<PAGE> 1
APRIL 28, 2000
NML VARIABLE ANNUITY ACCOUNT C
Group Combination Annuity Contracts for
Retirement Plans of Self-Employed Persons
and Their Employees
(PHOTO)
<TABLE>
<S> <C>
NORTHWESTERN MUTUAL The Northwestern Mutual Life
SERIES FUND, INC. AND Insurance Company
RUSSELL INSURANCE FUNDS 720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
(414) 271-1444
</TABLE>
PROSPECTUSES
NORTHWESTERN MUTUAL(TM)
<PAGE> 2
PROSPECTUS
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") 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"). You
may accumulate funds on a variable or fixed or combination basis. We will pay
retirement benefits in a lump sum or under a variable or fixed annuity payment
plan. Annuity benefits are described in individual certificates issued to
Annuitants.
We fund variable accumulations and retirement benefits through NML Variable
Annuity Account C (the "Account"), our separate account. 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
sixteen Divisions. You may direct how net considerations are allocated among the
Divisions.
We use NML Variable Annuity Account C (the "Account") to keep the money you
invest separate from our general assets. The money in the Account is invested in
the eleven portfolios of Northwestern Mutual Series Fund, Inc. and the five
Russell Insurance Funds. You select the Portfolios or Funds in which you want to
invest. Northwestern Mutual Series Fund, Inc.: Small Cap Growth Stock,
Aggressive Growth Stock, International Equity, Index 400 Stock, Growth Stock,
Growth and Income Stock, Index 500 Stock, Balanced, High Yield Bond, Select
Bond, Money Market. Russell Insurance Funds: Multi-Style Equity, Aggressive
Equity, Non-U.S., Real Estate Securities, Core Bond.
The Account has 16 Divisions that correspond to the 11 Portfolios and 5 Funds in
which you may invest. The Contracts also permit you to invest on a fixed basis,
at rates that we determine. This prospectus describes only the Account and the
variable provisions of the Contracts except where there are specific references
to the fixed provisions.
We offer two versions of the Contracts: front-load Contracts and simplified-load
Contracts. (See "Expense Table", p. 3, and "Deductions", p. 16.)
This prospectus is a concise description of the information you should know
before you buy a Contract. We have filed additional information about the
Contracts with the Securities and Exchange Commission in a Statement of
Additional Information. We incorporate the Statement of Additional Information
into this prospectus by reference. We will send you the Statement of Additional
Information without charge if you write to The Northwestern Mutual Life
Insurance Company, 720 East Wisconsin Avenue, Milwaukee, Wisconsin, 53202, or
call us at Telephone Number 1-888-455-2232. You will find the table of contents
for the Statement of Additional Information following page 17 of this
prospectus.
This prospectus is valid only when accompanied by the current prospectuses for
Northwestern Mutual Series Fund, Inc. and Russell Insurance Funds which are
attached to this prospectus. You should retain this prospectus for future
reference.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
The Date of this prospectus and the Statement of Additional Information is April
28, 2000.
1 Prospectus
<PAGE> 3
C ONTENTS FOR THIS PROSPECTUS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS......................................... 1
Group Combination Annuity Contracts NML Variable
Annuity Account C............................. 1
INDEX OF SPECIAL TERMS............................. 3
Penalty Tax on Premature Payments................ 3
EXPENSE TABLE...................................... 3
ACCUMULATION UNIT VALUES........................... 6
THE COMPANY........................................ 10
NML VARIABLE ANNUITY ACCOUNT C..................... 10
THE FUNDS.......................................... 11
THE CONTRACTS...................................... 11
Unallocated Group Annuity Contracts.............. 11
Purchase Payments Under the Contracts............ 11
Amount and Frequency.......................... 11
Application of Purchase Payments.............. 11
Net Investment Factor............................ 12
Benefits Provided Under the Contracts............ 12
Surrender or Withdrawal Value................. 12
Retirement Benefits........................... 12
Variable Payment Plans........................... 12
Description of Payment Plans.................. 13
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Amount of Annuity Payments.................... 13
Assumed Investment Rate....................... 13
Additional Information........................... 13
Transfers Between Divisions and Payment
Plans....................................... 13
Owners of the Contracts....................... 14
Deferment of Benefit Payments................. 14
Dividends..................................... 14
Substitution and Change....................... 14
Amendments and Termination.................... 14
Financial Statements.......................... 14
FEDERAL INCOME TAXES............................... 14
Contribution Limits.............................. 14
Taxation of Contract Benefits.................... 15
Minimum Distribution Requirement................. 15
Taxation of Northwestern Mutual.................. 15
DEDUCTIONS......................................... 16
DISTRIBUTION OF THE CONTRACTS...................... 16
CONTRACTS ISSUED PRIOR TO JANUARY 1, 1992.......... 17
</TABLE>
THE TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION APPEARS ON THE
PAGE FOLLOWING PAGE 17 OF THIS PROSPECTUS.
Prospectus 2
<PAGE> 4
INDEX OF SPECIAL TERMS
The following special terms used in this prospectus are discussed at the pages
indicated.
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
ACCUMULATION UNIT............................ 11
ANNUITY (or ANNUITY PAYMENTS)................ 13
NET INVESTMENT FACTOR........................ 12
SURRENDER OR WITHDRAWAL VALUE................ 12
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
ANNUITANT.................................... 14
OWNER........................................ 14
PAYMENT PLANS................................ 12
</TABLE>
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. 15.)
- --------------------------------------------------------------------------------
EXPENSE TABLE
Front-Load Contract
<TABLE>
<S> <C>
TRANSACTION EXPENSES FOR CONTRACTOWNERS
Maximum Sales Load (as a percentage of
purchase payments)....................... 4.5%
Installation Fee........................... None
ANNUAL EXPENSES OF THE ACCOUNT
(AS A PERCENTAGE OF ASSETS)
Mortality and Expense Risk Fees............ 0.65%
Other Expenses............................. None
Total Separate Account Annual Expenses..... 0.65%
</TABLE>
- --------------------------------------------------------------------------------
Simplified-Load Contract
<TABLE>
<S> <C>
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 and Expense Risk Fees............ 1.25%
Other Expenses............................. None
Total Separate Account Annual Expenses..... 1.25%
</TABLE>
Annual Expenses of the Portfolios and Funds
(as a percentage of the assets)
<TABLE>
<CAPTION>
TOTAL ANNUAL EXPENSES
MANAGEMENT FEES OTHER (AFTER EXPENSE
(AFTER FEE WAIVER) EXPENSES REIMBURSEMENT)
------------------ -------- ---------------------
<S> <C> <C> <C>
Northwestern Mutual Series Fund, Inc.
Small Cap Growth Stock* 0.79% 0.21% 1.00%
Aggressive Growth Stock 0.51% 0.00% 0.51%
International Equity 0.67% 0.07% 0.74%
Index 400 Stock* 0.25% 0.10% 0.35%
Growth Stock 0.43% 0.00% 0.43%
Growth and Income Stock 0.57% 0.00% 0.57%
Index 500 Stock 0.20% 0.00% 0.20%
Balanced 0.30% 0.00% 0.30%
High Yield Bond 0.49% 0.01% 0.50%
Select Bond 0.30% 0.00% 0.30%
Money Market 0.30% 0.00% 0.30%
Russell Insurance Funds*
Multi-Style Equity 0.49% 0.43% 0.92%
Aggressive Equity 0.53% 0.72% 1.25%
Non-U.S. 0.00% 1.30% 1.30%
Real Estate Securities 0.85% 0.30% 1.15%
Core Bond 0.12% 0.68% 0.80%
</TABLE>
- -------------------------
* For the Russell Insurance Funds (the "Fund"), the Small Cap Growth Stock
Portfolio and the Index 400 Stock Portfolio (the "Portfolios"), the adviser
has voluntarily agreed to waive a portion of the management fee, up to the
full amount of the fee, equal to the amount by which the Fund's and
Portfolios' total operating expenses exceed the amounts shown above under
"Total Annual Expenses (After Expense Reimbursement)". The adviser has also
agreed to reimburse the Fund and Portfolios for all remaining expenses after
fee waivers which exceed the amounts shown above under that heading. Absent
the fee waiver and expense reimbursement, the management fees and total annual
expenses would be 0.78% and 0.93% for the Multi-Style Equity Fund; 0.95% and
1.34% for the Aggressive Equity Fund; 0.95% and 1.50% for the Non-U.S. Fund;
0.85% and 1.15% for the Real Estate Securities Fund; 0.60% and 0.86% for the
Core Bond Fund; 0.79% and 1.03% for the Small Cap Growth Stock Portfolio; and
0.25% and 0.46% for the Index 400 Stock Portfolio.
3 Prospectus
<PAGE> 5
EXAMPLE
FRONT-LOAD CONTRACT -- The plan would pay the following expenses on each $1,000
investment, assuming 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Northwestern Mutual Series Fund, Inc.
Small Cap Growth Stock $61 $ 95 $131 $232
Aggressive Growth Stock $56 $ 80 $106 $180
International Equity $59 $ 87 $118 $204
Index 400 Stock $55 $ 75 $ 98 $162
Growth Stock $56 $ 78 $102 $171
Growth and Income Stock $57 $ 82 $109 $186
Index 500 Stock $53 $ 71 $ 90 $145
Balanced $54 $ 74 $ 95 $156
High Yield Bond $56 $ 80 $105 $178
Select Bond $54 $ 74 $ 95 $156
Money Market $54 $ 74 $ 95 $156
Russell Insurance Funds
Multi-Style Equity $60 $ 92 $127 $223
Aggressive Equity $63 $102 $143 $257
Non-U.S. $64 $103 $145 $262
Real Estate Securities $62 $ 99 $138 $247
Core Bond $59 $ 89 $121 $211
</TABLE>
SIMPLIFIED LOAD CONTRACT -- The plan would pay the following expenses on each
$1,000 investment, assuming 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Northwestern Mutual Series Fund, Inc.
Small Cap Growth Stock $24 $72 $122 $260
Aggressive Growth Stock $19 $57 $ 97 $209
International Equity $22 $64 $109 $233
Index 400 Stock $18 $52 $ 89 $191
Growth Stock $19 $54 $ 93 $200
Growth and Income Stock $20 $59 $100 $215
Index 500 Stock $16 $47 $ 81 $175
Balanced $17 $50 $ 86 $186
High Yield Bond $19 $57 $ 96 $207
Select Bond $17 $50 $ 86 $186
Money Market $17 $50 $ 86 $186
Russell Insurance Funds
Multi-Style Equity $24 $69 $118 $252
Aggressive Equity $27 $79 $134 $285
Non-U.S. $27 $81 $137 $290
Real Estate Securities $26 $76 $129 $275
Core Bond $22 $66 $112 $239
</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 INSTALLATION FEE OF $750 IS DIVIDED BETWEEN THE FUNDS
FOR THE SIMPLIFIED-LOAD FEE TABLE. 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 you in understanding the expenses
paid by the Account and the Portfolios and Funds 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
Prospectus 4
<PAGE> 6
Contract anniversary. The table does not include any expenses for premium taxes.
We currently make no charges for premium taxes. See "Deductions", p. 16 for
additional information about expenses for the Contracts. The expenses shown in
the table for the Portfolios and Funds show the annual expenses for each, as a
percentage of their average net assets, based on 1999 operations for the
Portfolios and their predecessors and the Funds. Expenses for each of the
Russell Insurance Funds reflect fee waivers and expense reimbursements that the
Funds' adviser has voluntarily agreed to make for 2000. These may be changed at
any time without notice. Absent the fee waivers and expense reimbursements the
expenses would be higher. See the disclosure at the bottom of page 3. For
additional information about expenses of the Portfolios and Funds, see the
prospectuses for Northwestern Mutual Series Fund, Inc. and the Russell Insurance
Funds attached to this prospectus.
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.
5 Prospectus
<PAGE> 7
ACCUMULATION UNIT VALUES
CONTRACTS ISSUED AFTER DECEMBER 31, 1991
NORTHWESTERN MUTUAL SERIES, FUND, INC.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SMALL CAP GROWTH STOCK DIVISION
Front Load Version
Beginning of Period* $1.000 -- -- -- --
End of Period $1.853 -- -- -- --
Simplified Load Version
Beginning of Period* $1.000 -- -- -- --
End of Period $1.846 -- -- -- --
Number of Units
Outstanding, End of Period
Front Load 73,643 -- -- -- --
Simplified Load 360,069 -- -- -- --
AGGRESSIVE GROWTH STOCK DIVISION
Front Load Version
Beginning of Period $2.512 $2.350 $2.078 $1.777 $1.284
End of Period $3.588 $2.512 $2.350 $2.078 $1.777
Simplified Load Version
Beginning of Period $3.822 $3.598 $3.200 $2.753 $2.001
End of Period $5.428 $3.822 $3.598 $3.200 $2.753
Number of Units
Outstanding, End of Period
Front Load 2,776,961 2,921,309 3,169,006 3,197,341 2,242,402
Simplified Load 6,707,103 8,671,088 8,989,193 7,872,553 5,316,689
INTERNATIONAL EQUITY DIVISION
Front Load Version
Beginning of Period** $1.958 $1.881 $1.686 $1.402 $1.232
End of Period $2.391 $1.958 $1.881 $1.686 $1.402
Simplified Load Version
Beginning of Period** $1.893 $1.829 $1.649 $1.380 $1.220
End of Period $2.298 $1.893 $1.829 $1.649 $1.380
Number of Units
Outstanding, End of Period
Front Load 2,301,771 2,807,888 3,021,349 2,709,249 2,009,228
Simplified Load 5,480,221 6,652,248 7,247,144 5,703,032 3,972,573
INDEX 400 STOCK DIVISION
Front Load Version
Beginning of Period* $1.000 -- -- -- --
End of Period $1.123 -- -- -- --
Simplified Load Version
Beginning of Period* $1.000 -- -- -- --
End of Period $1.119 -- -- -- --
Number of Units
Outstanding, End of Period
Front Load 13,563 -- -- -- --
Simplified Load 398,635 -- -- -- --
GROWTH STOCK DIVISION
Front Load Version
Beginning of Period+ $2.561 $2.035 $1.577 $1.313 $1.010
End of Period $3.117 $2.561 $2.035 $1.577 $1.313
Simplified Load Version
Beginning of Period+ $2.491 $1.991 $1.552 $1.300 $1.006
End of Period $3.013 $2.491 $1.991 $1.552 $1.300
Number of Units
Outstanding, End of Period
Front Load 995,796 845,190 710,110 587,482 361,207
Simplified Load 3,646,722 3,373,983 2,159,985 1,742,522 586,644
GROWTH AND INCOME STOCK DIVISION
Front Load Version
Beginning of Period+ $2.449 $2.002 $1.550 $1.300 $0.998
End of Period $2.615 $2.449 $2.002 $1.550 $1.300
Simplified Load Version
Beginning of Period+ $2.382 $1.959 $1.525 $1.287 $0.994
End of Period $2.528 $2.382 $1.959 $1.525 $1.287
Number of Units
Outstanding, End of Period
Front Load 1,704,699 2,452,149 1,970,478 1,357,354 861,211
Simplified Load 5,912,799 5,876,089 4,547,004 2,769,823 1,733,022
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
------------------------------------
1994 1993 1992
---------- ---------- --------
<S> <C> <C> <C>
SMALL CAP GROWTH STOCK DIVISION
Front Load Version
Beginning of Period* -- -- --
End of Period -- -- --
Simplified Load Version
Beginning of Period* -- -- --
End of Period -- -- --
Number of Units
Outstanding, End of Period
Front Load -- -- --
Simplified Load -- -- --
AGGRESSIVE GROWTH STOCK DIVISION
Front Load Version
Beginning of Period $1.226 $1.036 $0.984
End of Period $1.284 $1.226 $1.036
Simplified Load Version
Beginning of Period $1.922 $1.634 $1.562
End of Period $2.001 $1.922 $1.634
Number of Units
Outstanding, End of Period
Front Load 1,206,187 1,370,746 821,911
Simplified Load 3,503,170 1,538,447 411,718
INTERNATIONAL EQUITY DIVISION
Front Load Version
Beginning of Period** $1.241 $1.000 --
End of Period $1.232 $1.241 --
Simplified Load Version
Beginning of Period** $1.236 $1.000 --
End of Period $1.220 $1.236 --
Number of Units
Outstanding, End of Period
Front Load 1,453,091 743,216 --
Simplified Load 2,764,466 591,810 --
INDEX 400 STOCK DIVISION
Front Load Version
Beginning of Period* -- -- --
End of Period -- -- --
Simplified Load Version
Beginning of Period* -- -- --
End of Period -- -- --
Number of Units
Outstanding, End of Period
Front Load -- -- --
Simplified Load -- -- --
GROWTH STOCK DIVISION
Front Load Version
Beginning of Period+ $1.000 -- --
End of Period $1.010 -- --
Simplified Load Version
Beginning of Period+ $1.000 -- --
End of Period $1.006 -- --
Number of Units
Outstanding, End of Period
Front Load 149,268 -- --
Simplified Load 177,918 -- --
GROWTH AND INCOME STOCK DIVISION
Front Load Version
Beginning of Period+ $1.000 -- --
End of Period $0.998 -- --
Simplified Load Version
Beginning of Period+ $1.000 -- --
End of Period $0.994 -- --
Number of Units
Outstanding, End of Period
Front Load 418,974 -- --
Simplified Load 745,425 -- --
</TABLE>
* The initial investments in Small Cap Growth Stock Division and the Index 400
Stock Division were made on April 30, 1999.
** The initial investment in the International Equity Division was made on April
30, 1993.
+ The initial investments in the Growth Stock Division and Growth and Income
Stock Division were made on May 3, 1994.
Prospectus 6
<PAGE> 8
ACCUMULATION UNIT VALUES
CONTRACTS ISSUED AFTER DECEMBER 31, 1991 (CONTINUED)
NORTHWESTERN MUTUAL SERIES FUND, INC.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
----------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993 1992
--------- ---------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INDEX 500 STOCK DIVISION
Front Load Version
Beginning of Period $3.279 $2.564 $1.937 $1.588 $1.165 $1.159 $1.062 $0.997
End of Period $3.938 $3.279 $2.564 $1.937 $1.588 $1.165 $1.159 $1.062
Simplified Load Version
Beginning of Period $4.119 $3.240 $2.463 $2.032 $1.499 $1.500 $1.384 $1.306
End of Period $4.919 $4.119 $3.240 $2.463 $2.032 $1.499 $1.500 $1.384
Number of Units Outstanding,
End of Period Front Load 4,131,824 4,231,423 3,966,706 3,880,961 2,399,586 1,918,074 1,919,768 921,624
Simplified Load 9,809,484 10,493,642 9,442,314 8,015,553 5,080,179 3,939,802 2,767,397 599,961
BALANCED DIVISION
Front Load Version
Beginning of Period $2.281 $1.931 $1.600 $1.419 $1.130 $1.138 $1.045 $0.999
End of Period $2.520 $2.281 $1.931 $1.600 $1.419 $1.130 $1.138 $1.045
Simplified Load Version
Beginning of Period $6.805 $5.796 $4.830 $4.311 $3.453 $3.497 $3.232 $3.107
End of Period $7.473 $6.805 $5.796 $4.830 $4.311 $3.453 $3.497 $3.232
Number of Units Outstanding,
End of Period Front Load 6,183,051 6,324,558 6,187,478 5,934,240 5,275,308 3,879,218 4,987,943 3,980,687
Simplified Load 6,319,468 7,165,398 6,839,439 5,971,232 4,902,410 4,108,593 3,002,098 1,445,698
HIGH YIELD BOND DIVISION
Front Load Version Beginning of
Period* $1.590 $1.630 $1.416 $1.190 $1.026 $1.000 -- --
End of Period $1.572 $1.590 $1.630 $1.416 $1.190 $1.026 -- --
Simplified Load Version
Beginning of Period* $1.546 $1.595 $1.394 $1.178 $1.022 $1.000 -- --
End of Period $1.520 $1.546 $1.595 $1.394 $1.178 $1.022 -- --
Number of Units Outstanding,
End of Period Front Load 409,857 441,272 423,726 275,323 90,184 47,321 -- --
Simplified Load 1,556,400 1,917,813 1,219,819 626,090 313,810 149,862 -- --
SELECT BOND DIVISION
Front Load Version Beginning of
Period $1.585 $1.490 $1.370 $1.335 $1.128 $1.169 $1.066 $1.003
End of Period $1.559 $1.585 $1.490 $1.370 $1.335 $1.128 $1.169 $1.066
Simplified Load Version
Beginning of Period $7.157 $6.768 $6.261 $6.137 $5.217 $5.437 $4.990 $4.722
End of Period $6.996 $7.157 $6.768 $6.261 $6.137 $5.217 $5.437 $4.990
Number of Units Outstanding,
End of Period Front Load 2,264,883 2,718,375 2,574,248 2,676,832 1,800,898 1,668,091 2,389,345 736,697
Simplified Load 1,068,272 1,231,485 1,034,899 966,414 677,396 503,763 328,979 133,930
MONEY MARKET DIVISION
Front Load Version Beginning of
Period $1.308 $1.249 $1.192 $1.140 $1.084 $1.048 $1.026 $0.999
End of Period $1.366 $1.308 $1.249 $1.192 $1.140 $1.084 $1.048 $1.026
Simplified Load Version
Beginning of Period $2.436 $2.340 $2.246 $2.161 $2.067 $2.012 $1.980 $1.940
End of Period $2.529 $2.436 $2.340 $2.246 $2.161 $2.067 $2.012 $1.980
Number of Units Outstanding,
End of Period Front Load 1,879,181 1,905,815 1,710,473 2,829,669 2,956,017 3,313,061 218,747 127,838
Simplified Load 6,539,184 6,483,460 5,844,682 3,818,067 1,890,645 1,453,033 810,405 485,704
</TABLE>
* The initial investment in the High Yield Bond Division was made on May 3,
1994.
7 Prospectus
<PAGE> 9
ACCUMULATION UNIT VALUES
CONTRACTS ISSUED AFTER DECEMBER 31, 1991 (CONTINUED)
RUSSELL INSURANCE FUNDS
<TABLE>
<CAPTION>
FOR THE EIGHT MONTHS ENDED
DECEMBER 31
1999
--------------------------
<S> <C>
MULTI-STYLE EQUITY DIVISION
Front Load Version
Beginning of Period* $ 1.000
End of Period $ 1.071
Simplified Load Version
Beginning of Period* $ 1.000
End of Period $ 1.067
Number of Units
Outstanding, End of Period
Front Load 297,016
Simplified Load 1,126,401
AGGRESSIVE EQUITY DIVISION
Front Load Version
Beginning of Period* $ 1.000
End of Period $ 1.104
Simplified Load Version
Beginning of Period* $ 1.000
End of Period $ 1.100
Number of Units
Outstanding, End of Period
Front Load 79,144
Simplified Load 230,607
NON-U.S. DIVISION
Front Load Version
Beginning of Period* $ 1.000
End of Period $ 1.248
Simplified Load Version
Beginning of Period* $ 1.000
End of Period $ 1.243
Number of Units
Outstanding, End of Period
Front Load 151,721
Simplified Load 297,512
</TABLE>
<TABLE>
<CAPTION>
FOR THE EIGHT MONTHS ENDED
DECEMBER 31
1999
--------------------------
<S> <C>
REAL ESTATE SECURITIES DIVISION
Front Load Version
Beginning of Period* $ 1.000
End of Period $ 0.923
Simplified Load Version
Beginning of Period* $ 1.000
End of Period $ 0.920
Number of Units
Outstanding, End of Period
Front Load 36,624
Simplified Load 36,814
CORE BOND DIVISION
Front Load Version
Beginning of Period* $ 1.000
End of Period $ 0.987
Simplified Load Version
Beginning of Period* $ 1.000
End of Period $ 0.983
Number of Units
Outstanding, End of Period
Front Load 239,265
Simplified Load 150,425
</TABLE>
* The initial investment was made on April 30, 1999.
Prospectus 8
<PAGE> 10
ACCUMULATION UNIT VALUES
CONTRACTS ISSUED BETWEEN APRIL 30, 1984 AND DECEMBER 31, 1991
NORTHWESTERN MUTUAL SERIES FUND, INC.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
---------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SMALL CAP GROWTH STOCK DIVISION
Beginning of Period# $10.000 -- -- -- -- -- --
End of Period $18.611 -- -- -- -- -- --
Number of Units
Outstanding, End of Period 7,543 -- -- -- -- -- --
AGGRESSIVE GROWTH STOCK DIVISION
Beginning of Period* $39.854 $37.055 $32.543 $27.649 $19.849 $18.832 $15.810
End of Period $57.304 $39.854 $37.055 $32.543 $27.649 $19.849 $18.832
Number of Units
Outstanding, End of Period 1,627,058 1,801,179 1,935,434 1,944,411 1,397,885 1,239,328 910,764
INTERNATIONAL EQUITY DIVISION
Beginning of Period** $2.032 $1.938 $1.726 $1.427 $1.245 $1.246 $1.000
End of Period $2.497 $2.032 $1.938 $1.726 $1.427 $1.245 $1.246
Number of Units
Outstanding, End of Period 18,571,580 20,139,790 23,069,550 20,439,570 14,747,734 15,153,296 1,128,950
INDEX 400 STOCK DIVISION
Beginning of Period# $10.000 -- -- -- -- -- --
End of Period $11.283 -- -- -- -- -- --
Number of Units
Outstanding, End of Period 1,071 -- -- -- -- -- --
GROWTH STOCK DIVISION
Beginning of Period+ $26.399 $20.837 $16.047 $13.272 $10.145 -- --
End of Period $32.337 $26.399 $20.837 $16.047 $13.272 -- --
Number of Units
Outstanding, End of Period 792,443 651,556 482,897 378,236 63,881 -- --
GROWTH AND INCOME STOCK DIVISION
Beginning of Period+ $25.246 $20.502 $15.767 $13.143 $10.024 -- --
End of Period $27.135 $25.246 $20.502 $15,767 $13.143 -- --
Number of Units
Outstanding, End of Period 798,291 801,964 711,558 424,144 117,004 -- --
INDEX 500 STOCK DIVISION
Beginning of Period++ $46.522 $36.142 $27.134 $22.105 $16.105 $15.916 $14.500
End of Period $56.250 $46.522 $36.142 $27.134 $22.105 $16.105 $15.916
Number of Units
Outstanding, End of Period 2,756,358 2,699,180 2,558,205 2,386,284 2,232,983 2,284,637 2,454,444
BALANCED DIVISION
Beginning of Period $84.987 $71.491 $58.832 $51.856 $41.029 $41.036 $37.449
End of Period $94.505 $84.987 $71.491 $58.832 $51.856 $41.029 $41.036
Number of Units
Outstanding, End of Period 1,066,998 1,211,837 1,341,930 1,489,658 1,889,324 2,327,834 2,660,165
HIGH YIELD BOND DIVISION
Beginning of Period+ $16.385 $16.693 $14.409 $12.030 $10.302 -- --
End of Period $16.310 $16.385 $16.693 $14.409 $12.030 -- --
Number of Units
Outstanding, End of Period 205,407 301,661 235,585 119,423 21,583 -- --
SELECT BOND DIVISION
Beginning of Period $89.873 $83.939 $76.682 $74.223 $62.322 $64.139 $58.132
End of Period $88.954 $89.873 $83.939 $76.682 $74.223 $62.322 $64.139
Number of Units
Outstanding, End of Period 72,428 84,033 85,036 97,868 124,163 150,232 157,630
MONEY MARKET DIVISION
Beginning of Period $28.924 $27.435 $26.011 $24.706 $23.346 $22.436 $21.814
End of Period $30.400 $28.924 $27.435 $26.011 $24.706 $23.346 $22.436
Number of Units
Outstanding, End of Period 7,939 45,209 38,584 57,013 62,209 200,510 341,361
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
---------------------------------
1992 1991 1990
--------- --------- ---------
<S> <C> <C> <C>
SMALL CAP GROWTH STOCK DIVISION
Beginning of Period# -- -- --
End of Period -- -- --
Number of Units
Outstanding, End of Period -- -- --
AGGRESSIVE GROWTH STOCK DIVISION
Beginning of Period* $14.923 $10.000 --
End of Period $15.810 $14.923 --
Number of Units
Outstanding, End of Period 594,531 40,650 --
INTERNATIONAL EQUITY DIVISION
Beginning of Period** -- -- --
End of Period -- -- --
Number of Units
Outstanding, End of Period -- -- --
INDEX 400 STOCK DIVISION
Beginning of Period# -- -- --
End of Period -- -- --
Number of Units
Outstanding, End of Period -- -- --
GROWTH STOCK DIVISION
Beginning of Period+ -- -- --
End of Period -- -- --
Number of Units
Outstanding, End of Period -- -- --
GROWTH AND INCOME STOCK DIVISION
Beginning of Period+ -- -- --
End of Period -- -- --
Number of Units
Outstanding, End of Period -- -- --
INDEX 500 STOCK DIVISION
Beginning of Period++ $13.519 $10.000 --
End of Period $14.500 $13.519 --
Number of Units
Outstanding, End of Period 246,820 36,842 --
BALANCED DIVISION
Beginning of Period $35.557 $28.690 $28.392
End of Period $37.449 $35.557 $28.690
Number of Units
Outstanding, End of Period 2,787,942 2,872,612 2,853,458
HIGH YIELD BOND DIVISION
Beginning of Period+ -- -- --
End of Period -- -- --
Number of Units
Outstanding, End of Period -- -- --
SELECT BOND DIVISION
Beginning of Period $54.335 $46.489 $42.915
End of Period $58.132 $54.335 $46.489
Number of Units
Outstanding, End of Period 170,104 162,656 139,272
MONEY MARKET DIVISION
Beginning of Period $21.110 $19.973 $18.488
End of Period $21.814 $21.110 $19.973
Number of Units
Outstanding, End of Period 355,217 476,920 427,960
</TABLE>
# The initial investments in the Small Cap Growth Stock Division and the Index
400 Stock Division were made on April 30, 1999.
* 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.
9 Prospectus
<PAGE> 11
ACCUMULATION UNIT VALUES
CONTRACTS ISSUED AFTER DECEMBER 31, 1991 (CONTINUED)
RUSSELL INSURANCE FUNDS
<TABLE>
<CAPTION>
FOR THE EIGHT MONTHS ENDED
DECEMBER 31
1999
--------------------------
<S> <C>
MULTI-STYLE EQUITY DIVISION
Beginning of Period* $10.000
End of Period $10.760
Number of Units
Outstanding, End of
Period 17,246
AGGRESSIVE EQUITY DIVISION
Beginning of Period* $10.000
End of Period $11.091
Number of Units
Outstanding, End of
Period 950
NON-U.S. DIVISION
Beginning of Period* $10.000
End of Period $12.534
Number of Units
Outstanding, End of
Period 0
</TABLE>
<TABLE>
<CAPTION>
FOR THE EIGHT MONTHS ENDED
DECEMBER 31
1999
--------------------------
<S> <C>
REAL ESTATE SECURITIES DIVISION
Beginning of Period* $10.000
End of Period $ 9.274
Number of Units
Outstanding, End of
Period 3,723
CORE BOND DIVISION
Beginning of Period* $10.000
End of Period $ 9.914
Number of Units
Outstanding, End of
Period 0
</TABLE>
* The initial investment was made on April 30, 1999.
- --------------------------------------------------------------------------------
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 $85 billion on December
31, 1999, and is licensed to conduct a conventional life insurance business in
the District of Columbia and in all states of the United States.
Northwestern Mutual sells life and disability insurance policies and annuity
contracts through its own field force of approximately 6,000 full time producing
agents. The Home Office of Northwestern Mutual is located at 720 East Wisconsin
Avenue, Milwaukee, Wisconsin 53202.
"We" in this prospectus means Northwestern Mutual.
- --------------------------------------------------------------------------------
NML VARIABLE ANNUITY ACCOUNT C
We established the Account on July 22, 1970 by action of our Board of Trustees
in accordance with the provisions of the Wisconsin insurance law.
The Account has sixteen Divisions. The money you invest to provide variable
benefits under your Contract is placed in one or more of the Divisions as you
direct.
Under Wisconsin law, the investment operations of the Account are kept separate
from our other operations. The values for your Contract will not be affected by
income, gains or losses for the rest of our business. The income, gains or
losses, realized or unrealized, for the assets we place in the Account for your
Contract will determine the value of your Contract benefits and will not affect
the rest of our business. The assets in the Account are reserved for you and
other Contract owners, although the assets belong to us and we do not hold the
assets as a trustee. We and our creditors cannot reach those assets to satisfy
other obligations until our obligations under your Contract have been satisfied.
But all of our assets (except those we hold in some other separate accounts) are
available to satisfy our obligations under your Contract.
The Account is not registered as an investment company under the Investment
Company Act of 1940.
Prospectus 10
<PAGE> 12
THE FUNDS
Northwestern Mutual Series Fund, Inc. is composed of eleven separate portfolios
which operate as separate mutual funds. The portfolios are the Small Cap Growth
Stock Portfolio, Aggressive Growth Stock Portfolio, International Equity
Portfolio, Index 400 Stock Portfolio, Growth Stock Portfolio, Growth and Income
Stock Portfolio, Index 500 Stock Portfolio, Balanced Portfolio, High Yield Bond
Portfolio, Select Bond Portfolio and Money Market Portfolio. The Account buys
shares of each Portfolio at net asset value, that is, without any sales charge.
Northwestern Mutual Investment Services, LLC ("NMIS"), our wholly-owned
subsidiary, is the investment adviser to the Fund. We provide the people and
facilities that NMIS uses in performing its investment advisory functions, and
we are a party to the investment advisory agreement. We and NMIS also perform
certain administrative functions and act as co-depositors of the Account. NMIS
has retained J.P. Morgan Investment Management, Inc. and Templeton Investment
Counsel, Inc. under investment sub-advisory agreements to provide investment
advice to the Growth and Income Stock Portfolio and the International Equity
Portfolio.
The Russell Insurance Funds include five separate portfolios which operate as
separate mutual funds. These are the Multi-Style Equity Fund, Aggressive Equity
Fund, Non-U.S. Fund, Real Estate Securities Fund and Core Bond Fund. The Account
buys shares of each of the Russell Insurance Funds at net asset value, that is,
without any sales charge.
The assets of each of the Russell Insurance Funds are invested by one or more
investment management organizations researched and recommended by Frank Russell
Company ("Russell"), and an affiliate of Russell, Frank Russell Investment
Management Company ("FRIMCo"). FRIMCo also advises, operates and administers the
Russell Insurance Funds. Russell is our majority-owned subsidiary.
FOR MORE INFORMATION REGARDING THE MUTUAL FUNDS, INCLUDING INFORMATION ABOUT
THEIR INVESTMENT OBJECTIVES AND EXPENSES, SEE THE PROSPECTUSES FOR NORTHWESTERN
MUTUAL SERIES FUND, INC. AND RUSSELL INSURANCE FUNDS ATTACHED TO THIS
PROSPECTUS. YOU SHOULD READ THE MUTUAL FUND PROSPECTUSES CAREFULLY BEFORE YOU
INVEST IN THE CONTRACTS.
- --------------------------------------------------------------------------------
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, you may direct us to pay annuity benefits to the participant.
(See "Retirement Benefits", p. 12). We will then issue the Annuitant a
Certificate describing the benefits which have been selected. (See "Variable
Payment Plans", p. 12.) Benefits available to Participants are determined
entirely by the provisions of the Plan or Trust.
PURCHASE PAYMENTS UNDER THE CONTRACTS
AMOUNT AND FREQUENCY You determine the amount and frequency of purchase
payments subject to the provisions of the Plan or Trust. You may pay larger or
additional purchase payments. However, we 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.
You may pay purchase payments monthly, quarterly, semiannually, annually or on
any other frequency acceptable to us. If a purchase payment is not paid when
due, or if we decline to accept a purchase payment as provided above, the
Contract will continue in force unless you redeem all Accumulation Units for
their value. You may resume payment of purchase payments at any time the
Contract is in force.
APPLICATION OF PURCHASE PAYMENTS We credit net purchase payments to your
Contract, after deduction of any sales load or installation fee, and we allocate
the payments as you direct. To the extent that you direct a net purchase payment
to accumulate on a variable basis we place it in the Account and allocate it to
one or more Divisions. Assets we allocate to each Division we thereupon invest
in shares of the Portfolio or Fund which corresponds to that Division. If we
receive no allocation instructions, we will place the net purchase payment in
the Money Market Division.
We apply payments we place in the Account to provide "Accumulation Units" in one
or more Divisions. Accumulation Units represent your interest 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 next valuation of the
assets of the Division we make after we receive your purchase payment at our
Home Office.
11 Prospectus
<PAGE> 13
Receipt of purchase payments at a lockbox facility we have designated will be
considered the same as receipt at the Home Office. We value assets as of the
close of trading on the New York Stock Exchange for each day the Exchange is
open.
The number of your 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 your
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 or Fund. We determine the value of an
Accumulation Unit on any date 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", p. 12.) Since you bear the
investment risk, there is no guarantee as to the aggregate value of your
Accumulation Unit. That value may be less than, equal to or more than the
cumulative net purchase payments you have made.
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 or Fund 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 or Fund.
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 up 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 mortality rate and expense guarantees. (See
"Deductions", p. 16.)
The Portfolios and Funds will distribute investment income and realized capital
gains to the Account Divisions. We will reinvest those distributions in
additional shares of the same Portfolio or Fund. 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, we will pay all of
these benefits in a lump sum or under the payment plans described below. We will
take the amounts required to pay benefits from the Divisions of the Account, or
from the value accumulated on a fixed basis, as you direct.
SURRENDER OR WITHDRAWAL VALUE To the extent permitted by the Plan or Trust, you
may terminate the Contract and redeem the value of Accumulation Units credited
to the Contract. We determine the value, which may be either greater or less
than the amount you have paid, as of the valuation date coincident with or next
following our receipt of a written request for termination. Request forms are
available from our Home Office and our agents. You may surrender a portion of
the Accumulation Units 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. We
base the withdrawal value on the Annuity Unit value on the withdrawal date, with
the unpaid payments discounted at the Assumed Investment Rate. (See "Description
of Payment Plans", below.)
RETIREMENT BENEFITS You may direct us to pay retirement benefits to an
Annuitant at any time while your Contract is in force. Upon your request,
benefits may be paid in a lump sum or under the Payment Plans described below.
Your request will state the Payment Plan you have 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.
We 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
We will pay part or all of the benefits under a Contract under a variable
payment plan you select. Under a variable plan the payee bears the entire
investment risk, since no guarantees of investment return are made. Accordingly,
there is no guarantee
Prospectus 12
<PAGE> 14
of the amount of the variable payments, and you must expect the amount of such
payments 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. We will issue the Annuitant a Certificate
describing the variable annuity benefits and including beneficiary provisions of
annuity contracts we issue 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", p. 14.
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 we require for
annuity payment plans on the date you elect the plan. From time to time we may
establish payment plan rates with greater actuarial value than those stated in
the Contract and make them available at the time of settlement. We may also make
available other payment plans, with provisions and rates as we publish for those
plans.
AMOUNT OF ANNUITY PAYMENTS We will determine the amount of the first annuity
payment on the basis of the particular Payment Plan you select, the annuity
payment rate and, for plans involving life contingencies, the Annuitant's
adjusted age. We will calculate the amount of the first annuity payment on a
basis that takes into account the length of time over which we expect annuity
payments to continue. The first payment will be lower for an Annuitant who is
younger when payments begin, and higher for an Annuitant who is older, if the
payment plan involves life contingencies. The first payment will be lower if the
payment plan includes a longer certain period. 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 You may change the allocation of
net purchase payments among the Divisions or transfer Accumulation Units from
one Division to another at any time. 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 we
receive a written request at our Home Office or on a future specified date.
We will adjust the number of Accumulation or Annuity Units to be credited to
reflect the respective value of the Accumulation and Annuity Units in each of
the Divisions. You may transfer Accumulation Units among the Divisions up to
twelve times in a Contract year without charge. The charge for each additional
transfer is $25. We may set charges and waiting periods for transfers of Annuity
Units.
If you contemplate the transfer of funds from one Division to another, you
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
13 Prospectus
<PAGE> 15
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. In this prospectus, "you" means the owner or a prospective purchaser of
a Contract. 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 We reserve 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 shares of a
Portfolio or Fund 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 us to
dispose of securities we own, or to determine the value of Accumulation or
Annuity Units.
DIVIDENDS The Contracts share in our divisible surplus, except while payments
are being made under a payment plan. Our divisible surplus is determined
annually. We credit each Contract's share, if any, as a dividend on the Contract
anniversary. Under the terms of the Contract, we will apply any dividend 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
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 2000, 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 We reserve the right to (a) substitute other securities
for shares of each Portfolio or 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. We 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. You will be given prompt notice after any substitution
or change.
AMENDMENTS AND TERMINATION After the fifth Contract year, we 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 not become effective until after we have given you at least 30
days' written notice. An Amendment to the payment rate tables will not apply to
a Payment Plan that starts before the amendment becomes effective.
We reserve the right to terminate a Contract if representations you have made to
us are or become incorrect. You may terminate a Contract in whole or in part at
any time and we will pay you the value of the Accumulation Units.
FINANCIAL STATEMENTS Financial statements of the Account and financial
statements of Northwestern Mutual appear in the Statement of Additional
Information.
- --------------------------------------------------------------------------------
FEDERAL INCOME TAXES
We offer the Contracts only for use under tax-qualified plans meeting the
requirements of Sections 401 and 403(a) of the Code. However, in the event we
should issue Contracts 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.
CONTRIBUTION LIMITS
Any employer, including a self-employed person, can establish a plan under
Section 401(a) or 403(a) for participating employees. As a general rule, annual
contributions to a defined contribution plan made by the employer and the
employee cannot exceed the lesser of $30,000 or 25% of compensation or earned
income (up to $170,000, indexed).
Qualified plans are subject to minimum coverage, nondiscrimination and spousal
consent requirements. In addition, "top heavy" rules apply if more than 60% of
the contributions or benefits are allocated to certain highly compensated
employees. Violations of the contribution limits or other requirements may
disqualify the plan and/or subject the employer to taxes and penalties.
Prospectus 14
<PAGE> 16
TAXATION OF CONTRACT BENEFITS
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. 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 an eligible 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."
MINIMUM DISTRIBUTION REQUIREMENTS As a general rule, the Plan is required to
make certain required distributions to the employee during the employee's life
and to the employee's beneficiary following the employee's death. A 50% penalty
tax may be imposed on payments to the extent they are less than these required
minimum amounts.
The Plan must make the first required distribution by the "required beginning
date" and subsequent required distributions by December 31 of that year and each
year thereafter. Payments must be made over the life or life expectancy of the
employee or the lives or life expectancies of the employee and the employee's
beneficiary. The required beginning date is April 1 of the calendar year
following the later of the calendar year in which the employee attains age
70 1/2 or, if the employee is not a "5% owner" of the employer, the calendar
year in which the employee retires. Upon the death of the employee, the Plan
must make distributions under one of the following two rules.
If the employee dies on or after the required beginning date, any remaining
interest of the employee must be distributed at least as rapidly as it was under
the method of distribution in effect on the date of death. The method of
distribution is determined by the age of the employee and the beneficiary and
whether their life expectancies are being recalculated each year.
If the employee dies before the required beginning date, the employee's entire
interest must be distributed by December 31 of the calendar year containing the
fifth anniversary of the employee's death. If the employee's interest is payable
to a beneficiary designated by the employee, the employee's interest may be paid
over the life or life expectancy of that beneficiary, provided distribution
begins by December 31 of the calendar year following the year of the employee's
death. If the sole designated beneficiary is the employee's spouse, the spouse
may roll over the Contract into an IRA owned by the spouse.
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. You should consult
qualified tax counsel before you adopt an HR-10 pension or profit-sharing plan
or trust.
TAXATION OF NORTHWESTERN MUTUAL
We 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. We are currently making no charge. (See "Net Investment Factor", p. 12
and "Deductions", p. 16.)
15 Prospectus
<PAGE> 17
DEDUCTIONS
We will make the following deductions:
1. Deductions from Purchase Payments.
FRONT-LOAD CONTRACT
We deduct a sales load from all purchase payments we receive. The sales load
compensates us for the costs we incur in selling the Contracts. We base the
deduction on the cumulative amounts we have 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........................... 0.5%
</TABLE>
SIMPLIFIED-LOAD CONTRACT
We deduct an installation fee in the amount of $750 from the first purchase
payment we receive. Alternatively, you may pay the fee separately when you
submit the application for the Contract. 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. 12) we use in determining the value of
Accumulation and Annuity Units reflects a charge on each valuation date for
mortality and expense risks we have assumed. For the front-load Contract the
charge on an annual basis is 0.65% 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. We may increase this charge to a maximum of 1.00% for the
front-load Contract and 1.50% for the simplified-load Contract. After the fifth
Contract year we may amend the maximum. (See "Amendments and Termination", p.
14.)
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 we make may be insufficient to cover the
actual costs we incur in connection with the Contracts. We assume 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
the mutual funds as described under "Substitution and Change", p. 14, and the
deduction of any applicable taxes. Applicable taxes could include any tax
liability we have paid or reserved for resulting from the maintenance or
operation of a Division of the Account. We do not presently anticipate that any
deduction will be made for federal income taxes (see "Federal Income Taxes" p.
14), nor do we anticipate that maintenance or operation of the Account will give
rise to any deduction for state or local taxes. However, we reserve 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. We 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 we may charge an administration fee
of $150 annually on the Contract anniversary.
4. Premium Taxes. The Contracts provide for the deduction of applicable premium
taxes, if any, from purchase payments or from Contract benefits. Various
jurisdictions levy premium taxes. Premium taxes presently range from 0% to 2% of
total purchase payments. Many jurisdictions presently exempt from premium taxes
annuities such as the Contracts. As a matter of current practice, we do not
deduct premium taxes from purchase payments received under the Contracts or from
Contract benefits. However, we reserve the right to deduct premium taxes in the
future.
5. Expenses for the Portfolios and Funds. The expenses borne by the Portfolios
and Funds in which the assets of the Account are invested are described in the
prospectuses for Northwestern Mutual Series Fund, Inc. and the Russell Insurance
Funds. See the prospectuses attached to this prospectus.
- --------------------------------------------------------------------------------
DISTRIBUTION OF THE CONTRACTS
We will sell the Contracts through individuals who are licensed insurance agents
appointed by Northwestern Mutual and are registered representatives of
Northwestern Mutual Investment Services, LLC, our wholly-owned subsidiary.
Northwestern Mutual Investment Services, LLC is 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, these agents will also be
Prospectus 16
<PAGE> 18
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. We do not expect
total commissions, on average, 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; 0.4% on the
next $100,000; 0.2% on the next $200,000; and 0.1% on the balance over $500,000
of cumulative purchase payments. 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 0.5% on
the first $100,000; 0.4% on the next $100,000; 0.3% on the next $100,000; 0.2%
on the next $200,000; and 0.1% on the balance over $500,000. The charge for
annuity rate and expense risks may not exceed 0.25% of the Account assets held
for these Contracts (unless the Contracts are amended after the fifth Contract
year), and we currently are making no charge for these risks. These Contracts
contain no provisions for accumulation of funds on a fixed basis. See the table
of accumulation unit values on page 9.
17 Prospectus
<PAGE> 19
---------------------------------------------
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
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS OF THE ACCOUNT (for the two
years ended December 31, 1999)................... B-5
REPORT OF INDEPENDENT ACCOUNTANTS (for the two
years ended December 31, 1999)................... B-17
FINANCIAL STATEMENTS OF NORTHWESTERN MUTUAL (for
the three years ended December 31, 1999)......... B-18
REPORT OF INDEPENDENT ACCOUNTANTS (for the three
years ended December 31, 1999)................... B-29
</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
1-888-455-2232.
-----------------------------------------------------------------------
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> 20
More information about Northwestern Mutual Series Fund, Inc. is included in the
Fund's Statement of Additional Information (SAI), incorporated by reference in
this prospectus, which is available free of charge.
More information about the Fund's investments is included in the Fund's annual
and semi-annual reports, which discuss the market conditions and investment
strategies that significantly affected each Portfolio's performance during the
previous fiscal period.
To request a free copy of the Fund's SAI, or current annual or semi-annual
report, call us at 1-888-455-2232. Information about the Fund (including the
SAI) can be reviewed and copied at the Public Reference Room of the Securities
and Exchange Commission (SEC) in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
Reports and other information about the Fund are available on the SEC's Internet
site at http://www.sec.gov. Copies of this information may be obtained, upon
payment of a duplicating fee, by writing the Public Reference Section of the
SEC, Washington, DC 20549-6009.
- --------------------------------------------------------------------------------
NORTHWESTERN MUTUAL
GROUP COMBINATION ANNUITY CONTRACTS
for Retirement Plans of Self-Employed
Persons and Their Employees
NML VARIABLE ANNUITY ACCOUNT C
NORTHWESTERN MUTUAL SERIES FUND, INC.
RUSSELL INSURANCE FUNDS
90-1896 (4/2000)
PROSPECTUSES
Investment Company Act File Nos. 811-3990 and 811-5371
NORTHWESTERN MUTUAL(TM)
PO Box 3095
Milwaukee WI 53201-3095
Change Service Requested
<PAGE> 21
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")
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 28, 2000.
The date of this Statement of Additional Information is April 28, 2000.
B-1
<PAGE> 22
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 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, are registered representatives of Northwestern Mutual Investment
Services, LLC ("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> <C>
1999 $133,785
1998 $162,781
1997 $120,550
</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. 12, including "Description of Payment Plans", p. 12, "Amount
of Annuity Payments", p. 13, and "Assumed Investment Rate", p. 13; "Dividends",
p. 13; "Net Investment Factor", p. 12; and "Deductions", p. 15.
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 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.
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 credited to the Annuitant in the
Division by the value of an Annuity Unit for the Division on (a) the fifth
B-2
<PAGE> 23
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> 24
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 or Fund shares 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 a Portfolio or 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.
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 must be received
at the Home Office of Northwestern Mutual. 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. Northwestern Mutual will
not be responsible for the validity or effect of the assignment or for any
payment or other action taken by Northwestern Mutual before Northwestern Mutual
consents to the assignment.
EXPERTS
The financial statements of the Account as of December 31, 1999 and for
each of the two years in the period ended December 31, 1999 and of Northwestern
Mutual as of December 31, 1999 and 1998 and for each of the three years in the
period ended December 31, 1999 included in this Statement of Additional
Information have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting. PricewaterhouseCoopers LLP
provides audit services for the Account. The address of PricewaterhouseCoopers
LLP is 100 East Wisconsin Avenue, Suite 1500, Milwaukee, Wisconsin 53202.
B-4
<PAGE> 25
NML VARIABLE ANNUITY ACCOUNT C
Statement of Assets and Liabilities
December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments at Market Value:
Northwestern Mutual Series Fund, Inc.
Small Cap Growth Stock
529 shares (cost $746)............................. $ 949
Aggressive Growth Stock
29,072 shares (cost $89,365)....................... 139,739
International Equity
36,249 shares (cost $57,060)....................... 64,556
Index 400 Stock
425 shares (cost $442)............................. 473
Growth Stock
14,977 shares (cost $30,335)....................... 39,776
Growth and Income Stock
26,336 shares (cost $39,527)....................... 41,105
Index 500 Stock
56,622 shares (cost $120,560)...................... 220,075
Balanced
75,364 shares (cost $128,710)...................... 167,444
High Yield Bond
7,763 shares (cost $7,873)......................... 6,380
Select Bond
15,508 shares (cost $18,559)....................... 17,537
Money Market
19,346 shares (cost $19,346)....................... 19,341
Russell Insurance Funds
Multi-Style Equity
102 shares (cost $1,642)........................... 1,706
Aggressive Equity
26 shares (cost $326).............................. 352
Non-U.S.
40 shares (cost $493).............................. 565
Real Estate Securities
12 shares (cost $108).............................. 102
Core Bond
40 shares (cost $399).............................. 384 $720,484
--------
Due from Sale of Fund Shares.............................. 798
Due from Northwestern Mutual Life Insurance Company....... 395
Due from Participants..................................... 232
--------
Total Assets..................................... $721,909
========
LIABILITIES
Due to Northwestern Mutual Life Insurance Company......... $ 798
Due on Purchase of Fund Shares............................ 395
--------
Total Liabilities................................ 1,193
--------
EQUITY (NOTE 8)
Group Variable Annuity Contracts Issued:
Before December 17, 1981 or between April 30, 1984 and
December 31, 1991...................................... 453,199
After December 16, 1981 and Prior to May 1, 1984........ 4,972
After December 31, 1991 -- Front Load Version........... 62,645
After December 31, 1991 -- Simplified Load Version...... 199,900
--------
Total Equity..................................... 720,716
--------
Total Liabilities and Equity..................... $721,909
========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B-5 Account C Financial Statements
<PAGE> 26
NML VARIABLE ANNUITY ACCOUNT C
<TABLE>
<CAPTION>
Statement of Operations SMALL CAP
(in thousands) GROWTH STOCK AGGRESSIVE GROWTH
COMBINED DIVISION# STOCK DIVISION
---------------------------- ------------ ----------------------------
EIGHT MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............................ $ 43,813 $26,993 $ 32 $ 3,671 $ 4,152
Annuity Rate and Expense Guarantees........ 3,444 3,155 2 576 591
-------- ------- ---- ------- -------
Net Investment Income...................... 40,369 23,838 30 3,095 3,561
-------- ------- ---- ------- -------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized Gain (Loss) on Investments........ 41,106 29,249 1 10,070 7,961
Unrealized Appreciation (Depreciation) of
Investments During the Period............ 36,856 37,108 202 28,576 (3,919)
-------- ------- ---- ------- -------
Net Gain (Loss) on Investments............. 77,962 66,357 203 38,646 4,042
-------- ------- ---- ------- -------
Increase (Decrease) in Equity Derived from
Investment Activity...................... $118,331 $90,195 $233 $41,741 $ 7,603
======== ======= ==== ======= =======
</TABLE>
# The initial investment in this Division was made on April 30, 1999.
The Accompanying Notes are an Integral Part of the Financial Statements
Account C Financial Statements B-6
<PAGE> 27
<TABLE>
<CAPTION>
INDEX 400
STOCK GROWTH & INCOME
INTERNATIONAL EQUITY DIVISION DIVISION# GROWTH STOCK DIVISION STOCK DIVISION
----------------------------- --------------- --------------------------- ---------------------------
EIGHT MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 8,184 $ 3,732 $ 6 $1,223 $ 447 $ 4,566 $ 343
254 289 2 137 92 208 180
------- ------- --- ------ ------ ------- ------
7,930 3,443 4 1,086 355 4,358 163
------- ------- --- ------ ------ ------- ------
3,203 3,560 1 2,143 1,374 1,267 780
837 (4,426) 31 3,567 3,304 (3,007) 5,917
------- ------- --- ------ ------ ------- ------
4,040 (866) 32 5,710 4,678 (1,740) 6,697
------- ------- --- ------ ------ ------- ------
$11,970 $ 2,577 $36 $6,796 $5,033 $ 2,618 $6,860
======= ======= === ====== ====== ======= ======
<CAPTION>
INDEX 500
STOCK DIVISION
---------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
---------------------------
<C> <C>
$ 4,675 $ 5,271
895 721
------- -------
3,780 4,550
------- -------
13,954 7,377
19,628 27,279
------- -------
33,582 34,656
------- -------
$37,362 $39,206
======= =======
</TABLE>
B-7 Account C Financial Statements
<PAGE> 28
NML VARIABLE ANNUITY ACCOUNT C
<TABLE>
<CAPTION>
Statement of Operations BALANCED DIVISION HIGH YIELD BOND DIVISION SELECT BOND DIVISION
(in thousands) ---------------------------- ---------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
(CONTINUED) 1999 1998 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income.................. $ 18,031 $ 9,909 $ 759 $ 883 $ 1,570 $1,357
Annuity Rate and Expense
Guarantees..................... 954 906 35 39 136 142
-------- ------- ----- ------- ------- ------
Net Investment Income............ 17,077 9,003 724 844 1,434 1,215
-------- ------- ----- ------- ------- ------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized Gain (Loss) on
Investments.................... 11,189 7,790 (775) (56) 48 463
Unrealized Appreciation
(Depreciation) of Investments
During the Period.............. (11,272) 10,517 (39) (1,081) (1,810) (483)
-------- ------- ----- ------- ------- ------
Net Gain (Loss) on Investments... (83) 18,307 (814) (1,137) (1,762) (20)
-------- ------- ----- ------- ------- ------
Increase (Decrease) in Equity
Derived from Investment
Activity....................... $ 16,994 $27,310 $ (90) $ (293) $ (328) $1,195
======== ======= ===== ======= ======= ======
</TABLE>
# The initial investment in this Division was made on April 30, 1999.
The Accompanying Notes are an Integral Part of the Financial Statements
Account C Financial Statements B-8
<PAGE> 29
<TABLE>
<CAPTION>
RUSSELL RUSSELL RUSSELL RUSSELL RUSSELL
MULTI-STYLE EQUITY# AGGRESSIVE EQUITY# NON-U.S.# REAL ESTATE SECURITIES# CORE BOND#
MONEY MARKET DIVISION ------------------- ------------------ ------------ ----------------------- ------------
- ------------------------------- EIGHT MONTHS EIGHT MONTHS EIGHT MONTHS EIGHT MONTHS EIGHT MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1999 1999 1999 1999
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$1,015 $899 $ 48 $ 1 $13 $ 4 $ 15
236 195 5 1 2 -- 1
------ ---- ---- --- --- --- ----
779 704 43 -- 11 4 14
------ ---- ---- --- --- --- ----
-- -- -- 5 -- -- --
-- -- 64 26 73 (6) (14)
------ ---- ---- --- --- --- ----
-- -- 64 31 73 (6) (14)
------ ---- ---- --- --- --- ----
$ 779 $704 $107 $31 $84 $(2) $ --
====== ==== ==== === === === ====
</TABLE>
B-9 Account C Financial Statements
<PAGE> 30
NML VARIABLE ANNUITY ACCOUNT C
<TABLE>
<CAPTION>
Statement of Changes in Equity SMALL CAP
(in thousands) GROWTH STOCK AGGRESSIVE GROWTH
COMBINED DIVISION# STOCK DIVISION
---------------------------- ------------ ----------------------------
EIGHT MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income...................... $ 40,369 $ 23,838 $ 30 $ 3,095 $ 3,561
Net Realized gain (loss)................... 41,106 29,249 1 10,070 7,961
Net Change in Unrealized Appreciation
(Depreciation)........................... 36,856 37,108 202 28,576 (3,919)
-------- -------- ---- -------- --------
Increase (Decrease) in Equity Derived from
Investment Activity........................ 118,331 90,195 233 41,741 7,603
-------- -------- ---- -------- --------
EQUITY TRANSACTIONS
Contract Owners' Net Payments.............. 74,900 93,657 184 13,136 16,937
Annuity Payments........................... (67) (54) -- (3) (2)
Surrenders and Other (net)................. (119,041) (87,761) 1 (22,025) (20,805)
Transfers from Other Divisions or
Sponsor.................................. 70,710 72,485 581 4,719 3,375
Transfers to Other Divisions or Sponsor.... (69,203) (71,425) (50) (10,185) (6,341)
-------- -------- ---- -------- --------
Increase (Decrease) in Equity Derived from
Equity Transactions........................ (42,701) 6,902 716 (14,358) (6,836)
-------- -------- ---- -------- --------
Net Increase (Decrease) in Equity............ 75,630 97,097 949 27,383 767
EQUITY
Beginning of Period........................ 645,086 547,989 -- 112,357 111,590
-------- -------- ---- -------- --------
End of Period.............................. $720,716 $645,086 $949 $139,740 $112,357
======== ======== ==== ======== ========
</TABLE>
# The initial investment in this Division was made on April 30, 1999.
The Accompanying Notes are an Integral Part of the Financial Statements
Account C Financial Statements B-10
<PAGE> 31
<TABLE>
<CAPTION>
INDEX 400
STOCK GROWTH & INCOME
INTERNATIONAL EQUITY DIVISION DIVISION# GROWTH STOCK DIVISION STOCK DIVISION
----------------------------- --------------- --------------------------- ---------------------------
EIGHT MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 7,930 $ 3,443 $ 4 $ 1,086 $ 355 $ 4,358 $ 163
3,203 3,560 1 2,143 1,374 1,267 780
837 (4,426) 31 3,567 3,304 (3,007) 5,917
------- ------- ---- ------- ------- ------- -------
11,970 2,577 36 6,796 5,033 2,618 6,860
------- ------- ---- ------- ------- ------- -------
6,164 8,353 174 3,912 3,452 5,168 6,130
(2) (1) -- (4) (3) -- --
(9,838) (8,855) (9) (3,980) (2,332) (7,856) (3,594)
3,026 2,281 273 10,514 9,371 7,271 8,719
(6,029) (8,966) -- (5,282) (3,548) (6,450) (5,246)
------- ------- ---- ------- ------- ------- -------
(6,679) (7,188) 438 5,160 6,940 (1,867) 6,009
------- ------- ---- ------- ------- ------- -------
5,291 (4,611) 474 11,956 11,973 751 12,869
59,265 63,876 -- 27,820 15,847 40,354 27,485
------- ------- ---- ------- ------- ------- -------
$64,556 $59,265 $474 $39,776 $27,820 $41,105 $40,354
======= ======= ==== ======= ======= ======= =======
<CAPTION>
INDEX 500
STOCK DIVISION
---------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
---------------------------
<C> <C>
$ 3,780 $ 4,550
13,954 7,377
19,628 27,279
-------- --------
37,362 39,206
-------- --------
20,768 21,772
(5) (3)
(23,604) (18,000)
12,396 12,300
(10,168) (5,878)
-------- --------
(613) 10,191
-------- --------
36,749 49,397
183,326 133,929
-------- --------
$220,075 $183,326
======== ========
</TABLE>
B-11 Account C Financial Statements
<PAGE> 32
NML VARIABLE ANNUITY ACCOUNT C
<TABLE>
<CAPTION>
Statement of Changes in Equity BALANCED DIVISION HIGH YIELD BOND DIVISION SELECT BOND DIVISION
(in thousands) ---------------------------- ---------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
(CONTINUED) 1999 1998 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income............ $ 17,077 $ 9,003 $ 724 $ 844 $ 1,434 $ 1,215
Net Realized gain (loss)......... 11,189 7,790 (775) (56) 48 463
Net Change in unrealized
appreciation (depreciation).... (11,272) 10,517 (39) (1,081) (1,810) (483)
-------- -------- ------- ------- ------- -------
Increase (Decrease) in Equity
Derived from Investment
Activity......................... 16,994 27,310 (90) (293) (328) 1,195
-------- -------- ------- ------- ------- -------
EQUITY TRANSACTIONS
Contract Owners' Net Payments.... 12,945 17,458 947 1,310 2,929 3,811
Annuity Payments................. (46) (41) (1) -- (4) (3)
Surrenders and Other (net)....... (31,240) (22,224) (652) (1,191) (4,651) (3,378)
Transfers from Other Divisions or
Sponsor........................ 7,114 9,934 516 2,932 1,606 4,393
Transfers to Other Divisions or
Sponsor........................ (11,295) (13,201) (2,951) (716) (2,769) (3,323)
-------- -------- ------- ------- ------- -------
Increase (Decrease) in Equity
Derived from Equity
Transactions..................... (22,522) (8,074) (2,141) 2,335 (2,889) 1,500
-------- -------- ------- ------- ------- -------
Net Increase (Decrease) in
Equity........................... (5,528) 19,236 (2,231) 2,042 (3,217) 2,695
EQUITY
Beginning of Period.............. 172,971 153,735 8,611 6,569 20,754 18,059
-------- -------- ------- ------- ------- -------
End of Period.................... $167,443 $172,971 $ 6,380 $ 8,611 $17,537 $20,754
======== ======== ======= ======= ======= =======
</TABLE>
# The initial investment in this Division was made on April 30, 1999.
The Accompanying Notes are an Integral Part of the Financial Statements
Account C Financial Statements B-12
<PAGE> 33
<TABLE>
<CAPTION>
RUSSELL RUSSELL RUSSELL RUSSELL RUSSELL
MULTI-STYLE EQUITY# AGGRESSIVE EQUITY# NON-U.S.# REAL ESTATE SECURITIES# CORE BOND#
MONEY MARKET DIVISION ------------------- ------------------ ------------ ----------------------- ------------
- ------------------------------- EIGHT MONTHS EIGHT MONTHS EIGHT MONTHS EIGHT MONTHS EIGHT MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1999 1999 1999 1999
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 779 $ 704 $ 43 $ -- $ 11 $ 4 $ 14
-- -- -- 5 -- -- --
-- -- 64 26 73 (6) (14)
-------- -------- ------ ---- ---- ---- ----
779 704 107 31 84 (2) --
-------- -------- ------ ---- ---- ---- ----
7,746 14,434 485 96 124 16 106
(2) (1) -- -- -- -- --
(15,180) (7,382) 1 (5) -- -- (3)
20,425 19,180 1,230 244 405 109 281
(13,822) (24,206) (118) (15) (48) (21) --
-------- -------- ------ ---- ---- ---- ----
(833) 2,025 1,598 320 481 104 384
-------- -------- ------ ---- ---- ---- ----
(54) 2,729 1,705 351 565 102 384
19,628 16,899 -- -- -- -- --
-------- -------- ------ ---- ---- ---- ----
$ 19,574 $ 19,628 $1,705 $351 $565 $102 $384
======== ======== ====== ==== ==== ==== ====
</TABLE>
B-13 Account C Financial Statements
<PAGE> 34
NML VARIABLE ANNUITY ACCOUNT C
Notes to Financial Statements
December 31, 1999
NOTE 1 -- NML Variable Annuity Account C (the "Account") is a segregated asset
account of The Northwestern Mutual Life Insurance Company ("Northwestern Mutual"
or "Sponsor") used to fund variable annuity contracts ("contracts") for H-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. and the
Russell Insurance Funds (collectively known as "the Funds"). The shares are
valued at the Funds' offering and redemption prices per share.
The Funds are open-end investment companies 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 Funds is recorded on the record date of the
dividends. Transactions in the Funds shares are accounted for on the trade date.
The basis for determining cost on sale of Fund shares is identified cost.
Purchases and sales of the Funds shares for the period ended December 31, 1999
by each Division are shown below:
<TABLE>
<CAPTION>
DIVISION PURCHASES SALES
-------- --------- -----
<S> <C> <C>
Small Cap Growth Stock.... $ 759,215 $ 13,802
Aggressive Growth Stock... 12,206,930 23,468,462
International Equity...... 13,196,712 11,938,339
Index 400 Stock........... 468,108 26,390
Growth Stock.............. 11,622,415 5,373,768
Growth & Income Stock..... 12,666,073 10,170,106
Index 500 Stock........... 24,489,112 21,511,153
Balanced.................. 27,037,531 32,467,107
High Yield Bond........... 1,696,507 3,114,104
Select Bond............... 3,699,428 5,152,171
Money Market.............. 22,540,096 22,822,933
Russell Multi-Style Equity
Fund.................... 1,676,900 35,224
Russell Aggressive Equity
Fund.................... 763,162 443,034
Russell Non-U.S. Fund..... 494,961 2,369
Russell Real Estate
Securities Fund......... 109,105 569
Russell Core Bond Fund.... 403,049 4,229
</TABLE>
NOTE 6 -- A deduction for annuity rate and expense guarantees is determined
daily and paid to Northwestern Mutual 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 changes
made by Northwestern Mutual 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. For these contracts, the rates may
be increased or decreased by the Board of Trustees of Northwestern Mutual 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 rates of 1/2% of 1% of the net
assets of each Division attributable to these contracts and is paid to
Northwestern Mutual. For these contracts, the rate may be increased or
Notes to Financial Statements B-14
<PAGE> 35
decreased by the Board of Trustees of Northwestern Mutual not to exceed 3/4% of
1% annual rate.
Since 1996, Northwestern Mutual has paid a dividend to certain contracts. The
dividend is re-invested in the Account and has been reflected as a Contract
Owners' Net Deposit in the accompanying financial statements.
NOTE 7 -- Northwestern Mutual is taxed as a "life insurance company" under the
Internal Revenue Code and the operations of the Account form part of and are
taxed with those of Northwestern Mutual. 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- 15 Notes to Financial Statements
<PAGE> 36
NML VARIABLE ANNUITY ACCOUNT C
Notes to Financial Statements
December 31, 1999
(in thousands)
NOTE 8 -- Equity Values by Division are shown below:
<TABLE>
<CAPTION>
GROUP VARIABLE ANNUITY CONTRACTS ISSUED:
--------------------------------------------------------------------------------
BEFORE DECEMBER 17, 1981 OR BETWEEN AFTER DECEMBER 16, 1981 AND
APRIL 30, 1984 AND DECEMBER 31, 1991 PRIOR TO MAY 1, 1984
--------------------------------------- -------------------------------------
ACCUMULATION UNITS ACCUMULATION UNITS
DIVISION UNIT VALUE OUTSTANDING EQUITY UNIT VALUE OUTSTANDING EQUITY
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Small Cap Growth Stock................ $18.610781 8 $ 140 $18.548596 -- $ 8
Aggressive Growth Stock............... 57.304251 1,627 93,234 54.800923 1 79
International Equity.................. 2.497127 18,572 46,377 2.415234 24 59
Index 400 Stock....................... 11.283278 1 12 11.245478 -- --
Growth Stock.......................... 32.336967 793 25,627 31.433960 -- 4
Growth and Income Stock............... 27.134671 799 21,661 26.376796 1 36
Index 500 Stock....................... 56.249780 2,756 155,044 53.786850 8 446
Balanced.............................. 94.505378 1,067 100,837 86.395292 38 3,239
High Yield Bond....................... 16.310402 206 3,352 15.854730 -- 3
Select Bond........................... 88.954059 73 6,443 81.280078 -- 37
Money Market.......................... 30.399653 8 242 27.823703 -- --
Russell Multi-Style Equity............ 10.760032 17 183 10.723983 -- --
Russell Aggressive Equity............. 11.091435 -- 10 11.054275 -- --
Russell Non-U.S. ..................... 12.534266 -- -- 12.492336 -- 6
Russell Real Estate Securities........ 9.274172 4 37 9.243071 -- --
Russell Core Bond..................... 9.914196 -- -- 9.880973 -- --
-------- ------
Equity.............................. 453,199 3,917
Annuity Reserves.................... -- 1,055
-------- ------
Total Equity........................ $453,199 $4,972
======== ======
</TABLE>
<TABLE>
<CAPTION>
GROUP COMBINATION ANNUITY CONTRACTS 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>
Small Cap Growth Stock................ $1.853001 73 $ 135 $1.845580 360 $ 664
Aggressive Growth Stock............... 3.588119 2,777 9,964 5.427804 6,707 36,404
International Equity.................. 2.391284 2,302 5,505 2.297694 5,480 12,591
Index 400 Stock....................... 1.123423 13 15 1.118909 399 446
Growth Stock.......................... 3.116901 996 3,104 3.012947 3,647 10,988
Growth and Income Stock............... 2.615436 1,705 4,459 2.528256 5,913 14,950
Index 500 Stock....................... 3.938401 4,132 16,273 4.918509 9,809 48,247
Balanced.............................. 2.520233 6,183 15,584 7.473141 6,320 47,231
High Yield Bond....................... 1.572112 410 645 1.519653 1,556 2,365
Select Bond........................... 1.558775 2,265 3,531 6.996057 1,068 7,472
Money Market.......................... 1.366307 1,879 2,567 2.528768 6,539 16,536
Russell Multi-Style Equity............ 1.071323 297 318 1.067018 1,126 1,201
Russell Aggressive Equity............. 1.104316 79 87 1.099895 231 254
Russell Non-U.S. ..................... 1.247967 151 188 1.242993 298 370
Russell Real Estate Securities........ 0.923380 37 34 0.919674 37 34
Russell Core Bond..................... 0.987105 239 236 0.983142 150 147
------- --------
Equity.............................. 62,645 199,900
Annuity Reserves.................... -- --
------- --------
Total Equity........................ $62,645 $199,900
======= ========
</TABLE>
Notes to Financial Statements B-16
<PAGE> 37
[PRICEWATERHOUSECOOPERS LLC - LETTERHEAD]
Report of Independent Accountants
To The Northwestern Mutual Life Insurance Company and
Contract Owners of 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 of changes in
equity present fairly, in all material respects, the financial position of NML
Variable Annuity Account C and the Small Cap Growth Stock Division, Aggressive
Growth Stock Division, International Equity Division, Index 400 Stock Division,
Growth Stock Division, Growth & Income Stock Division, Index 500 Stock Division,
Balanced Division, High Yield Bond Division, Select Bond Division, Money Market
Division, Russell Multi-Style Equity Division, Russell Aggressive Equity
Division, Russell Non-U.S. Division, Russell Real Estate Securities Division and
Russell Core Bond Division thereof at December 31, 1999, the results of each of
their operations for each of the two years or the period then ended and the
changes in each of their equity for the two years or the period then ended in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of The Northwestern Mutual
Life Insurance Company's management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our audits of
these financial statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included direct confirmation of the number of shares owned at
December 31, 1999 with Northwestern Mutual Series Fund, Inc. and the Russell
Insurance Funds, provide a reasonable basis for the opinion expressed above.
[PRICEWATERHOUSECOOPERS LLC]
Milwaukee, Wisconsin
January 27, 2000
B- 17 Accountants' Report
<PAGE> 38
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,
---------------------
1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Bonds..................................................... $36,792 $34,888
Common and preferred stocks............................... 7,108 6,062
Mortgage loans............................................ 13,416 12,250
Real estate............................................... 1,666 1,481
Policy loans.............................................. 7,938 7,580
Other investments......................................... 3,443 2,353
Cash and temporary investments............................ 1,159 1,275
------- -------
TOTAL INVESTMENTS....................................... 71,522 65,889
Due and accrued investment income......................... 893 827
Other assets.............................................. 1,409 1,313
Separate account assets................................... 12,161 9,966
------- -------
TOTAL ASSETS............................................ $85,985 $77,995
======= =======
LIABILITIES AND SURPLUS
Reserves for policy benefits.............................. $56,246 $51,815
Policy benefit and premium deposits....................... 1,746 1,709
Policyowner dividends payable............................. 3,100 2,870
Interest maintenance reserve.............................. 491 606
Asset valuation reserve................................... 2,371 1,994
Income taxes payable...................................... 1,192 1,161
Other liabilities......................................... 3,609 3,133
Separate account liabilities.............................. 12,161 9,966
------- -------
TOTAL LIABILITIES....................................... 80,916 73,254
Surplus................................................... 5,069 4,741
------- -------
TOTAL LIABILITIES AND SURPLUS........................... $85,985 $77,995
======= =======
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements
Consolidated Statement of Financial Position
B-18
<PAGE> 39
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
Consolidated Statement of Operations
(in millions)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE
Premiums and deposits..................................... $ 8,344 $ 8,021 $ 7,294
Net investment income..................................... 4,766 4,536 4,171
Other income.............................................. 970 922 861
------- ------- -------
TOTAL REVENUE......................................... 14,080 13,479 12,326
------- ------- -------
BENEFITS AND EXPENSES
Benefit payments to policyowners and beneficiaries........ 4,023 3,602 3,329
Net additions to policy benefit reserves.................. 4,469 4,521 4,026
Net transfers to separate accounts........................ 516 564 566
------- ------- -------
TOTAL BENEFITS........................................ 9,008 8,687 7,921
Operating expenses........................................ 1,287 1,297 1,138
------- ------- -------
TOTAL BENEFITS AND EXPENSES........................... 10,295 9,984 9,059
------- ------- -------
GAIN FROM OPERATIONS BEFORE DIVIDENDS AND TAXES....... 3,785 3,495 3,267
Policyowner dividends....................................... 3,091 2,869 2,636
------- ------- -------
GAIN FROM OPERATIONS BEFORE TAXES..................... 694 626 631
Income tax expense.......................................... 203 301 356
------- ------- -------
NET GAIN FROM OPERATIONS.............................. 491 325 275
Net realized capital gains.................................. 846 484 414
------- ------- -------
NET INCOME............................................ $ 1,337 $ 809 $ 689
======= ======= =======
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements
B-19 Consolidated Statement of Operations
<PAGE> 40
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
Consolidated Statement of Changes in Surplus
(in millions)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BEGINNING OF YEAR........................................... $4,741 $4,101 $3,515
Net income................................................ 1,337 809 689
Increase (decrease) in net unrealized gains............... 213 (147) 576
Increase in investment reserves........................... (377) (20) (526)
Charge-off of goodwill (Note 7)........................... (842) -- --
Other, net................................................ (3) (2) (153)
------ ------ ------
NET INCREASE IN SURPLUS................................... 328 640 586
------ ------ ------
END OF YEAR BALANCE......................................... $5,069 $4,741 $4,101
====== ====== ======
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements
Consolidated Statement of Changes in Surplus
B-20
<PAGE> 41
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
Consolidated Statement of Cash Flows
(in millions)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Insurance and annuity premiums............................ $ 9,260 $ 8,876 $ 8,093
Investment income received................................ 4,476 4,216 3,928
Disbursement of policy loans, net of repayments........... (358) (416) (360)
Benefits paid to policyowners and beneficiaries........... (4,012) (3,572) (3,316)
Net transfers to separate accounts........................ (516) (564) (565)
Policyowner dividends paid................................ (2,862) (2,639) (2,347)
Operating expenses and taxes.............................. (1,699) (1,749) (1,722)
Other, net................................................ (56) (83) 124
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES............ 4,233 4,069 3,835
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
PROCEEDS FROM INVESTMENTS SOLD OR MATURED
Bonds.................................................. 20,788 28,720 38,284
Common and preferred stocks............................ 13,331 10,359 9,057
Mortgage loans......................................... 1,356 1,737 1,012
Real estate............................................ 216 159 302
Other investments...................................... 830 768 398
------- ------- -------
36,521 41,743 49,053
------- ------- -------
COST OF INVESTMENTS ACQUIRED
Bonds.................................................. 22,849 30,873 41,169
Common and preferred stocks............................ 13,794 9,642 9,848
Mortgage loans......................................... 2,500 3,135 2,309
Real estate............................................ 362 268 202
Other investments...................................... 1,864 567 359
------- ------- -------
41,369 44,485 53,887
------- ------- -------
Net increase (decrease) in securities lending and other... 499 (624) 440
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES................ (4,349) (3,366) (4,394)
------- ------- -------
NET (DECREASE) INCREASE IN CASH AND TEMPORARY
INVESTMENTS......................................... (116) 703 (559)
Cash and temporary investments, beginning of year........... 1,275 572 1,131
------- ------- -------
Cash and temporary investments, end of year................. $ 1,159 $ 1,275 $ 572
======= ======= =======
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements
B-21 Consolidated Statement of Cash Flows
<PAGE> 42
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
Notes to Consolidated Statutory Financial Statements
December 31, 1999, 1998 and 1997
NOTE 1 -- BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated statutory financial statements include the
accounts of The Northwestern Mutual Life Insurance Company ("Company") and its
wholly-owned subsidiary, Northwestern Long Term Care Insurance Company
("Subsidiary"). The Company and its Subsidiary offer life, annuity, disability
income and long-term care products to the personal, business, estate and
tax-qualified markets.
The consolidated financial statements have been prepared using accounting
policies prescribed or permitted by the Office of the Commissioner of Insurance
of the State of Wisconsin ("statutory basis of accounting").
In 1998, the National Association of Insurance Commissioners ("NAIC") adopted
the Codification of Statutory Accounting Principles ("Codification") guidance,
which will replace the current Accounting Practices and Procedures manual as the
NAIC's primary guidance on statutory accounting. The NAIC is now considering
amendments to Codification that would also be effective upon implementation.
Codification provides guidance for areas where statutory accounting has been
silent and changes current statutory accounting in some areas (e.g., deferred
income taxes are recorded). The Office of the Commissioner of Insurance of the
State of Wisconsin ("OCI") intends to adopt Codification effective January 1,
2001. The Company has not determined the potential effect of Codification, and
the eventual effect of adoption could differ if changes are made prior to the
effective date of January 1, 2001.
Financial statements prepared on the statutory basis of accounting vary from
financial statements prepared on the basis of generally accepted accounting
principles ("GAAP") primarily because on a GAAP basis: (1) policy acquisition
costs are deferred and amortized, (2) investment valuations and insurance
reserves are based on different assumptions, (3) funds received under
deposit-type contracts are not reported as premium revenue, and (4) deferred
taxes are provided for temporary differences between book and tax basis of
certain assets and liabilities. The effects on the financial statements of the
differences between the statutory basis of accounting and GAAP are material to
the Company.
The preparation of financial statements in conformity with the statutory basis
of accounting requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual future results could differ from these estimates.
INVESTMENTS
The Company's investments are valued on the following bases:
Bonds -- Amortized cost using the interest method; loan-backed and structured
securities are amortized using estimated prepayment rates and, generally, the
prospective adjustment method
Common and preferred stocks -- Common stocks are carried at fair value,
preferred stocks are generally carried at cost, and unconsolidated subsidiaries
are recorded using the equity method
Mortgage loans -- Amortized cost
Real estate -- Lower of cost, less depreciation and encumbrances, or estimated
net realizable value
Policy loans -- Unpaid principal balance, which approximates fair value
Other investments -- Consists primarily of joint venture investments which are
valued at equity in ventures' net assets
Cash and temporary investments -- Amortized cost, which approximates fair value
TEMPORARY INVESTMENTS
Temporary investments consist of debt securities that have maturities of one
year or less at acquisition.
NET INVESTMENT INCOME AND CAPITAL GAINS
Net investment income includes interest and dividends received or due and
accrued on investments, equity in unconsolidated subsidiaries' earnings and the
Company's share of joint venture income. Net investment income is reduced by
investment management expenses, real estate depreciation, depletion related to
energy assets and costs associated with securities lending.
Realized investment gains and losses are reported in income based upon specific
identification of securities sold. Unrealized investment gains and losses
include changes in the fair
Notes to Consolidated Statutory Financial Statements
B- 22
<PAGE> 43
value of common stocks and changes in valuation allowances made for bonds,
preferred stocks, mortgage loans and other investments considered by management
to be impaired.
INTEREST MAINTENANCE RESERVE
The Company is required to maintain an interest maintenance reserve ("IMR"). The
IMR is used to defer realized gains and losses, net of tax, on fixed income
investments resulting from changes in interest rates. Net realized gains and
losses deferred to the IMR are amortized into investment income over the
approximate remaining term to maturity of the investment sold.
INVESTMENT RESERVES
The Company is required to maintain an asset valuation reserve ("AVR"). The AVR
establishes a general reserve for invested asset valuation using a formula
prescribed by state regulations. The AVR is designed to stabilize surplus
against potential declines in the value of investments. In addition, the Company
maintained a $200 million voluntary investment reserve at each of December 31,
1999 and 1998 to absorb potential investment losses exceeding those considered
by the AVR formula. Increases or decreases in these investment reserves are
recorded directly to surplus.
SEPARATE ACCOUNTS
Separate account assets and related policy liabilities represent the segregation
of funds deposited by "variable" life insurance and annuity policyowners.
Policyowners bear the investment performance risk associated with variable
products. Separate account assets are invested at the direction of the
policyowner in a variety of Company-managed mutual funds. Variable product
policyowners also have the option to invest in a fixed interest rate annuity in
the general account of the Company. Separate account assets are reported at fair
value.
PREMIUM REVENUE AND OPERATING EXPENSES
Life insurance premiums are recognized as revenue at the beginning of each
policy year. Annuity and disability income premiums are recognized when received
by the Company. Operating expenses, including costs of acquiring new policies,
are charged to operations as incurred.
OTHER INCOME
Other income includes considerations on supplementary contracts, ceded
reinsurance expense allowances and miscellaneous policy charges.
BENEFIT PAYMENTS TO POLICYOWNERS AND BENEFICIARIES
Benefit payments to policyowners and beneficiaries include death, surrender and
disability benefits, matured endowments and supplementary contract payments.
RESERVES FOR POLICY BENEFITS
Reserves for policy benefits are determined using actuarial estimates based on
mortality and morbidity experience tables and valuation interest rates
prescribed by the OCI. (See Note 3.)
POLICYOWNER DIVIDENDS
Almost all life insurance policies, and certain annuity and disability income
policies issued by the Company are participating. Annually, the Company's Board
of Trustees approves dividends payable on participating policies in the
following fiscal year, which are accrued and charged to operations when
approved.
RECLASSIFICATION
Certain financial statement balances for 1998 and 1997 have been reclassified to
conform to the current year presentation.
Notes to Consolidated Statutory Financial Statements
B- 23
<PAGE> 44
NOTE 2 -- INVESTMENTS
DEBT SECURITIES
Debt securities consist of all bonds and fixed-maturity preferred stocks. The
estimated fair values of debt securities are based upon quoted market prices, if
available. For securities not actively traded, fair values are estimated using
independent pricing services or internally developed pricing models.
Statement value, which principally represents amortized cost, and estimated fair
value of the Company's debt securities at December 31, 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
RECONCILIATION TO ESTIMATED FAIR VALUE
-----------------------------------------------
GROSS GROSS ESTIMATED
STATEMENT UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1999 VALUE GAINS LOSSES VALUE
----------------- --------- ---------- ---------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. Government and
political
obligations........ $ 3,855 $ 72 $ (167) $ 3,760
Mortgage-backed
securities......... 7,736 65 (256) 7,545
Corporate and other
debt securities.... 25,201 249 (1,088) 24,362
------- ------ ------- -------
36,792 386 (1,511) 35,667
Preferred stocks..... 85 2 -- 87
------- ------ ------- -------
Total........... $36,877 $ 388 $(1,511) $35,754
======= ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
RECONCILIATION TO ESTIMATED FAIR VALUE
-----------------------------------------------
GROSS GROSS ESTIMATED
STATEMENT UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1998 VALUE GAINS LOSSES VALUE
----------------- --------- ---------- ---------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. Government and
political
obligations........ $ 3,904 $ 461 $ (11) $ 4,354
Mortgage-backed
securities......... 7,357 280 (15) 7,622
Corporate and other
debt securities.... 23,627 1,240 (382) 24,485
------- ------ ------- -------
34,888 1,981 (408) 36,461
Preferred stocks..... 189 4 (1) 192
------- ------ ------- -------
Total........... $35,077 $1,985 $ (409) $36,653
======= ====== ======= =======
</TABLE>
The statement value and estimated fair value of debt securities by contractual
maturity at December 31, 1999 is shown below. Expected maturities may differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
STATEMENT ESTIMATED
VALUE FAIR VALUE
--------- ----------
(IN MILLIONS)
<S> <C> <C>
Due in one year or less.......... $ 931 $ 942
Due after one year through five
years.......................... 5,420 5,412
Due after five years through ten
years.......................... 11,168 10,796
Due after ten years.............. 11,622 11,059
------- -------
29,141 28,209
Mortgage-backed securities....... 7,736 7,545
------- -------
$36,877 $35,754
======= =======
</TABLE>
STOCKS
The estimated fair values of common and perpetual preferred stocks are based
upon quoted market prices, if available. For securities not actively traded,
fair values are estimated using independent pricing services or internally
developed pricing models.
The adjusted cost of common and preferred stock held by the Company at December
31, 1999 and 1998 was $4.9 billion and $4.3 billion, respectively.
MORTGAGE LOANS AND REAL ESTATE
Mortgage loans are collateralized by properties located throughout the United
States and Canada. The Company attempts to minimize mortgage loan investment
risk by diversification of geographic locations and types of collateral
properties.
The fair value of mortgage loans as of December 31, 1999 and 1998 was $13.2
billion and $12.9 billion, respectively. The fair value of the mortgage loan
portfolio is estimated by discounting the future estimated cash flows using
current interest rates of debt securities with similar credit risk and
maturities, or utilizing net realizable values.
At December 31, 1999 and 1998, real estate includes $39 million and $61 million,
respectively, acquired through foreclosure and $114 million and $120 million,
respectively, of home office real estate.
Notes to Consolidated Statutory Financial Statements
B-24
<PAGE> 45
REALIZED AND UNREALIZED GAINS AND LOSSES
Realized investment gains and losses for the years ended December 31, 1999, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1999
--------------------------------
NET
REALIZED
REALIZED REALIZED GAINS
GAINS LOSSES (LOSSES)
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Bonds..................... $ 219 $(404) $ (185)
Common and preferred
stocks.................. 1,270 (255) 1,015
Mortgage loans............ 22 (12) 10
Real estate............... 92 -- 92
Other invested assets..... 308 (189) 119
------ ----- ------
$1,911 $(860) 1,051
====== ===== ------
Less: Capital gains
taxes................... 244
Less: IMR (losses)
gains................... (39)
------
Net realized capital
gains................... $ 846
======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1998
--------------------------------
NET
REALIZED
REALIZED REALIZED GAINS
GAINS LOSSES (LOSSES)
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Bonds..................... $ 514 $(231) $ 283
Common and preferred
stocks.................. 885 (240) 645
Mortgage loans............ 18 (11) 7
Real estate............... 41 -- 41
Other invested assets..... 330 (267) 63
------ ----- ------
$1,788 $(749) 1,039
====== ===== ------
Less: Capital gains
taxes................... 358
Less: IMR (losses)
gains................... 197
------
Net realized capital
gains................... $ 484
======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
--------------------------------
NET
REALIZED
REALIZED REALIZED GAINS
GAINS LOSSES (LOSSES)
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Bonds..................... $ 518 $(269) $249
Common and preferred
stocks.................. 533 (150) 383
Mortgage loans............ 14 (14) --
Real estate............... 100 (2) 98
Other invested assets..... 338 (105) 233
------ ----- ----
$1,503 $(540) 963
====== ===== ----
Less: Capital gains
taxes................... 340
Less: IMR (losses)
gains................... 209
----
Net realized capital
gains................... $414
====
</TABLE>
Changes in unrealized net investment gains and losses for the years ended
December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------
1999 1998 1997
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Bonds......................... $(178) $ (97) $ 43
Common and preferred stocks... 415 29 528
Mortgage loans................ (10) (16) (7)
Real estate................... (2) -- --
Other......................... (12) (63) 12
----- ----- ----
$ 213 $(147) $576
===== ===== ====
</TABLE>
SECURITIES LENDING
The Company has entered into securities lending agreements whereby certain
securities are loaned to third parties, primarily major brokerage firms. The
Company's policy requires a minimum of 102% of the fair value of the loaned
securities as collateral, calculated on a daily basis in the form of either cash
or securities. Collateral assets received and related liability due to
counterparties of $2.1 billion and $1.5 billion, respectively, are included in
the consolidated statements of financial position at December 31, 1999 and 1998,
and approximate the statement value of securities loaned at those dates.
INVESTMENT IN MGIC
The Company owns 11.3% (11.9 million shares) of the outstanding common stock of
MGIC Investment Corporation ("MGIC"). This investment is accounted for using the
equity method. At December 31, 1999 and 1998, the fair value of the Company's
investment in MGIC exceeded the statement value of $201 million and $180
million, respectively, by $518 million and $296 million, respectively.
In August 1998, the Company delivered 8.9 million shares of MGIC to a brokerage
firm to settle a forward contract. In conjunction with the settlement, the
Company recorded a $114 million realized gain.
DERIVATIVE FINANCIAL INSTRUMENTS
In the normal course of business, the Company enters into transactions to reduce
its exposure to fluctuations in interest rates, foreign currency exchange rates
and market volatility. These hedging strategies include the use of forwards,
futures, options and swaps.
Notes to Consolidated Statutory Financial Statements
B-25
<PAGE> 46
The Company held the following positions for hedging purposes at December 31,
1999 and 1998:
<TABLE>
<CAPTION>
NOTIONAL AMOUNTS
---------------------------
DECEMBER 31, DECEMBER 31,
DERIVATIVE FINANCIAL INSTRUMENT 1999 1998 RISKS REDUCED
------------------------------- ------------ ------------ -------------
(IN MILLIONS)
<S> <C> <C> <C>
Foreign Currency
Forward Contracts...................... $967 $601 Currency exposure on foreign-denominated
investments
Common Stock Futures..................... 620 657 Stock market price fluctuation.
Bond Futures............................. 50 379 Bond market price fluctuation.
Options to acquire Interest Rate Swaps... 419 419 Interest rates payable on certain annuity
and insurance contracts.
Foreign Currency and
Interest Rate Swaps.................... 203 94 Interest rates on variable rate notes and
currency exposure on foreign-denominated
bonds.
Default Swaps............................ 52 -- Default exposure on certain bond
investments.
</TABLE>
The notional or contractual amounts of derivative financial instruments are used
to denominate these types of transactions and do not represent the amounts
exchanged between the parties.
In addition to the use of derivatives for hedging purposes, equity swaps were
held for investment purposes during 1999 and 1998. The notional amount of equity
swaps outstanding at December 31, 1999 and 1998 was $136 million and $138
million, respectively.
Foreign currency forwards, foreign currency swaps, stock futures and equity
swaps are reported at fair value. Resulting gains and losses on these contracts
are unrealized until expiration of the contract. There is no statement value
reported for interest rate swaps, bond futures and options to acquire interest
rate swaps prior to the settlement of the contract, at which time realized gains
and losses are deferred to IMR. Changes in the value of derivative instruments
are expected to offset gains and losses on the hedged investments. During 1999
and 1998, net realized and unrealized gains on investments were partially offset
by net realized losses of $55 million and $104 million, respectively, and net
unrealized gains (losses) of $17 million and $(58) million, respectively, on
derivative instruments. The effect of derivative instruments in 1997 was not
material to the Company's results of operations.
NOTE 3 -- RESERVES FOR POLICY BENEFITS
Life insurance reserves on substantially all policies issued since 1978 are
based on the Commissioner's Reserve Valuation Method with interest rates ranging
from 3 1/2% to 5 1/2%. Other life policy reserves are primarily based on the net
level premium method employing various mortality tables at interest rates
ranging from 2% to 4 1/2%.
Deferred annuity reserves on contracts issued since 1985 are valued primarily
using the Commissioner's Annuity Reserve Valuation Method with interest rates
ranging from 3 1/2% to 6 1/4%. Other deferred annuity reserves are based on
contract value. Immediate annuity reserves are based on present values of
expected benefit payments at interest rates ranging from 3 1/2% to 7 1/2%.
Active life reserves for disability income ("DI") policies issued since 1987 are
primarily based on the two-year preliminary term method using a 4% interest rate
and the 1985 Commissioner's Individual Disability Table A ("CIDA") for
morbidity. Active life reserves for prior DI policies are based on the net level
premium method, a 3% to 4% interest rate and the 1964 Commissioner's Disability
Table for morbidity. Disabled life reserves for DI policies are based on the
present values of expected benefit payments primarily using the 1985 CIDA
(modified for Company experience in the first four years of disability) with
interest rates ranging from 3% to 5 1/2%.
Use of these actuarial tables and methods involves estimation of future
mortality and morbidity. Actual future experience could differ from these
estimates.
NOTE 4 -- EMPLOYEE AND AGENT BENEFIT PLANS
The Company sponsors noncontributory defined benefit retirement plans for all
eligible employees and agents. The expense associated with these plans is
generally recorded by the Company in the period contributions are funded. As of
Notes to Consolidated Statutory Financial Statements
B-26
<PAGE> 47
January 1, 1999, the most recent actuarial valuation date available, the
qualified defined benefit plans were fully funded. The Company recorded a
liability of $109 million and $98 million for nonqualified defined benefit plans
at December 31, 1999 and 1998, respectively. In addition, the Company has a
contributory 401(k) plan for eligible employees and a noncontributory defined
contribution plan for all full-time agents. The Company's contributions are
expensed in the period contributions are made to the plans. The Company recorded
$31 million, $29 million and $27 million of total expense related to its defined
benefit and defined contribution plans for the years ended December 31, 1999,
1998 and 1997, respectively. The defined benefit and defined contribution plans'
assets of $2.2 billion and $1.9 billion at December 31, 1999 and 1998,
respectively, were primarily invested in the separate accounts of the Company.
In addition to pension and retirement benefits, the Company provides certain
health care and life insurance benefits ("postretirement benefits") for retired
employees. Substantially all employees may become eligible for these benefits if
they reach retirement age while working for the Company. Postretirement benefit
costs for the years ended December 31, 1999, 1998 and 1997 were a net expense
(benefit) of $5.0 million, $1.8 million and ($1.3) million, respectively.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------------ ------------------
<S> <C> <C>
Unfunded postretirement
benefit obligation
for retirees and
other fully eligible
employees (Accrued in
statement of
financial
position)............ $40 million $35 million
Estimated
postretirement
benefit obligation
for active non-vested
employees (Not
accrued until
employee vests)...... $68 million $56 million
Discount rate.......... 7% 7%
Health care cost trend 10% to an ultimate 10% to an ultimate
rate................. 5%, declining 1% 5%, declining 1%
for 5 years for 5 years
</TABLE>
If the health care cost trend rate assumptions were increased by 1%, the accrued
postretirement benefit obligation as of December 31, 1999 and 1998 would have
been increased by $6 million and $5 million, respectively.
At December 31, 1999 and 1998, the recorded postretirement benefit obligation
was reduced by $28 million and $23 million, respectively, for health care
benefit plan assets. These assets were primarily invested in the separate
accounts of the Company.
NOTE 5 -- REINSURANCE
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
to reinsurers under excess coverage and coinsurance contracts. The Company
retains a maximum of $25 million of coverage per individual life and $35 million
maximum of coverage per joint life. The Company has an excess reinsurance
contract for disability income policies with retention limits varying based upon
coverage type.
The amounts shown in the accompanying consolidated financial statements are net
of reinsurance. Reserves for policy benefits at December 31, 1999 and 1998 were
reported net of ceded reserves of $584 million and $518 million, respectively.
The effect of reinsurance on premiums and benefits for the years ended December
31, 1999, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Direct premiums and
deposits................... $8,785 $8,426 $7,647
Premiums ceded............... (441) (405) (353)
------ ------ ------
Net premium and deposits..... $8,344 $8,021 $7,294
====== ====== ======
Benefits to policyowners and
beneficiaries.............. 9,205 $8,869 $8,057
Benefits ceded............... (197) (182) (136)
------ ------ ------
Net benefits to policyowners
and beneficiaries.......... $9,008 $8,687 $7,921
====== ====== ======
</TABLE>
In addition, the Company received $133 million, $121 million and $115 million
for the years ended December 31, 1999, 1998 and 1997, respectively, from
reinsurers representing allowances for reimbursement of commissions and other
expenses. These amounts are included in other income in the consolidated
statement of operations.
Reinsurance contracts do not relieve the Company from its obligations to
policyowners. Failure of reinsurers to honor
Notes to Consolidated Statutory Financial Statements
B-27
<PAGE> 48
their obligations could result in losses to the Company; consequently,
allowances are established for amounts deemed uncollectible. The Company
evaluates the financial condition of its reinsurers and monitors concentrations
of credit risk arising from similar geographic regions, activities or economic
characteristics of the reinsurers to minimize its exposure to significant losses
from reinsurer insolvencies.
NOTE 6 -- INCOME TAXES
Provisions for income taxes are based on current income tax payable without
recognition of deferred taxes. The Company files a consolidated life-nonlife
federal income tax return. Federal income tax returns for years through 1995 are
closed as to further assessment of tax. Adequate provision has been made in the
financial statements for any additional taxes, which may become due with respect
to the open years.
The Company's taxable income can vary significantly from gain from operations
before taxes due to differences between book and tax valuation of assets and
liabilities (e.g., investments and policy benefit reserves). The Company pays a
tax that is assessed only on the surplus of mutual life insurance companies
("equity tax"), and also, the Company must capitalize and amortize, as opposed
to immediately deducting, an amount deemed to represent the cost of acquiring
new business ("DAC tax").
The Company's effective tax rate on gains from operations before taxes for the
years ended December 31, 1999, 1998 and 1997 was 29%, 48%, and 56% respectively.
In 1999, the effective rate was less than the federal corporate rate of 35% due
primarily to differences between book and tax investment income. In 1998 and
1997, the effective rate was greater than 35% due primarily to the equity tax
and DAC tax.
NOTE 7 -- RELATED PARTY TRANSACTIONS
The Company acquired Frank Russell Company ("Frank Russell") effective January
1, 1999 for a purchase price of approximately $950 million. Frank Russell is a
leading investment management and consulting firm, providing investment advice,
analytical tools and investment vehicles to institutional and individual
investors in more than 30 countries. This investment is accounted for using the
equity method and is included in common stocks in the consolidated statement of
financial position. In 1999, the Company charged-off directly from surplus
approximately $842 million, representing the total goodwill associated with the
acquisition. The Company has received permission from the OCI for this
charge-off. The Company has unconditionally guaranteed certain debt obligations
of Frank Russell, including $350 million of senior notes and up to $150 million
of other credit facilities.
During 1999, the Company transferred appreciated equity investments to a
wholly-owned subsidiary as a capital contribution to the subsidiary. A realized
capital gain of $287 million was recorded on this transaction based on the fair
value of the assets upon transfer.
NOTE 8 -- CONTINGENCIES
The Company has guaranteed certain obligations of its other affiliates. These
guarantees totaled approximately $101 million at December 31, 1999 and are
generally supported by the underlying net asset values of the affiliates.
In addition, the Company routinely makes commitments to fund mortgage loans or
other investments in the normal course of business. These commitments aggregated
to $1.9 billion at December 31, 1999 and were extended at market interest rates
and terms.
The Company is engaged in various legal actions in the normal course of its
investment and insurance operations. In the opinion of management, any losses
resulting from such actions would not have a material effect on the Company's
financial position.
Notes to Consolidated Statutory Financial Statements
B- 28
<PAGE> 49
[PRICEWATERHOUSECOOPERS LLP - LETTERHEAD]
R EPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Policyowners of
The Northwestern Mutual Life Insurance Company
We have audited the accompanying consolidated statement of financial position of
The Northwestern Mutual Life Insurance Company and its subsidiary as of December
31, 1999 and 1998, and the related consolidated statements of operations, of
changes in surplus and of cash flows for each of the three years in the period
ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As described in Note 1 to the financial statements, the Company prepared these
consolidated financial statements using accounting practices prescribed or
permitted by the Office of the Commissioner of Insurance of the State of
Wisconsin (statutory basis of accounting), which practices differ from
accounting principles generally accepted in the United States. Accordingly, the
consolidated financial statements are not intended to represent a presentation
in accordance with generally accepted accounting principles. The effects on the
consolidated financial statements of the variances between the statutory basis
of accounting and generally accepted accounting principles, although not
reasonably determinable, are presumed to be material.
In our opinion, the consolidated financial statements audited by us (1) do not
present fairly in conformity with generally accepted accounting principles, the
financial position of The Northwestern Mutual Life Insurance Company and its
subsidiary as of December 31, 1999 and 1998, or the results of their operations
or their cash flows for each of the three years in the period ended December 31,
1999 because of the effects of the variances between the statutory basis of
accounting and generally accepted accounting principles referred to in the
preceding paragraph and (2) do present fairly, in all material respects, the
financial position of The Northwestern Mutual Life Insurance Company and its
subsidiary as of December 31, 1999 and 1998 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, on the basis of accounting described in Note 1.
/s/ PriceWaterhousecoopers LLP
January 24, 2000
Accountants' Report B- 29
<PAGE> 50
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, 1999)
REPORT OF INDEPENDENT ACCOUNTANTS..............................................................................B-17
(for the two years ended December 31, 1999)
FINANCIAL STATEMENTS OF NORTHWESTERN MUTUAL....................................................................B-18
(for the three years ended December 31, 1999)
REPORT OF INDEPENDENT ACCOUNTANTS..............................................................................B-29
(for the three years ended December 31, 1999)
</TABLE>
B-30
