the Extra
Ordinary Life Policy for purchasers who intend to use all Policy dividends to
purchase paid-up additions. For a Single Premium Life Policy, we guarantee that
the death benefit will never be less than the face amount of the Policy, if no
policy debt is outstanding. For all of the Policies, we adjust the cash value
daily. There is no guaranteed minimum cash value.
THE ACCOUNT AND ITS DIVISIONS
Northwestern Mutual Variable Life Account is the investment vehicle for the
Policies. The Account has sixteen divisions. You determine how net premiums are
to be apportioned. You may select up to six divisions at any one point in time.
We invest the assets of each division in a corresponding Portfolio of
Northwestern Mutual Series Fund, Inc. or one of the Russell Insurance Funds. The
eleven Portfolios of Northwestern Mutual Series Fund, Inc. are the Small Cap
Growth Stock Portfolio, Aggressive Growth Stock Portfolio, International Equity
Portfolio, Index 400 Stock Portfolio, Growth Stock Portfolio, Growth and Income
Stock Portfolio, Index 500 Stock Portfolio, Balanced Portfolio, High Yield Bond
Portfolio, Select Bond Portfolio and Money Market Portfolio. The five Russell
Insurance Funds are the Multi-Style Equity Fund, Aggressive Equity Fund,
Non-U.S. Fund, Real Estate Securities Fund, and Core Bond Fund. For additional
information about the funds see the attached prospectuses.
DEDUCTIONS AND CHARGES
FROM PREMIUMS
Whole Life Policy and Extra Ordinary Life Policy
- - Deduction of 2% for state premium taxes
- - Sales load of not more than 30% of the basic premium for the first Policy
year, 10% for each of the next three years and 7% in years thereafter
- - Annual deduction of $35 for administrative costs
- - Deduction of $5 for each $1,000 of insurance, for issuance expenses, in first
Policy year only
- - Annual deduction of 1 1/2% of the basic premium for death benefit guarantee
- - For the Extra Ordinary Life Policy only, a deduction for dividends in the
approximate range of 7-17% of the gross annual premium
Single Premium Policy
- - A deduction of $150 when the Policy is issued
Prospectus 2
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FROM THE ASSETS OF THE ACCOUNT
- - A daily charge at the annual rate of .50% of the Account assets for mortality
and expense risks
- - A daily charge at the annual rate of .20% of the Account assets for federal
income taxes
SURRENDER CHARGES
- - For the Single Premium Life Policy only, a deduction of up to 9% of the
premium paid if the Policy is surrendered during the first ten Policy years
FROM THE MUTUAL FUNDS
- - A daily charge for investment advisory and other services provided to the
mutual funds. The total expenses vary by Portfolio or Fund and currently fall
in an approximate range of .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.
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.
3 Prospectus
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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
income insurance policies and annuity contracts through its own field force of
approximately 6,000 full time producing agents. The Internal Revenue Service
Employer Identification Number of Northwestern Mutual 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, we also use the Account for
other variable life insurance policies which are described in other
prospectuses. We no longer offer the three Policies described in this
prospectus.
The Account is registered with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940. This registration
does not involve supervision of management or investment practices or policies.
The Account has sixteen divisions. All of the assets of each division are
invested in shares of the corresponding Portfolio or Fund described below.
THE FUNDS
NORTHWESTERN MUTUAL SERIES FUND, INC.
Northwestern Mutual Series Fund, Inc. is a mutual fund of the series type
registered under the Investment Company Act of 1940 as an open-end diversified
management investment company. The Account buys shares of each Portfolio at
their net asset value without any sales charge.
The investment adviser for the Fund is Northwestern Mutual Investment Services,
LLC ("NMIS"), our wholly-owned subsidiary. The investment advisory agreements
for the respective Portfolios provide that NMIS will provide services and bear
certain expenses of the Fund. For providing investment advisory and other
services and bearing Fund expenses, the Fund pays NMIS a fee at an annual rate
which ranges from .20% of the aggregate average daily net assets of the Index
500 Stock Portfolio to a maximum of .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
Prospectus 4
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sales and earnings at a pace which will exceed the growth rate of the U.S.
economy over an extended period.
AGGRESSIVE GROWTH STOCK PORTFOLIO. The investment objective of the Aggressive
Growth Stock Portfolio is to achieve long-term appreciation of capital primarily
by investing in the common stocks of companies which can reasonably be expected
to increase their sales and earnings at a pace which will exceed the growth rate
of the nation's economy over an extended period.
INTERNATIONAL EQUITY PORTFOLIO. The investment objective of the International
Equity Portfolio is long-term capital growth. It pursues its objective through a
flexible policy of investing in stocks and debt securities of companies and
governments outside the United States.
INDEX 400 STOCK PORTFOLIO. The investment objective of the Index 400 Stock
Portfolio is to achieve investment results that approximate the performance of
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
5 Prospectus
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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 depository receipts, which represent ownership of securities of non-US
companies.
REAL ESTATE SECURITIES FUND. The investment objective of the Real Estate
Securities Fund is to generate a high level of total return through above
average current income, while maintaining the potential for capital
appreciation. The Fund seeks to achieve its objective by concentrating its
investments in equity securities of issuers whose value is derived primarily
from development, management and market pricing of underlying real estate
properties.
CORE BOND FUND. The investment objective of the Core Bond Fund is to maximize
total return, through capital appreciation and income, by assuming a level of
volatility consistent with the broad fixed-income market, by investing in
fixed-income securities. The Core Bond Fund invests primarily in fixed-income
securities. In particular, the Fund holds debt securities issued or guaranteed
by the US government, or to a lesser extent by non-US governments, or by their
respective agencies and instrumentalities. It also holds mortgage-backed
securities, including collateralized mortgage obligations. The Fund also invests
in corporate debt securities and dollar-denominated obligations issued in the US
by non-US banks and corporations (Yankee Bonds). A majority of the Fund's
holdings are US dollar-denominated. From time to time the Fund may invest in
municipal debt obligations.
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DETAILED INFORMATION ABOUT THE POLICIES
REQUIREMENTS FOR INSURANCE
The minimum face amount we require for a Whole Life Policy is $20,000. If the
insured is below age 15 or over age 49 the minimum amount is $10,000. The
insured may not be older than age 70 on the date of issue. For an Extra Ordinary
Life Policy the minimum initial amount of insurance is $50,000; if the insured
is over age 70, the minimum amount is $25,000. The minimum face amount of
insurance we require for a Single Premium Life Policy is $5,000. For an Extra
Ordinary Life Policy the insured may not be younger than age 15 on the date of
issue. For the Extra Ordinary Life Policy and the Single Premium Life Policy,
the insured may not be older than age 75 on the date of issue.
Before issuing a Policy, we will require satisfactory evidence of insurability.
We consider non-smokers who meet preferred underwriting requirements select
risks. We charge a higher premium for insureds who do not qualify as select
risks. The amount of additional premium depends on the risk classification in
which we place the insured. We consider non-smokers in the second best
classification standard plus risks. We consider the best class of smokers
standard risks.
Prospectus 6
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PREMIUMS
You must pay the first premium to put a Whole Life Policy or an Extra Ordinary
Life Policy in effect. Premiums are level, fixed and payable in advance during
the insured's lifetime on a monthly, quarterly, semiannual or annual basis. You
may change the premium frequency. The change will be effective when we accept
the premium on the new frequency. Premiums you pay more often than annually
include an extra amount to compensate us for the extra processing costs and loss
of interest because we receive the money later. The amount of the premium
depends on the amount of insurance for which the Policy was issued and the
insured's age and risk classification. The amount of the premium also reflects
the sex of the insured except where state or federal law requires that premiums
and other charges and values be determined without regard to sex. We send a
notice to the owner of a Policy not less than two weeks before each premium is
due. If you select the monthly premium frequency, we may require that you make
premium payments by preauthorized check.
The following table for Whole Life Policies shows representative premiums for
male select, standard plus, and standard risks for various face amounts of
insurance.
<TABLE>
<CAPTION>
% EXCESS OF 12
MONTHLY PREMIUMS
AGE AT FACE ANNUAL MONTHLY OVER ANNUAL
ISSUE AMOUNT PREMIUM PREMIUM PREMIUM
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SELECT
15 $ 50,000 $ 382.50 $ 33.60 5.4%
35 100,000 1,536.00 135.10 5.5%
55 100,000 3,766.00 331.10 5.5%
STANDARD PLUS
15 50,000 406.00 35.60 5.2%
35 100,000 1,683.00 148.10 5.6%
55 100,000 4,125.00 363.10 5.6%
STANDARD
15 50,000 491.50 43.10 5.2%
35 100,000 1,912.00 168.10 5.5%
55 100,000 4,587.00 404.10 5.7%
</TABLE>
The following table for Extra Ordinary Life Policies shows representative annual
premiums for male select and standard risks for various amounts of insurance.
The amounts of insurance shown in the table are the total amounts in effect when
the Extra Ordinary Life Policy is issued, including both the Minimum Death
Benefit which we guarantee for the lifetime of the insured and the Extra Life
Protection which we guarantee for a shorter period. See "Death Benefit", p. 10,
and "Extra Ordinary Life Policy", p. 13.
<TABLE>
<CAPTION>
% EXCESS OF 12
MONTHLY PREMIUMS
AGE AT FACE ANNUAL MONTHLY OVER ANNUAL
ISSUE AMOUNT PREMIUM PREMIUM PREMIUM
- ------ -------- --------- -------- ----------------
<S> <C> <C> <C> <C>
SELECT
15 $ 50,000 $ 261.50 $ 23.10 6.0%
35 100,000 1,014.00 89.10 5.4%
55 100,000 2,612.00 230.10 5.7%
STANDARD PLUS
15 50,000 285.00 25.10 5.7%
35 100,000 1,161.00 102.10 5.5%
55 100,000 2,971.00 261.10 5.5%
STANDARD
15 50,000 357.50 31.60 6.1%
35 100,000 1,377.00 121.10 5.5%
55 100,000 3,425.00 301.10 5.5%
</TABLE>
7 Prospectus
<PAGE> 10
For a Single Premium Life Policy you may choose either a face amount of
insurance or the amount which a given amount of premium will provide. The Single
Premium Life Policy is available only for applicants who meet select or standard
plus underwriting criteria as we determine. The premiums for these Policies are
the same for both select and standard plus risks, but we expect that the
dividends will be lower for Policies issued to insureds in the standard plus
classification.
The following table for Single Premium Life Policies shows representative gross
single premiums for male select and standard plus risks for various face amounts
of Insurance:
<TABLE>
<CAPTION>
FACE
AGE AT AMOUNT OF GROSS SINGLE
ISSUE INSURANCE PREMIUM
- ------ --------- ------------
<S> <C> <C> <C>
15...................... $10,000 $ 1,498.40
35...................... 25,000 6,443.25
55...................... 50,000 23,502.00
</TABLE>
GRACE PERIOD
For the Whole Life and Extra Ordinary Life Policies there is a grace period of
31 days for any premium that is not paid when due. The Policy remains in force
during this period. If you do not pay the premium within the grace period the
Policy will terminate as of the date when the premium was due and will no longer
be in force, unless it is continued as extended term or paid-up insurance. See
"Extended Term and Paid-Up Insurance", p. 17. If you surrender a Policy, we will
pay its cash value. See "Cash Value", p. 14. If the insured dies during the
grace period we will deduct any overdue premium from the proceeds of the Policy.
If the insured dies after payment of the premium for the period which includes
the date of death, we will refund the portion of the premium for the remainder
of that period as part of the Policy proceeds.
ALLOCATIONS TO THE ACCOUNT
We place the net annual premium for a Whole Life Policy or an Extra Ordinary
Life Policy in the Account on the Policy date and on the Policy anniversary each
year. The net annual premium is the annual premium less the deductions described
below.
You determine how the net annual premium for a Whole Life or an Extra Ordinary
Life Policy is apportioned among the divisions of the Account. If you direct any
portion of a premium to a division, the division must receive at least 10% of
that premium. You may change the apportionment for future premiums by written
request at any time, but the change will be effective only when we place the net
annual premium in the Account on the next Policy anniversary, even if you are
paying premiums on an other than annual basis.
For a Single Premium Policy we place the entire single premium, less an
administrative charge of $150, in the Account on the Policy date and we
apportion the amount among the divisions of the Account as you determine.
You may apportion the Account assets supporting your Policy among as many as six
divisions of the Account at any time.
TRANSFERS BETWEEN DIVISIONS
You may transfer accumulated amounts from one division of the Account to another
as often as four times in a Policy year. Transfers are effective on the date we
receive a written request at our Home Office. We reserve the right to charge a
fee to cover administrative costs of transfers. We presently charge no fee.
DEDUCTIONS AND CHARGES
The net premiums we place in the Account for Whole Life, Extra Ordinary Life and
Single Premium Life Policies are the gross premiums after the deductions
described in the next two sections below. The net premiums for Whole Life and
Extra Ordinary Life Policies exclude any extra premium we charge for insureds
who do not qualify as select risks and the extra premium for any optional
benefits. We make a charge for mortality and expense risks against the assets of
the Account. There is also a charge for taxes. See "Charges Against the Account
Assets", p. 10. In addition, the mutual funds in which the Account assets are
invested pay an investment advisory fee and certain other expenses. Mutual fund
expenses are briefly described above on page 3, and in more detail in the
attached prospectuses for the mutual funds.
DEDUCTIONS FROM PREMIUMS FOR WHOLE LIFE AND EXTRA ORDINARY LIFE POLICIES
The deductions described in this section are for Whole Life and Extra Ordinary
Life Policies only. The deductions for Single Premium Life Policies are
described under the next caption below.
For the first Policy year there is a one-time deduction of not more than $5 for
each $1,000 of insurance, based on the face amount for Whole Life or the Minimum
Death Benefit stated
Prospectus 8
<PAGE> 11
in the Policy for Extra Ordinary Life. This is for the costs of processing
applications, medical examinations, determining insurability and establishing
records.
There is an annual deduction of $35 for administrative costs to maintain the
Policy. Expenses include costs of premium billing and collection, processing
claims, keeping records and communicating with Policyowners.
There is a deduction each year for sales costs. This amount may be considered a
"sales load". The deduction will be not more than 30% of the basic premium (as
defined below) for the first Policy year, not more than 10% for each of the next
three years and not more than 7% each year thereafter. The basic premium for a
Policy is the gross premium which would be payable if you paid the premium
annually, less the annual deduction of $35 for administrative costs. The basic
premium is based on the cost of insurance for insureds who qualify as select
risks and does not include any extra premium amounts for insureds whom we place
in other risk classifications. The basic premium does not include the extra
premium for any optional benefits. For an Extra Ordinary Life Policy, the basic
premium does not include any extra premium for the Extra Life Protection; the
amount of term insurance included in the Extra Life Protection affects the
dividends payable on the Extra Ordinary Life Policies.
The amount of the deduction for sales costs for any Policy year is not
specifically related to sales costs we incur for that year. We expect to recover
our total sales expenses from the amounts we deduct for sales costs over the
period while the Policies are in force. To the extent that sales expenses exceed
the amounts deducted, we will pay the expenses from our other assets. These
assets may include, among other things, any gain realized from the charge
against the assets of the Account for the mortality and expense risks we assume.
See "Charges Against the Account Assets", p. 10. To the extent that the amounts
deducted for sales costs exceed the amounts needed, we will realize a gain.
We make a deduction equal to 2% of each basic premium for state premium taxes.
Premium taxes vary from state to state and currently range from .5% to 3.5% of
life insurance premiums. The 2% rate is an average. The tax rate for a
particular state may be lower, higher or equal to the 2% deduction.
We guarantee that the death benefit for a Whole Life Policy will never be less
than the face amount of the Policy, regardless of the investment experience of
the Account. For an Extra Ordinary Life Policy, we guarantee that the death
benefit will never be less than the Minimum Death Benefit stated in the Policy.
For both Policies, there is a deduction of 1 1/2% from each basic premium to
compensate us for the risk that the insured may die at a point in time when the
death benefit that would ordinarily be paid is less than this guaranteed minimum
amount.
For an Extra Ordinary Life Policy there is a deduction for dividends to be paid
or credited in accordance with the dividend scale in effect on the issue date of
the Policy. This deduction will vary by age of the insured and duration of the
Policy, and we expect it to be in the range of approximately 7-17% of the gross
annual premium.
The following tables illustrate the amount of net annual premium, for select and
standard risks, to be placed in the Account at the beginning of each Policy year
after the deductions described above:
WHOLE LIFE
<TABLE>
<CAPTION>
MALE AGE 35 - SELECT RISK
ANNUAL PREMIUM
BEGINNING OF -----------------------------------
POLICY YEAR $500 $1,000 $5,000
------------ ------- ------- ---------
<S> <C> <C> <C>
1.......................... $154.28 $320.16 $1,647.28
2 through 4................ 402.11 834.48 4,293.51
5 and later................ 416.05 863.41 4,442.36
</TABLE>
<TABLE>
<CAPTION>
MALE AGE 35 - STANDARD RISK
ANNUAL PREMIUM
BEGINNING OF -----------------------------------
POLICY YEAR $500 $1,000 $5,000
------------ ------- ------- ---------
<S> <C> <C> <C>
1.......................... $123.37 $256.03 $1,317.30
2 through 4................ 321.57 667.33 3,433.44
5 and later................ 332.71 690.46 3,552.48
</TABLE>
EXTRA ORDINARY LIFE
<TABLE>
<CAPTION>
MALE AGE 35 - SELECT RISK
ANNUAL PREMIUM
BEGINNING OF -----------------------------------
POLICY YEAR $500 $1,000 $5,000
------------ ------- ------- ---------
<S> <C> <C> <C>
1.......................... $134.23 $278.56 $1,433.21
2 through 4................ 369.62 767.07 3,946.64
5 and later................ 383.58 796.05 4,095.74
</TABLE>
<TABLE>
<CAPTION>
MALE AGE 35 - STANDARD RISK
ANNUAL PREMIUM
BEGINNING OF -----------------------------------
POLICY YEAR $500 $1,000 $5,000
------------ ------- ------- ---------
<S> <C> <C> <C>
1........................ $ 97.92 $203.21 $1,045.54
2 through 4.............. 269.65 559.59 2,879.11
5 and later.............. 279.83 580.73 2,987.88
</TABLE>
9 Prospectus
<PAGE> 12
DEDUCTIONS FOR SINGLE PREMIUM LIFE POLICIES
For a Single Premium Life Policy the only deduction from the single premium is
an administrative charge of $150.00. The administrative costs for issuing and
maintaining a Single Premium Life Policy are similar to those we incur with a
Whole Life Policy or an Extra Ordinary Life Policy, except for the costs of
premium billing and collection. See "Deductions from Premiums for Whole Life and
Extra Ordinary Life Policies", p. 8. We place the entire premium for a Single
Premium Life Policy, after this deduction of $150, in the Account when we issue
the Policy without any of the other deductions which apply to premiums for Whole
Life and Extra Ordinary Life Policies. There is no annual fee for a Single
Premium Life Policy.
For a Single Premium Life Policy during the first ten Policy years, the cash
value payable on surrender of the Policy is reduced by a deduction for sales
costs. The deduction during the first Policy year is not more than 9% of the
Policy's tabular cash value. See "Cash Value", p. 14. The deduction decreases
over time until it is eliminated at the end of the tenth Policy year. We intend
the deduction to recover the costs we incur in distributing Single Premium Life
Policies which are surrendered in their early years. The deduction will never be
more than 9% of the single premium paid for the Policy, excluding the
administrative charge of $150.00.
The following table illustrates the schedule for the decreasing deduction for
sales costs for a policy surrendered at the end of each of the first ten Policy
years. The illustration is for a Single Premium Life Policy, male age 35. The
schedule varies slightly by age and sex and amount of insurance.
<TABLE>
<CAPTION>
POLICY YEAR END WHEN DEDUCTION AS % OF
POLICY IS SURRENDERED TABULAR CASH VALUE
--------------------- ------------------
<S> <C>
1..................................... 7.9%
2..................................... 7.1
3..................................... 6.3
4..................................... 5.4
5..................................... 4.6
6..................................... 3.7
7..................................... 2.8
8..................................... 1.9
9..................................... 0.9
10 and subsequent years............... 0
</TABLE>
Since the maximum Policy loan limit for a Single Premium Life Policy is based on
the cash value payable on surrender, the amount you may borrow during the first
ten years is reduced to reflect the deduction for sales costs which we would
make if you surrendered the Policy on the date of the Policy loan. See "Policy
Loans", p. 16.
CHARGES AGAINST THE ACCOUNT ASSETS
There is a daily charge to the Account for the mortality and expense risks we
assume. The charge is at the annual rate of .50% of the assets of the Account.
The mortality risk is that insureds may not live as long as we estimated. The
expense risk is that expenses of issuing and administering the Policies may
exceed the costs we estimated. We will realize a gain from this charge to the
extent it is not needed to provide benefits and pay expenses under the Policies.
The actual mortality and expense experience under the Policies will be the basis
for determining dividends. See "Annual Dividends", p. 15.
The Policies provide that we may make a charge for taxes against the assets of
the Account. Currently, we are making a daily charge for federal income taxes we
incur at the annual rate of .20% of the assets of the Account. We may increase,
decrease or eliminate the charge for taxes in the future. In no event will the
charge for taxes exceed that portion of our actual tax expenses which is fairly
allocable to the Policies.
GUARANTEE OF PREMIUMS, DEDUCTIONS AND CHARGES
We guarantee and may not increase the premiums, the amounts we deduct from
premiums and the charge for mortality and expense risks. These amounts will not
increase regardless of future changes in longevity or increases in expenses. The
Extra Ordinary Life Policy provides an opportunity to pay an additional amount
of premium after the guaranteed period for the Extra Life Protection has expired
if the Total Death Benefit would otherwise fall below the initial amount of
insurance. See "Extra Ordinary Life Policy", p. 13.
DEATH BENEFIT
The death benefit for a variable life insurance policy is, in part, a guaranteed
amount which will not be reduced during the lifetime of the insured so long as
you pay premiums when they are due and no policy debt is outstanding. The
remainder of the death benefit is the variable insurance amount which fluctuates
in response to actual investment results and is not guaranteed. The amount of
any paid-up
Prospectus 10
<PAGE> 13
additions which you have purchased with dividends is also included in the total
death benefit and, in addition, the Extra Ordinary Life Policy provides some
term insurance during the early Policy years. The relationships among the
guaranteed and variable amounts and any paid-up additions and term insurance
depend on the design of the particular Policy. See "Whole Life Policy and Single
Premium Life Policy", p. 11, and "Extra Ordinary Life Policy", p. 13.
VARIABLE INSURANCE AMOUNT. The variable insurance amount reflects, on a
cumulative basis, the investment experience of the Account divisions in which
the Policy has participated. We adjust the variable insurance amount annually on
each Policy anniversary. For the first Policy year the variable insurance amount
is zero. For any subsequent year it may be either positive or negative. If the
variable insurance amount is positive, subsequent good investment results will
produce a larger variable insurance amount and therefore an increase in the
death benefit. If the variable insurance amount is negative, subsequent good
investment results will first have to offset the negative amount before the
death benefit will increase.
In setting the premium rates for each Policy we have assumed that investment
results will cause the Account assets supporting the Policy to grow at a net
annual rate of 4%. If the assets grow at a net rate of exactly 4% for a Policy
year, the variable insurance amount will neither increase nor decrease on the
following anniversary. If the net rate of growth exceeds 4%, the variable
insurance amount will increase. If it is less than 4%, the variable insurance
amount will decrease.
The method for calculating the changes in the death benefit is described in the
Policy. The Policy includes a table of net single premiums used to convert the
investment results for a Policy into increases or decreases in the variable
insurance amount. The insurance rates in the table depend on the sex and the
attained age of the insured for each Policy year. For a Whole Life Policy, the
changes in the death benefit will be smaller for a Policy issued with a higher
premium for extra mortality risk. The net single premium for a particular
variable insurance amount is the price for that amount of paid-up whole life
insurance based on the insured's age at the Policy anniversary.
Because the variable insurance amount is adjusted only on the Policy
anniversary, we bear the risk that the insured may die before the next
anniversary after an interim period of adverse investment experience. If
investment experience during the interim period is favorable, you will forego
the benefit and we will realize a gain, unless the insured survives to the next
Policy anniversary. However, if at the date of death of the insured the value of
the Policy, considered as a net single premium, would buy more death benefit
than the amount otherwise determined under the Policy, we will pay this
increased death benefit.
The cost of life insurance increases with the advancing age of the insured, and
therefore a larger dollar amount of investment earnings is required to produce
the same increase in the death benefit in the later Policy years. In general,
however, the effect of investment results on the death benefit will tend to be
greater in the later Policy years because the amount of assets invested for the
Policy will tend to increase as the Policy remains in force.
The cost of providing insurance protection under a Policy is reflected in the
cash value of the Policy. See "Cash Value", p. 14. The cost is actuarially
computed for each Policy each year, based on the insured's attained age, the
1980 Commissioners Standard Ordinary Mortality Table and the net insurance
amount at risk under the Policy. The net insurance amount at risk is the total
death benefit for the Policy minus the cash value plus any Policy debt. The cost
of insurance differs each year because the probability of death increases as the
insured advances in age and the net insurance amount at risk decreases or
increases from year to year depending on investment experience. The cost assumes
that all insureds are in the select underwriting risk classification. The
differences in the mortality rates of the various underwriting classifications
are reflected in the different premiums (or different dividend scales) for those
underwriting classifications. The cost of insurance is based on the mortality
table identified above and we guarantee it for the life of a Policy regardless
of any future changes in mortality experience.
WHOLE LIFE POLICY AND SINGLE PREMIUM LIFE POLICY. For a Whole Life Policy or a
Single Premium Life Policy the death benefit is the face amount of the Policy
plus any positive variable insurance amount in force. We adjust the death
benefit on each Policy anniversary when we determine the variable insurance
amount for the following year. The total death benefit also includes the amount
of insurance provided
11 Prospectus
<PAGE> 14
by any paid-up additions which you have purchased with dividends and is reduced
by the amount of any Policy debt outstanding. The death benefit for a Whole Life
Policy will not be less than the face amount so long as you pay premiums when
they are due and no Policy debt is outstanding. For a Single Premium Life Policy
the death benefit will not be less than the face amount so long as no Policy
debt is outstanding.
Paid-up additions you have purchased with dividends are not counted for purposes
of the guarantee that the death benefit of a Whole Life Policy or a Single
Premium Life Policy will never be less than the face amount of the Policy. If
the variable insurance amount is negative, the total death benefit will be the
guaranteed face amount plus the amount of insurance provided by any paid-up
additions less any Policy debt. Paid-up additions are amounts of permanent
insurance, paid for with dividends and added to a basic life insurance policy,
for which the premium for the entire lifetime of the insured has been paid.
Paid-up additions have cash surrender value and loan value.
The following example shows how the death benefit for a Whole Life Policy could
vary based on investment results. Using the Policy illustrated on page 47 and
assuming the 12% hypothetical gross investment earnings rate on assets of the
selected Portfolio of the Fund (equivalent to a net rate of 10.64% for the
Account division), and the dividend scale as illustrated, the death benefit
shown at the end of Policy year 5 would change as follows:
<TABLE>
<CAPTION>
GUARANTEED VARIABLE TOTAL
FACE INSURANCE PAID-UP DEATH
AMOUNT AMOUNT ADDITIONS BENEFIT
---------- + --------- + --------- = -------
<S> <C> <C> <C> <C> <C> <C> <C>
End of Policy Year 5................................... $30,979 $1,037 $634 $32,650
Change................................................. 0 +489 +214 +703
------- ------ ---- -------
End of Policy Year 6................................... $30,979 $1,526 $848 $33,353
</TABLE>
If instead the gross earnings rate during the sixth Policy year had been 0%
(equivalent to a net rate of -1.36%) the death benefit at the end of Policy Year
5 would change as follows:
<TABLE>
<CAPTION>
GUARANTEED VARIABLE TOTAL
FACE INSURANCE PAID-UP DEATH
AMOUNT AMOUNT ADDITIONS BENEFIT
---------- + --------- + --------- = -------
<S> <C> <C> <C> <C> <C> <C> <C>
End of Policy Year 5................................... $30,979 $1,037 $634 $32,650
Change................................................. 0 -395 +141 -254
------- ------ ---- -------
End of Policy Year 6................................... $30,979 $ 642 $775 $32,396
</TABLE>
The following example shows how the death benefit for a Single Premium Life
Policy could vary based on investment results. Using the Policy illustrated on
page 51 and assuming the 12% hypothetical gross annual investment earnings rate
on assets of the selected Portfolio of the Fund (equivalent to a net rate of
10.64% for the Account division), and the dividend scale as illustrated, the
death benefit shown at the end of Policy year 5 would change as follows:
<TABLE>
<CAPTION>
GUARANTEED VARIABLE TOTAL
FACE INSURANCE PAID-UP DEATH
AMOUNT AMOUNT ADDITIONS BENEFIT
---------- + --------- + --------- = -------
<S> <C> <C> <C> <C> <C> <C> <C>
End of Policy Year 5................................... $25,000 $ 9,100 $427 $34,527
Change................................................. 0 +2,285 +151 +2,336
------- ------- ---- -------
End of Policy Year 6................................... $25,000 $11,285 $578 $36,863
</TABLE>
Prospectus 12
<PAGE> 15
If instead the gross earnings rate during the sixth Policy year had been 0%
(equivalent to a net rate of -1.36%) the death benefit at the end of Policy Year
5 would change as follows:
<TABLE>
<CAPTION>
GUARANTEED VARIABLE TOTAL
FACE INSURANCE PAID-UP DEATH
AMOUNT AMOUNT ADDITIONS BENEFIT
---------- + --------- + --------- = -------
<S> <C> <C> <C> <C> <C> <C> <C>
End of Policy Year 5................................... $25,000 $9,100 $427 $34,527
Change................................................. 0 -1,764 +101 -1,663
------- ------ ---- -------
End of Policy Year 6................................... $25,000 $7,336 $528 $32,864
</TABLE>
EXTRA ORDINARY LIFE POLICY. The Total Death Benefit for an Extra Ordinary Life
Policy is the sum of the Minimum Death Benefit plus the amount of Extra Life
Protection in force. The Minimum Death Benefit is 60% of the total amount of
insurance for which the Policy is issued. We guarantee the Minimum Death Benefit
for the lifetime of the insured so long as you pay premiums when they are due
and no Policy debt is outstanding. The amount of Extra Life Protection is
initially 40% of the total amount of insurance. It may increase but it will not
decrease during the guaranteed period, so long as you pay premiums when they are
due, no Policy debt is outstanding, all dividends are applied to purchase
paid-up additions and no paid-up additions are surrendered for their cash value.
Extra Life Protection consists of one year term insurance, positive variable
insurance amount and paid-up additions which have been purchased with dividends.
Term insurance is life insurance which pays a death benefit only if the insured
dies during the term for which the insurance has been purchased. Term insurance
is ordinarily purchased on an annual basis at a cost which rises with the
increasing age of the insured. It has no cash surrender value or loan value. The
variable insurance amount and paid-up additions have been described; see
"Variable Insurance Amount", p. 11 and "Whole Life Policy and Single Premium
Life Policy", p. 11.
Initially the entire amount of Extra Life Protection is one year term insurance.
As the Policy remains in force one year term insurance is reduced by any
positive variable insurance amount and paid-up additions, so that the term
insurance is reduced to the amount that will maintain the Total Death Benefit at
the amount for which the Policy was issued. The term insurance is eliminated at
any time when the sum of positive variable insurance amount plus the paid-up
additions equals or exceeds the initial amount of Extra Life Protection.
We guarantee that the amount of Extra Life Protection will not be reduced during
the guaranteed period, regardless of the Account's investment experience or the
amount of any dividends paid on the Policy, so long as you pay premiums when
they are due, no Policy debt is outstanding, all dividends are applied to
purchase paid-up additions and no paid-up additions are surrendered for their
cash value. The length of the guaranteed period depends on the age of the
insured when we issued the Policy, and ranges from 37 years at age 15 to 7 years
at age 75. At age 35 the guaranteed period is 27 years.
For an insured age 40 or younger, the sum of positive variable insurance amount
plus paid-up additions will exceed the initial amount of Extra Life Protection
at or before the end of the guaranteed period if the mutual fund assets which
support the Policy produce a gross investment rate of return of 8% or better and
dividends are at least equal to those we are paying on the current dividend
scale. However, neither the actual investment results nor the dividends to be
paid on the Policy are guaranteed.
After the guaranteed period expires, if the sum of positive variable insurance
amount plus the paid-up additions is less than the initial amount of Extra Life
Protection on any Policy anniversary, we may reduce the amount of term insurance
for the Policy year. We will give you notice of the reduction and you will have
an opportunity to pay an additional amount of premium in order to keep the
initial amount of insurance in force. The maximum premium rate is set forth in
the Policy. Your right to continue to purchase term insurance on this basis will
terminate as of the first Policy anniversary when you fail to pay the additional
premium when due.
The following example shows how the components of the Total Death Benefit for an
Extra Ordinary Life Policy could vary based on investment results. Using the
Policy illustrated on page 50 and the assumed 12% hypothetical gross annual
13 Prospectus
<PAGE> 16
investment earnings rate on assets of the selected Portfolio or Fund (equivalent
to a net rate of 10.64% for the Account division), and the dividend scale as
illustrated, the amounts shown at the end of Policy year 5 would change as
follows:
<TABLE>
<CAPTION>
EXTRA LIFE PROTECTION
-------------------------------------------------
MINIMUM VARIABLE TOTAL
DEATH TERM INSURANCE PAID-UP DEATH
BENEFIT INSURANCE AMOUNT ADDITIONS BENEFIT
------- + --------- + --------- + --------- = -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
End of Policy Year 5................... $60,000 $36,393 $1,974 $1,633 $100,000
Change................................. 0 -1,528 +939 +589 0
------- ------- ------ ------ --------
End of Policy Year 6................... $60,000 $34,865 $2,913 $2,222 $100,000
</TABLE>
If instead the gross annual earnings rate during the sixth Policy year had been
0% (equivalent to a net rate of -1.36%) the amounts at the end of Policy year 5
would change as follows:
<TABLE>
<CAPTION>
EXTRA LIFE PROTECTION
-------------------------------------------------
MINIMUM VARIABLE TOTAL
DEATH TERM INSURANCE PAID-UP DEATH
BENEFIT INSURANCE AMOUNT ADDITIONS BENEFIT
------- + --------- + --------- + --------- = -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
End of Policy Year 5................... $60,000 $36,393 $1,974 $1,633 $100,000
Change................................. 0 +358 -758 +400 0
------- ------- ------ ------ --------
End of Policy Year 6................... $60,000 $36,751 $1,216 $2,033 $100,000
</TABLE>
Note that the Total Death Benefit is not affected by either investment results
or the amount of dividends paid, because the Policy is within the guaranteed
period of Extra Life Protection. But the components of Extra Life Protection are
affected by both factors. Good investment results and increases in dividends
increase the likelihood that the Total Death Benefit will begin to rise before
the guaranteed period of Extra Life Protection expires. Adverse investment
results or decreases in dividends could cause the Total Death Benefit to fall
below the amount of insurance which was initially in force, after the guaranteed
period of Extra Life Protection expires, but it cannot fall below the Minimum
Death Benefit so long as you pay premiums when they are due and no Policy debt
is outstanding.
We have designed the Extra Ordinary Life Policy for a purchaser who intends to
use all dividends to purchase paid-up additions. If you use dividends for any
other purpose, or if any paid-up additions are surrendered for their cash value,
the term insurance in force will immediately terminate, any remaining guaranteed
period of Extra Life Protection will terminate and your right to purchase term
insurance will terminate. The amount of Extra Life Protection thereafter will be
the sum of positive variable insurance amount plus any paid-up additions which
remain in force.
The following example (using the Policy illustrated on page 50, like the
examples above) shows how the Total Death Benefit would be reduced from $100,000
to $63,607, by the elimination of $36,393 of term insurance, if dividends are
used during Policy Year 6 to reduce the premium. The premium of $1,014 would be
reduced by the dividend of $126.23, based on the dividend scale as illustrated,
to a net premium of $887.77. The Total Death Benefit during Policy Year 6 would
then be as follows:
<TABLE>
<S> <C>
Minimum Death Benefit.......................... $60,000
Variable Insurance Amount...................... +1,974
Variable Paid-Up Additions..................... +1,633
Term Insurance................................. 0
-------
Total Death Benefit............................ $63,607
=======
</TABLE>
CASH VALUE
The cash value for the Whole Life Policy, the Extra Ordinary Life Policy and the
Single Premium Life Policy will change daily in response to investment results.
No minimum cash value is guaranteed. Calculation of the cash value for any date
requires three steps. First, we note the amount shown for the preceding
anniversary in the table of cash values at the front of the Policy and we adjust
it for the time elapsed since the last Policy anniversary. The tabular cash
values are based on the assumed net investment rate of 4%, the 1980
Commissioners Standard Ordinary Mortality Table and the deductions from the
premiums. See "Deductions from Premiums for Whole Life and Extra Ordinary Life
Policies", p. 8. For the Single Premium Life Policy the calculation begins with
the adjusted tabular cash value, which reflects the
Prospectus 14
<PAGE> 17
deduction for sales costs if the Policy is surrendered during the first ten
years. See "Deductions for Single Premium Life Policies", p. 10. Second, we add
the net single premium for the variable insurance amount to the tabular cash
value. See the discussion of net single premiums under "Variable Insurance
Amount", p. 11. If the variable insurance amount is negative, the net single
premium is a negative amount. A table of net single premiums for the insured at
each Policy anniversary is in the Policy. Third, we adjust the algebraic sum of
the tabular cash value and the net single premium for the variable insurance
amount to reflect investment results from the last Policy anniversary to the
date for which the calculation is being made. The cash value is increased by the
value of any paid-up additions which have been purchased with dividends.
If a portion of the premium for the current Policy year has not been paid, the
cash value of a Whole Life Policy or an Extra Ordinary Life Policy will be
reduced. There is not likely to be any cash value for a Whole Life Policy or an
Extra Ordinary Life Policy during the early part of the first year because of
the first year deductions.
The cash value for the Whole Life Policy, the Extra Ordinary Life Policy and the
Single Premium Life Policy will be reduced by the amount of any Policy debt
outstanding.
We determine the cash value for a Policy at the end of each valuation period.
Each business day, together with any non-business days before it, is a valuation
period. A business day is any day on which the New York Stock Exchange is open
for trading. In accordance with the requirements of the Investment Company Act
of 1940, we may also determine the cash value for a Policy on any other day on
which there is sufficient trading in securities to materially affect the value
of the securities held by the Portfolios or Funds.
You may surrender a Policy for the cash value at any time during the lifetime of
the insured. Alternatively, you may use the cash value of a Whole Life Policy or
an Extra Ordinary Life Policy to provide extended term insurance or a reduced
amount of fixed or variable paid-up insurance. See "Extended Term and Paid-Up
Insurance", p. 17.
The Policies do not include any provision for a partial surrender. By
administrative practice we will permit you to split a Policy into two Policies
and surrender one of them, so long as the new Policy meets the regular minimum
size requirements. The Policy which continues in force will be based on the age
and risk classification of the insured at the time of issuance of the original
Policy.
ANNUAL DIVIDENDS
The Policies share in divisible surplus to the extent we determine annually. We
will distribute a Policy's share annually as a dividend payable on each Policy
anniversary beginning at the end of the second year. For Single Premium Life
Policies, and some other Policies, the first distribution will be at the end of
the first year. We will not pay a dividend on a Whole Life Policy or an Extra
Ordinary Life Policy which is in force as extended term insurance.
Dividends under participating policies may be described as refunds of premiums
which adjust the cost of a policy to the actual level of cost emerging over time
after the policy's issue. Thus participating policies generally have gross
premiums which are higher than those for comparable non-participating policies.
Both federal and state tax law recognize that a dividend is considered to be a
refund of a portion of the premium paid.
Dividend illustrations published at the time a life insurance policy is issued
reflect the actual recent experience of the issuing company with respect to
investment earnings, mortality and expenses. State law generally prohibits a
company from projecting or estimating future results. State law also requires
that dividends be paid out of surplus, after certain necessary amounts are set
aside, and that such surplus be apportioned equitably among participating
policies. In summary, dividends must be based on actual experience and cannot be
guaranteed at issue of a policy.
Our actuary annually examines current and recent experience and compares these
actual results with those which were assumed in determining premium rates when
each class of policies was issued. We determine classes by such factors as year
of issue, age, plan of insurance and risk classification. The actuary then
determines the amount of dividends to be equitably apportioned to each class of
policies. Following the actuary's recommendations, our Trustees adopt a dividend
scale each year, thereby authorizing the distribution of the dividend.
We have no significant actual mortality experience with variable life insurance
policies. For purposes of the current
15 Prospectus
<PAGE> 18
dividend scale used for the illustrations in this prospectus, we have assumed
that mortality experience in connection with the Policies will be comparable to
that actually experienced with fixed benefit life insurance.
The prospectus illustrations show dividends being used to purchase variable
paid-up additions. We will also pay dividends in cash, or you may use them to
pay premiums or leave them to accumulate with interest; but unless you use all
dividends we pay on an Extra Ordinary Life Policy to purchase paid-up additions,
the term insurance portion of the Extra Life Protection will be terminated. See
"Extra Ordinary Life Policy", p. 13. We hold dividends you leave to accumulate
with interest in our general account and we will credit them with a rate of
interest we determine annually. The interest rate will not be less than an
annual effective rate of 3 1/2%. If a Whole Life Policy or an Extra Ordinary
Life Policy is in force as reduced fixed benefit paid-up insurance, dividends to
purchase fixed benefit paid-up additions. See "Extended Term and Paid-Up
Insurance", p. 17.
POLICY LOANS
You may borrow up to 90% of a Policy's cash value using the Policy as security.
The limit is 75% of the cash value during the first two Policy years. If a
Policy loan is already outstanding, we determine the maximum amount for any new
loan by applying these percentage limitations to the amount of cash value which
the Policy would have if there were no loan. You may take loan proceeds in cash
or, for the Whole Life and Extra Ordinary Life Policies, you may use them to pay
premiums on the Policy.
Interest on a Policy loan accrues and is payable on a daily basis. We add unpaid
interest to the amount of the loan. If the amount of the loan equals or exceeds
the Policy's cash value, the Policy will terminate. We will send you a notice at
least 31 days before the termination date. The notice will show how much you
must repay to keep the Policy in force.
You select the Policy loan interest rate. A specified annual effective rate of
8% is one choice. The other choice is a variable rate based on a corporate bond
yield index. We will adjust the variable rate annually. It will not be less than
5%.
We will take the amount of a Policy loan, including interest as it accrues, from
the Account divisions in proportion to the amounts in the divisions. We will
transfer the amounts withdrawn to our general account and will credit those
amounts on a daily basis with an annual earnings rate equal to the Policy loan
interest rate less a charge for the mortality and expense risks we have assumed
and for expenses, including taxes. The aggregate charge is currently at the
annual rate of .85% for the 8% specified Policy loan interest rate and .85% for
the variable Policy loan interest rate. For example, the earnings rate
corresponding to the specified 8% Policy loan interest rate is currently 7.15%.
A Policy loan, even if you repay it, will have a permanent effect on the
Policy's variable insurance amount and cash value because the amounts you have
borrowed will not participate in the Account's investment results while the loan
is outstanding. The effect may be either favorable or unfavorable depending on
whether the earnings rate credited to the loan amount is higher or lower than
the rate credited to the unborrowed amount left in the Account.
For example, using the Policy illustrated on page 49 and the 6% hypothetical
gross rate for the Account (equivalent to a net rate of 4.64%), and assuming a
Policy loan of $3,165 (90% of the cash value) at the end of Policy year 5, with
the 8% Policy loan interest rate (corresponding to a net earnings rate of
7.15%), the loan will affect the variable insurance amount and cash value
(before subtracting the loan amount and interest) at the end of the next three
Policy years as follows:
<TABLE>
<CAPTION>
VARIABLE INSURANCE
AMOUNT CASH VALUE
-------------------- --------------------
END OF WITHOUT WITH WITHOUT WITH
POLICY YEAR LOAN LOAN LOAN LOAN
----------- ------- ------ ------- ------
<S> <C> <C> <C> <C>
5.................... $177 $ 177 $3,517 $3,517
6.................... $256 $ 488 $4,489 $4,571
7.................... $349 $ 807 $5,514 $5,681
8.................... $456 $1,134 $6,597 $6,852
</TABLE>
The difference results from the fact that the earnings rate for the amount of
the loan is 7.15% rather than the net rate of 4.64% for the Account.
You may repay a Policy loan, and any accrued interest outstanding, in whole or
in part, at any time. We will credit payments as of the date we receive them and
we will transfer those amounts from our general account to the Account
divisions, in proportion to the amounts in the divisions, as of the same date.
Prospectus 16
<PAGE> 19
EXTENDED TERM AND PAID-UP INSURANCE
If a premium for a Whole Life Policy or an Extra Ordinary Life Policy is not
paid within the 31-day grace period (see "Grace Period", p. 8), you may use the
cash value to provide a reduced amount of either fixed or variable benefit
paid-up insurance. If you choose neither of these options, and do not surrender
the Policy, the insurance will remain in force as extended term insurance.
If you use the cash value to provide a reduced amount of fixed benefit paid-up
insurance or for extended term insurance we will transfer the amount of the cash
value from the Account to our general account. Thereafter the Policy will not
participate in the Account's investment results unless the Policy is
subsequently reinstated. See "Reinstatement", below. You may select variable
benefit paid-up insurance only if the Policy meets a $1,000 cash value minimum
test.
You must select paid-up insurance within three months after the due date of the
first unpaid premium. We determine the amount of paid-up insurance by the amount
of cash value and the age and sex of the insured, using the table of net single
premiums at the attained age. Fixed benefit paid-up insurance has guaranteed
cash and loan values. Paid-up insurance remains in force for the lifetime of the
insured unless the Policy is surrendered.
If the Policy remains in force as extended term insurance the amount of
insurance will equal the Total Death Benefit prior to the date the premium was
due. The amount of cash value and the age and sex of the insured will determine
how long the insurance continues. We will, upon your request, tell you the
amount of insurance and how long the term will be. Extended term insurance is
not available if the Policy was issued with a higher premium for extra mortality
risk. Extended term insurance has a cash value but no loan value.
Using the Policy illustrated on pages 48 and 50 and assuming the 0% and 12%
hypothetical gross rates for the Account, the cash value of $3,009 or $4,097 at
the end of Policy year 5 would provide the following amounts of reduced paid-up
insurance or $100,000 of extended term insurance for the following periods:
<TABLE>
<CAPTION>
0% 12%
------------ ------------
<S> <C> <C>
Reduced Paid-up Insurance....... $10,145 $13,814
Extended Term Insurance......... 6 Years and 9 Years and
347 Days 37 Days
</TABLE>
REINSTATEMENT
If a premium for a Whole Life Policy or an Extra Ordinary Life Policy is due and
remains unpaid after the grace period expires, the Policy may be reinstated
within five years after the premium due date. The insured must provide
satisfactory evidence of insurability. We may require substantial payment. The
Policy may not be reinstated if you have surrendered it for its cash value.
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
You may exchange a Policy for a fixed benefit policy if either of the mutual
funds changes its investment adviser or if there is a material change in the
investment policies of a Portfolio or Fund. We will give you notice of any such
change and you will have 60 days to make the exchange.
OTHER POLICY PROVISIONS
OWNER. The owner is identified in the Policy. The owner may exercise all rights
under the Policy while the insured is living. Ownership may be transferred to
another. Written proof of the transfer must be received by Northwestern Mutual
at its Home Office. In this prospectus "you" means the owner of a Policy.
BENEFICIARY. The beneficiary is the person to whom the death benefit is
payable. The beneficiary is named in the application. After the Policy is issued
you may change the beneficiary in accordance with the Policy provisions.
INCONTESTABILITY. We will not contest a Policy after it has been in force
during the lifetime of the insured for two years from the date of issue.
SUICIDE. If the insured dies by suicide within one year from the date of issue,
the amount payable under the Policy will be limited to the premiums paid.
MISSTATEMENT OF AGE OR SEX. If the age or sex of the insured has been
misstated, we will adjust benefits under a Policy to reflect the correct age and
sex.
COLLATERAL ASSIGNMENT. You may assign a Policy as collateral security. We are
not responsible for the validity or effect of a collateral assignment and will
not be deemed to know of an assignment before receipt of the assignment in
writing at our Home Office.
17 Prospectus
<PAGE> 20
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 Whole Life Policy or an Extra Ordinary Life Policy is continued in force as
extended term or reduced paid-up insurance, we have the right to defer payment
of the cash value for up to six months from the date of a Policy loan or
surrender. If payment is deferred for 30 days or more we will pay interest at an
annual effective rate of 4%.
VOTING RIGHTS
We are the owner of the mutual fund shares in which all assets of the Account
are invested. As the owner of the shares we will exercise our right to vote the
shares to elect directors of the funds, to vote on matters required to be
approved or ratified by mutual fund shareholders under the Investment Company
Act of 1940 and to vote on any other matters that may be presented to any
shareholders' meeting of the funds. However, we will vote the mutual fund shares
held in the Account in accordance with instructions from owners of the Policies.
We will vote any shares held in our general account in the same proportions as
the shares for which voting instructions are received. If the applicable laws or
regulations change so as to permit us to vote the shares in our own discretion,
we may elect to do so.
The number of mutual fund shares for each division of the Account for which the
owner of a Policy may give instructions is determined by dividing the amount of
the Policy's cash value apportioned to that division, if any, by the per share
value for the corresponding Portfolio or Fund. The number will be determined as
of a date we choose, but not more than 90 days before the shareholders' meeting.
Fractional votes are counted. We will solicit voting instructions with written
materials at least 14 days before the meeting. We will vote shares as to which
we receive no instructions in the same proportion as the shares as to which we
receive instructions.
We may, if required by state insurance officials, disregard voting instructions
which would require mutual fund shares to be voted for a change in the
sub-classification or investment objectives of a Portfolio or Fund, or to
approve or disapprove an investment advisory agreement for either of the mutual
funds. We may also disregard voting instructions that would require changes in
the investment policy or investment adviser for either a Portfolio or a Fund,
provided that we reasonably determine to take this action in accordance with
applicable federal law. If we disregard voting instructions we will include a
summary of the action and reasons therefor in the next semiannual report to the
owners of the Policies.
SUBSTITUTION OF FUND SHARES AND OTHER CHANGES
If, in our judgment, a Portfolio or Fund becomes unsuitable for continued use
with the Policies because of a change in investment objectives or restrictions,
we may substitute shares of another Portfolio or Fund or another mutual fund.
Any substitution of shares will be subject to any required approval of the
Securities and Exchange Commission, the Wisconsin Commissioner of Insurance or
other regulatory authority. We have also reserved the right, subject to
applicable federal and state law, to operate the Account or any of its divisions
as a management company under the Investment Company Act of 1940, or in any
other form permitted, or to terminate registration of the Account if
registration is no longer required, and to change the provisions of the Policies
to comply with any applicable laws.
REPORTS
For each Policy year (unless a Whole Life Policy or an Extra Ordinary Life
Policy is in force as extended term or fixed benefit paid-up insurance) you will
receive a statement showing the death benefit, cash value and any Policy loan
(including interest charged) as of the anniversary date. You will also receive
annual and semiannual reports for the Account and both of the mutual funds,
including financial statements.
Prospectus 18
<PAGE> 21
SPECIAL POLICY FOR EMPLOYERS
The premium for the standard Policy is based in part on the sex of the insured.
The standard annuity rates for payment plans which last for the lifetime of the
payee are also based, in part, on the sex of the payee. For certain situations
where the insurance involves an employer sponsored benefit plan or arrangement,
federal law and the laws of certain states may require that premiums and annuity
rates be determined without regard to sex. Special Whole Life Policies, Extra
Ordinary Life Policies and Single Premium Life Policies are available for this
purpose. You are urged to review any questions in this area with qualified
counsel.
DISTRIBUTION OF THE POLICIES
We sell the Policies through individuals who 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 on sales of the Whole Life and Extra Ordinary
Life Policies will not exceed 55% of the premium for the first year, 9% of the
premium for the second and third years, 6% of the premium for the fourth through
seventh years and 3% of the premium for the eighth through tenth years.
Thereafter a persistency fee of 2% of premiums may be paid to the agent. For the
Single Premium Life Policies commissions are 2 3/4% of the premium.
Agents who meet certain productivity and persistency standards receive
additional compensation. We may pay new agents differently during a training
period. General agents and district agents who are registered representatives of
NMIS and have supervisory responsibility for sales of the Policies receive
commission overrides and other compensation.
TAX TREATMENT OF POLICY BENEFITS
The Policies are "life insurance contracts" as that term is defined in sections
7702 and 817(h) of the Internal Revenue Code. Increases in cash value under a
Policy are not taxable until actual surrender of the Policy. Upon surrender, the
amount received is taxable at ordinary income rates under section 72(e) of the
Code to the extent it exceeds the amount of the premiums paid under the Policy
less any dividends or other amounts previously received tax-free (basis of the
Policy). Death benefits are excludable from the beneficiary's gross income under
section 101(a) of the Code.
Loans received under the Policies (except certain Single Premium Life Policies)
will not constitute income to the owner until the loans are extinguished by
surrender or lapse.
For Single Premium Life Policies issued after June 20, 1988, partial
withdrawals, Policy loans and dividends paid in cash are taxable as income to
the extent the cash value of the Policy exceeds the basis of the Policy. The
taxable portion of these distributions would also be subject to a 10% penalty if
received prior to age 59 1/2, disability or annuitization. For purposes of
determining taxable income, all Single Premium Life Policies (including any
fixed dollar single premium policies or other modified endowment contracts under
Section 7702A) issued by Northwestern Mutual to the Policy owner during the same
calendar year are aggregated.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend upon the
circumstances of each Policy owner or beneficiary.
The foregoing summary does not purport to be complete or to cover all
situations. You should consult counsel and other competent advisers for more
complete information.
19 Prospectus
<PAGE> 22
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)
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, 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 & Lehmann, New Orleans, LA
Daniel F. McKeithan, Jr. (E, F, HR).... President, Tamarack Petroleum Company, Inc., Milwaukee, WI
(operator of oil and gas wells); President, Active Investor
Management, Inc., Milwaukee, WI
Guy A. Osborn (E, F, OT)............... Retired Chairman of Universal Foods Corporation, Milwaukee,
WI since 1997; prior thereto, Chairman and Chief Executive
Officer
Timothy D. Proctor (A)................. 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
</TABLE>
Prospectus 20
<PAGE> 23
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------------------------- ------------------------------------------------------------
<S> <C>
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
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.
21 Prospectus
<PAGE> 24
[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 22
<PAGE> 25
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
23 Variable Life Financial Statements
<PAGE> 26
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 24
<PAGE> 27
<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>
25 Variable Life Financial Statements
<PAGE> 28
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 26
<PAGE> 29
<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>
27 Variable Life Financial Statements
<PAGE> 30
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 28
<PAGE> 31
<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>
29 Variable Life Financial Statements
<PAGE> 32
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 30
<PAGE> 33
<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>
31 Variable Life Financial Statements
<PAGE> 34
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 32
<PAGE> 35
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>
33 Notes to Financial Statements
<PAGE> 36
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
34
<PAGE> 37
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
35 Consolidated Statement of Operations
<PAGE> 38
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
36
<PAGE> 39
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
37 Consolidated Statement of Cash Flows
<PAGE> 40
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
38
<PAGE> 41
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
39
<PAGE> 42
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
40
<PAGE> 43
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
41
<PAGE> 44
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
42
<PAGE> 45
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
43
<PAGE> 46
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
44
<PAGE> 47
[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.
[PRICEWATERHOUSECOOPERS LLP]
January 24, 2000
Accountants' Report 45
<PAGE> 48
APPENDIX
ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES AND ACCUMULATED PREMIUMS. The
tables on the following pages illustrate how the death benefit and cash value
for a Whole Life Policy, an Extra Ordinary Life Policy and a Single Premium Life
Policy would vary over time based on hypothetical investment results. The tables
assume gross (after tax) investment return rates of 0%, 6% and 12% on assets of
the Fund. The Policies illustrated are for male insureds, select risks, age 35.
The illustration for the Whole Life Policy is on page 47. The illustrations for
Extra Ordinary Life Policies are on pages 48 through 50. The illustration for
the Single Premium Life Policy is on page 51.
The death benefits and cash values would be different from those shown if the
gross investment return rate averaged 0%, 6% or 12%, but fluctuated over and
under the average rate at various points in time. The values would also be
different, depending on the Account divisions selected by the owner of the
Policy, if the return rate for the eleven Fund Portfolios averaged 0%, 6% or
12%, but the rates for each individual Portfolio varied over and under the
average.
The amounts shown as the death benefits and cash values reflect the deductions
from premiums, the charge at the annual rate of .50% of the Account's assets for
mortality and expense risks and the charge at the annual rate of .20% of the
Account's assets for taxes. The amounts shown as the cash values for the Single
Premium Life Policy reflect the deduction for sales costs during the first ten
Policy years. The amounts shown also reflect the average of the investment
advisory fees and the other Fund expenses applicable to each of the Portfolios
and Funds at the annual rate of .66% of their net assets. See "Deductions and
Charges", p. 8. Thus the 0%, 6% and 12% gross hypothetical return rates on the
Fund's assets are equivalent to the net rates of -1.36%, 4.64% and 10.64% on the
assets of the Account.
The second column of each table shows the amount which would accumulate if an
amount equal to the annual or single premium were invested to earn interest,
after taxes, at the stated interest rate compounded annually.
The death benefits and corresponding cash values shown for paid-up additions
purchased with dividends illustrate benefits which would be paid if investment
returns of 0%, 6% and 12% are realized, if mortality and expense experience in
the future is as currently experienced and if the current dividend scale remains
unchanged. See "Annual Dividends," p. 15. HOWEVER, THERE IS NO GUARANTEE AS TO
THE AMOUNT OF DIVIDENDS, IF ANY, THAT WILL BE PAID UNDER A POLICY. Although the
tables are based on the assumption that dividends will be used to purchase
additional paid-up death benefits, other dividend options are available. The
Extra Ordinary Life Policy is designed for a purchaser who intends to use all
dividends to purchase paid-up additions. See "Extra Ordinary Life Policy," p.
13.
A comparable illustration based on a proposed insured's age, sex and risk
classification and proposed face amount or premium is available upon request.
Appendix 46
<PAGE> 49
VARIABLE WHOLE LIFE INSURANCE POLICY
MALE ISSUE AGE 35
$500 ANNUAL PREMIUM FOR SELECT UNDERWRITING RISK
FACE AMOUNT $30,979
DIVIDENDS USED TO PURCHASE PAID-UP ADDITIONS
<TABLE>
<CAPTION>
0% 6% 12%
DEATH BENEFIT* DEATH BENEFIT* DEATH BENEFIT*
ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
PREMIUMS GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT
ACCUMULATED RATE OF RETURN RATE OF RETURN RATE OF RETURN
AT ----------------------------- ----------------------------- ------------------------------
END OF 5% INTEREST BASE PAID-UP BASE PAID-UP BASE PAID-UP
POLICY YEAR PER YEAR POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL
- ----------- ----------- ------- --------- ------- ------- --------- ------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 525 $30,979 $ 73 $31,052 $30,982 $ 73 $31,055 $31,011 $ 72 $ 31,084
2 1,076 30,979 163 31,142 30,993 167 31,160 31,128 172 31,300
3 1,655 30,979 267 31,246 31,012 282 31,294 31,332 297 31,629
4 2,263 30,979 383 31,362 31,038 416 31,454 31,626 450 32,076
5 2,901 30,979 510 31,489 31,072 570 31,642 32,016 634 32,650
6 3,571 30,979 644 31,623 31,113 741 31,854 32,505 848 33,353
7 4,275 30,979 789 31,768 31,161 934 32,095 33,097 1,100 34,197
8 5,013 30,979 941 31,920 31,216 1,147 32,363 33,795 1,391 35,186
9 5,789 30,979 1,101 32,080 31,278 1,383 32,661 34,604 1,728 36,332
10 6,603 30,979 1,269 32,248 31,346 1,642 32,988 35,528 2,114 37,642
15 11,329 30,979 2,116 33,095 31,780 3,222 35,002 42,063 4,889 46,952
20 (age 55) 17,360 30,979 2,724 33,703 32,350 5,106 37,456 52,417 9,391 61,808
30 (age 65) 34,880 30,979 2,915 33,894 33,826 10,067 43,893 89,590 28,514 118,104
</TABLE>
<TABLE>
<CAPTION>
0% 6% 12%
CASH VALUE* CASH VALUE* CASH VALUE*
ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
PREMIUMS GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT
ACCUMULATED RATE OF RETURN RATE OF RETURN RATE OF RETURN
AT --------------------------- ----------------------------- -----------------------------
END OF 5% INTEREST BASE PAID-UP BASE PAID-UP BASE PAID-UP
POLICY YEAR PER YEAR POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL
- ----------- ----------- ------ --------- ------ ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 525 $ 91 $ 18 $ 109 $ 98 $ 18 $ 116 $ 106 $ 18 $ 124
2 1,076 418 43 461 453 44 497 489 46 535
3 1,655 737 74 811 820 78 898 909 82 991
4 2,263 1,047 109 1,156 1,200 119 1,319 1,369 129 1,498
5 2,901 1,362 151 1,513 1,606 169 1,775 1,886 188 2,074
6 3,571 1,667 197 1,864 2,025 226 2,251 2,452 259 2,711
7 4,275 1,963 249 2,212 2,457 295 2,752 3,070 347 3,417
8 5,013 2,250 307 2,557 2,902 374 3,276 3,744 454 4,198
9 5,789 2,526 370 2,896 3,361 465 3,826 4,481 582 5,063
10 6,603 2,794 440 3,234 3,833 570 4,403 5,287 734 6,021
15 11,329 3,990 855 4,845 6,409 1,302 7,711 10,567 1,977 12,544
20 (age 55) 17,360 4,944 1,272 6,216 9,343 2,384 11,727 18,715 4,385 23,100
30 (age 65) 34,880 6,045 1,757 7,802 16,103 6,070 22,173 49,729 17,194 66,923
</TABLE>
* Assumes no policy loan has been made.
DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALE AND EXPERIENCE AND ARE NOT
GUARANTEED. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE
INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF RETURN OF THE FUND
PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND
12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF
TIME.
47 Appendix
<PAGE> 50
EXTRA ORDINARY VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 35
$100,000 OF INSURANCE ($60,000 GUARANTEED MINIMUM
+ $40,000 OF EXTRA LIFE PROTECTION GUARANTEED FOR 27 YEARS (1))
ANNUAL PREMIUM FOR SELECT UNDERWRITING RISK: $1,014.00 (2)
DIVIDENDS USED TO PURCHASE PAID-UP ADDITIONS (1)
ASSUMING 0% HYPOTHETICAL GROSS ANNUAL INVESTMENT RATE OF RETURN
<TABLE>
<CAPTION>
DEATH BENEFIT(3) CASH VALUE(3)
------------------------------------------------------ -----------------------------
PREMIUMS EXTRA LIFE PROTECTION
ACCUMULATED --------------------------------- CASH CASH
AT TOTAL MINIMUM VARIABLE VARIABLE VALUE VALUE OF TOTAL
END OF 5% INTEREST DEATH DEATH INSURANCE PAID-UP TERM OF BASE PAID-UP CASH
POLICY YEAR PER YEAR BENEFIT BENEFIT AMOUNT ADDITIONS INSURANCE POLICY ADDITIONS VALUE
- ----------- ----------- -------- ------- --------- --------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,065 $100,000 $60,000 $ (45) $ 158 $39,842 $ 152 $ 41 $ 193
2 2,183 100,000 60,000 (217) 380 39,620 785 102 887
3 3,356 100,000 60,000 (505) 655 39,345 1,402 182 1,584
4 4,589 100,000 60,000 (898) 975 39,025 2,002 279 2,281
5 5,883 100,000 60,000 (1,392) 1,331 38,669 2,614 394 3,008
6 7,242 100,000 60,000 (1,976) 1,715 38,285 3,208 525 3,733
7 8,669 100,000 60,000 (2,642) 2,127 37,873 3,783 672 4,455
8 10,167 100,000 60,000 (3,380) 2,564 37,436 4,340 836 5,176
9 11,740 100,000 60,000 (4,183) 3,028 36,972 4,877 1,019 5,896
10 13,392 100,000 60,000 (5,044) 3,516 36,484 5,397 1,221 6,618
15 22,975 100,000 60,000 (9,988) 5,994 34,006 7,720 2,423 10,143
20 (age 55) 35,205 100,000 60,000 (15,540) 7,412 32,588 9,575 3,461 13,036
30 (age 65) 70,737 89,667 60,000 (26,747) 6,180 23,487 11,717 3,726 15,443
</TABLE>
(1) Extra Life Protection is guaranteed to be at least $40,000 for 27 years, so
long as all premiums are paid when due, no policy loan is outstanding, all
dividends are applied to purchase paid-up additions and no paid-up additions
are surrendered for their cash value. Extra Life Protection is the sum of
any positive variable insurance amount plus variable paid-up additions plus
term insurance.
(2) If premiums were paid monthly, the monthly payments would be $89.10. The
death benefit and cash values would not be affected.
(3) Assumes no policy loan has been made.
(4) After the guaranteed period of 27 years for Extra Life Protection, the
amount of term insurance depends on the dividend scale. The amount
illustrated is based on current scale and experience and is not guaranteed.
DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALE AND EXPERIENCE AND ARE NOT
GUARANTEED. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE
INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF RETURN OF THE FUND
PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATE OF RETURN AVERAGED 0% OVER A
PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THIS HYPOTHETICAL RATE OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME.
Appendix 48
<PAGE> 51
EXTRA ORDINARY VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 35
$100,000 OF INSURANCE ($60,000 GUARANTEED MINIMUM
+ $40,000 OF EXTRA LIFE PROTECTION GUARANTEED FOR 27 YEARS (1))
ANNUAL PREMIUM FOR SELECT UNDERWRITING RISK: $1,014.00 (2)
DIVIDENDS USED TO PURCHASE PAID-UP ADDITIONS (1)
ASSUMING 6% HYPOTHETICAL GROSS ANNUAL INVESTMENT RATE OF RETURN
<TABLE>
<CAPTION>
DEATH BENEFIT (3) CASH VALUE (3)
------------------------------------------------------ -----------------------------
PREMIUMS EXTRA LIFE PROTECTION
ACCUMULATED --------------------------------- CASH CASH
AT TOTAL MINIMUM VARIABLE VARIABLE VALUE VALUE OF TOTAL
END OF 5% INTEREST DEATH DEATH INSURANCE PAID-UP TERM OF BASE PAID-UP CASH
POLICY YEAR PER YEAR BENEFIT BENEFIT AMOUNT ADDITIONS INSURANCE POLICY ADDITIONS VALUE
- ----------- ----------- -------- ------- --------- --------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,065 $100,000 $60,000 $ 5 $ 158 $39,837 $ 165 $ 41 $ 206
2 2,183 100,000 60,000 26 390 39,584 851 104 955
3 3,356 100,000 60,000 62 689 39,249 1,560 191 1,751
4 4,589 100,000 60,000 112 1,052 38,836 2,292 302 2,594
5 5,883 100,000 60,000 177 1,474 38,349 3,080 437 3,517
6 7,242 100,000 60,000 256 1,950 37,794 3,892 597 4,489
7 8,669 100,000 60,000 349 2,485 37,166 4,729 785 5,514
8 10,167 100,000 60,000 456 3,079 36,465 5,592 1,005 6,597
9 11,740 100,000 60,000 576 3,736 35,688 6,480 1,258 7,738
10 13,392 100,000 60,000 708 4,458 34,834 7,396 1,549 8,945
15 22,975 100,000 60,000 1,545 8,837 29,618 12,384 3,573 15,957
20 (age 55) 35,205 100,000 60,000 2,644 13,569 23,787 18,068 6,337 24,405
30 (age 65) 70,737 100,000 60,000 5,499 24,647 9,854 31,161 14,862 46,023
</TABLE>
(1) Extra Life Protection is guaranteed to be at least $40,000 for 27 years, so
long as all premiums are paid when due, no policy loan is outstanding, all
dividends are applied to purchase paid-up additions and no paid-up additions
are surrendered for their cash value. Extra Life Protection is the sum of
any positive variable insurance amount plus variable paid-up additions plus
term insurance.
(2) If premiums were paid monthly, the monthly payments would be $89.10. The
death benefit and cash values would not be affected.
(3) Assumes no policy loan has been made.
(4) After the guaranteed period of 27 years for Extra Life Protection, the
amount of term insurance depends on the dividend scale. The amount
illustrated is based on current scale and experience and is not guaranteed.
DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALE AND EXPERIENCE AND ARE NOT
GUARANTEED. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE
INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF RETURN OF THE FUND
PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATE OF RETURN AVERAGED 6% OVER A
PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THIS HYPOTHETICAL RATE OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME.
49 Appendix
<PAGE> 52
EXTRA ORDINARY VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 35
$100,000 OF INSURANCE ($60,000 GUARANTEED MINIMUM
+ $40,000 OF EXTRA LIFE PROTECTION GUARANTEED FOR 27 YEARS (1))
ANNUAL PREMIUM FOR SELECT UNDERWRITING RISK: $1,014.00 (2)
DIVIDENDS USED TO PURCHASE PAID-UP ADDITIONS(1)
ASSUMING 12% HYPOTHETICAL GROSS ANNUAL INVESTMENT RATE OF RETURN
<TABLE>
<CAPTION>
DEATH BENEFIT (3) CASH VALUE (3)
------------------------------------------------------ ------------------------------
PREMIUMS EXTRA LIFE PROTECTION
ACCUMULATED --------------------------------- CASH CASH
AT TOTAL MINIMUM VARIABLE VARIABLE VALUE VALUE OF TOTAL
END OF 5% INTEREST DEATH DEATH INSURANCE PAID-UP TERM OF BASE PAID-UP CASH
POLICY YEAR PER YEAR BENEFIT BENEFIT AMOUNT ADDITIONS INSURANCE POLICY ADDITIONS VALUE
- ----------- ----------- -------- ------- --------- --------- --------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,065 $100,000 $60,000 $ 56 $ 158 $39,786 $ 178 $ 41 $ 219
2 2,183 100,000 60,000 276 400 39,324 918 107 1,025
3 3,356 100,000 60,000 664 725 38,611 1,727 201 1,928
4 4,589 100,000 60,000 1,226 1,135 37,639 2,612 325 2,937
5 5,883 100,000 60,000 1,974 1,633 36,393 3,613 484 4,097
6 7,242 100,000 60,000 2,913 2,222 34,865 4,706 680 5,386
7 8,669 100,000 60,000 4,051 2,913 33,036 5,899 921 6,820
8 10,167 100,000 60,000 5,395 3,716 30,889 7,204 1,212 8,416
9 11,740 100,000 60,000 6,952 4,646 28,402 8,628 1,564 10,192
10 13,392 100,000 60,000 8,732 5,715 25,553 10,184 1,985 12,169
15 22,975 100,000 60,000 21,333 13,442 5,225 20,387 5,435 25,822
20 (age 55) 35,205 127,010 60,000 41,316 25,694 0 36,129 12,000 48,129
30 (age 65) 70,737 247,407 60,000 113,104 74,303 0 96,048 44,805 140,853
</TABLE>
(1) Extra Life Protection is guaranteed to be at least $40,000 for 27 years, so
long as all premiums are paid when due, no policy loan is outstanding, all
dividends are applied to purchase paid-up additions and no paid-up additions
are surrendered for their cash value. Extra Life Protection is the sum of
any positive variable insurance amount plus variable paid-up additions plus
term insurance.
(2) If premiums were paid monthly, the monthly payments would be $89.10. The
death benefit and cash values would not be affected.
(3) Assumes no policy loan has been made.
DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALE AND EXPERIENCE AND ARE NOT
GUARANTEED. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE
INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF RETURN OF THE FUND
PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATE OF RETURN AVERAGED 12% OVER A
PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THIS HYPOTHETICAL RATE OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME.
Appendix 50
<PAGE> 53
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 35
FACE AMOUNT $25,000
SINGLE PREMIUM FOR SELECT UNDERWRITING RISK: $6,443.25
DIVIDENDS USED TO PURCHASE PAID-UP ADDITIONS
<TABLE>
<CAPTION>
0% 6% 12%
DEATH BENEFIT* DEATH BENEFIT* DEATH BENEFIT*
ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
PREMIUMS GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT
ACCUMULATED RATE OF RETURN RATE OF RETURN RATE OF RETURN
AT ----------------------------- ----------------------------- -------------------------------
END OF 5% INTEREST BASE PAID-UP BASE PAID-UP BASE PAID-UP
POLICY YEAR PER YEAR POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL
- ----------- ----------- ------- --------- ------- ------- --------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 6,765 $25,000 $ 50 $25,050 $25,154 $ 50 $25,204 $ 26,601 $ 50 $ 26,651
2 7,104 25,000 92 25,092 25,309 105 25,414 28,305 116 28,421
3 7,459 25,000 125 25,125 25,465 165 25,630 30,118 199 30,317
4 7,832 25,000 150 25,150 25,622 230 25,852 32,047 302 32,349
5 8,223 25,000 167 25,167 25,780 300 26,080 34,100 427 34,527
6 8,635 25,000 176 25,176 25,939 375 26,314 36,285 578 36,863
7 9,066 25,000 178 25,178 26,099 457 26,556 38,610 759 39,369
8 9,520 25,000 174 25,174 26,260 545 26,805 41,084 974 42,058
9 9,996 25,000 166 25,166 26,422 642 27,064 43,717 1,230 44,947
10 10,495 25,000 159 25,159 26,585 748 27,333 46,519 1,533 48,052
15 13,395 25,000 127 25,127 27,415 1,389 28,804 63,474 3,906 67,380
20 (age 55) 17,096 25,000 101 25,101 28,275 2,186 30,461 86,629 8,300 94,929
30 (age 65) 27,847 25,000 66 25,066 30,076 4,481 34,557 161,514 30,006 191,520
</TABLE>
<TABLE>
<CAPTION>
0% 6% 12%
CASH VALUE* CASH VALUE* CASH VALUE*
ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
PREMIUMS GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT
ACCUMULATED RATE OF RETURN RATE OF RETURN RATE OF RETURN
AT --------------------------- ----------------------------- ------------------------------
END OF 5% INTEREST BASE PAID-UP BASE PAID-UP BASE PAID-UP
POLICY YEAR PER YEAR POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL
- ----------- ----------- ------ --------- ------ ------- --------- ------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 6,765 $5,653 $13 $5,666 $ 6,030 $ 13 $ 6,043 $ 6,406 $ 13 $ 6,419
2 7,104 5,568 24 5,592 6,329 28 6,357 7,134 31 7,165
3 7,459 5,489 34 5,523 6,641 45 6,686 7,934 55 7,989
4 7,832 5,416 43 5,459 6,968 66 7,034 8,812 86 8,898
5 8,223 5,349 49 5,398 7,308 88 7,396 9,776 126 9,902
6 8,635 5,287 53 5,340 7,663 114 7,777 10,832 177 11,009
7 9,066 5,232 56 5,288 8,033 144 8,177 11,989 240 12,229
8 9,520 5,183 56 5,239 8,418 177 8,595 13,257 317 13,574
9 9,996 5,142 55 5,197 8,819 216 9,035 14,645 414 15,059
10 10,495 5,108 55 5,163 9,237 259 9,496 16,164 532 16,696
15 13,395 4,557 51 4,608 11,086 561 11,647 25,668 1,579 27,247
20 (age 55) 17,096 4,034 47 4,081 13,205 1,020 14,225 40,459 3,876 44,335
30 (age 65) 27,847 3,056 39 3,095 18,136 2,702 20,838 97,394 18,093 115,487
</TABLE>
* Assumes no policy loan has been made.
DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALE AND EXPERIENCE AND ARE NOT
GUARANTEED. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE
INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF RETURN OF THE FUND
PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND
12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF
TIME.
51 Appendix
<PAGE> 54
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 LIFE
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
NORTHWESTERN MUTUAL SERIES FUND, INC.
RUSSELL INSURANCE FUNDS
90-1898 (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
