<PAGE>
Registration No. 2-89905-01
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 / /
Pre-Effective Amendment No. _ / /
Post-Effective Amendment No. 18 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 / /
Amendment No. ___ / /
(Check appropriate box or boxes.)
NML VARIABLE ANNUITY ACCOUNT C
- --------------------------------------------------------------------------------
(Exact Name of Registrant)
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
(Name of Depositor)
720 EAST WISCONSIN AVENUE, MILWAUKEE, WISCONSIN 53202
- ----------------------------------------------------------------- --------------
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code 414-271-1444
------------------------------
JOHN M. BREMER, Executive Vice President, General Counsel and Secretary
720 EAST WISCONSIN AVENUE, MILWAUKEE, WISCONSIN 53202
- --------------------------------------------------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate space)
immediately upon filing pursuant to paragraph (b) of Rule 485
-----
X on April 30, 1998 pursuant to paragraph (b) of Rule 485
-----
60 days after filing pursuant to paragraph (a)(1) of Rule 485
-----
on (DATE) pursuant to paragraph (a)(1) of Rule 485
-----
this post-effective amendment designates a new effective date for
----- a previously filed post-effective amendment.
<PAGE>
NML VARIABLE ANNUITY ACCOUNT C
- --------------------------------------------------------------------------------
CROSS-REFERENCE SHEET
N-4, Part A Heading in
Item Prospectus
- ----------- ----------
1. . . . . . . . . . . . . . . . . . Cover Page
2. . . . . . . . . . . . . . . . . . Index of Special Terms
3. . . . . . . . . . . . . . . . . . Right to Examine Deferred Contract,
Penalty Tax on Premature Payments,
Expense Table
4. . . . . . . . . . . . . . . . . . Accumulation Unit Values, Financial
Statements
5. . . . . . . . . . . . . . . . . . The Company, NML Variable Annuity
Account C, The Fund
6. . . . . . . . . . . . . . . . . . Deductions, Distribution of the
Contracts
7. . . . . . . . . . . . . . . . . . The Contracts, Owners of the
Contracts, Application of Purchase
Payments, Transfers Between
Divisions and Payment Plans,
Substitution and Change
8. . . . . . . . . . . . . . . . . . Variable Payment Plans, Fixed
Annuity Payment Plans, Description
of Payment Plans, Amount of Annuity
Payments, Annuity Unit Value,
Assumed Investment Rate, Transfers
Between Divisions and Payment Plans
9. . . . . . . . . . . . . . . . . . Not Applicable
10. . . . . . . . . . . . . . . . . . Amount and Frequency, Application
of Purchase Payments, Net
Investment Factor, Distribution of
the Contracts
11. . . . . . . . . . . . . . . . . . Surrender or Withdrawal Value,
Retirement Benefits, Deferment of
Benefit Payments, Right to Examine
Deferred Contract
12. . . . . . . . . . . . . . . . . . Federal Income Taxes
13. . . . . . . . . . . . . . . . . . Not Applicable
14. . . . . . . . . . . . . . . . . . Table of Contents for Statement of
Additional Information
- --------------------------------------------------------------------------------
N-4, Part B Heading in Statement
Item of Additional Information
- ----------- -------------------------
15. . . . . . . . . . . . . . . . . . Cover Page
16. . . . . . . . . . . . . . . . . . Table of Contents
17. . . . . . . . . . . . . . . . . . General Information
18. . . . . . . . . . . . . . . . . . Experts
19. . . . . . . . . . . . . . . . . . Not Applicable
20. . . . . . . . . . . . . . . . . . Distribution of the Contracts
21. . . . . . . . . . . . . . . . . . Not Applicable
22. . . . . . . . . . . . . . . . . . Determination of Annuity Payments
23. . . . . . . . . . . . . . . . . . Financial Statements
<PAGE>
April 30, 1998
[LETTERHEAD]
The Quiet Company-Registered Trademark-
NML VARIABLE ANNUITY ACCOUNT C
Group Combination Annuity Contracts for
Retirement Plans of Self-Employed Persons
and Their Employees
P R O S P E C T U S
(PHOTO)
NORTHWESTERN MUTUAL
SERIES FUND, INC.
THE NORTHWESTERN MUTUAL
LIFE INSURANCE COMPANY
720 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202
(414) 271-1444
<PAGE>
CONTENTS FOR THIS PROSPECTUS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Group Combination Annuity Contracts
NML Variable Annuity Account C . . . . . . . . . . . . . . . . . . . .1
INDEX OF SPECIAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . . .2
Penalty Tax on Premature Payments. . . . . . . . . . . . . . . . . . . .2
EXPENSE TABLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
ACCUMULATION UNIT VALUES . . . . . . . . . . . . . . . . . . . . . . . . .4
THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
NML VARIABLE ANNUITY
ACCOUNT C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
THE CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Unallocated Group Annuity Contracts. . . . . . . . . . . . . . . . . . .8
Purchase Payments Under the Contracts. . . . . . . . . . . . . . . . . .8
Amount and Frequency . . . . . . . . . . . . . . . . . . . . . . . . .8
Application of Purchase Payments . . . . . . . . . . . . . . . . . . .8
Net Investment Factor. . . . . . . . . . . . . . . . . . . . . . . . . .8
Benefits Provided Under the Contracts. . . . . . . . . . . . . . . . . .9
Surrender or Withdrawal Value. . . . . . . . . . . . . . . . . . . .9
Retirement Benefits. . . . . . . . . . . . . . . . . . . . . . . . .9
Variable Payment Plans . . . . . . . . . . . . . . . . . . . . . . . .9
PAGE
----
Description of Payment Plans . . . . . . . . . . . . . . . . . . . .9
Amount of Annuity Payments . . . . . . . . . . . . . . . . . . . . 10
Assumed Investment Rate. . . . . . . . . . . . . . . . . . . . . . 10
Additional Information . . . . . . . . . . . . . . . . . . . . . . . 10
Transfers Between Divisions and
Payment Plans . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Owners of the Contracts. . . . . . . . . . . . . . . . . . . . . . 10
Deferment of Benefit Payments. . . . . . . . . . . . . . . . . . . 10
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Substitution and Change. . . . . . . . . . . . . . . . . . . . . . 11
Amendments and Termination . . . . . . . . . . . . . . . . . . . . 11
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 11
FEDERAL INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Taxation of Contract Benefits. . . . . . . . . . . . . . . . . . . . . 11
Taxation of Northwestern Mutual Life . . . . . . . . . . . . . . . . . 12
DEDUCTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
DISTRIBUTIONS OF THE
CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
CONTRACTS ISSUED PRIOR TO
JANUARY 1, 1992. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
THE TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION APPEARS ON THE
PAGE FOLLOWING PAGE 13 OF THIS PROSPECTUS.
<PAGE>
P R O S P E C T U S
GROUP COMBINATION ANNUITY CONTRACTS
NML VARIABLE ANNUITY ACCOUNT C
This prospectus describes group combination annuity contracts (the "Contracts")
offered by The Northwestern Mutual Life Insurance Company ("Northwestern Mutual
Life") for use in connection with plans and trusts meeting the requirements of
Sections 401 or 403(a) of the Internal Revenue Code of 1986, as amended (the
"Code"). Such plans, which are popularly called "HR-10 Plans", afford certain
federal income tax benefits to self-employed individuals and to employees and
their beneficiaries.
The Contracts provide for the accumulation of funds and the payment of
retirement benefits to participants or their beneficiaries ("Annuitants"). Funds
may be accumulated on a variable or fixed or combination basis. Retirement
benefits may be paid in a lump sum or under a variable or fixed annuity payment
plan. Annuity benefits are described in individual certificates issued to
Annuitants.
Variable accumulations and retirement benefits are funded through NML Variable
Annuity Account C (the "Account"), a separate account of Northwestern Mutual
Life. This prospectus describes only the Account and the variable provisions of
the Contracts except where there are specific references to the fixed
provisions. The Account has nine Divisions. Contract Owners may direct how net
considerations are allocated among the Divisions.
Assets of each Division of the Account are invested entirely in shares of a
corresponding Portfolio of Northwestern Mutual Series Fund, Inc. (the "Fund").
The Fund is currently comprised of the Aggressive Growth Stock, International
Equity, Growth Stock, Growth and Income Stock, Index 500 Stock, Balanced, High
Yield Bond, Select Bond and Money Market Portfolios. Variable accumulations and
variable annuity payments will vary continuously to reflect the investment
performance of the Division or Divisions selected.
Two versions of the Contracts are offered: front-load Contracts and
simplified-load Contracts. (See "Expense Table", p. 2, and "Deductions", p. 12.)
This prospectus sets forth concisely the information about the Contracts that a
prospective investor ought to know before investing. Additional information
about the Contracts and the Account has been filed with the Securities and
Exchange Commission in a Statement of Additional Information which is
incorporated herein by reference. The Statement of Additional Information is
available upon written or oral request and without charge from The Northwestern
Mutual Life Insurance Company, 720 East Wisconsin Avenue, Milwaukee, Wisconsin,
53202, Telephone Number (414) 271-1444. The table of contents for the Statement
of Additional Information is shown on the inside front cover of this prospectus.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUS FOR
NORTHWESTERN MUTUAL SERIES FUND, INC. WHICH IS 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.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
The Date of the Statement of Additional Information is April 30, 1998
<PAGE>
INDEX OF SPECIAL TERMS
The following special terms used in this prospectus are discussed at the pages
indicated.
TERM PAGE TERM PAGE
- ---- ---- ---- ----
ACCUMULATION UNIT. . . . . . . . . .8 ANNUITANT. . . . . . . . . . . . .10
ANNUITY (or ANNUITY PAYMENTS). . . 10 OWNER. . . . . . . . . . . . . . .10
NET INVESTMENT FACTOR. . . . . . . .8 PAYMENT PLANS. . . . . . . . . . . 9
SURRENDER OR WITHDRAWAL VALUE. . . .9
PENALTY TAX ON PREMATURE PAYMENTS Premature payment of benefits under an
annuity contract may cause a penalty tax to be incurred. (See "Taxation of
Contract Benefits", p. 11.)
- --------------------------------------------------------------------------------
EXPENSE TABLE
FRONT-LOAD CONTRACT
TRANSACTION EXPENSES FOR CONTRACTOWNERS
- ---------------------------------------
Maximum Sales Load (as a percentage
of purchase payments). . . . . . . . . . . . .4.5%
Installation Fee . . . . . . . . . . . . . . .None
SIMPLIFIED-LOAD CONTRACT
TRANSACTION EXPENSES FOR CONTRACTOWNERS
- ---------------------------------------
Maximum Sales Load (as a percentage
of purchase payments). . . . . . . . . . . . .None
Installation Fee . . . . . . . . . . . . . . .$750
ANNUAL EXPENSES OF THE ACCOUNT
(AS A PERCENTAGE OF ASSETS)
- ---------------------------
Mortality Rate and Expense Guarantee
Charge . . . . . . . . . . . . . . . . . . . ..65%
ANNUAL EXPENSES OF THE ACCOUNT
(AS A PERCENTAGE OF ASSETS)
- ---------------------------
Mortality Rate and Expense Guarantee
Charge . . . . . . . . . . . . . . . . . . . 1.25%
ANNUAL EXPENSES OF THE PORTFOLIOS
(AS A PERCENTAGE OF THE ASSETS)
- -------------------------------
<TABLE>
<CAPTION>
TOTAL ANNUAL
MANAGEMENT FEES CUSTODY FEES OTHER EXPENSES EXPENSES
--------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Aggressive Growth Stock .52% .00% .01% .53%
International Equity .67% .08% .02% .77%
Growth Stock .47% .00% .02% .49%
Growth and Income Stock .59% .00% .01% .60%
Index 500 Stock .20% .00% .01% .21%
Balanced .30% .00% .00% .30%
High Yield Bond .52% .30% .00% .00%
Select Bond .03% .00% .55% .30%
Money Market .30% .00% .00% .30%
</TABLE>
- --------------------------------------------------------------------------------
EXAMPLE
The plan would pay the following expenses on each $1,000 investment, with a
Front-Load Contract, assuming 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Aggressive Growth Stock $56 $81 $107 $182
International Equity $59 $88 $119 $208
Growth Stock $56 $80 $105 $177
Growth and Income Stock $57 $83 $111 $189
Index 500 Stock $53 $71 $ 91 $146
Balanced $54 $74 $ 95 $156
High Yield Bond $57 $81 $108 $184
Select Bond $54 $74 $ 95 $156
Money Market $54 $74 $ 95 $156
</TABLE>
2
<PAGE>
The plan would pay the following expenses on each $1,000 investment, with a
Simplified-Load Contract, assuming 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Aggressive Growth Stock $48 $84 $124 $233
International Equity $50 $91 $136 $258
Growth Stock $47 $83 $122 $229
Growth and Income Stock $48 $86 $127 $240
Index 500 Stock $44 $75 $107 $199
Balanced $45 $77 $112 $209
High Yield Bond $48 $85 $125 $235
Select Bond $45 $77 $112 $209
Money Market $45 $77 $112 $209
</TABLE>
NOTE: THE PURCHASE PAYMENTS FOR EITHER A FRONT-LOAD CONTRACT OR A
SIMPLIFIED-LOAD CONTRACT MUST REACH A TOTAL MINIMUM AMOUNT OF $25,000 DURING THE
FIRST CONTRACT YEAR. THE NUMBERS ABOVE MUST BE MULTIPLIED BY 25 TO FIND THE
EXPENSES FOR A FRONT-LOAD CONTRACT OR A SIMPLIFIED-LOAD CONTRACT OF THIS MINIMUM
SIZE.
The purpose of the table above is to assist a Contract Owner in understanding
the expenses paid by the Account and the Portfolios borne by investors in the
Contracts. The sales load for a front-load Contract depends on the amount of
cumulative purchase payments. For both Contracts an annual administration fee of
$150 applies if the Contract value is less than $25,000 on the Contract
anniversary. See "Deductions", p. 12, for additional information about expenses
for the Contracts. The expenses shown in the table for the Portfolios show the
annual expenses for each of the Portfolios, as a percentage of the average net
assets of the Portfolio, based on 1997 operations for the Portfolios and their
predecessors. For additional information about expenses of the Portfolios, see
the prospectus for the Fund attached hereto.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN, SUBJECT TO
THE GUARANTEES OF THE CONTRACTS.
3
<PAGE>
ACCUMULATION UNIT VALUES
CONTRACTS ISSUED AFTER DECEMBER 31, 1991
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth Stock Division
Accumulation Unit Value:
Front Load Version
Beginning of Period $2.078 $1.777 $1.284 $1.226 $1.036 $ .984
End of Period $2.350 $2.078 $1.777 $1.284 $1.226 $1.036
Simplified Load Version
Beginning of Period $3.200 $2.753 $2.001 $1.922 $1.634 $1.562
End of Period $3.598 $3.200 $2.753 $2.001 $1.922 $1.634
Number of Accumulation Units
Outstanding, End of Period
Front Load 3,169,006 3,197,341 2,242,402 1,206,187 1,370,746 821,911
Simplified Load 8,989,193 7,872,553 5,316,689 3,503,170 1,538,447 411,718
International Equity Division
Accumulation Unit Value:
Front Load Version
Beginning of Period* $1.686 $1.402 $1.232 $1.241 $1.000 --
End of Period $1.881 $1.686 $1.402 $1.232 $1.241 --
Simplified Load Version
Beginning of Period* $1.649 $1.380 $1.220 $1.236 $1.000 --
End of Period $1.829 $1.649 $1.380 $1.220 $1.236 --
Number of Accumulation Units
Outstanding, End of Period
Front Load 3,021,349 2,709,249 2,009,228 1,453,091 743,216 --
Simplified Load 7,247,144 5,703,032 3,972,573 2,764,466 591,810 --
Growth Stock Division
Accumulation Unit Value:
Front Load Version
Beginning of Period** $1.577 $1.313 $1.010 $1.000 -- --
End of Period $2.035 $1.577 $1.313 $1.010 -- --
Simplified Load Version
Beginning of Period** $1.552 $1.300 $1.006 $1.000 -- --
End of Period $1.991 $1.552 $1.300 $1.006 -- --
Number of Accumulation Units
Outstanding, End of Period
Front Load 710,110 587,482 361,207 149,268 -- --
Simplified Load 2,159,985 1,742,522 586,644 177,918 -- --
Growth and Income Stock Division
Accumulation Unit Value:
Front Load Version
Beginning of Period*** $1.550 $1.300 $0.998 $1.000 -- --
End of Period $2.002 $1.550 $1.300 $0.998 -- --
Simplified Load Version
Beginning of Period*** $1.525 $1.287 $0.994 $1.000 -- --
End of Period $1.959 $1.525 $1.287 $0.994 -- --
Number of Accumulation Units
Outstanding, End of Period
Front Load 1,970,478 1,357,354 861,211 418,974 -- --
Simplified Load 4,547,004 2,769,823 1,733,022 745,425 -- --
Index 500 Stock Division
Accumulation Unit Value:
Front Load Version
Beginning of Period $1.937 $1.588 $1.165 $1.159 $1.062 $ .997
End of Period $2.564 $1.937 $1.588 $1.165 $1.159 $1.062
Simplified Load Version
Beginning of Period $2.463 $2.032 $1.499 $1.500 $1.384 $1.306
End of Period $3.240 $2.463 $2.032 $1.499 $1.500 $1.384
Number of Accumulation Units
Outstanding, End of Period
Front Load 3,966,706 3,880,961 2,399,586 1,918,074 1,919,768 921,624
Simplified Load 9,442,314 8,015,553 5,080,179 3,939,802 2,767,397 599,961
</TABLE>
* The initial investment in the International Equity Division was made on
April 30, 1993.
** The initial investments in the Growth Stock Division and High Yield Bond
Division were made on May 3, 1994.
*** The initial investment in the Growth and Income Stock Division was made on
May 3, 1994.
4
<PAGE>
ACCUMULATION UNIT VALUES
CONTRACTS ISSUED AFTER DECEMBER 31, 1991
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Balanced Division
Accumulation Unit Value:
Front Load Version
Beginning of Period $1.600 $1.419 $1.130 $1.138 $1.045 $ .999
End of Period $1.931 $1.600 $1.419 $1.130 $1.138 $1.045
Simplified Load Version
Beginning of Period $4.830 $4.311 $3.453 $3.497 $3.232 $ 3.107
End of Period $5.796 $4.830 $4.311 $3.453 $3.497 $3.232
Number of Accumulation Units
Outstanding, End of Period
Front Load 6,187,478 5,934,240 5,275,308 3,879,218 4,987,943 3,980,687
Simplified Load 6,839,439 5,971,232 4,902,410 4,108,593 3,002,098 1,445,698
High Yield Bond Division
Accumulation Unit Value:
Front Load Version
Beginning of Period** $1.416 $1.190 $1.026 $1.000 -- --
End of Period $1.630 $1.416 $1.190 $1.026 -- --
Simplified Load Version
Beginning of Period** $1.394 $1.178 $1.022 $1.000 -- --
End of Period $1.595 $1.394 $1.178 $1.022 -- --
Number of Accumulation Units
Outstanding, End of Period
Front Load 423,726 275,323 90,184 47,321 -- --
Simplified Load 1,219,819 626,090 313,810 149,862 -- --
Select Bond Division
Accumulation Unit Value:
Front Load Version
Beginning of Period $1.370 $1.335 $1.128 $1.169 $1.066 $1.003
End of Period $1.490 $1.370 $1.335 $1.128 $1.169 $1.066
Simplified Load Version
Beginning of Period $6.261 $6.137 $5.217 $5.437 $4.990 $4.722
End of Period $6.768 $6.261 $6.137 $5.217 $5.437 $4.990
Number of Accumulation Units
Outstanding, End of Period
Front Load 2,574,248 2,676,832 1,800,898 1,668,091 2,389,345 736,697
Simplified Load 1,034,899 966,414 677,396 503,763 328,979 133,930
Money Market Division
Accumulation Unit Value:
Front Load Version
Beginning of Period $1.192 $1.140 $1.084 $1.048 $1.026 $ .999
End of Period $1.249 $1.192 $1.140 $1.084 $1.048 $1.026
Simplified Load Version
Beginning of Period $2.246 $2.161 $2.067 $2.012 $1.980 $1.940
End of Period $2.340 $2.246 $2.161 $2.067 $2.012 $1.980
Number of Accumulation Units
Outstanding, End of Period
Front Load 1,710,473 2,829,669 2,956,017 3,313,061 218,747 127,838
Simplified Load 5,844,682 3,818,067 1,890,645 1,453,033 810,405 485,704
</TABLE>
* The initial investment in the International Equity Division was made on
April 30, 1993.
** The initial investments in the Growth Stock Division and High Yield Bond
Division were made on May 3, 1994.
*** The initial investment in the Growth and Income Stock Division was made on
May 3, 1994.
5
<PAGE>
ACCUMULATION UNIT VALUES
CONTRACTS ISSUED BETWEEN APRIL 30, 1984 AND DECEMBER 31, 1991
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth Stock
Division
Accumulation Unit Value:
Beginning of Period* $32.543 $27.649 $19.849 $18.832 $15.810 $14.923
End of Period $37,055 $32.543 $27.649 $19.849 $18.832 $15.810
Number of Accumulation Units
Outstanding, End of Period 1,935,434 1,944,411 1,397,885 1,239,328 910,764 594,531
International Equity Division
Accumulation Unit Value:
Beginning of Period** $1.726 $1.427 $1.245 $1.246 $1.000 --
End of Period $1.938 $1.726 $1.427 $1.245 $1.246 --
Number of Accumulation Units
Outstanding, End of Period 23,069,550 20,439,570 14,747,734 15,153,296 1,128,950 --
Growth Stock Division
Accumulation Unit Value:
Beginning of Period*** $16.047 $13.272 $10.145 -- -- --
End of Period $20.837 $16.047 $13.272 -- -- --
Number of Accumulation Units
Outstanding, End of Period 482,897 378,236 63,881 -- -- --
Growth and Income Stock Division
Accumulation Unit Value:
Beginning of Period*** $15.767 $13.143 $10.024 -- -- --
End of Period $20.502 $15,767 $13.143 -- -- --
Number of Accumulation Units
Outstanding, End of Period 711,558 424,144 117,004 -- -- --
Index 500 Stock Division
Accumulation Unit Value:
Beginning of Period**** $27.134 $22.105 $16.105 $15.916 $14.500 $13.519
End of Period $36.142 $27.134 $22.105 $16.105 $15.916 $14.500
Number of Accumulation Units
Outstanding, End of Period 2,558,205 2,386,284 2,232,983 2,284,637 2,454,444 246,820
Balanced Division
Accumulation Unit Value:
Beginning of Period $58.832 $51.856 $41.029 $41.036 $37.449 $35.557
End of Period $71.491 $58.832 $51.856 $41.029 $41.036 $37.449
Number of Accumulation Units
Outstanding, End of Period 1,341,930 1,489,658 1,889,324 2,327,834 2,660,165 2,787,942
High Yield Bond Division
Accumulation Unit Value:
Beginning of Period*** $14.409 $12.030 $10.302 -- -- --
End of Period $16.693 $14.409 $12.030 -- -- --
Number of Accumulation Units
Outstanding, End of Period 235,585 119,423 21,583 -- -- --
Select Bond Division
Accumulation Unit Value:
Beginning of Period $76.682 $74.223 $62.322 $64.139 $58.132 $54.335
End of Period $83.939 $76.682 $74.223 $62.322 $64.139 $58.132
Number of Accumulation Units
Outstanding, End of Period 85,036 97,868 124,163 150,232 157,630 170,104
Money Market Division
Accumulation Unit Value:
Beginning of Period $26.011 $24.706 $23.346 $22.436 $21.814 $21.110
End of Period $27.435 $26.011 $24.706 $23.346 $22.436 $21.814
Number of Accumulation Units
Outstanding, End of Period 38,584 57,013 62,209 200,510 341,361 355,217
1991 1990 1989 1988
---- ---- ---- ----
Aggressive Growth Stock
Division
Accumulation Unit Value:
Beginning of Period* $10.000 -- -- --
End of Period $14.923 -- -- --
Number of Accumulation Units
Outstanding, End of Period 40,650 -- -- --
International Equity Division
Accumulation Unit Value:
Beginning of Period** -- -- -- --
End of Period -- -- -- --
Number of Accumulation Units
Outstanding, End of Period -- -- -- --
Growth Stock Division
Accumulation Unit Value:
Beginning of Period*** -- -- -- --
End of Period -- -- -- --
Number of Accumulation Units
Outstanding, End of Period -- -- -- --
Growth and Income Stock Division
Accumulation Unit Value:
Beginning of Period*** -- -- -- --
End of Period -- -- -- --
Number of Accumulation Units
Outstanding, End of Period -- -- -- --
Index 500 Stock Division
Accumulation Unit Value:
Beginning of Period**** $10.000 -- -- --
End of Period $13.519 -- -- --
Number of Accumulation Units
Outstanding, End of Period 36,842 -- -- --
Balanced Division
Accumulation Unit Value:
Beginning of Period $28.690 $28.392 $24.560 $22.534
End of Period $35.557 $28.690 $28.392 $24.560
Number of Accumulation Units
Outstanding, End of Period 2,872,612 2,853,458 2,721,226 2,690,086
High Yield Bond Division
Accumulation Unit Value:
Beginning of Period*** -- -- -- --
End of Period -- -- -- --
Number of Accumulation Units
Outstanding, End of Period -- -- -- --
Select Bond Division
Accumulation Unit Value:
Beginning of Period $46.489 $42.915 $37.688 $34.753
End of Period $54.335 $46.489 $42.915 $37.688
Number of Accumulation Units
Outstanding, End of Period 162,656 139,272 131,612 136,739
Money Market Division
Accumulation Unit Value:
Beginning of Period $19.973 $18.488 $16.965 $15.829
End of Period $21.110 $19.973 $18.488 $16.965
Number of Accumulation Units
Outstanding, End of Period 476,920 427,960 289,871 362,742
</TABLE>
* The initial investment in the Aggressive Growth Stock Division was made
on January 25, 1991.
** The initial investment in the International Equity Division was made on
April 30, 1993.
*** The initial investments in the Growth Stock Division, Growth and Income
Stock Division, and High Yield Bond Division were made on May 3, 1994.
**** The initial investment in the Index 500 Stock Division was made on
January 16, 1991.
6
<PAGE>
THE COMPANY
The Northwestern Mutual Life Insurance Company was 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 $71 billion on
December 31, 1997, and is licensed to conduct a conventional life insurance
business in the District of Columbia and in all states of the United States.
Northwestern Mutual Life sells life and disability insurance policies and
annuity contracts through its own field force of approximately 6,000 full time
producing agents. The Home Office of Northwestern Mutual Life is located at 720
East Wisconsin Avenue, Milwaukee, Wisconsin 53202.
- --------------------------------------------------------------------------------
NML VARIABLE ANNUITY ACCOUNT C
The Account was established on July 22, 1970 by the Board of Trustees of
Northwestern Mutual Life in accordance with the provisions of the Wisconsin
insurance law. The Account is used for the Contracts and for outstanding
Contracts to Provide Annuity Benefits. Northwestern Mutual Life discontinued
sales of Contracts to Provide Annuity Benefits on May 1, 1984.
The Account has nine Divisions. Net considerations paid to Northwestern Mutual
Life are allocated to one or more of the Divisions as directed by the Owner of
the Contract. Assets allocated to the Aggressive Growth Stock, International
Equity, Growth Stock, Growth and Income Stock, Index 500 Stock, Balanced, High
Yield Bond, Select Bond and Money Market Divisions are simultaneously invested
in shares of the corresponding Portfolios of Northwestern Mutual Series Fund,
Inc.
Under Wisconsin law, the income, gains or losses, realized or unrealized, of the
Account are credited to or charged against the Account in accordance with the
Contracts, without regard to other income, gains or losses of Northwestern
Mutual Life. The assets of the Account are owned by Northwestern Mutual Life and
it is not a trustee with respect thereto. However, such assets are not
chargeable with any liabilities arising out of any other separate account or
other business of Northwestern Mutual Life. All obligations arising under the
Contracts are general obligations of Northwestern Mutual Life. Shares of the
Fund held in the Account will be voted in the discretion of Northwestern Mutual
Life.
- --------------------------------------------------------------------------------
THE FUND
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 Fund is composed of nine separate portfolios
which operate as separate mutual funds. The portfolios are the Aggressive
Growth Stock Portfolio, International Equity Portfolio, the Growth Stock
Portfolio, the Growth and Income Stock Porfolio, Index 500 Stock Portfolio,
Balanced Portfolio, High Yield Bond Portfolio, Select Bond Porfolio and Money
Market Portfolio. Shares of each Portfolio of the Fund will be purchased by the
corresponding Division of the Account at net asset value, that is, without any
sales charge.
Northwestern Mutual Investment Services, Inc. ("NMIS"), a wholly-owned
subsidiary of Northwestern Mutual Life, is the investment adviser to the Fund.
Northwestern Mutual Life provides certain personnel and facilities utilized by
NMIS in performing its investment advisory functions, and Northwestern Mutual
Life is a party to the investment advisory agreement. J.P. Morgan Investment
Management, Inc. and Templeton Investment Counsel, Inc. have been retained under
investment sub-advisory agreements to provide investment advice to the Growth
and Income Stock Portfolio and the International Equity Portfolio, respectively.
FOR MORE INFORMATION REGARDING THE FUND AND ITS PORTFOLIOS, INCLUDING
INFORMATION ABOUT THEIR INVESTMENT OBJECTIVES AND EXPENSES, SEE THE PROSPECTUS
FOR THE FUND ATTACHED HERETO. AN INVESTOR SHOULD READ THE FUND'S PROSPECTUS
CAREFULLY BEFORE INVESTING IN THE CONTRACTS.
7
<PAGE>
THE CONTRACTS
UNALLOCATED GROUP ANNUITY CONTRACTS
The Contracts are unallocated group annuity contracts. The Contracts do not
provide for the establishment of individual accounts for Plan or Trust
participants until participants become entitled to receive benefits from the
Plan or Trust. When a participant retires or otherwise becomes entitled to
receive benefits, the Contract Owner may direct Northwestern Mutual Life to pay
annuity benefits to the participant. (See "Retirement Benefits")
Northwestern Mutual Life will then issue the Annuitant a Certificate describing
the benefits which have been selected. (See "Variable Payment Plans")
Benefits available to Participants are determined entirely by the provisions of
the Plan or Trust.
PURCHASE PAYMENTS UNDER THE CONTRACTS
AMOUNT AND FREQUENCY The amount and frequency of purchase payments are largely
determined by the Plan or Trust and the Owner of the Contract. Larger or
additional purchase payments may be paid. However, Northwestern Mutual Life will
not accept (a) any purchase payment unless it is a contribution for funding or
for the payment of fees or loads under a pension or profit-sharing plan or trust
which meets the requirements of Section 401 of the Code or the requirements for
deduction of the employer's contribution under Section 404(a)(2) of the Code; or
(b) any purchase payment of less than $100.
Purchase payments may be paid monthly, quarterly, semiannually, annually or on
any other frequency acceptable to Northwestern Mutual Life. If a purchase
payment is not paid when due, or if Northwestern Mutual Life declines to accept
a purchase payment as provided above, the Contract will continue in force unless
all Accumulation Units are redeemed for their value. Payment of purchase
payments may be resumed at any time the Contract is in force.
APPLICATION OF PURCHASE PAYMENTS Net purchase payments, after deduction of any
sales load or installation fee, are credited by Northwestern Mutual Life to the
Contract and allocated as directed by the Owner. To the extent that a net
purchase payment is to be accumulated on a variable basis it is placed in the
Account and allocated to one or more Divisions. Assets allocated to each
Division will thereupon be invested in shares of the Portfolio which corresponds
to that Division. If no allocation instructions are received the net purchase
payment will be placed in the Money Market Division.
Payments placed in the Account are applied to provide "Accumulation Units" in
one or more Divisions. Accumulation Units represent the interest of an Owner in
the Account. The number of Accumulation Units provided by each net purchase
payment is determined by dividing the amount to be allocated to a Division by
the value of an Accumulation Unit in that Division, based upon the valuation of
the assets of the Division next following receipt of the purchase payment at the
Home Office of Northwestern Mutual Life. Receipt of purchase payments at a
lockbox facility designated by Northwestern Mutual Life will be considered the
same as receipt at the Home Office. Assets are valued as of the close of trading
on the New York Stock Exchange for each day the Exchange is open.
The number of an Owner's Accumulation Units will be increased by additional
purchase payments and decreased by withdrawals. The investment experience of the
Account does not change the number (as distinguished from the value) of
Accumulation Units.
The value of an Accumulation Unit in each Division varies with the investment
experience of the Division. This in turn is determined by the investment
experience of the corresponding Portfolio of the Fund. The value of an
Accumulation Unit on any date is determined by multiplying the value on the
immediately preceding valuation date by the net investment factor for the
Division for the current period. (See "Net Investment Factor", below.) Since the
Owner bears the investment risk, there is no guarantee as to the aggregate value
of Accumulation Units; such value may be less than, equal to or more than the
cumulative net purchase payments.
NET INVESTMENT FACTOR
For each Division the net investment factor for any period ending on a valuation
date is 1.000000 plus the net investment rate for the Division for that period.
Under the Contract the net investment rate is related to the assets of the
Division. However, since all amounts are simultaneously invested in shares of
the corresponding Portfolio when allocated to the Division, calculation of the
net investment rate for each of the Divisions may also be based upon the change
in value of a single share of the corresponding Portfolio.
Thus, for example, in the case of the Balanced Division the net investment rate
is equal to (a) the change in the net asset value of a Balanced Portfolio share
for the period from the immediately preceding valuation date to and including
the current valuation date, plus the per share amount of any dividends and other
distributions made by the Balanced Portfolio during the valuation period, less a
deduction for any applicable taxes or for any expenses resulting from a
substitution of securities, (b) divided by the net asset value of a Balanced
Portfolio share at the beginning of the valuation period, (c) less an adjustment
to provide for the charge for
8
<PAGE>
mortality rate and expense guarantees. (See "Deductions")
Investment income and realized capital gains will be received in the form of
dividend and capital gain distributions upon Portfolio shares held by each
Division; such distributions will be reinvested in additional shares of the same
Portfolio. Unrealized capital gains and realized and unrealized capital losses
will be reflected by changes in the value of the shares held by the Account.
BENEFITS PROVIDED UNDER THE CONTRACTS The benefits provided under the Contracts
consist of a surrender value and a retirement benefit. Subject to the
restrictions noted below, all of these benefits may be paid in a lump sum or
under the payment plans described below. The amounts required to pay benefits
will be taken from the Divisions of the Account, or from the value accumulated
on a fixed basis, as directed by the Owner of the Contract.
SURRENDER OR WITHDRAWAL VALUE To the extent permitted by the Plan or Trust, the
Owner may terminate the Contract and redeem the value of Accumulation Units
credited to the Contract. The value, which may be either greater or less than
the amount paid by the Owner, is determined as of the valuation date coincident
with or next following receipt by Northwestern Mutual Life of a written request
for termination. Request forms are available from Northwestern Mutual Life's
Home Office and its agents. A portion of the Accumulation Units may be
surrendered on the same basis.
A payee under Payment Plan 1 may elect to withdraw the present value of any
unpaid income payments at any time. Upon death during the certain period of the
payee under Plan 2 or both payees under Plan 3, the beneficiary may elect to
withdraw the present value of any unpaid payments for the certain period. The
withdrawal value is based on the Annuity Unit value on the withdrawal date, with
the unpaid payments discounted at the Assumed Investment Rate. (See
"Description of Payment Plans")
RETIREMENT BENEFITS The Contract Owner may at any time direct Northwestern
Mutual Life to pay retirement benefits to an Annuitant. Upon the Owner's
request, benefits may be paid in a lump sum or under the Payment Plans described
below. The Owner's request will state the Payment Plan elected and the amount
and date of the first payment. Amounts distributed to an Annuitant may be
subject to federal income tax. A 10% penalty tax may be imposed on the taxable
portion of premature payments of benefits (prior to age 59 1/2 or disability)
unless payments are made after the employee separates from service and payments
are either paid in substantially equal installments over the life or life
expectancy of the employee or are paid on account of early retirement after age
55.
Northwestern Mutual Life will determine the amount required to pay the annuity
or cash benefits and will redeem Accumulation Units in that amount. There is no
assurance that amounts accumulated under the Contract will be sufficient to
provide the retirement benefits under the Plan or Trust.
VARIABLE PAYMENT PLANS
Part or all of the benefits under a Contract may be paid under a variable
payment plan. Under a variable plan the payee bears the entire investment risk,
since no guarantees of investment return are made. Accordingly, there is no
guarantee of the amount of the variable payments, and the amount of such
payments can be expected to change from month to month.
Under a variable Payment Plan an Annuitant must select the initial allocation of
variable benefits among the Divisions. The Annuitant may name and change the
beneficiaries of unpaid payments for the specified period under Plan 1 or the
certain period under Plans 2 or 3. Northwestern Mutual Life will issue the
Annuitant a Certificate describing the variable annuity benefits and including
beneficiary provisions of annuity contracts issued by Northwestern Mutual Life
on the date of issue of the Certificate. For a discussion of tax considerations
and limitations regarding the election of payment plans, see "Federal Income
Taxes".
DESCRIPTION OF PAYMENT PLANS The following payment plans are available:
1. PAYMENTS FOR A CERTAIN PERIOD. An annuity payable monthly for a specified
period of five to 30 years.
2. LIFE ANNUITY WITH OR WITHOUT CERTAIN PERIOD. An annuity payable monthly until
the payee's death, or until the expiration of a selected certain period,
whichever is later. After the payee's death during the certain period, if any,
payments becoming due are paid to the designated contingent beneficiary. A
certain period of either 10 or 20 years may be selected, or a plan with no
certain period may be chosen.
3. JOINT AND SURVIVOR LIFE ANNUITY WITH CERTAIN PERIOD. An annuity payable
monthly for a certain period of 10 years and thereafter to the Annuitant and the
Joint Annuitant for their joint lives. On the death of either payee, payments
continue for the remainder of the 10 years certain or the remaining lifetime of
the survivor, whichever is longer.
A Payment Plan must result in payments that meet the minimums required by
Northwestern Mutual Life for annuity payment plans on the date the plan is
elected. From time to time Northwestern Mutual Life may establish payment plan
rates with greater actuarial value
9
<PAGE>
than those stated in the Contract and make them available at the time of
settlement. Northwestern Mutual Life may also make available other payment
plans, with provisions and rates as published by Northwestern Mutual Life for
those plans.
AMOUNT OF ANNUITY PAYMENTS The amount of the first annuity payment will be
determined on the basis of the particular Payment Plan selected, the annuity
payment rate and, for plans involving life contingencies, the Annuitant's
adjusted age. Variable annuity payments after the first will vary from month to
month and will depend upon the number and value of Annuity Units credited to the
Annuitant. Annuity Units represent the interest of the Annuitant in each
Division of the Account.
ASSUMED INVESTMENT RATE The payment rate tables for the Contracts are based
upon an Assumed Investment Rate of 3 1/2%. Payment rate tables based upon an
Assumed Investment Rate of 5% are also available where permitted by state law.
The Assumed Investment Rate affects both the amount of the first variable
payment and the amount by which subsequent payments increase or decrease. The
Assumed Investment Rate does not affect the actual value of the future payments
as of the date when payments begin.
Over a period of time, if each Division achieved a net investment result exactly
equal to the Assumed Investment Rate applicable to a particular Payment Plan,
the Annuity Unit for each Division would not change in value, and the amount of
annuity payments would be level. However, if the Division achieved a net
investment result greater than the Assumed Investment Rate, the amount of
annuity payments would increase. Similarly, if the Division achieved a net
investment result smaller than the Assumed Investment Rate, the amount of
annuity payments would decrease.
A higher Assumed Investment Rate will result in a larger initial payment but
more slowly rising and more rapidly falling subsequent payments than a lower
Assumed Investment Rate.
ADDITIONAL INFORMATION
TRANSFERS BETWEEN DIVISIONS AND PAYMENT PLANS A Contract Owner may at any time
change the allocation of net purchase payments among the Divisions or transfer
Accumulation Units from one Division to another. After the effective date of a
variable Payment Plan the Annuitant may transfer Annuity Units from one Division
to another. Changes in allocation and transfers are effective on the date a
written request is received at the Home Office of Northwestern Mutual Life or on
a future specified date.
The number of Accumulation or Annuity Units to be credited will be adjusted to
reflect the respective value of the Accumulation and Annuity Units in each of
the Divisions. Accumulation Units may be transferred among the Divisions up to
twelve times in a Contract year without charge. The charge for each additional
transfer is $25. For transfers of Annuity Units, charges and waiting periods may
be set by Northwestern Mutual Life.
Owners who contemplate the transfer of funds from one Division to another should
consider the risk inherent in a switch from one investment medium to another. In
general, frequent transfers based on short-term expectations for the securities
markets, especially transfers of large sums, will tend to accentuate the danger
that a transfer will be made at an inopportune time.
After the effective date of a variable Payment Plan which includes the right of
withdrawal a payee may transfer the withdrawal value to any other Payment Plan.
An administrative charge may apply.
OWNERS OF THE CONTRACTS The Owner of the Contract has the sole right to
exercise all rights and privileges under the Contract, except as the Contract
otherwise provides. The Owner is ordinarily the employer, a custodian or
trustee. The Annuitant is a Participant in the Plan or Trust who has been named
to receive annuity payments in accordance with the provisions of the Plan or
Trust.
DEFERMENT OF BENEFIT PAYMENTS Northwestern Mutual Life reserves the right to
defer determination and payment of the surrender value of the Accumulation
Units, the withdrawal value under a variable Payment Plan, or the payment of
benefits under a variable Payment Plan. Deferral will arise only if the right to
redeem Fund shares is suspended, payment of the redemption value is postponed,
or the New York Stock Exchange is closed, or trading thereon is restricted; or
an emergency exists, as a result of which it is not reasonably practical for
Northwestern Mutual Life to dispose of securities owned by it, or to determine
the value of Accumulation or Annuity Units.
DIVIDENDS The Contracts share in the divisible surplus of Northwestern Mutual
Life, except while payments are being made under a payment plan. The divisible
surplus of Northwestern Mutual Life is determined annually. Each Contract's
share, if any, will be credited as a dividend on the Contract anniversary.
Under the terms of the Contract, any dividend will be applied as a net purchase
payment allocated to the Money Market Division.
On Group Combination Annuity Contracts, dividends arise principally as a result
of more favorable expense experience than that assumed in determining mortality
10
<PAGE>
rate and expense guarantee charges. The dividend is based on the average
variable Contract value which is defined as the value of the Accumulation units
on the last Contract anniversary adjusted to reflect any transactions since that
date which increased or decreased the Contract's interest in the Account.
For 1998, all front-load and simplified-load Contracts with an average variable
Contract value of $250,000 or more will receive a dividend of 0.25% of the
average variable Contract value. For the simplified-load Contracts, this factor
increases to 0.75% on the portion of the average variable Contract value in
excess of $500,000. In future years, dividends will continue to be based on
actual experience, and as a result, the factors may be different from those
stated above.
SUBSTITUTION AND CHANGE Northwestern Mutual Life reserves the right to (a)
substitute other securities for shares of each Portfolio of the Fund held by any
Division, or (b) change the provisions of the Contracts to assure qualification
for tax benefits under the Internal Revenue Code or to comply with any other
applicable federal or state laws. Northwestern Mutual Life may make appropriate
endorsement on Contracts having an interest in the Account and take such other
action as may be necessary to effect the substitution or change. Contract Owners
will be given prompt notice after any substitution or change.
AMENDMENTS AND TERMINATION After the fifth Contract year, Northwestern Mutual
Life may amend the Contract with respect to (1) the sales load; (2) the maximum
annual annuity rate and expense guarantee charge; (3) the administration fee;
(4) the transfer fee; (5) the minimum amounts for purchase payment(s) and for
the Contract value; or (6) the payment rate tables which are included in the
Contract.
An amendment will become effective after not less than 30 days' written notice
to the Owner. An Amendment to the payment rate tables will not apply to a
Payment Plan that starts before the amendment becomes effective.
Northwestern Mutual Life reserves the right to terminate a Contract if
representations of the Owner are or become incorrect. The Contract Owner may
terminate a Contract in whole or in part at any time and be paid the value of
the Accumulation Units.
FINANCIAL STATEMENTS Financial statements of the Account and financial
statements of Northwestern Mutual Life appear in the Statement of Additional
Information.
- --------------------------------------------------------------------------------
FEDERAL INCOME TAXES
TAXATION OF CONTRACT BENEFITS
The Contracts are offered only for use under tax-qualified plans meeting the
requirements of Sections 401 and 403(a) of the Code. However, in the event
Contracts should be issued pursuant to HR-10 Plans, trusts or custodial accounts
which at the time of issuance are not qualified under the Code, some or all of
the tax benefits described herein may be lost.
No tax is payable as a result of any increase in the value of a Contract until
benefits from the Contract are received. Benefits received as annuity payments
will be taxable as ordinary income when received in accordance with Section 72
of the Code. As a general rule, where an employee makes nondeductible
contributions to the Plan, the payee may exclude from income that portion of
each benefit payment which represents a return of the employee's "investment in
the contract" as defined in Section 72 until the entire "investment in the
contract" is recovered. A 50% penalty tax may be imposed on payments to the
extent they are less than certain required minimum amounts. In addition, a 10%
penalty tax may be imposed on benefits paid in excess of the benefits provided
under the Plan formula if the payee is or was a "5% owner" of the employer while
a participant in the Plan.
Benefits paid in a form other than an annuity will be taxed as ordinary income
when received except for that portion of the payment, if any, which represents a
return of the employee's "investment in the contract." Benefits received as a
"lump sum distribution" may be eligible for a separate tax averaging calculation
and, with certain limited exceptions, all benefits are subject to tax-free
rollover provisions of the Code. A 10% penalty tax may be imposed on the taxable
portion of premature payments of benefits (prior to age 59 1/2 or disability)
unless payments are made after the employee separates from service and payments
are either paid in substantially equal installments over the life or life
expectancy of the employee or are paid on account of early retirement after age
55 or unless payments are made for medical expenses in excess of 7.5% of the
employee's Adjusted Gross Income.
A loan from the Plan to an employee, other than an owner-employee, may be
taxable as ordinary income depending on the amount and terms of the loan. A loan
to an owner-employee is a prohibited transaction under the Code and could
disqualify the Plan.
Benefit payments will be subject to mandatory 20% withholding unless (1) they
are rolled over directly to
11
<PAGE>
another tax-qualified plan or an individual retirement arrangement, (2) they are
paid in substantially equal installments over the life or life expectancy of the
employee (or of the employee and the employee's beneficiary) or over a period of
10 years or more, or (3) they are "required minimum distributions."
The rules governing plan provisions, payments and deductions and taxation of
distributions from such Plans and Trusts, as set forth in the Code and the
regulations relating thereto, are complex and cannot be readily summarized.
Furthermore, special rules are applicable in many situations, and prospective
purchasers desiring to adopt an HR-10 pension or profit-sharing plan or trust
are advised to consult qualified tax counsel.
TAXATION OF NORTHWESTERN MUTUAL LIFE
Northwestern Mutual Life may charge the appropriate Contracts with their shares
of any tax liability which may result from the maintenance or operation of the
Divisions of the Account. No charge is currently being made. (See "Net
Investment Factor", p. 8 and "Deductions", below.)
- --------------------------------------------------------------------------------
DEDUCTIONS
The following deductions will be made:
1. DEDUCTIONS FROM PURCHASE PAYMENTS.
Front-Load Contract
A sales load is deducted from all purchase payments received. The deduction is
based on the cumulative amounts received and the rates in the table below:
<TABLE>
<CAPTION>
CUMULATIVE PURCHASE PAYMENTS
PAID UNDER THE CONTRACT RATE
- ----------------------- ----
<S> <C>
First $150,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.5%
Next $350,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3.0%
Next $500,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1.0%
Balance over $1,000,000. . . . . . . . . . . . . . . . . . . . . . . . . . . .5%
</TABLE>
Simplified-Load Contract
An installation fee in the amount of $750 is deducted from the first purchase
payment received. Alternatively, the fee may be paid separately when the
application for the Contract is submitted. The installation fee covers the
non-recurring expenses of processing the application and issuing the Contract.
2. ANNUAL MORTALITY RATE AND EXPENSE GUARANTEE CHARGE. The net investment
factor (see "Net Investment Factor", p. 8) used in determining the value of
Accumulation and Annuity Units reflects a charge on each valuation date for
mortality and expense risks assumed by Northwestern Mutual Life. For the
front-load Contract the charge on an annual basis is .65% of the current value
of the net assets of the Account. For the simplified-load Contract the charge on
an annual basis is 1.25% of the net assets. This charge may be increased by
Northwestern Mutual Life to a maximum of 1.00% for the front-load Contract and
1.50% for the simplified-load Contract. After the fifth Contract year the
maximum may be amended. (See "Amendments and Termination", p. 11.)
The mortality risk is that annuity payments will continue for longer periods
than anticipated because the Annuitants as a group live longer than expected.
The expense risk is that the charges made by Northwestern Mutual Life may be
insufficient to cover the actual costs incurred in connection with the
Contracts. Northwestern Mutual Life assumes these risks for the duration of the
Contract.
The net investment factor also reflects the deduction of any reasonable expenses
which may result if there were a substitution of other securities for shares of
a Portfolio of the Fund as described under "Substitution and Change", p. 11, and
the deduction of any applicable taxes. Applicable taxes could include any tax
liability paid or reserved for by Northwestern Mutual Life resulting from the
maintenance or operation of a Division of the Account. It is not presently
anticipated that any deduction will be made for federal income taxes (see
"Federal Income Taxes" p. 11), nor is it anticipated that maintenance or
operation of the Account will give rise to any deduction for state or local
taxes. However, Northwestern Mutual Life reserves the right to charge the
appropriate Contracts with their shares of any tax liability which may result
under present or future tax laws from the maintenance or operation of the
Account or to deduct any such tax liability in the computation of the net
investment factor for such Contracts.
3. ADMINISTRATION FEE. Northwestern Mutual Life may terminate a Contract on
60 days' written notice after it has been in force for one year if the total
Contract value (including any amounts held on a fixed basis) is less than the
minimum Contract value of $25,000. In lieu of terminating the Contract an
administration fee of $150 may be charged annually on the Contract anniversary.
12
<PAGE>
DISTRIBUTION OF THE CONTRACTS
The Contracts will be sold through individuals who, in addition to being
licensed insurance agents of Northwestern Mutual Life, are registered
representatives of Northwestern Mutual Investment Services, Inc., a wholly-owned
subsidiary of Northwestern Mutual Life and a registered broker-dealer under the
Securities Exchange Act of 1934, and a member of the National Association of
Securities Dealers. Where state law requires, such agents will also be licensed
securities salesmen. Commissions paid to the agents on sales of the Contracts
are calculated partly as a percentage of purchase payments and partly as a
percentage of Contract values for each Contract year. Total commissions, on
average, are not expected to exceed the equivalent of 7.0% of purchase payments.
- --------------------------------------------------------------------------------
CONTRACTS ISSUED PRIOR TO JANUARY 1, 1992
For Contracts issued prior to January 1, 1992 the purchase payments are subject
to a charge for sales expenses. This deduction is at the rate of 4.0% on the
first $25,000; 2.0% on the next $75,000; 1.0% on the next $100,000; .4% on the
next $100,000; .2% on the next $200,000; and .1% on the balance over $500,000 of
cumulative considerations. For these Contracts there is also an annual service
fee charged on each anniversary, based on the value of Accumulation Units on the
last valuation date of the Contract year, at the rate of .5% on the first
$100,000; .4% on the next $100,000; .3% on the next $100,000; .2% on the next
$200,000; and .1% on the balance over $500,000. The charge for annuity rate and
expense risks may not exceed .25% of the Account assets held for these Contracts
(unless the Contracts are amended after the fifth Contract year), and no charge
for these risks is currently being made. These Contracts contain no provisions
for accumulation of funds on a fixed basis.
13
<PAGE>
TABLE OF CONTENTS FOR STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-2
DISTRIBUTION OF THE
CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-2
DETERMINATION OF ANNUITY
PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-2
Amount of Annuity Payments . . . . . . . . . . . . . . . . . . . . . . . B-2
Annuity Unit Value . . . . . . . . . . . . . . . . . . . . . . . . . . . B-3
Illustrations of Variable Annuity
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-3
VALUATION OF ASSETS OF THE
ACCOUNT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-4
TRANSFERABILITY RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . B-4
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-4
PAGE
----
FINANCIAL STATEMENTS OF THE
ACCOUNT (for the two years ended
December 31, 1997). . . . . . . . . . . . . . . . . . . . . . . . . . . . B-5
REPORT OF INDEPENDENT
ACCOUNTANTS (for the two years ended
December 31, 1997). . . . . . . . . . . . . . . . . . . . . . . . . . . .B-11
FINANCIAL STATEMENTS OF
NORTHWESTERN MUTUAL LIFE
(for the three years ended December
31, 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-12
REPORT OF INDEPENDENT
ACCOUNTANTS (for the three years
ended December 31, 1997) . . . . . . . . . . . . . . . . . . . . . . . . .B-25
</TABLE>
This Prospectus sets forth concisely the information about NML Variable
Annuity Account C that a prospective investor ought to know before investing.
Additional information about Account C has been filed with the Securities and
Exchange Commission in a Statement of Additional Information which is
incorporated herein by reference. The Statement of Additional Information is
available upon request and without charge from The Northwestern Mutual Life
Insurance Company. To receive a copy, return the request form to the address
listed below, or telephone (414) 271-1444.
- --------------------------------------------------------------------------------
TO: The Northwestern Mutual Life Insurance Company
Annuity and Accumulation Products Marketing Department
Room E12J
720 East Wisconsin Avenue
Milwaukee, WI 53202
Please send a Statement of Additional Information for NML Variable
Annuity Account C to:
Name
-------------------------------------------------------------------------
Address
----------------------------------------------------------------------
City State Zip
------------------------------------------- --------- ---------
<PAGE>
NORTHWESTERN MUTUAL LIFE
GROUP COMBINATION ANNUITY CONTRACTS
for Retirement Plans of Self-Employed Persons
and Their Employees
NML VARIABLE ANNUITY ACCOUNT C
NORTHWESTERN MUTUAL SERIES FUND, INC.
P R O S P E C T U S
NORTHWESTERN
MUTUAL LIFE-Registered Trademark-
PO Box 3095
Milwaukee WI 53201-3095
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
GROUP COMBINATION ANNUITY CONTRACTS
(for Retirement Plans of Self-Employed Persons and their Employees)
NML VARIABLE ANNUITY ACCOUNT C
(the "Account"),
a separate investment account of
The Northwestern Mutual Life Insurance Company
("Northwestern Mutual Life")
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the prospectus for
the Contracts. A copy of the prospectus may be obtained from The
Northwestern Mutual Life Insurance Company, 720 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202, telephone number (414) 271-1444.
- --------------------------------------------------------------------------------
The date of the prospectus to which this Statement of Additional
Information Relates is April 30, 1998.
The date of this Statement of Additional Information is April 30,
1998.
B-1
<PAGE>
GENERAL INFORMATION
The Account was originally named NML Separate Account C but was renamed NML
Variable Annuity Account C on November 23, 1983. The Account is used for the
Contracts and for outstanding Contracts to Provide Annuity Benefits.
Northwestern Mutual Life discontinued sales of Contracts to Provide Annuity
Benefits on May 1, 1984.
DISTRIBUTION OF THE CONTRACTS
The Contracts are offered on a continuous basis exclusively through
individuals who, in addition to being life insurance agents of Northwestern
Mutual Life, are registered representatives of Northwestern Mutual Investment
Services, Inc. ("NMIS").
NMIS may be considered the underwriter of the Contracts for purposes of the
federal securities laws. The following amounts of commissions were paid on
sales of the Contracts, including commissions on sales of Contracts to corporate
pension plans, during each of the last three years:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1997 $120,550
1996 $756,038
1995 $583,954
</TABLE>
DETERMINATION OF ANNUITY PAYMENTS
The following discussion of the method for determining the amount of
monthly annuity payments under a variable payment plan is intended to be read in
conjunction with these sections of the prospectus for the Contracts: "Variable
Payment Plans", p. 9, including "Description of Payment Plans", p. 9, "Amount of
Annuity Payments", p. 10, and "Assumed Investment Rate", p. 10; "Dividends",
p. 10; "Net Investment Factor", p. 8; and "Deductions", p. 12.
AMOUNT OF ANNUITY PAYMENTS The amount of the first annuity payment will be
determined on the basis of the particular Payment Plan selected, the annuity
payment rate and, for plans involving life contingencies, the Annuitant's
adjusted age. The amount of the first payment is the sum of the payments from
each Division. The payments from each Division are determined by multiplying
the applicable monthly variable annuity payment rate by the benefits allocated
to the Division under the variable Payment Plan. (See "Illustrations of
Variable Annuity Payments".) Payment rate tables are set forth in the
Contracts. Annuity payment rates currently in use by Northwestern Mutual Life
are based on the 1983 Table a with Projection Scale G.
Variable annuity payments after the first will vary from month to month and
will depend upon the number and value of Annuity Units credited to the
Annuitant. The amount held under a Payment Plan will not share in the divisible
surplus of Northwestern Mutual Life.
The number of Annuity Units in each Division is determined by dividing the
amount of the first annuity payment from the Division by the value of an Annuity
Unit on the effective date of the Payment Plan. The number of Annuity Units
thus credited to the Annuitant in each Division remains constant throughout the
annuity period. However, the value of Annuity Units in each Division will
fluctuate with the investment experience of the Division.
The amount of each variable annuity payment after the first is the sum of
payments from each Division. The payments from each Division are determined by
multiplying the number of Annuity Units
B-2
<PAGE>
credited to the Annuitant in the Division by the value of an Annuity Unit for
the Division on (a) the fifth valuation date prior to the payment due date if
the payment due date is a valuation date, or (b) the sixth valuation date prior
to the payment due date if the payment due date is not a valuation date. To
illustrate, if a payment due date falls on a Friday, Saturday or Sunday, the
amount of the payment will normally be based upon the Annuity Unit value
calculated on the preceding Friday. The preceding Friday would be the fifth
valuation date prior to the Friday due date, and the sixth valuation date prior
to the Saturday or Sunday due dates.
ANNUITY UNIT VALUE The value of an Annuity Unit for each Division was
arbitrarily established as of the date on which the operations of the Division
began. The value of an Annuity Unit on any later date varies to reflect the
investment experience of the Division, the Assumed Investment Rate on which the
annuity rate tables are based, and the annuity rate and expense guarantee
charge.
The Annuity Unit value for each Division on any valuation date is
determined by multiplying the Annuity Unit value on the immediately preceding
valuation date by two factors: (a) the net investment factor for the current
period for the Division; and (b) an adjustment factor to neutralize the Assumed
Investment Rate used in calculating the mortality rate tables.
ILLUSTRATIONS OF VARIABLE ANNUITY PAYMENTS To illustrate the manner in
which variable annuity payments are determined consider this example. Item (2)
in the example shows the applicable monthly payment rate for an annuitant,
adjusted age 65, who has elected a life annuity Payment Plan with a certain
period of 10 years with an Assumed Investment Rate of 3-1/2% (Plan 2, as
described in the prospectus).
<TABLE>
<S> <C>
(1) Value of Annuitant's retirement benefit
allocated to Balanced . . . . . . . . . . . . . . . . $ 50,000
(2) Assumed applicable monthly payment rate
per $1,000 from annuity rate table . . . . . . . . . . $ 5.00
(3) Amount of first payment from Balanced
Division (1) x (2) divided by $1,000.. . . . . . . . . $ 250.00
(4) Assumed Value of Annuity Unit in Balanced
Division on effective date of payment plan. . . . . . $ 1.500000
(5) Number of Annuity Units credited in
Balanced Division, (3) divided by (4). . . . . . . . . 166.67
</TABLE>
The $50,000 value on the effective date of the payment plan provides a first
payment from the Balanced Division of $250.00, and payments thereafter of the
varying dollar value of 166.67 Annuity Units. The amount of subsequent payments
from the Balanced Division is determined by multiplying 166.67 units by the
value of an Annuity Unit in the Balanced Division on the applicable valuation
date. For example, if that unit value is $1.501000, the monthly payment from
the Division will be 166.67 multiplied by $1.501000, or $250.17.
However, the value of the Annuity Unit depends entirely on the investment
performance of the Division. Thus in the example above, if the net investment
rate for the following month (see "Net Investment Factor") was less than the
Assumed Investment Rate of 3-1/2%, the Annuity Unit would decline in value. If
the Annuity Unit value declined to $1.499000 the succeeding monthly payment
would then be 166.67 X $1.499000, or $249.84.
B-3
<PAGE>
For the sake of simplicity the foregoing example assumes that all of the
Annuity Units are in the Balanced Division. If there are Annuity Units in two
or more Divisions, the annuity payment from each Division is calculated
separately, in the manner illustrated, and the total monthly payment is the sum
of the payments from the Divisions.
VALUATION OF ASSETS OF THE ACCOUNT
The value of Portfolio shares of the Fund held in each Division of the
Account at the time of each valuation is the redemption value of such shares at
such time. If the right to redeem shares of the Fund has been suspended, or
payment of redemption value has been postponed, for the sole purpose of
computing annuity payments the shares held in the Account (and Annuity Units)
may be valued at fair value as determined in good faith by the Board of Trustees
of Northwestern Mutual Life.
TRANSFERABILITY RESTRICTIONS
Ownership of a Contract may be transferred subject to the terms of the Plan
or Trust. The transferee, or its fiduciary representative, must acknowledge in
writing that the new Owner is a tax-qualified pension or profit-sharing plan.
Written proof of transfer satisfactory to Northwestern Mutual Life must be
received at the Home Office of Northwestern Mutual Life. The transfer will take
effect on the date the proof of the transfer is signed. Ownership of a Contract
may not be assigned without the consent of Northwestern Mutual Life.
Northwestern Mutual Life will not be responsible for the validity or effect of
the assignment or for any payment or other action taken by Northwestern Mutual
Life before Northwestern Mutual Life consents to the assignment.
EXPERTS
The financial statements of the Account as of December 31, 1997 and for
each of the two years in the period ended December 31, 1997 and of Northwestern
Mutual Life as of December 31, 1997 and 1996 and for each of the three years in
the period ended December 31, 1997 included in this Statement of Additional
Information have been so included in reliance on the reports of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting. Price Waterhouse LLP provides audit services for the
Account. The address of Price Waterhouse LLP is 100 East Wisconsin Avenue,
Suite 1500, Milwaukee, Wisconsin 53202.
B-4
<PAGE>
ACCOUNT C FINANCIAL STATEMENTS
NML VARIABLE ANNUITY ACCOUNT C
Financial Statements
DECEMBER 31, 1997
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
<TABLE>
<S> <C> <C>
ASSETS
Investments at Market Value:
Northwestern Mutual Series Fund, Inc.
Aggressive Growth Stock
33,439 shares (cost $85,859)............... $ 111,587
International Equity
37,820 shares (cost $52,787)............... 63,877
Growth Stock
8,757 shares (cost $13,279)................ 15,850
Growth and Income Stock
20,650 shares (cost $28,811)............... 27,485
Index 500 Stock
50,653 shares (cost $81,303)............... 133,928
Balanced
77,214 shares (cost $114,230).............. 153,734
High Yield Bond
6,179 shares (cost $6,940)................. 6,568
Select Bond
14,367 shares (cost $16,786)............... 18,060
Money Market
16,900 shares (cost $16,900)............... 16,900 $ 547,989
---------
Due from Sale of Fund Shares.................................. 2,927
Due from Northwestern Mutual Life Insurance Company........... 197
---------
Total Assets............................................ $ 551,113
---------
---------
LIABILITIES
Due to Northwestern Mutual Life Insurance Company........... $ 2,927
Due on Purchase of Fund Shares.............................. 197
---------
Total Liabilities....................................... 3,124
---------
EQUITY (NOTE 8)
Group Variable Annuity Contracts Issued:
Before December 17, 1981 or between April 30, 1984 and
December 31, 1991........................................ $ 341,609
After December 16, 1981 and Prior to May 1, 1984.......... 7,412
After December 31, 1991 -- Front Load Version............. 47,303
After December 31, 1991 -- Simplified Load Version........ 151,665
---------
Total Equity............................................ 547,989
---------
Total Liabilities and Equity............................ $ 551,113
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B-5
<PAGE>
ACCOUNT C FINANCIAL STATEMENTS
NML VARIABLE ANNUITY ACCOUNT C
Statement of Operations and Changes in Equity
(IN THOUSANDS)
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH
COMBINED STOCK DIVISION INTERNATIONAL EQUITY DIVISION
------------------------------- ------------------------------ -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996 1997 1996
-------------- -------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............. $ 27,691 $ 16,994 $ 6,050 $ 2,575 $ 1,946 $ 1,805
Annuity Rate and Expense
Guarantees................ 2,502 1,738 533 384 259 162
-------------- -------------- -------------- ------------- ------------- -------------
Net Investment Income....... 25,189 15,256 5,517 2,191 1,687 1,643
-------------- -------------- -------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized Gain on
Investments............... 18,686 8,855 6,115 574 1,012 243
Unrealized Appreciation of
Investments During the
Period.................... 44,242 29,833 1,306 7,637 3,272 5,631
-------------- -------------- -------------- ------------- ------------- -------------
Net Gain on Investments..... 62,928 38,688 7,421 8,211 4,284 5,874
-------------- -------------- -------------- ------------- ------------- -------------
Increase in Equity Derived
from Investment
Activity.................. 88,117 53,944 12,938 10,402 5,971 7,517
-------------- -------------- -------------- ------------- ------------- -------------
EQUITY TRANSACTIONS
Contract Owners' Net
Payments.................. 91,195 89,651 18,472 23,018 9,763 7,618
Annuity Payments............ (50) (37) (2) (1) (1) (1)
Surrenders and Other
(net)..................... (58,500) (35,414) (13,113) (4,477) (4,326) (2,272)
Transfers from Other
Divisions or Sponsor...... 46,344 47,413 5,552 10,470 6,230 7,684
Transfers to Other Divisions
or Sponsor................ (45,769) (46,710) (7,536) (1,555) (3,221) (1,124)
-------------- -------------- -------------- ------------- ------------- -------------
Increase in Equity Derived
from Equity Transactions.... 33,220 54,903 3,373 27,455 8,445 11,905
-------------- -------------- -------------- ------------- ------------- -------------
Net Increase in Equity........ 121,337 108,847 16,311 37,857 14,416 19,422
EQUITY
Beginning of Period......... 426,652 317,805 95,279 57,422 49,460 30,038
-------------- -------------- -------------- ------------- ------------- -------------
End of Period............... $ 547,989 $ 426,652 $ 111,590 $ 95,279 $ 63,876 $ 49,460
-------------- -------------- -------------- ------------- ------------- -------------
-------------- -------------- -------------- ------------- ------------- -------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B-6
<PAGE>
ACCOUNT C FINANCIAL STATEMENTS
NML VARIABLE ANNUITY ACCOUNT C
Statement of Operations and Changes in Equity
(IN THOUSANDS)
<TABLE>
<CAPTION>
GROWTH & INCOME INDEX 500
GROWTH STOCK DIVISION STOCK DIVISION STOCK DIVISION
--------------------------- ----------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996 1997 1996
------------ ------------ ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............. $ 712 $ 367 $ 5,941 $ 1,146 $ 3,756 $ 2,082
Annuity Rate and Expense
Guarantees................ 52 22 104 51 514 303
------------ ------------ ------------- ------------- -------------- -------------
Net Investment Income....... 660 345 5,837 1,095 3,242 1,779
------------ ------------ ------------- ------------- -------------- -------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized Gain (Loss) on
Investments............... 715 77 660 189 5,480 2,433
Unrealized Appreciation
(Depreciation) of
Investments During the
Period.................... 1,866 568 (1,982) 387 23,021 11,685
------------ ------------ ------------- ------------- -------------- -------------
Net Gain (Loss) on
Investments............... 2,581 645 (1,322) 576 28,501 14,118
------------ ------------ ------------- ------------- -------------- -------------
Increase in Equity Derived
from Investment
Activity.................. 3,241 990 4,515 1,671 31,743 15,897
------------ ------------ ------------- ------------- -------------- -------------
EQUITY TRANSACTIONS
Contract Owners' Net
Payments.................. 2,670 2,183 7,626 3,722 17,138 15,515
Annuity Payments............ (3) (1) -- -- (3) (1)
Surrenders and Other
(net)..................... (1,049) (116) (2,186) (582) (11,007) (4,705)
Transfers from Other
Divisions or Sponsor...... 3,487 4,847 5,741 3,922 7,667 6,527
Transfers to Other Divisions
or Sponsor................ (2,232) (254) (1,247) (586) (4,859) (4,546)
------------ ------------ ------------- ------------- -------------- -------------
Increase (Decrease) in Equity
Derived from Equity
Transactions................ 2,873 6,659 9,934 6,476 8,936 12,790
------------ ------------ ------------- ------------- -------------- -------------
Net Increase (Decrease) in
Equity...................... 6,114 7,649 14,449 8,147 40,679 28,687
EQUITY
Beginning of Period......... 9,733 2,084 13,036 4,889 93,250 64,563
------------ ------------ ------------- ------------- -------------- -------------
End of Period............... $15,847 $9,733 $27,485 $13,036 $133,929 $93,250
------------ ------------ ------------- ------------- -------------- -------------
------------ ------------ ------------- ------------- -------------- -------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B-7
<PAGE>
NML VARIABLE ANNUITY ACCOUNT C
Statement of Operations and Changes in Equity
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCED DIVISION HIGH YIELD BOND DIVISION SELECT BOND DIVISION
----------------------------- --------------------------- ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996 1997 1996
------------- ------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............. $ 6,461 $ 7,534 $1,028 $ 309 $ 1,058 $ 566
Annuity Rate and Expense
Guarantees................ 749 601 22 9 117 97
------------- ------------- ------------ ------------ ------------ ------------
Net Investment Income....... 5,712 6,933 1,006 300 941 469
------------- ------------- ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized Gain (Loss) on
Investments............... 4,562 5,336 44 14 98 (11)
Unrealized Appreciation
(Depreciation) of
Investments During the
Period.................... 16,710 3,891 (376) 28 425 6
------------- ------------- ------------ ------------ ------------ ------------
Net Gain (Loss) on
Investments............... 21,272 9,227 (332) 42 523 (5)
------------- ------------- ------------ ------------ ------------ ------------
Increase in Equity Derived
from Investment
Activity.................. 26,984 16,160 674 342 1,463 464
------------- ------------- ------------ ------------ ------------ ------------
EQUITY TRANSACTIONS
Contract Owners' Net
Payments.................. 17,262 17,719 964 455 3,598 3,797
Annuity Payments............ (37) (32) -- -- (3) (1)
Surrenders and Other
(net)..................... (16,900) (15,880) (198) (161) (3,448) (1,149)
Transfers from Other
Divisions or Sponsor...... 5,080 2,692 2,564 1,676 1,445 2,356
Transfers to Other Divisions
or Sponsor................ (9,980) (21,803) (418) (65) (2,798) (3,945)
------------- ------------- ------------ ------------ ------------ ------------
Increase (Decrease) in Equity
Derived from Equity
Transactions................ (4,575) (17,304) 2,912 1,905 (1,206) 1,058
------------- ------------- ------------ ------------ ------------ ------------
Net Increase (Decrease) in
Equity...................... 22,410 (1,144) 3,586 2,247 257 1,522
EQUITY
Beginning of Period......... 131,325 132,469 2,983 736 17,802 16,280
------------- ------------- ------------ ------------ ------------ ------------
End of Period............... $153,735 $131,325 $6,569 $2,983 $18,059 $17,802
------------- ------------- ------------ ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------ ------------
<CAPTION>
MONEY MARKET DIVISION
---------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
INVESTMENT INCOME
Dividend Income............. $ 739 $ 610
Annuity Rate and Expense
Guarantees................ 152 109
------------ ------------
Net Investment Income....... 587 501
------------ ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized Gain (Loss) on
Investments............... -- --
Unrealized Appreciation
(Depreciation) of
Investments During the
Period.................... -- --
------------ ------------
Net Gain (Loss) on
Investments............... 0 0
------------ ------------
Increase in Equity Derived
from Investment
Activity.................. 587 501
------------ ------------
EQUITY TRANSACTIONS
Contract Owners' Net
Payments.................. 13,702 15,624
Annuity Payments............ (1) --
Surrenders and Other
(net)..................... (6,273) (6,072)
Transfers from Other
Divisions or Sponsor...... 8,578 7,239
Transfers to Other Divisions
or Sponsor................ (13,478) (12,832)
------------ ------------
Increase (Decrease) in Equity
Derived from Equity
Transactions................ 2,528 3,959
------------ ------------
Net Increase (Decrease) in
Equity...................... 3,115 4,460
EQUITY
Beginning of Period......... 13,784 9,324
------------ ------------
End of Period............... $16,899 $13,784
------------ ------------
------------ ------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NML VARIABLE ANNUITY ACCOUNT C
Notes to Financial Statements
DECEMBER 31, 1997
NOTE 1 -- NML Variable Annuity Account C (the "Account") is a segregated asset
account of The Northwestern Mutual Life Insurance Company ("Northwestern Mutual
Life" or "Sponsor") used to fund variable annuity contracts ("contracts") for
HR-10 and corporate pension and profit-sharing plans which qualify for special
tax treatment under the Internal Revenue Code. Beginning December 31, 1991, two
versions of the contract are offered: Front Load contracts with a sales charge
up to 4 1/2% of purchase payments and Simplified Load contracts with an
installment fee of $750.
NOTE 2 -- The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Principal
accounting policies are summarized below.
NOTE 3 -- All assets of each Division of the Account are invested in shares of
the corresponding Portfolio of Northwestern Mutual Series Fund, Inc. (the
"Fund"). The shares are valued at the Fund's offering and redemption price per
share.
The Fund is an open-end investment company registered under the Investment
Company Act of 1940.
NOTE 4 -- Annuity reserves are based on published annuity tables with age
adjustments and benefit payments which reflect actual investment experience.
Annuity reserves are based on the 1983 Table a with assumed interest rates of
3 1/2% or 5%.
NOTE 5 -- Dividend income from the Fund is recorded on the record date of the
dividends. Transactions in Fund shares are accounted for on the trade date. The
basis for determining cost on sale of Fund shares is identified cost. Purchases
and sales of Fund shares for the year ended December 31, 1997 by each Division
are shown below:
<TABLE>
<CAPTION>
PURCHASES SALES
------------- -------------
<S> <C> <C>
Aggressive Growth Division........ $ 21,563,810 $ 12,675,291
International Equity Division..... 14,484,423 4,352,840
Growth Stock Division............. 5,929,895 2,395,716
Growth & Income Stock Division.... 18,445,529 2,674,188
Index 500 Stock Division.......... 22,292,577 10,114,507
Balanced Division................. 18,920,420 17,783,563
High Yield Bond Division.......... 4,398,102 480,911
Select Bond Division.............. 4,295,571 4,561,008
Money Market Division............. 20,035,837 16,919,905
</TABLE>
NOTE 6 -- A deduction for annuity rate and expense guarantees is determined
daily and paid to Northwestern Mutual Life as compensation for assuming the risk
that annuity payments will continue for longer periods than anticipated because
the annuitants as a group live longer than expected, and the risk that the
charges made by Northwestern Mutual Life may be insufficient to cover the actual
costs incurred in connection with the contracts.
Generally, for contracts issued after December 31, 1991, for the Front Load
version and the Simplified Load version, the deduction for annuity rate and
expense guarantee is determined daily at annual rates of 6 1/2/10 of 1% and
1 1/4%, respectively, of the net assets of each Division attributable to these
contracts and is paid to Northwestern Mutual Life. For these contracts, the
rates may be increased or decreased by the Board of Trustees of Northwestern
Mutual Life not to exceed 1% and 1 1/2% annual rates, respectively.
For contracts issued after December 16, 1981, and prior to May 1, 1984, the
deduction is determined daily at an annual rate of 1/2% of 1% of the net assets
of each Division attributable to these contracts and is paid to Northwestern
Mutual Life. For these contracts, the rate may be increased or decreased by the
Board of Trustees of Northwestern Mutual Life not to exceed a 3/4% of 1% annual
rate.
Since 1996, Northwestern Mutual Life has paid a dividend to certain contracts.
The dividend is re-invested in the Account and has been reflected as a Contract
Owners' Net Payment in the accompanying financial statements.
NOTE 7 -- Northwestern Mutual Life is taxed as a "life insurance company" under
the Internal Revenue Code and the operations of the Account form a part of and
are taxed with those of Northwestern Mutual Life. Under current law, no federal
income taxes are payable with respect to the Account. Accordingly, no provision
for any such liability has been made.
B-9
<PAGE>
NML VARIABLE ANNUITY ACCOUNT C
Notes to Financial Statements
DECEMBER 31, 1997
NOTE 8 -- Equity Values by Division are shown below:
<TABLE>
<CAPTION>
GROUP VARIABLE ANNUITY CONTRACT ISSUED:
----------------------------------------------------------------------------------
BEFORE DECEMBER 17, 1981 OR BETWEEN AFTER DECEMBER 16, 1981 AND PRIOR TO
APRIL 30, 1984 AND DECEMBER 31, 1991 MAY 1, 1984
---------------------------------------- ----------------------------------------
ACCUMULATION UNITS ACCUMULATION UNITS
DIVISION UNIT VALUE OUTSTANDING EQUITY UNIT VALUE OUTSTANDING EQUITY
- --------------------------------------- -------------- ------------ ---------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth Stock................ $ 37.054456 1,935 71,716 $ 35.791674 1 $ 41
International Equity................... 1.938399 23,070 44,718 1.893664 110 207
Growth Stock........................... 20.837268 483 10,062 20.458788 1 3
Growth and Income Stock................ 20.502206 712 14,589 20.129770 2 46
Index 500 Stock........................ 36.141676 2,558 92,458 34.906216 19 664
Balanced............................... 71.490869 1,342 95,936 66.012286 87 5,719
High Yield Bond........................ 16.692972 236 3,933 15.438129 -- --
Select Bond............................ 83.938645 85 7,138 77.468103 1 41
Money Market........................... 27.434762 39 1,059 25.362364 1 22
---------- ----------
Equity................................. 341,609 6,743
Annuity Reserves....................... -- 669
---------- ----------
Total Equity........................... $ 341,609 $ 7,412
---------- ----------
---------- ----------
<CAPTION>
GROUP COMBINATION ANNUITY CONTRACT ISSUED:
----------------------------------------------------------------------------------
AFTER DECEMBER 31, 1991 AFTER DECEMBER 31, 1991
FRONT LOAD VERSION SIMPLIFIED LOAD VERSION
---------------------------------------- ----------------------------------------
ACCUMULATION UNITS ACCUMULATION UNITS
DIVISION UNIT VALUE OUTSTANDING EQUITY UNIT VALUE OUTSTANDING EQUITY
- --------------------------------------- -------------- ------------ ---------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth Stock................ $ 2.350498 3,169 $ 7,449 $ 3.598431 8,989 $ 32,347
International Equity................... 1.880500 3,021 5,681 1.828649 7,247 13,252
Growth Stock........................... 2.034708 710 1,445 1.990509 2,160 4,299
Growth and Income Stock................ 2.001981 1,970 3,945 1.958555 4,547 8,906
Index 500 Stock........................ 2.563560 3,967 10,169 3.240055 9,442 30,594
Balanced............................... 1.931409 6,187 11,950 5.796067 6,839 39,642
High Yield Bond........................ 1.630023 424 691 1.594619 1,220 1,945
Select Bond............................ 1.490112 2,574 3,836 6.768475 1,035 7,005
Money Market........................... 1.249188 1,710 2,137 2.339812 5,845 13,675
---------- ----------
Equity................................. 47,303 151,665
Annuity Reserves....................... -- --
---------- ----------
Total Equity........................... $ 47,303 $ 151,665
---------- ----------
---------- ----------
</TABLE>
B-10
<PAGE>
ACCOUNT C ACCOUNTANTS' LETTER
[LOGO]
[LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
To The Northwestern Mutual Life Insurance Company and
Contract Owners NML Variable Annuity Account C
In our opinion, the accompanying combined statement of assets and liabilities
and the related combined and separate statements of operations and changes in
equity present fairly, in all material respects, the financial position of NML
Variable Annuity Account C and the Aggressive Growth Stock Division,
International Equity Division, Growth Stock Division, Growth and Income Stock
Division, Index 500 Stock Division, Balanced Division, High Yield Bond Division,
Select Bond Division, and the Money Market Division thereof at December 31,
1997, the results of their operations and the changes in their equity for the
year then ended and for each of the other periods presented, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of The Northwestern Mutual Life Insurance Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included direct confirmation of the number of
shares owned at December 31, 1997 with Northwestern Mutual Series Fund, Inc.,
provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
January 27, 1998
B-11
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(IN MILLIONS)
The following financial statements of Northwestern Mutual should be considered
only as bearing upon the ability of Northwestern Mutual Life to meet its
obligations under the Policies.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Bonds......................................... $ 32,359 $ 29,076
Common and preferred stocks................... 6,524 4,728
Mortgage loans................................ 10,835 9,564
Real estate................................... 1,372 1,385
Policy loans.................................. 7,163 6,802
Other investments............................. 2,026 1,714
Cash and temporary investments................ 572 1,131
Due and accrued investment income............. 795 764
Other assets.................................. 1,275 1,177
Separate account assets....................... 8,160 6,339
--------- ---------
Total assets.............................. $ 71,081 $ 62,680
--------- ---------
--------- ---------
LIABILITIES AND GENERAL CONTINGENCY RESERVE
Reserves for policy benefits.................. $ 47,343 $ 43,209
Policy benefit and premium deposits........... 1,624 1,567
Policyowner dividends payable................. 2,640 2,350
Interest maintenance reserve.................. 461 299
Asset valuation reserve....................... 1,974 1,538
Income taxes payable.......................... 1,043 942
Other liabilities............................. 3,735 2,921
Separate account liabilities.................. 8,160 6,339
--------- ---------
Total liabilities......................... 66,980 59,165
General contingency reserve................... 4,101 3,515
--------- ---------
Total liabilities and general contingency
reserve.................................. $ 71,081 $ 62,680
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements
B-12
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER
31,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUE
Premiums...................................... $ 7,294 $ 6,667 $ 6,196
Net investment income......................... 4,171 3,836 3,673
Policy benefits left with Company and other
income....................................... 861 759 733
-------- -------- --------
Total revenue............................. 12,326 11,262 10,602
-------- -------- --------
BENEFITS AND EXPENSES
Benefit payments to policyowners and
beneficiaries:
Death benefits.............................. 775 673 655
Surrender benefits.......................... 1,422 1,182 1,375
Disability benefits......................... 227 202 174
Annuity benefits............................ 140 128 92
Matured endowments.......................... 58 52 48
Payments from policy benefits left with
Company.................................... 707 684 590
-------- -------- --------
Benefits paid............................. 3,329 2,921 2,934
Net transfers to separate accounts............ 566 579 236
Net additions to policy reserves.............. 4,026 3,701 3,506
-------- -------- --------
Total benefits............................ 7,921 7,201 6,676
Operating expenses............................ 1,138 1,043 1,026
-------- -------- --------
Total benefits and expenses............... 9,059 8,244 7,702
-------- -------- --------
Gain from operations before income taxes and
dividends........................................ 3,267 3,018 2,900
Policyowner dividends............................. 2,636 2,341 2,111
-------- -------- --------
Gain from operations before taxes................. 631 677 789
Income tax expense................................ 356 452 467
-------- -------- --------
Net gain from operations.......................... 275 225 322
Net realized capital gains........................ 414 395 137
-------- -------- --------
Net income................................ $ 689 $ 620 $ 459
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of the financial statements
B-13
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN GENERAL CONTINGENCY RESERVE
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
BEGINNING OF YEAR BALANCE......................... $3,515 $2,786 $2,225
Net income...................................... 689 620 459
Increase in net unrealized capital gains........ 576 295 373
Increase in investment reserves................. (526) (176) (237)
Other, net...................................... (153) (10) (34)
------- ------- -------
Net increase in general contingency reserve..... 586 729 561
------- ------- -------
END OF YEAR BALANCE............................... $4,101 $3,515 $2,786
------- ------- -------
------- ------- -------
</TABLE>
The accompanying notes are an integral part of the financial statements
B-14
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Insurance and annuity premiums................ $ 8,093 $ 7,361 $ 6,864
Investment income received.................... 3,928 3,634 3,480
Net disbursement of policy loans.............. (360) (326) (331)
Benefits paid to policyowners and
beneficiaries................................ (3,316) (2,912) (2,939)
Net transfers to separate accounts............ (565) (579) (236)
Policyowner dividends paid.................... (2,347) (2,105) (1,945)
Operating expenses and taxes.................. (1,722) (1,663) (1,364)
Other, net.................................... 564 1,558 381
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES..... 4,275 4,968 3,910
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
PROCEEDS FROM INVESTMENTS SOLD OR MATURED
Bonds......................................... 38,284 31,942 25,317
Common and preferred stocks................... 9,057 4,570 2,465
Mortgage loans................................ 1,012 1,253 431
Real estate................................... 302 178 48
Other invested assets......................... 398 316 149
-------- -------- --------
49,053 38,259 28,410
-------- -------- --------
COST OF INVESTMENTS ACQUIRED
Bonds......................................... 41,169 35,342 27,596
Common and preferred stocks................... 9,848 4,463 2,562
Mortgage loans................................ 2,309 2,455 1,883
Real estate................................... 202 125 202
Other invested assets......................... 359 255 336
-------- -------- --------
53,887 42,640 32,579
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES......... (4,834) (4,381) (4,169)
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND TEMPORARY
INVESTMENTS...................................... (559) 587 (259)
CASH AND TEMPORARY INVESTMENTS, BEGINNING OF
YEAR............................................. 1,131 544 803
-------- -------- --------
CASH AND TEMPORARY INVESTMENTS, END OF YEAR....... $ 572 $ 1,131 $ 544
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of the financial statements
B-15
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 1 -- PRINCIPAL ACCOUNTING POLICIES
The accompanying consolidated statutory financial statements include the
accounts of The Northwestern Mutual Life Insurance Company ("Company") and its
wholly-owned life insurance subsidiary, Northwestern Long Term Care Insurance
Company ("Subsidiary"). The Company offers life, annuity and disability income
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"). Prior to December
15, 1995, these policies were considered generally accepted accounting
principles ("GAAP") for mutual life insurance enterprises. However, in April
1993, the Financial Accounting Standards Board issued Interpretation No. 40,
"Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance Companies and Other Enterprises," which established a different
definition of GAAP for mutual life insurance enterprises. Under the
Interpretation, financial statements of mutual life insurance enterprises for
periods beginning after December 15, 1995 which are prepared on the statutory
basis of accounting are no longer characterized as being in conformity with
GAAP.
Financial statements prepared on the statutory basis of accounting vary from
financial statements prepared on a GAAP basis primarily because on a GAAP basis
(1) policy acquisition costs are deferred and amortized, (2) investment
valuations and insurance reserves are based on different assumptions, (3) funds
received under deposit-type contracts are not reported as premium revenue, and
(4) deferred taxes are provided for temporary differences between book and tax
basis of certain assets and liabilities. The effects on the financial statements
of the differences between the statutory basis of accounting and GAAP are
material to the Company.
The preparation of financial statements in conformity with the statutory basis
of accounting requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual future results could differ from these estimates.
INVESTMENTS
The Company's investments are valued on the following bases:
<TABLE>
<S> <C> <C>
Bonds -- Amortized cost using the interest method; loan-backed and
structured securities are amortized using estimated
prepayment rates and, generally, the prospective adjustment
method
Common and preferred stocks -- Common stocks are carried at market value, preferred stocks
are generally carried at cost, and unconsolidated
subsidiaries are recorded as equity in subsidiaries' net
assets
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 ventures which are valued at
equity in ventures' net assets
Cash and temporary investments -- Amortized cost, which approximates fair value
</TABLE>
B-16
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
CASH AND TEMPORARY INVESTMENTS
Temporary investments consist of debt securities that have maturities of one
year or less at acquisition.
NET INVESTMENT INCOME
Net investment income includes interest and dividends received or due and
accrued on debt securities and stocks, equity in unconsolidated subsidiaries'
earnings and the Company's prorated portion of joint venture income. Net
investment income is reduced by investment management expenses, real estate
depreciation and depletion related to energy assets.
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.
ASSET VALUATION RESERVE
The Company is required to maintain an asset valuation reserve ("AVR"). The AVR
establishes a general reserve for invested assets held by the Company using a
formula prescribed by state regulations. The AVR is designed to stabilize the
general contingency reserves against potential declines in the value of
investments.
SEPARATE ACCOUNT BUSINESS
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 and/or a fixed interest
rate option. Separate account assets are reported at fair market value.
RESERVES FOR POLICY BENEFITS
Reserves for policy benefits are determined by actuarial estimates based on
mortality and morbidity experience tables and valuation interest rates
prescribed by the Office of the Commissioner of Insurance of the State of
Wisconsin. See Note 3.
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.
B-17
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
POLICYOWNER DIVIDENDS
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 1996 and 1995 financial statement balances have been reclassified to
conform to the current year presentation.
NOTE 2 -- INVESTMENTS
DEBT SECURITIES
Debt securities consist of all bonds and fixed-maturity preferred stocks. The
estimated market 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
market value of the Company's debt securities at December 31, 1997 and 1996 are
as follows:
<TABLE>
<CAPTION>
RECONCILIATION TO ESTIMATED MARKET
VALUE
---------------------------------------
GROSS GROSS ESTIMATED
STATEMENT UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1997 VALUE APPRECIATION DEPRECIATION VALUE
- -------------------------------------------------- --------- ------------ ------------ ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
US Government and political obligations........... $ 3,695 $ 336 $ (3) $ 4,028
Mortgage-backed securities........................ 7,015 264 (4) 7,275
Corporate and other debt securities............... 21,649 1,098 (208) 22,539
--------- ------------ ------ ---------
32,359 1,698 (215) 33,842
Preferred stocks.................................. 167 4 (2) 169
--------- ------------ ------ ---------
Total............................................. $32,526 $1,702 $(217) $34,011
--------- ------------ ------ ---------
--------- ------------ ------ ---------
<CAPTION>
RECONCILIATION TO ESTIMATED MARKET
VALUE
---------------------------------------
GROSS GROSS ESTIMATED
STATEMENT UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1996 VALUE APPRECIATION DEPRECIATION VALUE
- -------------------------------------------------- --------- ------------ ------------ ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
US Government and political obligations........... $ 4,789 $ 171 $ (2) $ 4,958
Mortgage-backed securities........................ 6,747 179 (38) 6,888
Corporate and other debt securities............... 17,540 776 (99) 18,217
--------- ------------ ------ ---------
29,076 1,126 (139) 30,063
Preferred stocks.................................. 84 6 (1) 89
--------- ------------ ------ ---------
Total............................................. $29,160 $1,132 $(140) $30,152
--------- ------------ ------ ---------
--------- ------------ ------ ---------
</TABLE>
B-18
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
The statement value of debt securities by contractual maturity at December 31,
1997 and 1996 is shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(IN MILLIONS)
<S> <C> <C>
Due in one year or less........................... $ 605 $ 457
Due after one year through five years............. 4,878 4,077
Due after five years through ten years............ 9,760 7,802
Due after ten years............................... 10,268 10,077
------------ ------------
25,511 22,413
Mortgage-backed securities........................ 7,015 6,747
------------ ------------
$32,526 $29,160
------------ ------------
------------ ------------
</TABLE>
STOCKS
The estimated market 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 cost of common and preferred stock held by the Company at December 31, 1997
and 1996 is $5.0 billion and $3.7 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 properties.
The fair value of mortgage loans as of December 31, 1997 and 1996 was
approximately $11.5 billion and $9.8 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, 1997, real estate includes $61 million acquired through
foreclosure and $124 million of home office real estate. In 1997 and 1996, the
Company recorded unrealized losses of $2 million and $43 million, respectively,
for the excess of carrying value over fair value of certain real estate
investments and mortgage loans.
B-19
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
REALIZED GAINS AND LOSSES
Realized investment gains and losses for the years ended December 31, 1997, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------------------- ---------------------------------------
NET NET
REALIZED REALIZED
REALIZED REALIZED GAINS REALIZED REALIZED GAINS
GAINS LOSSES (LOSSES) GAINS LOSSES (LOSSES)
----------- ----------- ----------- ----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Bonds............................ $ 518 $ (269) $ 249 $ 396 $ (383) $ 13
Common and preferred Stocks...... 533 (150) 383 580 (115) 465
Mortgage loans................... 14 (14) - 2 (15) (13)
Real estate...................... 100 (2) 98 36 0 36
Other invested assets............ 338 (105) 233 204 (51) 153
----------- ----------- ----- ----------- ----------- -----
$ 1,503 $ (540) $ 963 $ 1,218 $ (564) $ 654
----------- ----------- ----- ----------- ----------- -----
----------- ----------- ----- ----------- ----------- -----
Less: Capital gains taxes........ 340 224
Less: IMR deferrals.............. 209 35
----- -----
Net realized capital gains....... $ 414 $ 395
----- -----
----- -----
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1995
---------------------------------------
NET
REALIZED
REALIZED REALIZED GAINS
GAINS LOSSES (LOSSES)
----------- ----------- -----------
<S> <C> <C> <C>
Bonds............................ $ 576 $ (130) $ 446
Common and preferred Stocks...... 574 (429) 145
Mortgage loans................... 2 (32) (30)
Real estate...................... 14 (3) 11
Other invested assets............ 188 (95) 93
----------- ----------- -----------
$ 1,354 $ (689) $ 665
----------- ----------- -----------
----------- ----------- -----------
Less: Capital gains taxes........ 239
Less: IMR deferrals.............. 289
-----------
Net realized capital gains....... $ 137
-----------
-----------
</TABLE>
SECURITIES LENDING
The Company has entered into a securities lending agreement whereby certain
securities are loaned to third parties, primarily major brokerage firms. The
Company's policy requires a minimum of 102 percent of the fair value of the
loaned securities as collateral, calculated on a daily basis in the form of
either cash or securities. Collateral assets received and related liability due
to counterparties of $1.5 billion and $1.0 billion are included in the
consolidated statements of financial position at December 31, 1997 and 1996,
respectively, and approximate the statement value of securities loaned at those
dates.
INVESTMENT IN MGIC
The Company owns 18.4% (20.9 million shares) of the outstanding common stock of
MGIC Investment Corporation ("MGIC"). This investment is accounted for using the
equity method. At December 31, 1997, the market value of the Company's
investment in MGIC exceeded the statement value of $273 million by $768 million.
In July 1995, the Company entered into a forward contract with a brokerage firm
to deliver 8.8 million to 10.7 million shares of MGIC (or cash in an amount
equal to the market value of the MGIC shares at contract maturity) in August,
1998, in exchange for a fixed cash payment of $247 million ($24 per share). The
Company's objective in entering into the forward contract was to hedge against
depreciation in the value of its MGIC holdings during the contract period below
the initial spot price of $24, while partially participating in appreciation, if
any, during the forward contract's duration.
B-20
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
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. In addition to the use of derivatives for hedging
purposes, equity swaps were held for investment purposes during 1997.
The Company held the following positions for hedging purposes at December 31,
1997:
<TABLE>
<CAPTION>
DERIVATIVE FINANCIAL INSTRUMENT NOTIONAL AMOUNTS RISKS REDUCED
- --------------------------------------------- ---------------- --------------------------------------------
(IN MILLIONS)
<S> <C> <C>
Foreign Currency Forward Contracts........... $564 Currency exposure on foreign denominated
investments.
Common Stock Futures......................... 327 Stock market price fluctuation.
Bond Futures................................. 95 Bond market price fluctuation.
Options to acquire Interest Rate Swaps....... 530 Interest rates payable on certain annuity and
insurance contracts.
Foreign Currency and Interest Rate Swaps..... 209 Interest rates on variable rate notes and
currency exposure on foreign denominated
bonds.
</TABLE>
The notional or contractual amounts of derivative financial instruments are used
to denominate these types of transactions and do not represent the amounts
exchanged between the parties.
The notional amount of equity swaps outstanding at December 31, 1997 was $143
million.
The hedges are recorded by the Company in the same manner as the underlying
investments. Foreign currency forwards, foreign currency swaps, stock futures,
and options to acquire interest rate swaps are reported at market value. There
is no statement value reported for interest rate swaps and bond futures prior to
the settlement of the contract. Changes in the values of these contracts are
expected to offset gains and losses on the hedged items. For hedges reported at
market value, gains and losses are unrealized until expiration of the contract.
The effect of derivative transactions is not material to the Company's results
of operations or financial position.
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 ("CRVM") with interest
rates ranging from 3 1/2% to 5 1/2%. Other life policy reserves are based
primarily 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 using CRVM
with interest rates ranging from 3 1/2% to 6 1/4%. Other deferred annuity
reserves are based on the 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%.
B-21
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
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 estimated using 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 using primarily the 1985 CIDA
(modified for Company experience in the first two years of disability) with
interest rates ranging from 3% to 5 1/2%.
Use of these actuarial tables and methods involves estimation of future
mortality and morbidity based on past experience. Actual future experience could
differ from these estimates.
NOTE 4 -- EMPLOYEE AND AGENT BENEFIT PLANS
The Company sponsors noncontributory defined benefit retirement plans for all
eligible employees and agents. The expense associated with these plans is
generally recorded by the Company in the period contributions to the plans
are funded. As of January 1, 1997, the most recent actuarial valuation date
available, the defined benefit plans were fully funded. 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 required
under the plan. The defined benefit and defined contribution plans' assets of
$1.4 billion at December 31, 1997 are primarily invested in the separate
accounts of the Company.
In addition to pension 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 cost for
the year ended December 31, 1997 was a net benefit of $1.3 million; it includes
the expected cost of postretirement benefits for newly eligible and vested
employees, interest cost and return on plan assets totaling $3.6 million, offset
by gains from favorable differences between actuarial assumptions and actual
experience of $4.9 million.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
-------------------- --------------------
<S> <C> <C>
Unfunded postretirement
benefit obligation for
retirees and other fully
eligible employees (Accrued
in statement of financial
position).................... $34 million $35 million
Estimated postretirement
benefit obligation for active
non-vested employees (Not
accrued until employee
vests)....................... $50 million $43 million
Discount rate................. 7% 7%
Health care cost trend rate... 10% to an ultimate 10% to an ultimate
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, 1997 would be increased by
$4 million.
At December 31, 1997, the recorded postretirement benefit obligation was reduced
by $20 million for assets funded for postretirement health care benefits.
B-22
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
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 co-insurance contracts. The Company
retains a maximum of $15 million of coverage per individual life and $20 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 activity. Benefit reserves at December 31, 1997 and 1996 are
reported net of reinsurance of $435 million and $355 million, respectively. The
effect of reinsurance on premiums and benefits for the years ended December 31,
1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Direct premiums................................... $7,647 $7,064 $6,452
Reinsurance ceded................................. (353) (397) (256)
------- ------- -------
Net premium revenue............................... $7,294 $6,667 $6,196
------- ------- -------
------- ------- -------
Benefits to policyowners and beneficiaries........ $8,057 $7,348 $6,818
Reinsurance recoveries............................ (136) (147) (142)
------- ------- -------
Net benefits to policyowners and beneficiaries.... $7,921 $7,201 $6,676
------- ------- -------
------- ------- -------
</TABLE>
In addition, the Company received $115 million, $93 million and $67 million in
1997, 1996 and 1995 respectively, from reinsurers representing reimbursement of
commissions and other expenses. These amounts are included in other income in
the consolidated statement of operations.
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. 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 1988 are
closed as to further assessment of tax. Adequate provision has been made in the
financial statements for any additional taxes which may become due with respect
to the open years.
The Company's effective tax rate on gains from operations before income tax
expense (after dividends) in 1997, 1996 and 1995 were 56%, 67% and 60%,
respectively. The Company's effective tax rate exceeds the federal corporate
rate of 35% because, (1) the Company pays a tax that is assessed only on mutual
life insurance companies which treats a portion of policyholder dividends like
nondeductible dividends paid to shareholders of stock companies ("equity tax"),
and (2) the Company must capitalize and amortize (as opposed to immediately
deducting) an amount deemed to represent the cost of acquiring new business
("DAC tax").
B-23
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 7 -- CONTINGENCIES
The Company has guaranteed certain obligations of its affiliates. These
guarantees totaled approximately $112 million at December 31, 1997 and are
generally supported by the underlying net asset values of the affiliates.
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 condition.
B-24
<PAGE>
[LOGO]
[LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Policyowners of
The Northwestern Mutual Life Insurance Company
We have audited the accompanying consolidated statement of financial position of
The Northwestern Mutual Life Insurance Company and its subsidiary as of December
31, 1997 and 1996, and the related consolidated statements of operations, of
changes in general contingency reserve and of cash flows for each of the three
years in the period ended December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our report dated January 24, 1996, we expressed an opinion that the 1995
consolidated financial statements, prepared using accounting practices
prescribed or permitted by the Insurance Departments of the states in which the
Company and its subsidiary were domiciled (statutory basis of accounting), were
presented fairly, in all material respects, in conformity with generally
accepted accounting principles. As described in Note 1 to these financial
statements, pursuant to the pronouncement of the Financial Accounting Standards
Board, financial statements of mutual life insurance enterprises prepared using
accounting practices prescribed or permitted by insurance regulators (statutory
basis of accounting) are no longer considered presentations in conformity with
generally accepted accounting principles. Accordingly, our present opinion on
the presentation of the 1995 financial statements, as presented herein, is
different from that expressed in our previous report.
As described in Note 1, these consolidated financial statements were prepared in
conformity with accounting practices prescribed or permitted by the Office of
the Commissioner of Insurance of the State of Wisconsin (statutory basis of
accounting), which practices differ from generally accepted accounting
principles. Accordingly, the consolidated financial statements are not intended
to represent a presentation in accordance with generally accepted accounting
principles. The effects on the consolidated financial statements of the
variances between the statutory basis of accounting and generally accepted
accounting principles, although not reasonably determinable, are presumed to be
material.
In our opinion, the consolidated financial statements audited by us (1) do not
present fairly in conformity with generally accepted accounting principles, the
financial position of The Northwestern Mutual Life Insurance Company and its
subsidiary at December 31, 1997 and 1996, or the results of their operations or
their cash flows for each of the three years in the period ended December 31,
1997 because of the effects of the variances between the statutory basis of
accounting and generally accepted accounting principles referred to in the
preceding paragraph and (2) do present fairly, in all material respects, the
financial position of The Northwestern Mutual Life Insurance Company and its
subsidiary at December 31, 1997 and 1996 and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1997, on the basis of accounting described in Note 1.
/s/ PRICE WATERHOUSE LLP
January 26, 1998
B-25
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . B-2
DISTRIBUTION OF THE CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . B-2
DETERMINATION OF ANNUITY PAYMENTS. . . . . . . . . . . . . . . . . . . . . B-2
Amount of Annuity Payments. . . . . . . . . . . . . . . . . . . . . . B-2
Annuity Unit Value. . . . . . . . . . . . . . . . . . . . . . . . . . B-3
Illustrations of Variable Annuity Payments. . . . . . . . . . . . . . B-3
VALUATION OF ASSETS OF THE ACCOUNT . . . . . . . . . . . . . . . . . . . . B-4
TRANSFERABILITY RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . B-4
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-4
FINANCIAL STATEMENTS OF THE ACCOUNT. . . . . . . . . . . . . . . . . . . . B-5
(for the two years ended December 31, 1997)
REPORT OF INDEPENDENT ACCOUNTANTS. . . . . . . . . . . . . . . . . . . . .B-11
(for the two years ended December 31, 1997)
FINANCIAL STATEMENTS OF NORTHWESTERN MUTUAL LIFE . . . . . . . . . . . . .B-12
(for the three years ended December 31, 1997)
REPORT OF INDEPENDENT ACCOUNTANTS. . . . . . . . . . . . . . . . . . . . .B-25
(for the three years ended December 31, 1997)
</TABLE>
B-26
<PAGE>
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The financial statements of NML Variable Annuity Account C and
The Northwestern Mutual Life Insurance Company are included in
the Statement of Additional Information.
NML VARIABLE ANNUITY ACCOUNT C (for the two years ended
December 31, 1997)
Statement of Assets and Liabilities
Statement of Operations and Changes in Equity
Notes to Financial Statements
Report of Independent Accountants
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY (for the three
years ended December 31, 1997)
Consolidated Statement of Financial Position
Consolidated Summary of Operations
Consolidated Statement of Changes in General Contingency Reserve
Consolidated Statement of Cash Flows
Notes to Consolidated Statutory Financial Statements
Report of Independent Accountants
(b) Exhibits
Exhibit B(11) Consent of Price Waterhouse LLP.
The following exhibit was filed in electronic format with the
Registration Statement on Form S-6 for Northwestern Mutual Variable
Life Account, File No. 333-36865, CIK 0000742277, dated October 1,
1997, and is incorporated herein by reference.
Exhibit A(6)(c) Amendments to By-laws of The Northwestern
Mutual Life Insurance Company dated July 23,
1997.
The following exhibit was filed in electronic format with the
Registration Statement on Form S-6 for Northwestern Mutual Variable
Life Account, File No. 333-36865, CIK 0000742277, dated February 27,
1998, and is incorporated herein by reference.
Exhibit A(6)(c)(1) Amendments to By-laws of The Northwestern
Mutual Life Insurance Company dated
January 28, 1998.
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following lists include all of the Trustees, executive officers and
other officers of The Northwestern Mutual Life Insurance Company as of
February 1, 1998, without regard to their activities relating to variable
annuity contracts or their authority to act or their status as "officers" as
that term is used for certain purposes of the federal securities laws and rules
thereunder.
C-1
<PAGE>
TRUSTEES
NAME BUSINESS ADDRESS
- ---- ----------------
R. Quintus Anderson Aarque Capital Corporation
111 West Second Street
Jamestown, NY 14701
Edward E. Barr Sun Chemical Corporation
222 Bridge Plaza South
Fort Lee, NJ 07024
Gordon T. Beaham III Faultless Starch/Bon Ami Co.
1025 West Eighth Street
Kansas City, MO 64101
Robert C. Buchanan Fox Valley Corporation
P.O. Box 727
Appleton, WI 54912
Robert E. Carlson The Northwestern Mutual Life
Insurance Company
720 East Wisconsin Avenue
Milwaukee, WI 53202
George A. Dickerman Spalding Sports Worldwide
425 Meadow Street
P.O. Box 901
Chicopee, MA 01021-0901
Pierre S. du Pont Richards, Layton and Finger
1 Rodney Square
Wilmington, DE 19801
James D. Ericson The Northwestern Mutual Life
Insurance Company
720 East Wisconsin Avenue
Milwaukee, WI 53202
J. E. Gallegos Gallegos Law Firm
460 St. Michaels Drive
Building 300
Santa Fe, NM 87501
Stephen N. Graff 805 Lone Tree Road
Elm Grove, WI 53122-2014
Patricia Albjerg Graham 420 Gutman
Graduate School of Education
Harvard University
Cambridge, MA 02138
C-2
<PAGE>
Stephen F. Keller 101 South Las Palmas Avenue
Los Angeles, CA 90004
Barbara A. King Landscape Structures, Inc.
Route 3, 601 - 7th Street South
Delano, MN 55328
J. Thomas Lewis Suite 228
228 St. Charles Avenue
New Orleans, LA 70130
Daniel F. McKeithan Jr. Tamarack Petroleum Company, Inc.
Suite 1920
777 East Wisconsin Avenue
Milwaukee, WI 53202
Guy A. Osborn Universal Foods Corp.
433 East Michigan Street
Milwaukee, WI 53202
Timothy D. Proctor Glaxo Wellcome Inc.
P.O. Box 13398
5 Moore Drive
Research Triangle Park, NC 27709
Donald J. Schuenke The Northwestern Mutual
Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, WI 53202
H. Mason Sizemore, Jr. The Seattle Times
P.O. Box 70
Seattle, WA 98111
Harold B. Smith, Jr. Illinois Tool Works, Inc.
3600 West Lake Avenue
Glenview, IL 60625-5811
Sherwood H. Smith, Jr. Carolina Power & Light Company
P.O. Box 1551
Raleigh, NC 27602
John E. Steuri 52 River Ridge Road
Little Rock, AR 72227-1518
John J. Stollenwerk Allen-Edmonds Shoe Corporation
201 East Seven Hills Road
P.O. Box 998
Port Washington, WI 53074-0998
C-3
<PAGE>
Barry L. Williams Williams Pacific Ventures, Inc.
100 First Street
Suite 2350
San Francisco, CA 94105
Kathryn D. Wriston c/o Shearman & Sterling
599 Lexington Avenue
Room 1126
New York, NY 10022
EXECUTIVE OFFICERS
NAME TITLE
- ---- -----
Deborah A. Beck Senior Vice President
William H. Beckley Senior Vice President
Robert J. Berdan Vice President
John M. Bremer Executive Vice President, General Counsel and Secretary
Peter W. Bruce Executive Vice President
Robert E. Carlson Executive Vice President and Trustee
Steven T. Catlett Vice President
Mark G. Doll Senior Vice President
Thomas E. Dyer Vice President
James D. Ericson President and Chief Executive Officer, Trustee
Richard L. Hall Senior Vice President
William C. Koenig, FSA Senior Vice President and Chief Actuary
Gary E. Long Vice President and Controller
Susan A. Lueger Vice President
Meridee J. Maynard Vice President
Donald L. Mellish Senior Vice President
Bruce L. Miller Senior Vice President
Gregory C. Oberland Vice President
Barbara F. Piehler Vice President
James F. Reiskytl Vice President
Mason G. Ross Senior Vice President
John E. Schlifske Vice President
Leonard F. Stecklein Senior Vice President - Policyowner Services
Frederic H. Sweet Senior Vice President
Dennis Tamcsin Senior Vice President
Martha M. Valerio Vice President
W. Ward White Vice President
Walt J. Wojcik Senior Vice President
Edward J. Zore Executive Vice President
C-4
<PAGE>
OTHER OFFICERS
NAME TITLE
- ---- -----
John M. Abbott Associate Director - Benefits Research
Maria J. Avila Assistant Controller
Michael J. Backus Associate Director of Information Systems
John E. Bailey Senior Actuary
Nicholas H. Bandow Assistant Director-Information Systems
Lynn F. Bardele Assistant Director - Field Training & Development
Margaret A. Barkley Assistant Director
Walter L. Barlow Assistant Director of Education
Sandra L. Barton Assistant Director - Marketing
Bradford P. Bauer Assistant Director - Advanced Marketing
Beth M. Berger Assistant General Counsel & Assistant Secretary
Frederick W. Bessette Assistant General Counsel & Asst. Secretary
Carrie L. Bleck Assistant Director
D. Rodney Bluhm Assistant General Counsel
Timothy J. Bohannon Vice President
Willette Bowie Employee Relations Director
Mark C. Boyle Assistant General Counsel & Asst. Secretary
Martin R. Braasch Director - Underwriting Standards & Services
Patricia R. Braeger Associate Director - Information Systems
James A. Brewer Investment Research Officer
William J. Buholzer Employee Relations Director
Michael S. Bula Assistant General Counsel
Jerry C. Burg Associate Director - Field Benefits
Gregory B. Bynan Director - Corporate Services
Kim M. Cafaro Assistant General Counsel & Asst. Secretary
Shanklin B. Cannon, M.D. Medical Director - Life Products/Research
Terese J. Capizzi Actuarial Products Officer
Kurt P. Carbon Assistant Regional Director
Michael G. Carter Assistant General Counsel & Asst. Secretary
William W. Carter Associate Actuary
John E. Caspari Assistant Director - Advertising & Corporate
Information
Walter J. Chossek Associate Controller
Thomas R. Christenson Director - Employer Product Services
Eric P. Christophersen Associate Director
Alan E. Close Associate Controller
Carolyn M. Colbert Assistant Director - New Business
Margaret Winter Combe Director - Corporate Development
Virginia A. Corwin Assistant Director - New Business
Barbara E. Courtney Associate Director - Mutual Funds
Larry A. Curran Actuarial Administrative Officer
Dennis J. Darland Assistant Director - Disability Income
Thomas H. Davis Associate Director - Information Systems
Nicholas De Fino Assistant Director
David J. Derfus Assistant Controller
C-5
<PAGE>
Carol A. Detlaf Director - Annuity Administration
Colleen Devlin Assistant Director - Communications
Joseph Dobering, III Director - Underwriting Standards & Services
Jennifer L. Docea Assistant Actuary
Lisa C. Dodd Associate Actuary
Richard P. Dodd Assistant Director - Agency
Daniel C. Dougherty Director - Personal Markets
Margaret T. Dougherty Assistant Director - Information Systems
John R. Dowell Director - Workforce Diversity
William O. Drehfal Assistant Director - Media Services
Jeffrey S. Dunn Vice President
John E. Dunn Assistant General Counsel & Secretary
Somayajulu Durvasula Associate Director - Field Financial
James R. Eben Assistant General Counsel and Assistant Secretary
Thomas F. Fadden Assistant Director - Information Systems
Christina H. Fiasca Director - Policyowner Services
Zenia J. Fieldbinder Assistant Director - Annuity Accumulation
Richard F. Fisher Senior Actuary
Dennis J. Fitzpatrick Director - Advanced Marketing
Jon T. Flaschner Director - Policyowner Services
Carol J. Flemma Assistant Director - Marketing
Donald Forecki Investment Officer
Phillip B. Franczyk Vice President
Stephen H. Frankel Vice President
Anne A. Frigo Assistant Director - New Business
Richard R. Garthwait Vice President - Field Financial
David L. Georgenson Director - Agent Development
Paulette A. Getschman Assistant Director - Policyowner Services
James W. Gillespie Vice President
Walter M. Givler Director - Corporate Services
Robert P. Glazier Director - New Business
Robert K. Gleeson, M.D. Vice President - Medical Director
Mark J. Gmach Assistant Regional Director - Agency
David Lee Gosse Assistant Director - Disability Benefits
William F. Grady Director of Field Finances
John M. Grogan Director - Disability Income
Thomas C. Guay Associate Director - Field Financial
Thomas P. Hamilton Associate Director - Information Systems
Lori A. Hanes Director - Human Resources
William M. Harris Assistant Regional Director - South
Dennis R. Hart Assistant Director - Agent Development
James C. Hartwig Vice President - Advanced Marketing
Paul F. Heaton Assistant General Counsel and Assistant Secretary
William L. Hegge Associate Director of Telecommunications
Wayne F. Heidenreich Associate Medical Director
Jacquelyn F. Heise Associate Director - Information Systems
Robert L. Hellrood Director - New Business
Herbert F. Hellwig Assistant Director - Personal Markets
Jane A. Herman Director - Term Upgrade
C-6
<PAGE>
Gary M. Hewitt Vice President & Treasurer
Donna R. Higgins Associate Director - Information Systems
David L. Hilbert Investment Officer
Susan G. Hill Assistant Director
John D. Hillmer Assistant Director - Information Systems
Hugh L. Hoffman Assistant Director - Information Systems
Richard S. Hoffmann Director - Audit
Bruce Holmes Associate Actuary
Scott C. Iodice Assistant Director - Agency
Joseph P. Jansky Assistant Director - Corporate Planning
Meg E. Jansky Assistant Director
Michael D. Jaquint Assistant Actuary
Dolores A. Juergens Associate Director of Restaurant Operations
Marilyn J. Katz Assistant Director - Medical Consultants
John C. Kelly Associate Controller
Michael P. Kelly Assistant Director - Agency
Kevin C. Kennedy Assistant Director - Architecture
James B. Kern Regional Director - Central Region
Carson D. Keyes Vice President
Donald C. Kiefer Vice President
Brian J. Klink Director - Research
Allen B. Kluz Director - Field Financial
Beatrice C. Kmiec Assistant Regional Director - East
William S. Koch Assistant Regional Director - Agency
John L. Kordsmeier Director - Human Resources
Robert J. Kowalsky Assistant Director - Information Systems
Carol L. Kracht Assistant General Counsel & Asst. Secretary
Jeffrey J. Krygiel Assistant Actuary
Todd L. Laszewski Associate Actuary
Patrick J. Lavin Director - Disability Benefits
James L. Lavold Associate Director - Meetings
Russell M. Lemken Associate Director - Consumer Research
Elizabeth J. Lentini Assistant General Counsel & Secretary
Sally Jo Lewis Assistant General Counsel & Asst. Secretary
Mark P. Lichtenberger Associate Director - LINK Technical Planning
Steven M. Lindstedt Assistant Director - Information Systems
Melissa C. Lloyd Assistant Director - Advanced Marketing
James Lodermeier Assistant Director - Tax Planning
George R. Loxton Assistant General Counsel & Assistant Secretary
Mary M. Lucci Director - New Business
Christine M. Lucia Human Resources Officer
Mark J. Lucius Corporate Information Officer
Merrill C. Lundberg Assistant General Counsel & Asst. Secretary
Jon K. Magalska Associate Actuary
Jean M. Maier Director - Life Benefits
Joseph Maniscalco Associate Director - Information Systems
Jeffrey S. Marks Multi Life, Research & Reinsurance Officer
Steve Martinie Assistant General Counsel & Asst. Secretary
Ted A. Matchulat Actuarial Products Officer
C-7
<PAGE>
Margaret McCabe Associate Director - Policy Benefits Systems
Richard A. McComb Director - Human Resources
William L. McCown Vice President & Investment Counsel
Paul E. McElwee Assistant General Counsel & Asst. Secretary
James L. McFarland Assistant General Counsel & Secretary
Mary C. McIntosh Associate Director - Field Financial
Daniel E. McGinley Assistant Director - Management Development
Mark J. McLennon Assistant Director - Advanced Marketing
Robert J. Meiers Ad Valorem Tax Manager
Larry S. Meihsner Assistant General Counsel & Assistant Secretary
Robert G. Meilander Vice President
Charles L. Messler Director - Natural Gas Sales
Richard E. Meyers Assistant General Counsel
Jay W. Miller Vice President & Tax Counsel
Sara K. Miller Vice President
Jill Mocarski Assistant Medical Director
Tom M. Mohr Director of Policyowner Services - South
Richard C. Moore Associate Actuary
Scott J. Morris Assistant General Counsel and Assistant Secretary
Sharon A. Morton Investment Officer
Adrian J. Mullin Assistant Director - Personal Markets
Randolph J. Musil Assistant Director - Advanced Marketing
David K. Nelson Assistant General Counsel
Ronald C. Nelson Director
Timothy Nelson Assistant Director - Marketing
James J. Nemec Vice President
Karen M. Niessing Director - Policyowner Services
Daniel J. O'Meara Director - Field Financial
John K. O'Meara Assistant Director - Advanced Marketing
Mary Joy O'Meara Assistant Director - Advanced Marketing
Kathleen A. Oman Associate Director - Information Systems
Thomas A. Pajewski Investment Research Officer
Arthur V. Panighetti Director - Tax Planning
Christen L. Partleton Associate Director - Policyowner Services
David W. Perez Assistant General Counsel
Judith L. Perkins Assistant General Counsel & Asst. Secretary
Wilson D. Perry Assistant General Counsel & Asst. Secretary
Gary N. Peterson Actuary
John C. Peterson Director of Policyowner Services - West
Harvey W. Pogoriler Assistant General Counsel
Randolph R. Powell, M.D. Medical Director
Mark A. Prange Associate Director - Information Systems
Brian R. Pray Assistant Regional Director - New Business
David R. Remstad Senior Actuary
David R. Retherford Assistant Director of New Business - Central
Stephen M. Rhode Assistant Director - Qualified Benefits
Richard R. Richter Vice President
Daniel A. Riedl Assistant General Counsel
Marcia Rimai Vice President - Litigation Counsel
C-8
<PAGE>
Michael J. Riordan Assistant General Counsel
Kathleen M. Rivera Vice President - Insurance Counsel
Faith B. Rodenkirk Assistant Director - Group Marketing
James S. Rolfsmeyer Assistant Director - Information Systems
Larry R. Roscoe Assistant Director - Compliance
Lora A. Rosenbaum Director - New Business
Robert K. Roska Associate Director - Information Systems
Sue M. Roska Director - Systems and Services
Harry L. Ruppenthal Director of Policyowner Services - East
Stephen G. Ruys Assistant Director - Information Systems
Santo Saliture Associate Director of Advertising & Corporate
Information
Rose Kordich Sasich Assistant Director of Systems
Mary Ann Schachtner Assistant Director - Field Training & Development
Linda Ann Schaefer Assistant Director - Marketing
Thomas F. Scheer Assistant General Counsel & Asst. Secretary
Carlen A. Schenk Assistant Director
Jane A. Schiltz Vice President - Disability Income
Kathleen H. Schluter Assistant General Counsel & Secretary
Calvin R. Schmidt Associate Director - Information Systems
John O. Schnorr Assistant Director
Margaret R. Schoewe Vice President - Information Systems
Todd M. Schoon Assistant Regional Director - Agency
John F. Schroeder Associate Director of Field Office Real Estate
Melva T. Seabron Director - Corporate Services
Norman W. Seguin, II Investment Officer - Ad Valorem Taxes
Catherine L. Shaw Assistant General Counsel & Asst. Secretary
John E. Sheaffer, Jr. Assistant Director - Agent Development
Janet Z. Silverman Human Resources Officer
Stephen M. Silverman Assistant General Counsel
David W. Simbro Senior Actuary
Paul W. Skalecki Associate Actuary
Cynthia S. Slavik Assistant Director - Environmental Engineer
Ignatius L. Smetek Director - Common Stocks
Landon T. Smith Assistant Director - Replacements
Mark W. Smith Assistant General Counsel & Asst. Secretary
Warren L. Smith, Jr. Investment Officer - Architecture
Steven W. Speer Director - Public Markets
Robert J. Spellman, M.D. Vice President & Chief Medical Director
Steve P. Sperka Assistant Actuary
Mark A. Stalsberg Assistant Director - Agency
Barbara J. Stansberry Director - New Business
Bonnie L. Steindorf Director - Department Operations
Karen J. Stevens Assistant General Counsel & Asst. Secretary
Steven J. Stribling Associate Actuary
Stephen J. Strommen Associate Actuary
Theodore H. Strupp Assistant Director
Daniel J. Suprenant Director - Group Disability Marketing
Rachel L. Taknint Assistant General Counsel & Asst. Secretary
C-9
<PAGE>
Thomas Talajkowski Assistant Director - Tax Compliance
William H. Taylor Assistant Director - Advanced Marketing
Paul B. Tews Associate Director - Investment Planning
J. Edward Tippetts Vice President
Susan M. Tompkins Director - Agency
Chris J. Torkelson Assistant Director
Jeannine M. Torkelson Assistant Director - Marketing
Thomas W. Towers Associate Director - Public Relations
Linda K. Tredupp Assistant Director - Information Systems
Chris G. Trost Associate Actuary
Mark J. Van Cleave Assistant Director of Marketing Research
Michael T. Van Grinsven Assistant Director - Management Development
Mary Beth Van Groll Vice President - Information Systems
Gloria J. Venski Assistant Director - Disability Benefits
Scott E. Wallace Assistant Director - Projects
Hal W. Walter Vice President
Robert J. Waltos Regional Director - Agency
P. Andrew Ware Vice President
Mary L. Wehrle-Schnell Associate Director - Information Systems
Daniel T. Weidner Assistant Director - Information Systems
Ronald J. Weir Associate Director - Information Systems
Karen J. Weiss Senior Actuary
Kenneth R. Wentland Assistant Director of Policyowner Services - East
Sandra D. Wesley Assistant Director of Special Projects
Anna C. Westfall Financial Officer
Charles D. Whittier Assistant Director - Disability Income Marketing
Catherine A. Wilbert Assistant General Counsel & Secretary
David L. Wild Director - Corporate Services
Jeffrey B. Williams Risk Manager
John K. Wilson Assistant Director - Personal Markets
Penelope A. Woodcock Associate Director - Benefit Systems
Richard W. Woody Assistant Director - Agency
Stanford A. Wynn Assistant Director - Advanced Marketing
Catherine M. Young Assistant General Counsel & Secretary
Michael L. Youngman Vice President - Legislative Representative
James A. Youngquist Associate Actuary
Richard S. Zakrzewski Associate Research Officer
John Zao Assistant Director - Information Systems
Diana M. Zawada Assistant Director
Rick T. Zehner Director - Corporate Planning
Patricia A. Zimmermann Investment Officer - Real Estate Systems
Ray Zimmermann Director - LINK Information Network
Philip R. Zwieg Director - Technical Support
Robert E. Zysk Director - Tax Compliance
The business addresses for all of the executive officers and other officers is
720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202.
C-10
<PAGE>
Item 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The subsidiaries of The Northwestern Mutual Life Insurance Company
("Northwestern Mutual Life"), as of December 31, 1997, are set forth on
pages C-12 and C-13. In addition to the subsidiaries set forth on pages C-12
and C-13, the following separate investment accounts (which include the
Registrant) may be deemed to be either controlled by, or under common control
with, Northwestern Mutual Life:
1. NML Variable Annuity Account A
2. NML Variable Annuity Account B
3. NML Variable Annuity Account C
4. Northwestern Mutual Variable Life Account
Northwestern Mutual Series Fund, Inc. (the "Fund") shown on page C-13 as a
subsidiary of Northwestern Mutual Life, is an investment company registered
under the Investment Company Act of 1940, offering its shares to the separate
accounts identified above; and the shares of the Fund held in connection with
certain of the accounts are voted by Northwestern Mutual Life in accordance with
voting instructions obtained from the persons who own, or are receiving payments
under, variable annuity contracts or variable life insurance policies issued in
connection with the accounts, or in the same proportions as the shares which are
so voted.
C-11
<PAGE>
NML CORPORATE STRUCTURE CHART*
The Northwestern Mutual Life Insurance Company
General Account
NML Variable Annuity Account A
NML Variable Annuity Account B
NML Variable Annuity Account C
NML Group Annuity Separate Account
NML Variable Life Account
Eiger Corporation - 100%
Northwestern Mutual Life Foundation, Inc. - 100%
NML Corporation - 100%
Northwestern Long Term Care Insurance Company - 100%
Saskatoon Centre, Limited (inactive) - 100%
Northwestern Mutual Series Fund, Inc. (and its 9 portfolios) - 100%
Mason Street Funds, Inc. (and its 9 funds) - 92.56%
MGIC Investment Corporation - 18.3%. MGIC holds 100% of the voting stock of the
following: Mortgage Guaranty Reinsurance Corporation, MGIC, MGIC Reinsurance
Corporation, MGIC Mortgage Insurance Corporation, and various subsidiaries.
Baird Financial Corporation - 92%. Baird Financial Corporation holds 100% of
the voting stock of Robert W. Baird & Co., Incorporated and various
subsidiaries.
Northwestern Mutual Investment Services, Inc. - 100%
The Grand Avenue Corporation - 98.54%
Marina Pacific, Ltd. - 100%
NW Pipeline, Inc. - 100%
NML - Bellevue Corporation - 100%
Solar Resources, Inc. - 100%
NH Corporation (inactive) - 100%
Rocket Sports, Inc. (inactive) - 100%
Summit Sports, Inc. - 100%
Greenway Sports, Inc. - 100%
Painted Rock Development Corporation - 100%
NML Development Corporation - 100%
Stadium and Arena Management, Inc. - 100%
RE Corporation - 100%
Carlisle Ventures, Inc. - 100%
INV Corp. - 100%
Buffalo Promotions, Inc. - 100%
Park Forest Northeast, Inc. - 100%
NW Greenway #1 (inactive) - 100%
NW Greenway #9 - 100%
Travers International Sales, Inc. - 100%
Highbrook International Sales, Inc. - 100%
Elderwood International Sales, Inc. - 100%
Mallon International Sales, Inc. - 100%
Higgins, Inc. - 100%
Hobby, Inc. - 100%
Logan, Inc. - 100% 12-31-97
*Except for MGIC Investment Corporation and its subsidiaries, includes all NML
mutual funds and other corporations of which 50% or more voting power controlled
by NML.
C-12
<PAGE>
NML CORPORATE STRUCTURE, CONTINUED*
Baraboo, Inc. - 100%
Mitchell, Inc. - 100%
Elizabeth International Sales, Inc. - 100%
Sean International Sales, Inc. - 100%
Alexandra International Sales, Inc. - 100%
Brian International Sales, Inc. - 100%
Jack International Sales, Inc. - 100%
Brendan International Sales, Inc. - 100%
Justin International FSC, Inc. - 100%
Cass Corporation - 100%
Mason & Marshall, Inc. - 100%
North Van Buren, Inc. - 100%
Northwestern Mutual Life International, Inc. - 100%
White Oaks, Inc. - 100%
Burgundy, Inc. - 100%
Hazel, Inc. - 100%
Maroon, Inc. - 100%
Coral, Inc. - 100%
Russet, Inc. - 100%
Amber, Inc. - 100%
Bradington-Young, Inc. - 50%
Northwestern Mutual Las Vegas, Inc. - 100%
Larkin, Inc. - 100%
Northwestern Mutual Las Vegas, Inc. - 100%
Olive, Inc. - 100%
Lydell, Inc. - 100%
Bayridge, Inc. - 100%
Bradford, Inc. - 100%
Klode, Inc. - 100%
Chateau, Inc. - 100%
Diversey, Inc. - 100%
Lake Bluff, Inc. - 100%
Nicolet, Inc. - 100%
Tupelo, Inc. - 100%
Real Estate Holdings, Inc. - 100%
Northwestern Investment Management Company - 100%
12-31-97
* Except for MGIC Investment Corporation and its subsidiaries, includes all
NML mutual funds and other corporations of which 50% or more voting power
controlled by NML.
C-13
<PAGE>
Item 27. NUMBER OF CONTRACT OWNERS
As of March 31, 1998, the number of contract owners of NML Variable
Annuity Account C was 980. All contracts were issued as contracts for plans
qualifying for special treatment under various provisions of the Internal
Revenue Code.
Item 28. INDEMNIFICATION
That portion of the By-laws of Northwestern Mutual Life relating to
indemnification of Trustees and officers is set forth in full in Article VII of
the By-laws of Northwestern Mutual Life, amended by resolution and previously
filed herein as an exhibit to the Registration Statement.
Item 29. PRINCIPAL UNDERWRITERS
(a) Northwestern Mutual Investment Services, Inc. ("NMIS"), the
broker-dealer subsidiary of Northwestern Mutual Life, may be considered the
principal underwriter currently distributing securities of the Registrant. NMIS
is also co-depositor, and may be considered the principal underwriter, for NML
Variable Annuity Account B and Northwestern Mutual Variable Life Account,
separate investment accounts of Northwestern Mutual Life registered under the
Investment Company Act of 1940 as unit investment trusts. In addition NMIS is
the investment adviser for Northwestern Mutual Series Fund, Inc.
(b) The directors and officers of NMIS are as follows:
NAME POSITION
- ---- --------
Maria J. Avila Assistant Treasurer
Deborah A. Beck Vice President, Variable Life Administration
William H. Beckley Executive Vice President, Sales
Peter W. Bruce Director
Robert E. Carlson Director
Thomas A. Carroll Vice President - Common Stocks
Walter J. Chossek Treasurer
Barbara E. Courtney Assistant Treasurer
Jefferson V. De Angelis Vice President - Fixed Income Securities
Mark G. Doll Executive Vice President, Investment Advisory
Services
James R. Eben Assistant Secretary
James W. Gillespie Vice President, Variable Life Marketing
Richard L. Hall President and CEO
Beatrice C. Kmiec Assistant Vice President, Variable Life
Administration
Merrill C. Lundberg Secretary
Meridee J. Maynard Vice President, Variable Annuity
Administration and Marketing
Donald Parker Assistant Director, Equity Compliance, NMIS
Office of Supervisory Jurisdiction
Larry R. Roscoe Vice President and Chief Compliance Officer
Ignatius L. Smetek Vice President - Common Stocks
Leonard F. Stecklein Vice President, Sales Support
Steven P. Swanson Vice President
C-14
<PAGE>
Carla A. Thoke Director, Equity Compliance, NMIS Office of
Supervisory Jurisdiction
Julie Van Cleave Vice President - Common Stocks
Patricia L. Van Kampen Vice President - Common Stocks
William R. Walker Vice President
Edward J. Zore Director
Robert J. Ziegler Assistant Treasurer
The address for each director and officer of NMIS is 720 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202.
(c) During 1997 life insurance agents of Northwestern Mutual Life who are
also registered representatives of NMIS received commissions, including general
agent overrides, in the aggregate amount of $148,050 for sales of variable
annuity contracts, and interests therein, issued in connection with the
Registrant. NMIS received compensation for its investment advisory services
from Northwestern Mutual Series Fund, Inc., the investment company in which
assets of the Registrant are invested.
Item 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books or other documents required to be maintained in
connection with the Registrant's operations are maintained in the physical
possession of Northwestern Mutual Life at 720 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202.
Item 31. MANAGEMENT SERVICES
There are no contracts, other than those referred to in Part A or Part B
of this Registration Statement, under which management-related services are
provided to the Registrant and pursuant to which total payments of $5,000 or
more were made during any of the last three fiscal years.
Item 32. UNDERTAKINGS
(a) The Registrant undertakes to file a post-effective amendment to
this Registration Statement as frequently as is necessary to ensure that the
audited financial statements in the Registration Statement are never more than
16 months old for so long as payments under the variable annuity contracts may
be accepted.
(b) The Registrant undertakes to include either (1) as part of any
application to purchase a contract offered by the prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
post card or similar written communication affixed to or included in the
prospectus that the applicant can remove to send for a Statement of Additional
Information.
(c) The Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
(d) Reference is made to the indemnification provisions disclosed in
response to Item 28. Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore,
C-15
<PAGE>
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the registered
securities, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
C-16
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, the Registrant, NML Variable
Annuity Account C, certifies that it meets all the requirements for
effectiveness of this Amended Registration Statement pursuant to Rule 485(b)
under the Securities Act of 1933 and has duly caused this Amended Registration
Statement to be signed on its behalf, in the City of Milwaukee, and State of
Wisconsin, on the 28th day of April, 1998.
NML VARIABLE ANNUITY ACCOUNT C
(Registrant)
By THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
(Depositor)
Attest: JOHN M. BREMER By: JAMES D. ERICSON
--------------------------------- --------------------------------
John M. Bremer, Executive Vice James D. Ericson, President
President, General Counsel and Chief Executive Officer
and Secretary
As required by the Securities Act of 1933, this Amended Registration
Statement has been signed by the Depositor on the 28th day of April, 1998.
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
(Depositor)
Attest: JOHN M. BREMER By: JAMES D. ERICSON
--------------------------------- --------------------------------
John M. Bremer, Executive Vice James D. Ericson, Chairman
President, General Counsel and Chief Executive Officer
and Secretary
As required by the Securities Act of 1933, this Amended Registration
Statement has been signed by the following persons in the capacities with the
Depositor and on the dates indicated:
SIGNATURE TITLE
- --------- -----
Trustee, President and
JAMES D. ERICSON Principal Executive and
- ------------------------------ Financial Officer
James D. Ericson Dated
April 28, 1998
GARY E. LONG Vice President, Controller
- ------------------------------ and Principal Accounting
Gary E. Long Officer
HAROLD B. SMITH* Trustee
- ------------------------------
Harold B. Smith
C-17
<PAGE>
J. THOMAS LEWIS* Trustee
- ------------------------------
J. Thomas Lewis
PATRICIA ALBJERG GRAHAM* Trustee
- ------------------------------
Patricia Albjerg Graham*
DONALD J. SCHUENKE* Trustee
- ------------------------------
Donald J. Schuenke
R. QUINTUS ANDERSON* Trustee
- ------------------------------
R. Quintus Anderson
STEPHEN F. KELLER* Trustee
- ------------------------------
Stephen F. Keller
PIERRE S. DU PONT* Trustee
- ------------------------------
Pierre S. du Pont
J. E. GALLEGOS* Trustee Dated
- ------------------------------ April 28, 1998
J. E. Gallegos
KATHRYN D. WRISTON* Trustee
- ------------------------------
Kathryn D. Wriston
BARRY L. WILLIAMS* Trustee
- ------------------------------
Barry L. Williams
GORDON T. BEAHAM III* Trustee
- ------------------------------
Gordon T. Beaham III
DANIEL F. MCKEITHAN, JR.* Trustee
- ------------------------------
Daniel F. McKeithan, Jr.
ROBERT E. CARLSON* Trustee
- ------------------------------
Robert E. Carlson
EDWARD E. BARR* Trustee
- ------------------------------
Edward E. Barr
C-18
<PAGE>
ROBERT C. BUCHANAN* Trustee
- ------------------------------
Robert C. Buchanan
SHERWOOD H. SMITH, JR.* Trustee
- ------------------------------
Sherwood H. Smith, Jr.
H. MASON SIZEMORE, JR.* Trustee
- ------------------------------
H. Mason Sizemore, Jr.
JOHN J. STOLLENWERK* Trustee
- ------------------------------
John J. Stollenwerk
GEORGE A. DICKERMAN* Trustee Dated
- ------------------------------ April 28, 1998
George A. Dickerman
GUY A. OSBORN* Trustee
- ------------------------------
Guy A. Osborn
JOHN E. STEURI* Trustee
- ------------------------------
John E. Steuri
STEPHEN N. GRAFF* Trustee
- ------------------------------
Stephen N. Graff
BARBARA A. KING* Trustee
- ------------------------------
Barbara A. King
TIMOTHY D. PROCTOR* Trustee
- ------------------------------
Timothy D. Proctor
*By: JAMES D. ERICSON
--------------------------
James D. Ericson, Attorney in Fact,
pursuant to the Power of Attorney
attached hereto
C-19
<PAGE>
POWER OF ATTORNEY
The undersigned Trustees of THE NORTHWESTERN MUTUAL LIFE INSURANCE
COMPANY hereby constitute and appoint James D. Ericson and Robert E. Carlson, or
either of them, their true and lawful attorneys and agents to sign the names of
the undersigned Trustees to (1) the registration statement or statements to be
filed under the Securities Act of 1933 and to any instrument or document filed
as part thereof or in connection therewith or in any way related thereto, and
any and all amendments thereto in connection with variable contracts issued or
sold by The Northwestern Mutual Life Insurance Company or any separate account
credited therein and (2) the Form 10-K Annual Report or Reports of The
Northwestern Mutual Life Insurance Company and/or its separate accounts for its
or their fiscal year ended December 31, 1997 to be filed under the Securities
Exchange Act of 1934 and to any instrument or document filed as part thereof or
in connection therewith or in any way related thereto, and any and all
amendments thereto. "Variable contracts" as used herein means any contracts
providing for benefits or values which may vary according to the investment
experience of any separate account maintained by The Northwestern Mutual Life
Insurance Company, including variable annuity contracts and variable life
insurance policies. Each of the undersigned hereby ratifies and confirms all
that said attorneys and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has subscribed these
presents this 23rd day of July, 1997.
R. QUINTUS ANDERSON Trustee
------------------------------------
R. Quintus Anderson
EDWARD E. BARR Trustee
------------------------------------
Edward E. Barr
GORDON T. BEAHAM III Trustee
------------------------------------
Gordon T. Beaham III
ROBERT C. BUCHANAN Trustee
------------------------------------
Robert C. Buchanan
ROBERT E. CARLSON Trustee
------------------------------------
Robert E. Carlson
GEORGE A. DICKERMAN Trustee
------------------------------------
George A. Dickerman
C-20
<PAGE>
PIERRE S. du PONT Trustee
------------------------------------
Pierre S. du Pont
JAMES D. ERICSON Trustee
------------------------------------
James D. Ericson
J. E. GALLEGOS Trustee
------------------------------------
J. E. Gallegos
STEPHEN N. GRAFF Trustee
------------------------------------
Stephen N. Graff
PATRICIA ALBJERG GRAHAM Trustee
------------------------------------
Patricia Albjerg Graham
STEPHEN F. KELLER Trustee
------------------------------------
Stephen F. Keller
BARBARA A. KING Trustee
------------------------------------
Barbara A. King
J. THOMAS LEWIS Trustee
------------------------------------
J. Thomas Lewis
DANIEL F. MCKEITHAN, JR. Trustee
------------------------------------
Daniel F. McKeithan, Jr.
GUY A. OSBORN Trustee
------------------------------------
Guy A. Osborn
C-21
<PAGE>
TIMOTHY D. PROCTOR Trustee
------------------------------------
Timothy D. Proctor
DONALD J. SCHUENKE Trustee
------------------------------------
Donald J. Schuenke
H. MASON SIZEMORE, JR. Trustee
------------------------------------
H. Mason Sizemore, Jr.
HAROLD B. SMITH Trustee
------------------------------------
Harold B. Smith
SHERWOOD H. SMITH, JR. Trustee
------------------------------------
Sherwood H. Smith, Jr.
JOHN E. STEURI Trustee
------------------------------------
John E. Steuri
JOHN J. STOLLENWERK Trustee
------------------------------------
John J. Stollenwerk
BARRY L. WILLIAMS Trustee
------------------------------------
Barry L. Williams
KATHRYN D. WRISTON Trustee
------------------------------------
Kathryn D. Wriston
C-22
<PAGE>
EXHIBIT INDEX
EXHIBITS FILED WITH FORM N-4
POST-EFFECTIVE AMENDMENT NO. 18 TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FOR
NML VARIABLE ANNUITY ACCOUNT C
EXHIBIT NUMBER EXHIBIT NAME
Exhibit B(11) Consent of Price Waterhouse LLP.
The following exhibit was filed in electronic format with the Registration
Statement on Form S-6 for Northwestern Mutual Variable Life Account, File No.
333-36865, CIK 0000742277, dated October 1, 1997, and is incorporated herein by
reference.
Exhibit A(6)(c) Amendments to By-laws of The Northwestern
Mutual Life Insurance Company dated July
23, 1997.
The following exhibit was filed in electronic format with the Registration
Statement on Form S-6 for Northwestern Mutual Variable Life Account, File No.
333-36865, CIK 0000742277, dated February 27, 1998, and is incorporated herein
by reference.
Exhibit A(6)(c)(1) Amendment to By-laws of The Northwestern
Mutual Life Insurance Company dated
January 28, 1998.
<PAGE>
Exhibit B(11)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional
Information constituting part of this Post-Effective Amendment No.
18 to the registration statement on Form N-4 (the "Registration
Statement") of our report dated January 26, 1998, relating to the
financial statements of The Northwestern Mutual Life Insurance
Company, and of our report dated January 27, 1998, relating to the
financial statements of NML Variable Annuity Account C, which
appear in such Statement of Additional Information, and to the
incorporation by reference of such reports into the Prospectus
which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "Experts" in such
Statement of Additional Information.
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
April 28, 1998
