-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DNlvSDO78Mjm4riDF7RUvMxqQsjLp77Dyb0SGTEok9XAnrZDY7opZ9RxgX14kglB SEDTPYZ9R9W3enHlYSszjA== 0000950124-98-001852.txt : 19980401 0000950124-98-001852.hdr.sgml : 19980401 ACCESSION NUMBER: 0000950124-98-001852 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NML VARIABLE ANNUITY ACCOUNT B CENTRAL INDEX KEY: 0000072176 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 811-01668 FILM NUMBER: 98581538 BUSINESS ADDRESS: STREET 1: 720 E WISCONSIN AVE CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4142711444 MAIL ADDRESS: STREET 1: 720 EAST WISCONSIN AVENUE CITY: MILWAUKEE STATE: WI ZIP: 53202 10-K 1 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 Commission file numbers 2-64683, 2-94234 and 2-89905. THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY ------------------------------------------------------ (Exact name of Registrant as specified in its Charter) Wisconsin 39-0509570 - ---------------------------------------- --------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 720 East Wisconsin Avenue Milwaukee, Wisconsin 53202 - ---------------------------------------- --------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 414/271-1444 ------------------ Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered --------------------- ------------------------ None None Securities registered pursuant to Section 23(g) of the Act: None ---- "Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ." ----- ---- "State the aggregate market value of the voting stock held by non-affiliates of the Registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing. (See definition of affiliate in Rule 405.)" Not Applicable "Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date." None "DOCUMENTS INCORPORATED BY REFERENCE" None This Form 10-K report contains 66 pages. The Exhibit Index is located on page 42. 2 The Northwestern Mutual Life Insurance Company Form 10-K PART I Item 1. Business (a) General development of business. There have been no material changes or developments since the beginning of the fiscal year in the business done or intended to be done by the Registrant and its subsidiaries. (b) Financial information about industry segments. The registrant is a mutual life insurance company whose principal product is life insurance. The Registrant also sells annuity contracts, including variable annuity contracts. (c) Description of business. The Registrant is the fifth largest life insurance company in the United States with total assets in excess of $71 billion on December 31, 1997. The Registrant's principal products are life insurance contracts distributed by approximately 6,000 full-time producing agents. Sales of life insurance contracts as a percentage of total sales is as follows: 1997 81.43% 1996 80.78% 1995 81.22% 1994 80.60% 1993 82.44% 1992 81.44% 1991 81.11% 1990 82.64% 1989 83.12% 1988 84.18% As of December 31, 1997, the Registrant had 3,818 employees. (d) Not applicable. Item 2. Properties The principal properties used in the business are located at 720 East Wisconsin Avenue and 818 East Mason Street, Milwaukee, Wisconsin. The properties, which house the Registrant's home office, include approximately three and one-half square blocks improved with three office buildings and a parking structure. Title to land and buildings is held in fee. Item 3 is on page 3. 2 3 The Northwestern Mutual Life Insurance Company Form 10-K Item 3. Legal Proceedings The Northwestern Mutual Life Insurance Company is engaged in litigation of various kinds, which in its judgment is not of material importance in relation to its total assets. The litigation includes various administrative or judicial proceedings, relating to investments of the Registrant, arising under Federal, State or local provisions that have been enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment. The Registrant believes that these proceedings, singly and in the aggregate, are not material. In addition, NML Variable Annuity Accounts A and C are not engaged in any litigation which is considered material to their total assets. Item 4. Submission of Matters to a Vote of Security Holders (a) Not applicable. The Registrant is a mutual life insurance company and has no stockholders as such. (b) Not applicable. (c) Not applicable. (d) Not applicable. Item 5 is on page 4. 3 4 The Northwestern Mutual Life Insurance Company Form 10-K PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters (a) Not applicable. The Registrant is a mutual life insurance company and has no equity securities or stockholders as such. (b) Not applicable. (c) Not applicable. Item 6 is on page 5. 4 5 The Northwestern Mutual Life Insurance Company Form 10-K Item 6. Selected Financial Data Results of Operations for NML Variable Annuity Account A for each of the five years ending December 31, follows:
1997 1996 1995 1994 ------------ ------------ ------------ ------------ Investment Income Dividend Income from Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock Portfolio ............................ $ 5,046,819 $ 2,456,762 $ 256,787 $ 248,438 Dividend Income from Northwestern Mutual Series Fund, Inc. International Equity Portfolio ............................... 1,627,765 1,820,972 217,966 853,704 Dividend Income from Northwestern Mutual Series Fund, Inc. Growth Stock Portfolio ....................................... 769,950 379,453 128,854 18,971## Dividend Income from Northwestern Mutual Series Fund, Inc. Growth and Income Stock Portfolio ............................ 5,154,785 1,206,606 465,091 53,075## Dividend Income from Northwestern Mutual Series Fund, Inc. Index 500 Stock Portfolio .......................................... 3,229,605 1,906,168 522,842 2,155,181 Dividend Income from Northwestern Mutual Series Fund, Inc. Balanced Portfolio ........................................... 13,244,993 14,325,426 8,146,698 33,071,685 Dividend Income from Northwestern Mutual Series Fund, Inc. High Yield Bond Portfolio ......................................... 1,418,106 473,729 199,805 68,840## Dividend Income from Northwestern Mutual Series Fund, Inc. Select Bond Portfolio ........................................ 1,556,695 906,892 652,667 2,990,731 Dividend Income from Northwestern Mutual Series Fund, Inc. Money Market Portfolio ............................................. 1,203,410 1,024,534 1,119,254 708,559 Dividend Income from Northwestern Mutual Capital Appreciation Stock Fund, Inc. ................................ NA NA NA NA ------------ ------------ ------------ ------------ Total Income ................................................. 33,252,128 24,500,542 11,709,964 40,169,184 Annuity Rate and Expense Guarantees ............................ 7,048,888 5,783,739 5,072,064 4,466,142 ------------ ------------ ------------ ------------ Net Investment Income .......................................... $ 26,203,240 $ 18,716,803 $ 6,637,900 $ 35,703,042 ============ ============ ============ ============ Realized and Unrealized Gain (Loss) on Investments Realized Gain on Investments ................................... $ 23,135,675 $ 13,967,988 $ 13,141,169 $ 1,687,702 Unrealized Appreciation (Depreciation) of Investments During the Year ......................................................... 56,364,111 33,051,905 76,916,515 (39,969,923) ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments ................................. $ 79,499,786 $ 47,019,893 $ 90,057,684 ($38,282,221) ============ ============ ============ ============ 1993 ------------ Dividend Income from Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock Portfolio ............................ $ 359,370 Dividend Income from Northwestern Mutual Series Fund, Inc. International Equity Portfolio ............................... 97,043# Dividend Income from Northwestern Mutual Series Fund, Inc. Growth Stock Portfolio ....................................... NA Dividend Income from Northwestern Mutual Series Fund, Inc. Growth and Income Stock Portfolio ............................ NA Dividend Income from Northwestern Mutual Series Fund, Inc. Index 500 Stock Portfolio .......................................... 256,688 Dividend Income from Northwestern Mutual Series Fund, Inc. Balanced Portfolio ........................................... 13,161,961 Dividend Income from Northwestern Mutual Series Fund, Inc. High Yield Bond Portfolio ......................................... NA Dividend Income from Northwestern Mutual Series Fund, Inc. Select Bond Portfolio ........................................ 1,423,472 Dividend Income from Northwestern Mutual Series Fund, Inc. Money Market Portfolio ............................................. 520,596 Dividend Income from Northwestern Mutual Capital Appreciation Stock Fund, Inc. ................................ 976,621** ------------ Total Income ................................................. 16,795,751 Annuity Rate and Expense Guarantees ............................ 4,074,129 ------------ Net Investment Income .......................................... $ 2,721,622 ============ Realized and Unrealized Gain (Loss) on Investments Realized Gain on Investments ................................... $ 2,347,432 Unrealized Appreciation (Depreciation) of Investments During the Year ......................................................... 14,612,044 ------------ Net Gain (Loss) on Investments ................................. $ 16,959,476 ============
** Represents operations through April 29, 1993. # Commenced operations on April 30, 1993. ## Commenced operations on May 3, 1994. See Notes to Financial Statements on page 22-23. 5 6 Item 6. (continued) Changes in Equity for NML Variable Annuity Account A for each of the five years ending December 31, follows:
1997 1996 1995 ------------- ------------- -------------- From Investment Activities Net Investment Income ........................................ $ 26,203,240 $ 18,716,803 $ 6,637,900 Net Realized Gain on Investments ............................. 23,135,675 13,967,988 13,141,169 Net Change in Unrealized Appreciation (Depreciation) of Investments ................................................ 56,364,111 33,051,905 76,916,515 ------------- ------------- ------------- Increase (Decrease) in Equity Derived from Investment Activities ........................................ 105,703,026 65,736,696 96,695,584 ------------- ------------- ------------- From Equity Transactions Contract Owners' Net Payments ................................ 61,964,558 65,169,358 49,124,853 Annuity Payments ............................................. (1,046,956) (830,996) (610,983) Surrenders and Other (Net) ................................... (65,746,579) (52,376,445) (62,309,189) ------------- ------------- ------------- Increase (Decrease) in Equity Derived from Equity Transactions ...................................... (4,828,977) 11,961,917 (13,795,319) ------------- ------------- ------------- Net Increase (Decrease) in Equity ................................. 100,874,049 77,698,613 82,900,265 Equity, Beginning of Year ......................................... 547,520,040 469,821,427 386,921,162 ------------- ------------- ------------- Equity, End of Year ............................................... $ 648,394,089 $ 547,520,040 $ 469,821,427 ============= ============= ============= 1994 1993 ------------- ------------- From Investment Activities Net Investment Income ........................................ $ 35,703,042 $ 12,721,622 Net Realized Gain on Investments ............................. 1,687,702 2,347,432 Net Change in Unrealized Appreciation (Depreciation) of Investments ................................................ (39,969,923) 14,612,044 ------------- ------------- Increase (Decrease) in Equity Derived from Investment Activities ........................................ (2,579,179) 29,681,098 ------------- ------------- From Equity Transactions Contract Owners' Net Payments ................................ 52,262,816 51,044,522 Annuity Payments ............................................. (603,158) (522,956) Surrenders and Other (Net) ................................... (33,008,630) (33,141,406) ------------- ------------- Increase (Decrease) in Equity Derived from Equity Transactions ...................................... 18,651,028 17,380,160 ------------- ------------- Net Increase (Decrease) in Equity ................................. 16,071,849 47,061,258 Equity, Beginning of Year ......................................... 370,849,313 323,788,055 ------------- ------------- Equity, End of Year ............................................... $ 386,921,162 $ 370,849,313 ============= =============
See Notes to Financial Statements on page 22-23. 6 7 Item 6. (continued) Total Assets of NML Variable Annuity Account A for each of the five following years at December 31, follows:
1997 1996 1995 ------------- ------------ ------------ Assets Investments at Market Value: Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock Portfolio .......................................... $ 89,428,723 $ 78,087,972 $ 56,491,009 Northwestern Mutual Series Fund, Inc. International Equity Portfolio ................................................ 50,148,435 41,497,787 31,789,148 Northwestern Mutual Series Fund, Inc. Growth Stock Portfolio ................................................ 17,260,514 9,523,179 4,284,669 Northwestern Mutual Series Fund, Inc. Growth and Income Stock Portfolio .......................................... 23,575,574 13,199,558 7,891,655 Northwestern Mutual Series Fund, Inc. Index 500 Stock Portfolio ................................................ 111,140,823 80,917,025 62,391,687 Northwestern Mutual Series Fund, Inc. Balanced Portfolio.... 302,749,909 270,745,111 257,867,967 Northwestern Mutual Series Fund, Inc. High Yield Bond Portfolio ................................................ 8,743,385 4,907,490 2,060,076 Northwestern Mutual Series Fund, Inc. Select Bond Portfolio ................................................ 25,252,973 26,648,961 25,742,752 Northwestern Mutual Series Fund, Inc. Money Market Portfolio 21,586,115 23,380,205 21,556,895 Due from NML Insurance Company ...................................... 322,747 123,152 491,572 Due from Sale of Fund Shares ........................................ 1,555,441 387,086 78,037 ------------ ------------ ------------ Total Assets ............................................. $651,764,639 $549,417,526 $470,645,467 ============ ============ ============ 1994 1993 ------------ ------------ Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock Portfolio .......................................... $ 36,256,480 $ 22,946,546 Northwestern Mutual Series Fund, Inc. International Equity Portfolio ................................................ 28,832,978 11,844,559# Northwestern Mutual Series Fund, Inc. Growth Stock Portfolio ................................................ 1,397,703## NA Northwestern Mutual Series Fund, Inc. Growth and Income Stock Portfolio .......................................... 3,282,764## NA Northwestern Mutual Series Fund, Inc. Index 500 Stock Portfolio ................................................ 43,545,408 43,534,827 Northwestern Mutual Series Fund, Inc. Balanced Portfolio.... 230,871,659 252,635,446 Northwestern Mutual Series Fund, Inc. High Yield Bond Portfolio ................................................ 1,242,382## NA Northwestern Mutual Series Fund, Inc. Select Bond Portfolio ................................................ 22,258,901 24,004,669 Northwestern Mutual Series Fund, Inc. Money Market Portfolio................................................. 20,120,832 17,036,899 Due from NML Insurance Company ...................................... 179,152 182,546 Due from Sale of Fund Shares ........................................ 319,392 418,356 ------------ ------------ Total Assets ............................................. $388,307,651 $372,603,848 ============ ============
# Commenced operations on April 30, 1993. ## Commenced operations on May 3, 1994. See Notes to Financial Statements on page 22-23. 7 8 Item 6. (continued) Results of Operations for NML Variable Annuity Account C for each of the five years ending December 31, follows:
1997 1996 1995 ------------ ------------ -------------- Investment Income Dividend Income from Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock Portfolio ........................... $ 6,049,655 $ 2,574,462 $ 242,583 Dividend Income from Northwestern Mutual Series Fund, Inc. International Equity Portfolio .............................. 1,945,549 1,805,160 190,138 Dividend Income from Northwestern Mutual Series Fund, Inc. Growth Stock Portfolio ...................................... 712,380 366,920 59,271 Dividend Income from Northwestern Mutual Series Fund, Inc. Growth and Income Stock Portfolio ........................... 5,940,640 1,146,200 276,923 Dividend Income from Northwestern Mutual Series Fund, Inc. Index 500 Stock Portfolio ................................... 3,755,769 2,082,261 544,553 Dividend Income from Northwestern Mutual Series Fund, Inc. Balanced Portfolio .......................................... 6,460,653 7,534,370 4,212,478 Dividend Income from Northwestern Mutual Series Fund, Inc. High Yield Bond Portfolio ........................................ 1,028,027 309,003 55,220 Dividend Income from Northwestern Mutual Series Fund, Inc. Select Bond Portfolio ....................................... 1,057,558 566,451 395,357 Dividend Income from Northwestern Mutual Series Fund, Inc. Money Market Portfolio ...................................... 738,932 609,543 494,253 Dividend Income from Northwestern Mutual Capital Appreciation Stock Fund, Inc. ............................................ NA NA NA ------------ ------------ ------------ Total Income ..................................... 27,689,163 16,994,370 6,470,776 Annuity Rate and Expense Guarantees ........................... 2,501,975 1,738,625 856,764 ------------ ------------ ------------ Net Investment Income ......................................... $ 25,187,188 $ 15,255,745 $ 5,614,012 ============ ============ ============ Realized and Unrealized Gain (Loss) on Investments Realized Gain on Investments .................................. $ 18,686,284 $ 8,855,390 $ 9,884,364 Unrealized Appreciation (Depreciation) of Investments During the Year .................................................... 44,241,434 29,832,124 53,407,857 ------------ ------------ ------------ Net Gain (Loss) on Investments ................................ $ 62,927,718 $ 38,687,514 $ 63,292,221 ============ ============ ============ 1994 1993 ------------ ------------- Dividend Income from Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock Portfolio ........................... $ 232,345 $ 342,725 Dividend Income from Northwestern Mutual Series Fund, Inc. International Equity Portfolio .............................. 703,931 26,336# Dividend Income from Northwestern Mutual Series Fund, Inc. Growth Stock Portfolio ...................................... 4,518## NA Dividend Income from Northwestern Mutual Series Fund, Inc. Growth and Income Stock Portfolio ........................... 19,233## NA Dividend Income from Northwestern Mutual Series Fund, Inc. Index 500 Stock Portfolio ................................... 2,226,240 260,710 Dividend Income from Northwestern Mutual Series Fund, Inc. Balanced Portfolio .......................................... 17,046,665 6,769,160 Dividend Income from Northwestern Mutual Series Fund, Inc. High Yield Bond Portfolio ........................................ 11,456 ## NA Dividend Income from Northwestern Mutual Series Fund, Inc. Select Bond Portfolio ....................................... 1,874,182 813,051 Dividend Income from Northwestern Mutual Series Fund, Inc. Money Market Portfolio ...................................... 443,639 269,586 Dividend Income from Northwestern Mutual Capital Appreciation Stock Fund, Inc. ............................................ NA 1,078,208 ** ------------ ------------ Total Income ..................................... 22,562,209 9,559,776 Annuity Rate and Expense Guarantees ........................... 509,648 235,930 ------------ ------------ Net Investment Income ......................................... $ 22,052,561 $ 9,323,846 ============ ============ Realized and Unrealized Gain (Loss) on Investments Realized Gain on Investments .................................. $ 5,949,795 $ 3,670,743 Unrealized Appreciation (Depreciation) of Investments During the Year .................................................... (27,055,878) 7,227,689 ------------ ------------ Net Gain (Loss) on Investments ................................ $(21,106,083) $ 10,898,432 ============ ============
** Represents operations through April 29, 1993. # Commenced operations on April 30, 1993. ## Commenced operations on May 3, 1994. See Notes to Financial Statements on page 31-32. 8 9 Item 6. (continued) Changes in Equity for NML Variable Annuity Account C for each of the five years ending December 31, follows:
1997 1996 1995 ------------ ------------- ------------- From Investment Activities Net Investment Income .......................................... $ 25,187,188 $ 15,255,745 $ 5,614,012 Net Realized Gain (Loss) on Investments ........................ 18,686,284 8,855,390 9,884,364 Net Change in Unrealized Appreciation (Depreciation) of Investments .................................................. 44,241,434 29,832,124 53,407,857 ------------- ------------- ------------- Increase in Equity Derived from Investment Activities ... 88,114,906 53,943,259 68,906,233 ------------- ------------- ------------- From Equity Transactions Contract Owners' Net Payments .................................. 91,195,224 89,650,916 59,390,267 Surrenders and Other (Net) ..................................... (57,974,180) (34,747,640) 60,872,729 ------------- ------------- ------------- Increase in Equity Derived from Equity Transactions....... 33,221,044 54,903,276 (1,482,462) ------------- ------------- ------------- Net Increase in Equity .............................................. 121,335,950 108,846,535 67,423,771 Equity, Beginning of Year ........................................... 426,652,573 317,806,038 250,382,267 ------------- ------------- ------------- Equity, End of Year ................................................. $ 547,988,523 $ 426,652,573 $ 317,806,038 ============= ============= ============= 1994 1993 ------------- ------------- From Investment Activities Net Investment Income .......................................... $ 22,052,561 $ 9,323,846 Net Realized Gain (Loss) on Investments ........................ 5,949,795 3,670,743 Net Change in Unrealized Appreciation (Depreciation) of Investments .................................................. (27,055,878) 7,227,689 ------------- ------------- Increase in Equity Derived from Investment Activities ... 946,478 20,222,278 ------------- ------------- From Equity Transactions Contract Owners' Net Payments .................................. 48,709,729 39,748,661 Surrenders and Other (Net) ..................................... (26,720,946) (22,334,176) ------------- ------------- Increase in Equity Derived from Equity Transactions ... 21,988,783 17,414,485 ------------- ------------- Net Increase in Equity .............................................. 22,935,261 37,636,763 Equity, Beginning of Year ........................................... 227,447,006 189,810,243 ------------- ------------- Equity, End of Year ................................................. $ 250,382,267 $ 227,447,006 ============= =============
See Notes to Financial Statements on page 31-32. 9 10 Item 6. (continued) Total Assets of NML Variable Annuity Account C for each of the five following years at December 31, follows:
1997 1996 1995 ------------ ------------ ------------ Assets Investments at Market Value: Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock Portfolio .................................................... $111,586,520 $ 95,276,983 $ 57,421,016 Northwestern Mutual Series Fund, Inc. International Equity Portfolio .................................................... 63,877,146 49,461,520 30,039,223 Northwestern Mutual Series Fund, Inc. Growth Stock Portfolio ... 15,850,257 9,734,427 2,084,697 Northwestern Mutual Series Fund, Inc. Growth and Income Stock Portfolio .................................................... 27,484,626 13,034,961 4,888,505 Northwestern Mutual Series Fund, Inc. Index 500 Stock Portfolio .................................................... 133,927,705 93,249,123 64,560,752 Northwestern Mutual Series Fund, Inc. Balanced Portfolio..................................................... 153,733,599 131,324,909 132,469,239 Northwestern Mutual Series Fund, Inc. High Yield Bond Portfolio..................................................... 6,568,438 2,983,258 736,774 Northwestern Mutual Series Fund, Inc. Select Bond Portfolio..................................................... 18,059,926 17,803,016 16,281,140 Northwestern Mutual Series Fund, Inc. Money Market Portfolio .................................................... 16,900,306 13,784,374 9,324,692 Due from NML Insurance Company ...................................... 196,511 1,662,368 808,493 Due from Sale of Fund Shares ........................................ 2,927,350 52,909 36 ------------ ------------ ------------ Total Assets ...................................... $551,112,384 $428,367,848 $318,614,567 ============ ============ ============ 1994 1993 ------------ ------------ Assets Investments at Market Value: Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock Portfolio .................................................... $ 33,266,862 $ 21,836,950 Northwestern Mutual Series Fund, Inc. International Equity Portfolio .................................................... 24,647,586 3,183,126# Northwestern Mutual Series Fund, Inc. Growth Stock Portfolio .................................................... 329,792## NA Northwestern Mutual Series Fund, Inc. Growth and Income Stock Portfolio .................................................... 1,159,187## NA Northwestern Mutual Series Fund, Inc. Index 500 Stock Portfolio .................................................... 45,552,429 45,850,766 Northwestern Mutual Series Fund, Inc. Balanced Portfolio .................................................... 119,452,506 131,574,218 Northwestern Mutual Series Fund, Inc. High Yield Bond Portfolio .................................................... 201,656## NA Northwestern Mutual Series Fund, Inc. Select Bond Portfolio .................................................... 14,262,125 15,071,860 Northwestern Mutual Series Fund, Inc. Money Market Portfolio .................................................... 11,510,121 9,930,082 Due from NML Insurance Company ...................................... 279,107 35,475 Due from Sale of Fund Shares ........................................ 79,226 145,027 ------------ ------------ Total Assets ...................................... $250,740,600 $227,627,504 ============ ============
# Commenced operations on April 30, 1993. ## Commenced operations on May 3, 1994. See Notes to Financial Statements on page 31-32. Item 7 is on page 11. 10 11 The Northwestern Mutual Life Insurance Company Form 10-K Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (a) Liquidity The assets of the Northwestern Mutual Life Insurance Company Variable Annuity Account A and C are invested solely in shares of Northwestern Mutual Series Fund, Inc. Index 500 Stock Portfolio, Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock Portfolio, Northwestern Mutual Series Fund, Inc. International Equity Portfolio, Northwestern Mutual Series Fund, Inc. Select Bond Portfolio, Northwestern Mutual Series Fund, Inc. Growth and Income Stock Portfolio, and Northwestern Mutual Series Fund, Inc. High Yield Bond Portfolio (the "Funds"). The Funds are open-end investment companies registered under the Investment Act of 1940. In order to pay annuity benefits and expenses, the Accounts redeem shares in these Funds. The Registrant's liquidity is not expected to change in a material way. (b) Capital Resources All payments from contract owners of NML Variable Annuity Accounts A and C are invested in shares of the Funds. The capital resources of NML Variable Annuity Accounts A and C are the equity in the respective Accounts. This consists of payments from the contract owners, plus unrealized and realized appreciation on the investment of these payments, plus investment income received from the Funds, minus payment of annuity benefits and expenses. (c) Results of Operations NML Variable Annuity Account A Accumulation Unit Values Contracts Issued Prior to December 17, 1981:
Division 12/31/97 % of Change 12/31/96 % of Change 12/31/95 -------- --------- ----------- --------- ----------- --------- Agressive Growth Stock................. $3.714008 13.02% $3.286265 16.82% $2.813200 International Equity.. 1.871861 11.44 1.679665 20.11 1.398467 Growth Stock.......... 2.027359 28.89 1.572985 20.00 1.310823 Growth and Income Stock................. 1.994748 29.06 1.545596 19.07 1.298065 Index 500 Stock....... 3.289255 32.21 2.487952 21.83 2.042204 Balanced.............. 6.248153 20.61 5.180408 12.60 4.600659 High Yield Bond....... 1.624115 14.99 1.412413 18.87 1.188188 Select Bond........... 7.263164 8.65 6.685035 2.54 6.519655 Money Market.......... 2.529098 4.69 2.415898 4.49 2.311989
11 12 The Northwestern Mutual Life Insurance Company Form 10-K Item 7. (continued) Accumulation Unit Values Contracts Issued After December 16, 1981 and Prior to March 31, 1995:
Division 12/31/97 % of Change 12/31/96 % of Change 12/31/95 -------- --------- ----------- --------- ----------- --------- Aggressive Growth Stock......................... $3.585281 12.45% $3.188266 16.23% $2.743106 International Equity.......... 1.828649 10.89 1.649102 19.50 1.379966 Growth Stock.................. 1.990509 28.24 1.552125 19.40 1.299976 Growth and Income Stock......................... 1.958555 28.42 1.525144 18.47 1.287355 Index 500 Stock............... 3.175298 31.55 2.413788 21.21 1.991330 Balanced...................... 5.767570 20.01 4.805896 12.04 4.289623 High Yield Bond............... 1.594619 14.42 1.393713 18.27 1.178371 Select Bond................... 6.703164 8.11 6.200523 2.02 6.077689 Money Market.................. 2.334748 4.16 2.241420 3.97 2.155845
Accumulation Unit Values Contracts Issued On or After March 31, 1995: Front Load Version
Division 12/31/97 % of Change 12/31/96 % of Change 12/31/95 -------- --------- ----------- --------- ----------- --------- Aggressive Growth Stock........................ $1.735135 13.41% $1.529999 17.22% $1.305186 International Equity......... 1.537080 11.83 1.374484 20.53 1.140398 Growth Stock................. 1.882500 29.33 1.455537 20.42 1.208718 Growth and Income Stock........................ 1.851666 29.51 1.429760 19.49 1.196596 Index 500 Stock.............. 2.025922 32.67 1.527085 22.25 1.249114 Balanced..................... 1.615054 21.03 1.334426 13.00 1.180953 High Yield Bond.............. 1.530051 15.39 1.326020 19.29 1.111614 Select Bond.................. 1.266282 9.03 1.161454 2.90 1.128765 Money Market................. 1.145720 5.05 1.090643 4.86 1.040089
12 13 The Northwestern Mutual Life Insurance Company Form 10-K Item 7. (continued) Accumulation Unit Values Contracts Issued On or After March 31, 1995: Back Load Version
Division 12/31/97 % of Change 12/31/96 % of Change 12/31/95 -------- ------------ ------------- ------------ ----------- --------- Aggressive Growth Stock................ $ 3.585281 12.45% $ 3.188266 16.23% $2.743106 International Equity. 1.828649 10.89 1.649102 19.50 1.379966 Growth Stock......... 1.990509 28.24 1.552125 19.40 1.299976 Growth and Income Stock................ 1.958555 28.42 1.525144 18.47 1.287355 Index 500 Stock...... 3.175298 31.55 2.413788 21.21 1.991330 Balanced............. 5.767570 20.01 4.805896 12.04 4.289623 High Yield Bond...... 1.594619 14.42 1.393713 18.27 1.178371 Select Bond.......... 6.703164 8.11 6.200523 2.02 6.077689 Money Market......... 2.334748 4.16 2.241420 3.97 2.155845 Equity: 12/31/97 12/31/96 12/31/95 ------------ ------------- ------------ $648,394,089 $547,520,040 $469,821,427
The change in these amounts is largely derived from investment activities within the Account: A $96,695,584 increase for the year ended December 31, 1995, a $65,736,696 increase for the year ended December 31, 1996, and a $105,703,026 increase for the year ended December 31, 1997. Net contributions (surrenders) from contract owners amounted to $(13,795,319) for the year ended December 31, 1995, $11,961,917 for the year ended December 31, 1996, and $(4,828,977) for the year ended December 31, 1997. NML Variable Annuity Account Accumulation Unit Values Contracts Issued Prior to December 17, 1981 or between April 30, 1984 and December 31, 1991:
Division 12/31/97 % of Change 12/31/96 % of Change 12/31/95 -------- ---------- ----------- ---------- ----------- ---------- Aggressive Growth Stock................ $37.054456 13.86% $32.542621 17.70% $27.648691 International Equity. 1.938399 12.28 1.726413 21.01 1.426613 Growth Stock......... 20.837268 29.85 16.046821 20.91 13.271899 Growth and Income Stock................ 20.502206 30.03 15.767435 19.97 13.142782 Index 500 Stock...... 36.141676 33.20 27.133645 22.75 22.104982 Balanced............. 71.490869 21.52 58.832423 13.45 51.855817 High Yield Bond...... 16.692972 15.85 14.408967 19.77 12.030416 Select Bond.......... 83.938645 9.46 76.681608 3.31 74.222515 Money Market......... 27.434762 5.47 26.011476 5.29 24.705630
13 14 The Northwestern Mutual Life Insurance Company Form 10-K Item 7. (continued) Accumulation Unit Values Contracts Issued After December 16, 1981 or Prior to May 1, 1984:
Division 12/31/97 % of Change 12/31/96 % of Change 12/31/95 -------- ---------- ----------- ---------- ----------- ---------- Aggressive Growth Stock................... $35.791674 13.30% $31.591115 17.11% $26.975930 International Equity.... 1.893664 11.72 1.695019 20.41 1.407741 Growth Stock............ 20.458788 29.21 15.834243 20.30 13.162242 Growth and Income Stock................... 20.129770 29.38 15.558532 19.37 13.034162 Index 500 Stock......... 34.906216 32.54 26.337300 22.13 21.564611 Balanced................ 66.012286 20.91 54.595947 12.88 48.364840 High Yield Bond......... 16.389706 15.27 14.218083 19.17 11.931003 Select Bond............. 77.468103 8.92 71.125132 2.79 69.192181 Money Market............ 25.362364 4.95 24.167111 4.76 23.069838
Accumulation Unit Values Contracts Issued After December 31, 1991 - Front Load Version:
Division 12/31/97 % of Change 12/31/96 % of Change 12/31/95 -------- --------- ----------- --------- ----------- --------- Aggressive Growth Stock........................ $2.350498 13.13% $2.077739 16.93% $1.776871 International Equity......... 1.880500 11.55 1.685759 20.23 1.402156 Growth Stock................. 2.034708 29.01 1.577134 20.12 1.312966 Growth and Income Stock........................ 2.001981 29.19 1.549666 19.19 1.300190 Index 500 Stock.............. 2.563560 32.34 1.937139 21.95 1.588496 Balanced..................... 1.931409 20.73 1.599774 12.71 1.419325 High Yield Bond.............. 1.630023 15.10 1.416152 18.99 1.190149 Select Bond.................. 1.490112 8.75 1.370157 2.64 1.334934 Money Market................. 1.249188 4.79 1.192105 4.60 1.139693
14 15 The Northwestern Mutual Life Insurance Company Form 10-K Item 7. (continued) Accumulation Unit Values Contracts Issued After December 31, 1991 - Simplified Load Version:
Division 12/31/97 % of Change 12/31/96 % of Change 12/31/95 -------- --------- ----------- --------- ----------- --------- Aggressive Growth Stock.................... $3.598431 12.45% $3.199964 16.23% $2.753170 International Equity..... 1.828649 10.89 1.649102 19.50 1.379966 Growth Stock............. 1.990509 28.24 1.552125 19.40 1.299976 Growth and Income Stock.................... 1.958555 28.42 1.525144 18.47 1.287355 Index 500 Stock.......... 3.240055 31.55 2.463008 21.22 2.031929 Balanced................. 5.796067 20.01 4.829655 12.04 4.310821 High Yield Bond.......... 1.594619 14.42 1.393713 18.27 1.178371 Select Bond.............. 6.768475 8.11 6.260939 2.02 6.136911 Money Market............. 2.339812 4.16 2.246287 3.97 2.160533 Equity: 12/31/97 12/31/96 12/31/95 ------------ ------------ ------------ $547,988,523 $426,652,573 $317,806,038
These changes are largely derived from investment activities within the Account: A $68,906,233 increase for the year ended December 31, 1995, a $53,943,259 increase for the year ended December 31, 1996, and a $88,114,906 increase for the year ended December 31, 1997. Net contributions (surrenders) from contract owners amounted to $(1,482,462) for the year ended December 31, 1995, $54,903,276 for the year ended December 31, 1996, and $33,221,044 for the year ended December 31, 1997. Item 8 is on page 16. 15 16 The Northwestern Mutual Life Insurance Company Form 10-K Item 8. Financial Statements and Supplementary Data NML VARIABLE ANNUITY ACCOUNT A STATEMENT OF ASSETS AND LIABILITIES
December 31 -------------------------------- Assets 1997 1996 --------------- --------------- Investments at market value: Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock 1997: 26,799,138 shares (cost $63,803,191)..... $ 89,428,723 $ 78,087,972 1996: 24,829,244 shares (cost $54,025,343)..... International Equity 1997: 29,691,199 shares (cost $40,304,940)..... 50,148,435 41,497,787 1996: 26,635,293 shares (cost $34,100,468)..... Growth Stock 1997: 9,536,195 shares (cost $13,891,054)...... 17,260,514 9,523,179 1996: 6,504,903 shares (cost $8,193,212)....... Growth and Income Stock 1997: 17,712,678 shares (cost $23,485,676)..... 23,575,574 13,199,558 1996: 10,014,839 shares (cost $11,804,187)..... Index 500 Stock 1997: 42,035,107 shares (cost $62,642,616)..... 111,140,823 80,917,025 1996: 39,375,681 shares (cost $51,893,158)..... Balanced 1997: 152,059,221 shares (cost $210,403,734)... 302,749,909 270,745,111 1996: 157,593,196 shares (cost $210,643,607)... High Yield Bond 1997: 8,225,197 shares (cost $9,217,130)....... 8,743,385 4,907,490 1996: 4,465,414 shares (cost $4,847,740)....... Select Bond 1997: 20,089,875 shares (cost $23,555,171)..... 25,252,973 26,648,961 1996: 21,772,027 shares (cost $25,386,654)..... Money Market 1997: 21,586,115 shares (cost $21,586,115)..... 21,586,115 23,380,205 1996: 23,380,205 shares (cost $23,380,205)..... --------------- --------------- 649,886,451 548,907,288 Due from Sales of Fund Shares...................... 1,555,441 387,086 Due from Northwestern Mutual Life Insurance Company 322,747 123,152 --------------- --------------- Total Assets.................................... $ 651,764,639 $ 549,417,526 =============== =============== Liabilities Due to Participants................................ $ 1,492,363 $ 1,387,248 Due to Northwestern Mutual Life Insurance Company.. 1,555,441 387,086 Due from Purchase of Fund Shares................... 322,747 123,152 --------------- --------------- Total Liabilities............................... $ 3,370,551 $ 1,897,484 =============== ===============
The Accompanying Notes are an Integral Part of the Financial Statements. 16 17 The Northwestern Mutual Life Insurance Company Form 10-K Item 8. (continued) NML VARIABLE ANNUITY ACCOUNT A STATEMENT OF ASSETS AND LIABILITIES
December 31 ---------------------------------- Equity 1997 1996 ---------------- ---------------- Contracts Issued Prior to December 17, 1981: Aggressive Growth Stock Division 1997: 640,838 Accumulation Units @ 3.714008.......... $ 2,380,076 1996: 890,850 Accumulation Units @ 3.286265.......... $ 2,927,568 Annuity Reserves...................................... 71,827 75,244 ---------------- ---------------- 2,451,903 3,002,812 ---------------- ---------------- International Equity Division 1997: 1,297,660 Accumulation Units @ 1.871861........ 2,429,039 1996: 1,332,812 Accumulation Units @ 1.679665........ 2,238,678 Annuity Reserves...................................... 150,892 147,829 ---------------- ---------------- 2,579,931 2,386,507 ---------------- ---------------- Growth Stock Division 1997: 327,731 Accumulation Units @ 2.027359.......... 664,427 1996: 118,168 Accumulation Units @ 1.572985.......... 185,861 Annuity Reserves...................................... 0 9,807 ---------------- ---------------- 664,427 195,668 ---------------- ---------------- Growth and Income Stock Division 1997: 348,188 Accumulation Units @ 1.994748.......... 694,546 1996: 69,566 Accumulation Units @ 1.545596........... 107,521 Annuity Reserves...................................... 0 180,931 ---------------- ---------------- 694,546 288,452 ---------------- ---------------- Index 500 Stock Division 1997: 8,175,537 Accumulation Units @ 3.289255........ 26,891,427 1996: 9,600,286 Accumulation Units @ 2.487952........ 23,885,052 Annuity Reserves...................................... 1,305,930 1,300,177 ---------------- ---------------- 28,197,357 25,185,229 ---------------- ---------------- Balanced Division 1997: 3,845,538 Accumulation Units @ 6.248153........ 24,027,509 1996: 4,743,812 Accumulation Units @ 5.180408........ 24,574,880 Annuity Reserves...................................... 1,640,281 1,454,827 ---------------- ---------------- 25,667,790 26,029,707 ---------------- ---------------- High Yield Bond Division 1997: 600,752 Accumulation Units @ 1.624115.......... 975,690 1996: 428,588 Accumulation Units @ 1.412413.......... 605,343 Annuity Reserves...................................... 0 7,644 ---------------- ---------------- 975,690 612,987 ---------------- ---------------- Select Bond Division 1997: 1,012,083 Accumulation Units @ 7.263164........ 7,350,925 1996: 1,215,131 Accumulation Units @ 6.685035........ 8,123,192 Annuity Reserves...................................... 273,840 75,632 ---------------- ---------------- 7,624,765 8,198,824 ---------------- ---------------- Money Market Division 1997: 893,452 Accumulation Units @ 2.529098.......... 2,259,628 1996: 1,103,625 Accumulation Units @ 2.415898........ 2,666,245 Annuity Reserves...................................... 58,694 60,981 ---------------- ---------------- 2,318,322 2,727,226 ---------------- ----------------
The Accompanying Notes are an Integral Part of the Financial Statements. 17 18 The Northwestern Mutual Life Insurance Company Form 10-K Item 8. (continued) NML VARIABLE ANNUITY ACCOUNT A STATEMENT OF ASSETS AND LIABILITIES
December 31 ---------------------------------- Equity (cont'd.) 1997 1996 ---------------- ---------------- Contracts Issued After December 16, 1981 and Prior to March 31, 1995: Aggressive Growth Stock Division 1997: 20,861,309 Accumulation Units @ 3.585281.......... $ 74,793,655 1996: 21,479,837 Accumulation Units @ 3.188266.......... $ 68,483,433 Annuity Reserves......................................... 137,989 191,587 ---------------- ---------------- 74,931,644 68,675,020 ---------------- ---------------- International Equity Division 1997: 22,910,908 Accumulation Units @ 1.828649.......... 41,896,009 1996: 22,132,206 Accumulation Units @ 1.649102.......... 36,498,266 Annuity Reserves......................................... 174,073 100,731 ---------------- ---------------- 42,070,082 36,598,997 ---------------- ---------------- Growth Stock Division 1997: 6,045,075 Accumulation Units @ 1.990509........... 12,032,777 1996: 4,845,965 Accumulation Units @ 1.552125........... 7,521,543 Annuity Reserves......................................... 11,803 ---------------- ---------------- 12,044,580 7,521,543 ---------------- ---------------- Growth and Income Stock Division 1997: 8,963,724 Accumulation Units @ 1.958555........... 17,555,947 1996: 7,054,484 Accumulation Units @ 1.525144........... 10,759,104 Annuity Reserves:........................................ 332,207 ---------------- ---------------- 17,888,154 10,759,104 ---------------- ---------------- Index 500 Stock Division 1997: 21,531,879 Accumulation Units @ 3.175298.......... 68,370,132 1996: 20,092,060 Accumulation Units @ 2.413788.......... 48,497,973 Annuity Reserves......................................... 2,462,112 1,673,310 ---------------- ---------------- 70,832,244 50,171,283 ---------------- ---------------- Balanced Division 1997: 44,638,127 Accumulation Units @ 5.767570.......... 257,453,521 1996: 48,457,793 Accumulation Units @ 4.805896.......... 232,883,113 Annuity Reserves......................................... 3,937,936 3,048,888 ---------------- ---------------- 261,391,457 235,932,001 ---------------- ---------------- High Yield Bond Division 1997: 3,770,055 Accumulation Units @ 1.594619........... 6,011,801 1996: 2,456,295 Accumulation Units @ 1.393713........... 3,423,371 Annuity Reserves......................................... 67,256 ---------------- ---------------- 6,079,057 3,423,371 ---------------- ---------------- Select Bond Division 1997: 2,252,704 Accumulation Units @ 6.703164........... 15,100,242 1996: 2,691,481 Accumulation Units @ 6.200523........... 16,688,589 Annuity Reserves......................................... 591,284 580,678 ---------------- ---------------- 15,691,526 17,269,267 ---------------- ---------------- Money Market Division 1997: 6,270,333 Accumulation Units @ 2.334748........... 14,639,648 1996: 7,029,739 Accumulation Units @ 2.241420........... 15,756,598 Annuity Reserves......................................... 454,275 368,369 ---------------- ---------------- 15,093,923 16,124,967 ---------------- ----------------
The Accompanying Notes are an Integral Part of the Financial Statements. 18 19 The Northwestern Mutual Life Insurance Company Form 10-K Item 8. (continued) NML VARIABLE ANNUITY ACCOUNT A STATEMENT OF ASSETS AND LIABILITIES
December 31 -------------------------------- Equity (cont'd.) 1997 1996 --------------- --------------- Contracts Issued On or After March 31, 1995 - Back Load Version: Aggressive Growth Stock Division 1997: 2,926,218 Accumulation Units @ 3.585281................ $ 10,491,351 1996: 1,734,023 Accumulation Units @ 3.188266................ $ 5,528,526 Annuity Reserves.............................................. 27,274 --------------- --------------- 10,518,625 5,528,526 --------------- --------------- International Equity Division 1997: 2,488,184 Accumulation Units @ 1.828649................ 4,550,016 1996: 1,281,128 Accumulation Units @ 1.649102................ 2,112,711 Annuity Reserves.............................................. 0 --------------- --------------- 4,550,016 2,112,711 --------------- --------------- Growth Stock Division 1997: 1,870,296 Accumulation Units @ 1.990509................ 3,722,840 1996: 922,390 Accumulation Units @ 1.552125.................. 1,431,665 Annuity Reserves.............................................. 26,907 --------------- --------------- 3,749,747 1,431,665 --------------- --------------- Growth and Income Stock Division 1997: 1,940,827 Accumulation Units @ 1.958555................ 3,801,216 1996: 1,215,721 Accumulation Units @ 1.525144................ 1,854,150 Annuity Reserves.............................................. 26,336 --------------- --------------- 3,827,552 1,854,150 --------------- --------------- Index 500 Stock Division 1997: 3,279,176 Accumulation Units @ 3.175298................ 10,412,362 1996: 1,970,961 Accumulation Units @ 2.413788................ 4,757,482 Annuity Reserves.............................................. 0 --------------- --------------- 10,412,362 4,757,482 --------------- --------------- Balanced Division 1997: 2,109,606 Accumulation Units @ 5.767570................ 12,167,299 1996: 1,347,427 Accumulation Units @ 4.805896................ 6,475,593 Annuity Reserves.............................................. 219,112 --------------- --------------- 12,386,411 6,475,593 --------------- --------------- High Yield Bond Division 1997: 967,188 Accumulation Units @ 1.594619.................. 1,542,185 1996: 572,121 Accumulation Units @ 1.393713.................. 797,373 Annuity Reserves.............................................. 0 --------------- --------------- 1,542,185 797,373 --------------- --------------- Select Bond Division 1997: 271,027 Accumulation Units @ 6.703164.................. 1,816,737 1996: 182,907 Accumulation Units @ 6.200523.................. 1,134,116 Annuity Reserves.............................................. 0 --------------- --------------- 1,816,737 1,134,116 --------------- --------------- Money Market Division 1997: 1,081,227 Accumulation Units @ 2.334748................ 2,524,393 1996: 1,123,081 Accumulation Units @ 2.241420................ 2,517,297 Annuity Reserves.............................................. 0 --------------- --------------- 2,524,393 2,517,297 --------------- ---------------
The Accompanying Notes are an Integral Part of the Financial Statements. 19 20 The Northwestern Mutual Life Insurance Company Form 10-K Item 8. (continued) NML VARIABLE ANNUITY ACCOUNT A STATEMENT OF ASSETS AND LIABILITIES
December 31 -------------------------------- Equity (cont'd.) 1997 1996 --------------- --------------- Contracts Issued On or After March 31, 1995 - Front Load Version: Aggressive Growth Stock Division 1997: 832,513 Accumulation Units @ 1.735135................... $ 1,444,522 1996: 568,732 Accumulation Units @ 1.529999................... $ 870,160 Annuity Reserves............................................... 55,374 --------------- --------------- 1,499,896 870,160 --------------- --------------- International Equity Division 1997: 575,775 Accumulation Units @ 1.537080................... 885,012 1996: 286,469 Accumulation Units @ 1.374484................... 393,747 Annuity Reserves............................................... 24,148 --------------- --------------- 909,160 393,747 --------------- --------------- Growth Stock Division 1997: 422,029 Accumulation Units @ 1.882500................... 794,469 1996: 257,158 Accumulation Units @ 1.455537................... 374,303 Annuity Reserves............................................... 0 --------------- --------------- 794,469 374,303 --------------- --------------- Growth and Income Stock Division 1997: 540,977 Accumulation Units @ 1.851666................... 1,001,708 1996: 208,323 Accumulation Units @ 1.429760................... 297,852 Annuity Reserves............................................... 133,668 --------------- --------------- 1,135,376 297,852 --------------- --------------- Index 500 Stock Division 1997: 690,248 Accumulation Units @ 2.025922................... 1,398,389 1996: 454,096 Accumulation Units @ 1.527085................... 693,444 Annuity Reserves............................................... 54,108 --------------- --------------- 1,452,497 693,444 --------------- --------------- Balanced Division 1997: 1,296,330 Accumulation Units @ 1.615054................. 2,093,642 1996: 786,271 Accumulation Units @ 1.334426................... 1,049,220 Annuity Reserves............................................... 95,364 --------------- --------------- 2,189,006 1,049,220 --------------- --------------- High Yield Bond Division 1997: 95,718 Accumulation Units @ 1.530051.................... 146,453 1996: 55,625 Accumulation Units @ 1.326020.................... 73,760 Annuity Reserves............................................... 0 --------------- --------------- 146,453 73,760 --------------- --------------- Select Bond Division 1997: 72,941 Accumulation Units @ 1.266282.................... 92,364 1996: 38,713 Accumulation Units @ 1.161454.................... 44,963 Annuity Reserves............................................... 0 --------------- --------------- 92,364 44,963 --------------- --------------- Money Market Division 1997: 1,439,686 Accumulation Units @ 1.145720................. 1,649,477 1996: 1,843,605 Accumulation Units @ 1.090643................. 2,010,715 Annuity Reserves............................................... 0 --------------- --------------- 1,649,477 2,010,715 --------------- --------------- Total Equity............................................. $ 648,394,124 $ 547,520,042 --------------- --------------- Total Liabilities and Equity............................. $ 651,764,675 $ 549,417,526 =============== ===============
The Accompanying Notes are an Integral Part of the Financial Statements. 20 21 The Northwestern Mutual Life Insurance Company Form 10-K Item 8. (continued) NML VARIABLE ANNUITY ACCOUNT A COMBINED STATEMENT OF OPERATIONS AND CHANGES IN EQUITY For the Years Ended December 31
1997 1996 1995 ------------- ------------- ------------- Investment Income Dividend Income.............................................. $ 33,252,128 $ 24,500,542 $ 11,709,964 Annuity Rate and Expense Guarantees.......................... 7,048,888 5,783,739 5,072,064 ------------ ------------ ------------ Net Investment Income........................................ 26,203,240 18,716,803 6,637,900 ------------ ------------ ------------ Realized and Unrealized Gain on Investments Net Unrealized Gain on Investments........................... 23,135,675 13,967,988 13,141,169 Unrealized Appreciation (Depreciation) During the Year....... 56,364,111 33,051,905 76,916,515 ------------ ------------ ------------ Net Gain (Loss) on Investments............................... 79,499,786 47,019,893 90,057,684 ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity 105,703,026 65,736,696 96,695,584 ------------ ------------ ------------ Equity Transactions Contract Owners' Net Payments................................ 61,964,558 65,169,358 49,124,853 Annuity Payments............................................. (1,046,956) (830,996) (610,983) Surrenders and Other (Net)................................... (65,746,579) (52,376,445) (62,309,189) ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions (4,828,977) 11,961,917 (13,795,319) ------------ ------------ ------------ Net Increase in Equity........................................ 100,874,049 77,698,613 82,900,265 Equity, Beginning of Year..................................... 547,520,040 469,821,427 386,921,162 ------------ ------------ ------------ Equity, End of Year........................................... $648,394,089 $547,520,040 $469,821,427 ============ ============ ============
The Accompanying Notes are an Integral Part of the Financial Statements. 22 The Northwestern Mutual Life Insurance Company Form 10-K Item 8. (continued) NML VARIABLE ANNUITY ACCOUNT A NOTES TO FINANCIAL STATEMENTS Note 1--NML Variable Annuity Account A (the "Account") is a segregated asset account of The Northwestern Mutual Life Insurance Company ("Northwestern Mutual Life") used to fund variable annuity contracts ("contracts") for HR-10 and corporate pension and profit-sharing plans which qualify for special tax treatment under the Internal Revenue Code. Beginning March 31, 1995, two versions of the contract are offered: Front Load contracts with a sales charge up to 4% of purchase payments and Back Load contracts with a withdrawal charge of 0-8%. Note 2--The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principal accounting policies are summarized below. Note 3--All assets of each Division of the Account are invested in shares of the corresponding Portfolio of Northwestern Mutual Series Fund, Inc. (the "Fund"). The shares are valued at the Fund's offering and redemption price per share. On May 3, 1994, five new portfolios commenced operations in the Fund: Aggressive Growth Stock Portfolio, International Equity Portfolio, Growth Stock Portfolio, Growth and Income Stock Portfolio and High Yield Bond Portfolio. Additionally, on May 3, 1994, the assets of Northwestern Mutual Life's Variable Annuity funds were merged into the respective portfolio of the Fund in a tax-free exchange of shares. The Fund is an open-end investment company registered under the Investment Company Act of 1940. Note 4--Annuity reserves are based on published annuity tables with age adjustment and benefit payments which reflect actual investment experience. For variable payment plans issued prior to January 1, 1974, annuity reserves are based on the 1955 American Annuity Table with assumed interest rates of 3%, 3 1/2% or 5%. For variable payment plans issued on or after January 1, 1974 and before January 1, 1985, annuity reserves are based on the 1971 Individual Annuity Table with assumed interest rates of 3 1/2% or 5%. For variable payment plans issued on or after January 1, 1985, annuity reserves are based on the 1983 Table with assumed interest rates of 3 1/2% or 5%. Note 5--Dividend income from the Fund is recorded on the record date of the dividends. Transactions in Fund shares are accounted for on the trade date. The basis for determining cost on sale of Fund shares is identified cost. Purchases and sales of Fund shares for the years ended December 31 by each Division are shown below:
Purchases 1997 1996 1995 - --------- ------------ ------------ ------------ Aggressive Growth Division $13,774,024 $17,797,661 $10,658,292 International Equity Division 9,401,229 8,274,087 4,305,567 Growth Stock Division 6,679,256 4,830,460 2,702,664 Growth & Income Stock Division 13,074,930 5,756,071 4,147,264 Index 500 Stock Division 14,059,126 11,279,772 7,998,931 Balanced Division 21,076,301 20,896,761 14,258,034 High Yield Bond Division 5,687,823 3,296,028 1,411,373 Select Bond Division 4,506,469 5,463,472 3,837,930 Money Market Division 13,132,202 13,328,217 14,421,123 Sales - ----- Aggressive Growth Division $ 8,367,827 $ 4,234,497 $ 5,672,013 International Equity Division 4,431,627 3,828,530 5,324,662 Growth Stock Division 1,576,559 508,512 427,690 Growth & Income Stock Division 2,076,927 1,277,020 576,160 Index 500 Stock Division 8,104,812 5,728,800 5,165,148 Balanced Division 32,274,893 26,932,275 36,790,058 High Yield Bond Division 1,516,721 568,230 673,375 Select Bond Division 6,636,325 4,528,222 3,928,823 Money Market Division 14,926,292 11,504,938 12,987,931
22 23 The Northwestern Mutual Life Insurance Company Form 10-K Item 8. (continued) NML VARIABLE ANNUITY ACCOUNT A NOTES TO FINANCIAL STATEMENTS Note 6--On April 30, 1993, Northwestern Mutual Capital Appreciation Stock Fund was merged into the Northwestern Mutual Index 500 Stock Fund in a tax-free exchange of fund shares. 21,689,286 shares of Northwestern Mutual Capital Appreciation Stock Fund, Inc. were exchanged for 22,749,651 shares of Northwestern Mutual Index 500 Stock Fund, Inc. The shares exchanged were valued at $30,719,638 for each Division. Note 7--A deduction for annuity rate and expense guarantees is determined daily and paid to Northwestern Mutual Life as compensation for assuming the risk that annuity payments will continue for longer periods than anticipated because the annuitants as a group live longer than expected, and the risk that the charges made by Northwestern Mutual Life may be insufficient to cover the actual costs incurred in connection with the contracts. For contracts issued on or after March 31, 1995, for the Front Load version and the Back Load version, the deduction for annuity rate and expense guarantees is determined daily at annual rates of 4/10 of 1% and a1 1/4%, respectively, of the net assets of each Division attributable to these contracts and is paid to Northwestern Mutual Life. For these contracts, the rates may be increased or decreased by the Board of Trustees of Northwestern Mutual Life not to exceed 3/4 of 1% and 1 1/2%, respectively. For contracts issued after December 16, 1981 and prior to March 31, 1995, the deduction is at an annual rate of 1 1/4% of the net assets of each Division attributable to these contracts. For these contracts, the rate may be increased or decreased by the Board of Trustees of Northwestern Mutual Life not to exceed a 1 1/2% annual rate. For contracts issued prior to December 17, 1981, the deduction is at an annual rate of 3/4 of 1% of the net assets of each Division attributable to these contracts. For these contracts, the rate may be increased or decreased by the Board of Trustees of Northwestern Mutual Life not to exceed a 1% annual rate. Since 1995, Northwestern Mutual Life has paid a dividend to certain contracts. The dividend is reinvested in the Account and has been reflected as a Contract Owners' Net Payment in the accompanying financial statements. Note 8--Northwestern Mutual Life is taxed as a "life insurance company" under the Internal Revenue Code and the operations of the Account form a part of and are taxed with those of Northwestern Mutual Life. Under current law, no federal income taxes are payable with respect to the Account. Accordingly, no provision for any such liability has been made. 23 24 The Northwestern Mutual Life Insurance Company Form 10-K Item 8. (continued) NML VARIABLE ANNUITY ACCOUNT C STATEMENT OF ASSETS AND LIABILITIES
December 31 -------------------------------- Assets 1997 1996 -------------- ---------------- Investments at market value: Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock 1997: 33,439,173 shares (cost $85,858,851)..... $111,586,520 $ 95,276,983 1996: 30,294,748 shares (cost $70,855,533)..... International Equity 1997: 37,819,506 shares (cost $52,786,634)..... 63,877,146 49,461,520 1996: 31,746,803 shares (cost $41,642,844)..... Growth Stock 1997: 8,757,048 shares (cost $13,278,855)...... 15,850,257 1996: 6,649,199 shares (cost $9,029,280)....... 9,734,427 Growth and Income Stock 1997: 20,649,607 shares (cost $28,811,270)..... 27,484,626 13,034,961 1996: 9,889,955 shares (cost $12,379,951)...... Index 500 Stock 1997: 50,653,443 shares (cost $81,303,357)..... 133,927,705 1996: 45,376,702 shares (cost $63,645,634)..... 93,249,123 Balanced 1997: 77,214,264 shares (cost $114,230,115).... 153,733,599 1996: 76,440,576 shares (cost $108,531,164).... 131,324,909 High Yield Bond 1997: 6,179,152 shares (cost $6,940,417)....... 6,568,438 1996: 2,714,521 shares (cost $2,978,850)....... 2,983,258 Select Bond 1997: 14,367,483 shares (cost $16,785,623)..... 18,059,926 1996: 14,544,948 shares (cost $16,953,280)..... 17,803,016 Money Market 1997: 16,900,306 shares (cost $16,900,306)..... 16,900,306 13,784,374 1996: 13,784,374 shares (cost $13,784,374)..... -------------- ---------------- 547,988,523 426,652,571 Due from Sales of Fund Shares...................... 2,927,350 52,909 Due from Northwestern Mutual Life Insurance Company 196,511 1,662,368 -------------- ---------------- Total Assets.................................... $ 551,112,384 $ 428,367,848 ============== ================ Liabilities Due to Northwestern Mutual Life Insurance Company . $ 2,927,350 $ 52,909 Due from Purchase of Fund Shares................... 196,511 1,662,368 -------------- ---------------- Total Liabilities............................... $ 3,123,861 $ 1,715,277 ============== ================
The Accompanying Notes are an Integral Part of the Financial Statements. 24 25 The Northwestern Mutual Life Insurance Company Form 10-K Item 8. (continued) NML VARIABLE ANNUITY ACCOUNT C STATEMENT OF ASSETS AND LIABILITIES
December 31 ---------------------------- Equity 1997 1996 ------------- ------------- Contracts Issued Before December 17, 1981 or Between April 30, 1984 and December 31, 1991: Aggressive Growth Stock Division 1997: 1,935,434 Accumulation Units @ 37.054456......... $71,716,451 1996: 1,944,411 Accumulation Units @ 32.542621......... $63,276,230 International Equity Division 1997: 23,069,550 Accumulation Units @ 1.938399......... 44,717,992 1996: 20,439,570 Accumulation Units @ 1.726413......... 35,287,138 Growth Stock Division 1997: 482,897 Accumulation Units @ 20.837268........... 10,062,263 1996: 378,236 Accumulation Units @ 16.046821........... 6,069,485 Growth and Income Stock Division 1997: 711,558 Accumulation Units @ 20.502206........... 14,588,507 1996: 424,144 Accumulation Units @ 15.767435........... 6,687,664 Index 500 Stock Division 1997: 2,558,205 Accumulation Units @ 36.141676......... 92,457,808 1996: 2,386,284 Accumulation Units @ 27.133645......... 64,748,577 Balanced Division 1997: 1,341,930 Accumulation Units @ 71.490869......... 95,935,733 1996: 1,489,658 Accumulation Units @ 58.832423......... 87,640,161 High Yield Bond Division 1997: 235,585 Accumulation Units @ 16.692972........... 3,932,608 1996: 119,423 Accumulation Units @ 14.408967........... 1,720,768 Select Bond Division 1997: 85,036 Accumulation Units @ 83.938645............ 7,137,800 1996: 97,868 Accumulation Units @ 76.681608............ 7,504,704 Money Market Division 1997: 38,584 Accumulation Units @ 27.434762............ 1,058,532 1996: 57,013 Accumulation Units @ 26.011476............ 1,483,002
The Accompanying Notes are an Integral Part of the Financial Statements. 25 26 The Northwestern Mutual Life Insurance Company Form 10-K Item 8. (continued) NML VARIABLE ANNUITY ACCOUNT C STATEMENT OF ASSETS AND LIABILITIES
December 31 ----------------------------------- Equity (Cont'd.) 1997 1996 ----------------- ---------------- Contracts Issued After December 16, 1981 and Prior to May 1, 1984: Aggressive Growth Stock Division 1997: 1,141 Accumulation Units @ 35.791674..................... $ 40,847 1996: 4,243 Accumulation Units @ 31.591115..................... $ 134,035 Annuity Reserves................................................ 33,487 31,590 ----------------- ---------------- 74,334 165,625 ----------------- ---------------- International Equity Division 1997: 109,646 Accumulation Units @ 1.893664.................... 207,632 1996: 109,569 Accumulation Units @ 1.695019.................... 185,722 Annuity Reserves................................................ 17,392 16,637 ----------------- ---------------- 225,024 202,359 ----------------- ---------------- Growth Stock Division 1997: 137 Accumulation Units @ 20.458788....................... 2,809 1996: N/A...................................................... 0 Annuity Reserves................................................ 40,850 0 ----------------- ---------------- 43,659 0 ----------------- ---------------- Growth and Income Stock Division 1997: 2,270 Accumulation Units @ 20.129770..................... 45,701 1996: 1,252 Accumulation Units @ 15.558532..................... 19,472 Annuity Reserves................................................ 0 33,791 ----------------- ---------------- 45,701 53,263 ----------------- ---------------- Index 500 Stock Division 1997: 19,041 Accumulation Units @ 34.906216.................... 664,652 1996: 45,781 Accumulation Units @ 26.337300.................... 1,205,748 Annuity Reserves................................................ 42,741 34,467 ----------------- ---------------- 707,393 1,240,215 ----------------- ---------------- Balanced Division 1997: 86,634 Accumulation Units @ 66.012286.................... 5,718,908 1996: 90,172 Accumulation Units @ 54.595947.................... 4,923,025 Annuity Reserves................................................ 486,559 429,289 ----------------- ---------------- 6,205,467 5,352,314 ----------------- ---------------- Select Bond Division 1997: 532 Accumulation Units @ 77.468103....................... 41,227 1996: 7,598 Accumulation Units @ 71.125132..................... 540,440 Annuity Reserves................................................ 40,290 39,535 ----------------- ---------------- 81,517 579,975 ----------------- ---------------- Money Market Division 1997: 871 Accumulation Units @ 25.362364....................... 22,084 1996: 14,233 Accumulation Units @ 24.167111.................... 343,966 Annuity Reserves................................................ 7,530 7,669 ----------------- ---------------- 29,614 351,635 ----------------- ----------------
The Accompanying Notes are an Integral Part of the Financial Statements. 26 27 The Northwestern Mutual Life Insurance Company Form 10-K Item 8. (continued) NML VARIABLE ANNUITY ACCOUNT C STATEMENT OF ASSETS AND LIABILITIES
December 31 ------------------------------ Equity (cont'd) 1997 1996 -------------- -------------- Contracts Issued After December 31, 1991 Front Load Version: Aggressive Growth Stock Division 1997: 3,169,006 Accumulation Units @ 2.350498............ $ 7,448,743 1996: 3,197,341 Accumulation Units @ 2.077739............ $ 6,643,240 International Equity Division 1997: 3,021,349 Accumulation Units @ 1.880500............ 5,681,647 1996: 2,709,249 Accumulation Units @ 1.685759............ 4,567,140 Growth Stock Division 1997: 710,110 Accumulation Units @ 2.034708.............. 1,444,866 1996: 587,482 Accumulation Units @ 1.577134.............. 926,538 Growth and Income Stock Division 1997: 1,970,478 Accumulation Units @ 2.001981............ 3,944,860 1996: 1,357,354 Accumulation Units @ 1.549666............ 2,103,446 Index 500 Stock Division 1997: 3,966,706 Accumulation Units @ 2.563560............ 10,168,888 1996: 3,880,961 Accumulation Units @ 1.937139............ 7,517,961 Balanced Division 1997: 6,187,478 Accumulation Units @ 1.931409............ 11,950,551 1996: 5,934,240 Accumulation Units @ 1.599774............ 9,493,443 High Yield Bond Division 1997: 423,726 Accumulation Units @ 1.630023.............. 690,684 1996: 275,323 Accumulation Units @ 1.416152.............. 389,899 Select Bond Division 1997: 2,574,248 Accumulation Units @ 1.490112............ 3,835,918 1996: 2,676,832 Accumulation Units @ 1.370157............ 3,667,680 Money Market Division 1997: 1,710,473 Accumulation Units @ 1.249188............ 2,136,703 1996: 2,829,669 Accumulation Units @ 1.192105............ 3,373,263
The Accompanying Notes are an Integral Part of the Financial Statements. 27 28 The Northwestern Mutual Life Insurance Company Form 10-K Item 8. (continued) NML VARIABLE ANNUITY ACCOUNT C STATEMENT OF ASSETS AND LIABILITIES
December 31 ---------------------------- Equity (cont'd) 1997 1996 ------------- ------------- Contracts Issued After December 31, 1991 Simplified Load Version: Aggressive Growth Stock Division 1997: 8,989,193 Accumulation Units @ 3.598431................. $ 32,346,992 1996: 7,872,553 Accumulation Units @ 3.199964................. $ 25,191,889 International Equity Division 1997: 7,247,144 Accumulation Units @ 1.828649................. 13,252,483 1996: 5,703,032 Accumulation Units @ 1.649102................. 9,404,881 Growth Stock Division 1997: 2,159,985 Accumulation Units @ 1.990509................. 4,299,469 1996: 1,742,522 Accumulation Units @ 1.552125................. 2,704,613 Growth and Income Stock Division 1997: 4,547,004 Accumulation Units @ 1.958555................. 8,905,558 1996: 2,769,823 Accumulation Units @ 1.525144................. 4,224,380 Index 500 Stock Division 1997: 9,442,314 Accumulation Units @ 3.240055................. 30,593,616 1996: 8,015,553 Accumulation Units @ 2.463008................. 19,742,371 Balanced Division 1997: 6,839,439 Accumulation Units @ 5.796067................. 39,641,848 1996: 5,971,232 Accumulation Units @ 4.829655................. 28,838,992 High Yield Bond Division 1997: 1,219,819 Accumulation Units @ 1.594619................. 1,945,147 1996: 626,090 Accumulation Units @ 1.393713................... 872,590 Select Bond Division 1997: 1,034,899 Accumulation Units @ 6.768475................. 7,004,691 1996: 966,414 Accumulation Units @ 6.260939................... 6,050,655 Money Market Division 1997: 5,844,682 Accumulation Units @ 2.339812................. 13,675,458 1996: 3,818,067 Accumulation Units @ 2.246287................. 8,576,475 ------------- ------------- Total Equity............................................... $ 547,988,525 $ 426,652,571 ------------- ------------- Total Liabilities and Equity............................... $ 551,112,386 $ 428,367,848 ============= =============
The Accompanying Notes are an Integral Part of the Financial Statements. 28 29 The Northwestern Mutual Life Insurance Company Form 10-K Item 8. (continued) NML VARIABLE ANNUITY ACCOUNT C COMBINED STATEMENT OF OPERATIONS AND CHANGES IN EQUITY For the Years Ended December 31
1997 1996 1995 -------------- -------------- -------------- Investment Income Dividend Income.................................................. $ 27,689,163 $ 16,994,370 $ 6,470,776 Annuity Rate and Expense Guarantees.............................. 2,501,975 1,738,625 856,764 ------------- ------------- ------------- Net Investment Income............................................ 25,187,188 15,255,745 5,614,012 ------------- ------------- ------------- Realized and Unrealized Gain (Loss) on Investments Net Realized Gain (Loss) on Investments.......................... 18,686,284 8,855,390 9,884,364 Unrealized Appreciation (Depreciation) During the Year........... 44,241,434 29,832,124 53,407,857 ------------- ------------- ------------- Net Gain (Loss) on Investments................................... 62,927,718 38,687,514 63,292,221 ------------- ------------- ------------- Increase in Equity Derived from Investment Activity............... 88,114,906 53,943,259 68,906,233 ------------- ------------- ------------- Equity Transactions Contract Owners' Net Payments.................................... 91,195,224 89,650,916 59,390,267 Surrenders and Other (Net)....................................... (57,974,180) (34,747,640) (60,872,729) ------------- ------------- ------------- Increase (Decrease) in Equity Derived from Equity Transactions ... 33,221,044 54,903,276 (1,482,462) ------------- ------------- ------------- Net Increase in Equity............................................ 121,335,950 108,846,535 67,423,771 Equity, Beginning of Year......................................... 426,652,573 317,806,038 250,382,267 ------------- ------------- ------------- Equity, End of Year............................................... $ 547,988,523 $ 426,652,573 $ 317,806,038 ============= ============= =============
The Accompanying Notes are an Integral Part of the Financial Statements. 29 30 The Northwestern Mutual Life Insurance Company Form 10-K Item 8. (continued) NML VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS Note 1--NML Variable Annuity Account C (the "Account") is a segregated asset account of The Northwestern Mutual Life Insurance Company ("Northwestern Mutual Life" or "Sponsor") used to fund variable annuity contracts ("contracts") for HR-10 and corporate pension and profit-sharing plans which qualify for special tax treatment under the Internal Revenue Code. Beginning December 31, 1991, two versions of the contract are offered: Front Load contracts with a sales charge up to 4.5% of purchase payments and Simplified Load contracts with an installation fee of $750. Note 2--The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principal accounting policies are summarized below. Note 3--All assets of each Division of the Account are invested in shares of the corresponding Portfolio of Northwestern Mutual Series Fund, Inc. (the "Fund"). The shares are valued at the Fund's offering and redemption price per share. On May 3, 1994, five new portfolios commenced operations in the Fund: Aggressive Growth Stock Portfolio, International Equity Portfolio, Growth Stock Portfolio, Growth and Income Stock Portfolio and High Yield Bond Portfolio. Additionally, on May 3, 1994, the assets of Northwestern Mutual Life's Variable Annuity funds were merged into the respective portfolio of the Fund in a tax-free exchange of shares. The Fund is an open-end investment company registered under the Investment Company Act of 1940. Note 4--Annuity reserves are based on published annuity tables with age adjustment and benefit payments which reflect actual investment experience. Annuity reserves are based on the 1983 Table with assumed interest rates of 3 1/2% or 5%. Note 5--Dividend income from the Fund is recorded on the record date of the dividends. Transactions in Fund shares are accounted for on the trade date. The basis for determining cost on sale of Fund shares is identified cost. Purchases and sales of Fund shares for the years ended December 31 by each Division are shown below:
Purchases 1997 1996 1995 - --------- ----------- ----------- ----------- Aggressive Growth Division $21,563,810 $30,690,195 $15,956,497 International Equity Division 14,484,423 15,119,614 6,724,373 Growth Stock Division 5,929,895 7,308,964 1,794,866 Growth & Income Stock Division 18,445,529 8,410,421 3,709,640 Index 500 Stock Division 22,292,577 19,824,136 9,719,794 Balanced Division 18,920,420 19,426,753 17,257,735 High Yield Bond Division 4,398,102 2,362,508 632,095 Select Bond Division 4,295,571 5,445,050 4,302,192 Money Market Division 20,035,837 20,346,897 10,821,340 Sales - ----- Aggressive Growth Division $12,675,291 $ 1,045,256 $ 6,866,522 International Equity Division 4,352,840 1,571,810 4,899,939 Growth Stock Division 2,395,716 303,927 213,213 Growth & Income Stock Division 2,674,188 839,196 310,894 Index 500 Stock Division 10,114,507 5,253,981 7,360,855 Balanced Division 17,783,563 29,797,911 29,565,575 High Yield Bond Division 480,911 158,086 87,219 Select Bond Division 4,561,008 3,918,139 4,475,998 Money Market Division 16,919,905 15,887,232 13,008,176
30 31 The Northwestern Mutual Life Insurance Company Form 10-K Item 8. (continued) NML VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS Note 6--On April 30, 1993, Northwestern Mutual Capital Appreciation Stock Fund was merged into the Northwestern Mutual Index 500 Stock Fund in a tax-free exchange of fund shares. 23,586,477 shares of Northwestern Mutual Capital Appreciation Stock Fund, Inc. were exchanged for 24,739,593 shares of Northwestern Mutual Index 500 Stock Fund, Inc. The shares exchanged were valued at $33,406,725 for each Division. Note 7--A deduction for annuity rate and expense guarantees is determined daily and paid to Northwestern Mutual Life as compensation for assuming the risk that annuity payments will continue for longer periods than anticipated because the annuitants as a group live longer than expected and the risk that the charges made by Northwestern Mutual Life may be insufficient to cover the actual costs incurred in connection with the contracts. Generally, for contracts issued after December 31, 1991, for the Front Load Version and the Simplified Load Version, the deduction for annuity rate and expense guarantees if determined daily at annual rates of 6.5/10 of 1% and 1 1/4%, respectively, of the net assets of each Division attributable to these contracts and is paid to Northwestern Mutual Life. For these contracts, the rates may be increased or decreased by the Board of Trustees of Northwestern Mutual Life not to exceed 1% and 1 1/2% annual rates, respectively. Generally, the deduction for contracts issued before December 17, 1981 or between April 30, 1984 and December 31, 1991, as provided for in the contracts has been waived by the Board of Trustees of Northwestern Mutual Life. For these contracts, the rate may be determined by the Board of Trustees of Northwestern Mutual Life not to exceed a 1/4 of 1% annual rate. For contracts issued after December 16, 1981, and prior to May 1, 1984, the deduction is determined daily at an annual rate of 1/2 of 1% of the net assets of each Division attributable to these contracts and is paid to Northwestern Mutual Life. For these contracts, the rate may be increased or decreased by the Board of Trustees of Northwestern Mutual Life not to exceed a 3/4 of 1% annual rate. Since 1996, Northwestern Mutual Life has paid a dividend to certain contracts. The dividend is re-invested in the Account and has been reflected as a Contract Owners' Net Payment in the accompanying financial statements. Note 8--Northwestern Mutual Life is taxed as a "life insurance company" under the Internal Revenue Code and the operations of the Account form a part of and are taxed with those of Northwestern Mutual Life. Under current law, no federal income taxes are payable with respect to the Account. Accordingly, no provision for any such liability has been made. Item 9 is on page 34. 31 32 The Northwestern Mutual Life Insurance Company Form 10-K Item 9. Disagreements on Accounting and Financial Disclosure Not applicable. Item 10 is on page 35. 32 33 The Northwestern Mutual Life Insurance Company Form 10-K PART III Item 10. Directors and Executive Officers of the Registrant (a) The following information as of March 1, 1998, is provided with respect to each director, including persons chosen to become directors, of the Registrant. The Registrant uses the title of Trustee to denote the directors.
EXPIRATION OF TERM TRUSTEE AGE YEAR ELECTED OF OFFICE OTHER POSITIONS PRESENTLY HELD WITH REGISTRANT - ------------------------ --- ------------ -------------------- ----------------------------------------------------------------- R. Quintus Anderson 67 1984 May 1999 Chairman, Audit Committee Edward E. Barr 61 1991 May 1999 Member, Human Resources and Public Policy Committee Gordon T. Beaham, III 66 1988 May 2001 Member, Operations and Technology Committee Robert C. Buchanan 57 1991 May 1999 Member, Audit, Executive and Finance Committees Robert E. Carlson 62 1989 May 1998 (1) Executive Vice President; Member, Executive Committee George A. Dickerman 59 1994 May 2000 Member, Agency and Marketing Committee Pierre S. DuPont 63 1985 May 1998 (1) Member, Agency and Marketing Committee James D. Ericson 62 1989 May 2000 President and C.E.O.; Member, Human Resources and Public Policy, Agency & Marketing, and Operations and Technology Committees; Chairman, Executive and Finance Committees J. E. Gallegos 62 1985 May 2000 Member, Audit Committee Stephen N. Graff 63 1996 May 2000 Member, Executive, Finance, and Operations and Technology Committees Patricia Albjerg Graham 63 1980 May 2000 Member, Human Resources and Public Policy Committee Stephen F. Keller 59 1984 May 1999 Member, Human Resources and Public Policy Committee Barbara A. King 51 1996 May 1998 (1) Member, Agency and Marketing Committtee J. Thomas Lewis 61 1978 May 1998 (1) Chairman, Human Resources and Public Policy Committee Daniel F. McKeithan, Jr. 62 1988 May 1999 Member, Executive, Finance, and Human Resources and Public Policy Committees
(1) Candidate proposed for re-election by the Board of Trustees for the election to be held at the May 1998 Annual meeting of policyholders. If re-elected, these Trustees' terms will expire in May of 2002. 33 34 The Northwestern Mutual Life Insurance Company Form 10-K
EXPIRATION OF TERM TRUSTEE AGE YEAR ELECTED OF OFFICE OTHER POSITIONS PRESENTLY HELD WITH REGISTRANT - ---------------------- --- ------------ -------------------- ------------------------------------------------------------------- Guy A. Osborn 62 1994 May 2001 Member, Operations and Technology, Executive and Finance Committees Timothy D. Proctor 48 1997 May 2001 Member, Audit Committee Donald J. Schuenke 69 1980 May 1998 (1) Member, Agency and Marketing, Executive and Finance Committees H. Mason Sizemore, Jr. 56 1993 May 1999 Member, Agency and Marketing Committee Harold B. Smith 64 1973 May 2000 Member, Operations and Technology Committee Sherwood H. Smith, Jr. 61 1992 May 1998 (1) Chairman, Agency and Marketing Committee John E. Steuri 58 1994 May 1999 Chairman, Operations and Technology Committee John J. Stollenwerk 58 1993 May 2001 Member, Agency and Marketing, Executive and Finance Committees Barry L. Williams 53 1987 May 2001 Member, Human Resources and Public Policy Committee Kathryn D. Wriston 59 1986 May 2001 Member, Audit Committee
(1) Candidate proposed for re-election by the Board of Trustees for the election to be held at the May 1998 Annual meeting of policyholders. If re-elected, these Trustees' terms will expire in May of 2002. 34 35 The Northwestern Mutual Life Insurance Company Form 10-K Item 10. (continued) (b) The following information as of March 1, 1998, is provided with respect to each Executive Officer of the Registrant.
NAME AGE POSITION - -------------------- --- --------------------------------------------------------------------- James D. Ericson 62 President and Chief Executive Officer, Trustee Robert E. Carlson 62 Executive Vice President (Strategic Marketing), Trustee Peter W. Bruce 52 Executive Vice President (Accumulation Products and Long-Term Care) Frederic H. Sweet 54 Senior Vice President (Government Relations) Dennis Tamcsin 59 Senior Vice President (Field Relations) James W. Ehrenstrom 61 Senior Vice President Walt J. Wojcik 58 Senior Vice President (Information Systems) Edward J. Zore 52 Executive Vice President (Life and Disability Income Insurance) Mason G. Ross 53 Senior Vice President (Investment Administration and Real Estate) Richard L. Hall 52 Senior Vice President (Life and Disability Income Market Development) John M. Bremer 50 Executive Vice President, General Counsel and Secretary (Administration and Law) Mark G. Doll 48 Senior Vice President (Public Markets) William C. Koenig 50 Senior Vice President and Chief Actuary Gary E. Long 53 Vice President and Controller Deborah A. Beck 50 Senior Vice President (Insurance Operations/Chief Compliance Officer) Donald L. Mellish 59 Senior Vice President (Field Financial Services) Barbara F. Piehler 47 Vice President (Policyowner Services) James F. Reiskytl 60 Vice President (Tax and Financial Planning) Leonard F. Stecklein 51 Senior Vice President (Agency Services) Martha M. Valerio 51 Vice President (Corporate Development) W. Ward White 58 Vice President (Communications) Thomas E. Dyer 52 Vice President (New Business) Steven T. Catlett 48 Vice President (Corporate Services) Gregory C. Oberland 40 Vice President (Policy Benefits) Meridee J. Maynard 42 Vice President (Annuity and Accumulation Products) Susan A. Lueger 44 Vice President (Human Resources) William H. Beckley 50 Senior Vice President (Agencies) Robert J. Berdan 51 Vice President (Compliance/Best Practices) John E. Schlifske 38 Vice President (Securities) Bruce L. Miller 51 Senior Vice President (Corporate Planning and Development)
All of the Executive Officers, except Susan A. Lueger and Bruce L. Miller, have been associated with the Registrant, although not necessarily in their present positions, for more than five years. Susan A. Lueger has been Vice President of NML since May, 1994; Vice President of Human Resources at Wisconsin Electric Power Company 1992-1994; prior thereto with WEPC in the following positions: Assistant Vice President-Human Resources 1/92 to 11/92; Director-Human Resources 5/91 to 1/92; Manager-Compensation & Benefits Division 7/90 to 5/91; Project Specialist-Employment and Training Division 2/88 to 7/90. Bruce L. Miller has been Senior Vice President of NML since july, 1996. Prior thereto consultant for Medication Delivery Services 1995-96; CoreSource, Inc. 1992-94; Crabtree Capital Corporation 1989-92; Aon Corporation 1980-89; Glover, Inc. 1977-80; Whitman Corporation 1973-77; McKinsey & Company, Inc. 1966-73. 35 36 The Northwestern Mutual Life Insurance Company Form 10-K Item 10. (continued) Term of office for all Executive Officers is one year expiring May 31, 1998. (c) Not applicable (d) No one of the Executive Officers or Trustees is related to any other to the best of our knowledge. (e) Business experience and directorships of Trustees are as follows:
PRINCIPAL OCCUPATION TRUSTEE DURING PAST FIVE YEARS DIRECTORSHIPS - ---------------------------------------------------------------------------------------------------------------------------------- R. Quintus Anderson Chairman, The Aarque Capital Corporation, Jamestown, New York, since Cold Metal Products Company, Inc. 1966. Chairman, The Aarque Companies, 1980-1996. Oneida, Ltd. Edward E. Barr Chairman, Sun Chemical Corporation, Fort Lee, New Jersey. First Union Corporation United Water Resources Gordon T. Beaham, III Chairman and President, Faultless Starch/Bon Ami Company, Kansas City, Missouri, since 1987. Prior thereto, President and Chief Executive Officer. Robert C. Buchanan President and Chief Executive Officer, Fox Valley Corporation, Grady, W. H. Company Appleton, Wisconsin. Firstar Corporation Robert E. Carlson Executive Vice President of NML since 1987. Senior Vice President 1982-1987. Prior thereto, Vice President-Research, Life Insurance Marketing and Research Association, Farmington, Connecticut. George A. Dickerman Chairman of the Board, Spalding Sports Worldwide, Chicopee, Evenflo & Spalding Holdings Corp. Massachusetts, since 1981. Pierre S. Du Pont Attorney, Richards, Layton & Finger, Wilmington, Delaware, since Louisiana-Pacific Corporation 1985; prior thereto, Governor of Delaware. Pet Incorporated Whitman Corporation James D. Ericson President and Chief Executive Officer of NML since 10-1-93. MGIC Investment Corporation President and Chief Operating Officer 1991-1993. President Kohl's Corporation 1990-1991; Executive Vice President 1987-1990; prior thereto, Senior Consolidated Paper Inc. Vice President-Investments 1980-1987. Mason Street Funds, Inc. J. E. Gallegos Attorney, Gallegos Law Firm, Santa Fe, New Mexico since 1988; prior thereto, Chairman of the Board, Enviromed Inc., Santa Fe, New Mexico, since 1987; prior thereto, President, Jones, Gallegos, Snead & Wertheim, P.A., Santa Fe, New Mexico.
36 37 The Northwestern Mutual Life Insurance Company Form 10-K
PRINCIPAL OCCUPATION TRUSTEE DURING PAST FIVE YEARS DIRECTORSHIPS - ---------------------------------------------------------------------------------------------------------------------------------- Stephen N. Graff Office Managing Partner (retired), Arthur Andersen LLP, Milwaukee, Mason Street Funds, Inc. Wisconsin, since 1994. Managing Partner (Milwaukee office) 1981-93; Regal-Beloit Corporation head of Audit Division 1978-81. Patricia Albjerg Graham President, Spencer Foundation, Chicago, Illinois, since 1991; and Professor of the History of American Education, Harvard University, Cambridge, Massachusetts, since 1974. Dean of the Graduate School of Education at Harvard 1982-1991. Stephen F. Keller Former Chairman, The Santa Anita Companies, and Attorney, Los Angeles, California, since August 1996. Chairman, The Santa Anita Companies, 1993-1996. Chairman, Santa Anita Realty Enterprises; and President, Santa Anita Operating Company, Arcadia, California, 1992-1993. President and C.O.O., The Santa Anita Companies, Arcadia, California, 7/91 to 1/92. Attorney, Fulbright & Jaworski, Los Angeles, California, 1/91 to 7/91. attorney, Seidler, Amdec Securities, Inc., Los Angeles, California 1987-1991. Prior thereto, Attorney, Lillick McHose & Charles, Los Angeles, California. Barbara A. King President, Landscape Structures, Inc., Delano, Minnesota, since 1973. J. Thomas Lewis Attorney, Monroe & Lemann, New Orleans, Louisiana. Daniel F. McKeithan, Jr. President, Tamarack Petroleum Co. Inc., Milwaukee, Wisconsin, since Firstar Corporation 1982. Marcus Corporation WICOR Corporation Guy A. Osborn Retired Chairman, Universal Foods Corp., Milwaukee, Wisconsin, since Firstar Corporation April 1997. Chairman, October 1996-1997. Chairman and Chief Firstar Bank Milwaukee Executive Officer, 1990-1996. Prior thereto, Chief Executive Fleming Cos. Officer 1988-1990. Universal Foods Corporation WICOR Wisconsin Gas Company Timothy D. Proctor Senior Vice President Human Resources, General Counsel and Secretary, Glaxo Wellcome Inc., since 1996. Senior Vice President, General Counsel and Secretary, 1994-1996; Vice President and General Counsel, 1993-1994. Prior thereto Vice President and Associate General Counsel, Merck & Co., Inc., 1980-1993.
37 38 The Northwestern Mutual Life Insurance Company Form 10-K
PRINCIPAL OCCUPATION TRUSTEE DURING PAST FIVE YEARS DIRECTORSHIPS - ---------------------------------------------------------------------------------------------------------------------------------- Donald J. Schuenke Chairman of the Board, Northern Telecom Limited since April 1994. A. O. Smith Corporation Retired Chairman of NML since 2-1-94. Chairman of the Board of NML Badger Meter, Inc. 10-1-93 to 1-31-94. Chairman and Chief Executive Officer 1990-1993. Federal Home Loan Mortgage President and Chief Executive Officer 1983-1990; President and Corporation (Freddie Mac) Chief Operating Officer 1981-1983; President 1980-1981; prior Northern Telecom, Ltd. thereto, Senior Vice President-Investments. H. Mason Sizemore, Jr. President and Chief Operating Officer, The Seattle Times, Seattle, Washington since 1985. Harold B. Smith Chairman, Executive Committee, Illinois Tool Works Inc., Glenview, Grainger, W. W., Inc. Illinois since 1982; Vice Chairman, 1981; prior thereto, President. Illinois Tool Works Inc. Northern Trust Corporation Sherwood H. Smith, Jr. Chairman of the Board, Carolina Power & Light Company, Raleigh, Carolina Power & Light Co. North Carolina, since October 1996. Chairman and Chief Executive Northern Telecom Ltd. Officer, 1992-1996. Prior thereto, Chairman/President and CEO Springs Industries, Inc. 1980-1992; President and CEO 1979-1980; President 1976-1979. Wachovia Corporation John E. Steuri Chairman, Advanced Thermal Technologies, Little Rock, Arkansas, National Computer Systems since May 1997. Retired Chairman and CEO *ALLTEL Information Services, Inc., Little Rock, Arkansas, 1996-1997. Chairman and CEO 1989-1996. John J. Stollenwerk President and Owner, Allen-Edmonds Shoe Corporation, Port Badger Meter, Inc. Washington, Wisconsin since 1980. Firstar Bank Milwaukee N.A. Koss Corporation Barry L. Williams President and Chief Executive Officer, Williams Pacific Ventures, American President Companies Inc., San Francisco, California, since 1/1993. Prior thereto: Pacific Gas & Electric President 1987-1992; President and Chief Executive Officer, C. N. Simpson Manufacturing Company Flagg Power, Inc., Meriden, Connecticut 1988-1992. Prior thereto, Tenera L.P. Managing Principal, Bechtel Investments, Inc. and Sequoia Investments, Inc., San Francisco, California. Kathryn D. Wriston Director of various corporations. Santa Fe Energy Resources Stanley Works, The
* Note: Prior to 2/15/95, this company was known as Systematics Information Services, Inc. 38 39 The Northwestern Mutual Life Insurance Company Form 10-K Item 10. (continued) (f) To the best of the Registrant's knowledge, none of the Registrant's Executive Officers or Trustees have been involved in any of the items required to be reported in response to Item 401(f) of Regulation S-K. (g) Not applicable. Item 11 is on page 42. 39 40 The Northwestern Mutual Life Insurance Company Form 10-K Item 11. Executive Compensation Not applicable. NML Variable Annuity Accounts A and C have no directors or executive officers, the Executive Officers and Trustees of The Northwestern Mutual Life Insurance Company spend no substantial portion of their time on matters relating to NML Variable Annuity Accounts A and C, and the amounts of compensation received by the Executive Officers and Trustees of The Northwestern Mutual Life Insurance Company have no bearing on the values associated with variable annuity contracts issued in connection with Northwestern Mutual Variable Annuity Accounts A and C. 40 41 The Northwestern Mutual Life Insurance Company Form 10-K Item 12. Security Ownership of Certain Beneficial Owners and Management (a) Not applicable. The Registrant is a mutual life insurance company and has no stockholders as such. (b) Not applicable. (c) Not applicable. Item 13 is on page 44. 41 42 The Northwestern Mutual Life Insurance Company Form 10-K Item 13. Certain Relationships and Related Transactions (a) (1) The Registrant's second-tier subsidiary, Northwestern Mutual Investment Services, Inc. ("NMIS"), serves as the investment advisor to Northwestern Mutual Series Fund, Inc. and Mason Street Funds, Inc. (the "Funds"), series companies registered as open-end management companies under the Investment Company Act of 1940 and each consisting of nine portfolios; and the Registrant is a party to investment advisory agreements with both funds. The investment advisory agreements were entered into or renewed during the fiscal year. Various Trustees and Officers of the Registrant serve as directors and officers of the Funds and may be deemed to have a direct or indirect material interest in the existence of the investment advisory agreements. (2) Various Trustees and Officers of the Registrant have securities accounts with Robert W. Baird and Co. Incorporated ("Baird") and effected transactions through such accounts during the fiscal year. Baird is a regional broker-dealer firm and a member of the New York Stock Exchange. Baird is a majority-owned indirect subsidiary of the Registrant. 42 43 The Northwestern Mutual Life Insurance Company Form 10-K Item 13. (continued) (b) Not applicable. (c) Loans are made to Trustees and officers in accordance with the provisions of insurance policies which they may own. Such loans are made in the ordinary course of business and are administered solely according to the terms of the policy. (d) Not applicable. The Registrant was not organized within the past five years. Item 14 is on page 46. 43 44 The Northwestern Mutual Life Insurance Company Form 10-K Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Page (a) Financial Statements and Exhibits 16 (1) NML Variable Annuity Account A (in Part II, Item 8) Statement of Assets and Liabilities, December 31, 1997 and 1996 Statement of Operations and Changes in Equity, for years ended December 31, 1997, 1996 and 1995 Notes to Financial Statements Report of Independent Accountants (2) NML Variable Annuity Account C (in Part II, Item 8) 25 Statement of Assets and Liabilities, December 31, 1997 and 1996 Statement of Operations and Changes in Equity, for years ended December 31, 1997, 1996 and 1995 Notes to Financial Statements Report of Independent Accountants (3) The Northwestern Mutual Life Insurance Company 47 Attached are: Report of Independent Accountants Consolidated Statement of Financial Position, December 31, 1997 and 1996 Consolidated Statement of Operations, for years ended December 31, 1997, 1996 and 1995 Consolidated Statement of General Contingency Reserve, for years ended December 31, 1997, 1996 and 1995 Consolidated Statement of Cash Flows, for years ended December 31, 1997, 1996 and 1995 Notes to Financial Statements (b) No reports on Form 8-K have been filed during the last quarter of the year ended December 31, 1997. (c) Compensation amounts deferred in 1997 are included as Exhibit I. 65 Financial Statements of majority owned subsidiaries of the Registrant not consolidated have been omitted because, considered in the aggregate as a single subsidiary, they do not constitute a significant subsidiary. (d) Not applicable.
44 45 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED FINANCIAL STATEMENTS GENERAL DISTRIBUTION DECEMBER 31, 1997, 1996 AND 1995 46 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Trustees and Policyowners of The Northwestern Mutual Life Insurance Company We have audited the accompanying consolidated statement of financial position of The Northwestern Mutual Life Insurance Company and its subsidiary as of December 31, 1997 and 1996, and the related consolidated statements of operations, of changes in general contingency reserve and of cash flows for each of the three years in the period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our report dated January 24, 1996, we expressed an opinion that the 1995 consolidated financial statements, prepared using accounting practices prescribed or permitted by the Insurance Departments of the states in which the Company and its subsidiary were domiciled (statutory basis of accounting), were presented fairly, in all material respects, in conformity with generally accepted accounting principles. As described in Note 1 to these financial statements, pursuant to the pronouncement of the Financial Accounting Standards Board, financial statements of mutual life insurance enterprises prepared using accounting practices prescribed or permitted by insurance regulators (statutory basis of accounting) are no longer considered presentations in conformity with generally accepted accounting principles. Accordingly, our present opinion on the presentation of the 1995 financial statements, as presented herein, is different from that expressed in our previous report. 47 As described in Note 1, these consolidated financial statements were prepared in conformity with accounting practices prescribed or permitted by the Office of the Commissioner of Insurance of the State of Wisconsin (statutory basis of accounting), which practices differ from generally accepted accounting principles. Accordingly, the consolidated financial statements are not intended to represent a presentation in accordance with generally accepted accounting principles. The effects on the consolidated financial statements of the variances between the statutory basis of accounting and generally accepted accounting principles, although not reasonably determinable, are presumed to be material. In our opinion, the consolidated financial statements audited by us (1) do not present fairly in conformity with generally accepted accounting principles, the financial position of The Northwestern Mutual Life Insurance Company and its subsidiary at December 31, 1997 and 1996, or the results of their operations or their cash flows for each of the three years in the period ended December 31, 1997 because of the effects of the variances between the statutory basis of accounting and generally accepted accounting principles referred to in the preceding paragraph and (2) do present fairly, in all material respects, the financial position of The Northwestern Mutual Life Insurance Company and its subsidiary at December 31, 1997 and 1996 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, on the basis of accounting described in Note 1. January 26, 1998 48 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF FINANCIAL POSITION (in millions)
December 31, ---------------- 1997 1996 ------ ------ Assets Bonds $32,359 $29,076 Common and preferred stocks 6,524 4,728 Mortgage loans 10,835 9,564 Real estate 1,372 1,385 Policy loans 7,163 6,802 Other investments 2,026 1,714 Cash and temporary investments 572 1,131 Due and accrued investment income 795 764 Other assets 1,275 1,177 Separate account assets 8,160 6,339 ------- ------- Total assets $71,081 $62,680 ======= ======= Liabilities and General Contingency Reserve Reserves for policy benefits $47,343 $43,209 Policy benefit and premium deposits 1,624 1,567 Policyowner dividends payable 2,640 2,350 Interest maintenance reserve 461 299 Asset valuation reserve 1,974 1,538 Income taxes payable 1,043 942 Other liabilities 3,735 2,921 Separate account liabilities 8,160 6,339 ------- ------- Total liabilities 66,980 59,165 General contingency reserve 4,101 3,515 ------- ------- Total liabilities and general contingency reserve $71,081 $62,680 ======= =======
The accompanying notes are an integral part of the financial statements. 49 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF OPERATIONS (in millions)
For the year ended December 31, ---------------------- 1997 1996 1995 ------ ------ ------ Revenue Premiums $7,294 $6,667 $6,196 Net investment income 4,171 3,836 3,673 Policy benefits left with Company and other income 861 759 733 ------ ------ ------ Total revenue 12,326 11,262 10,602 ------ ------ ------ Benefits and expenses Benefit payments to policyowners and beneficiaries: Death benefits 775 673 655 Surrender benefits 1,422 1,182 1,375 Disability benefits 227 202 174 Annuity benefits 140 128 92 Matured endowments 58 52 48 Payments from policy benefits left with Company 707 684 590 ------ ------ ------ Benefits paid 3,329 2,921 2,934 Net transfers to separate accounts 566 579 236 Net additions to policy reserves 4,026 3,701 3,506 ------ ------ ------ Total benefits 7,921 7,201 6,676 Operating expenses 1,138 1,043 1,026 ------ ------ ------ Total benefits and expenses 9,059 8,244 7,702 ------ ------ ------ Gain from operations before income taxes and dividends 3,267 3,018 2,900 Policyowner dividends 2,636 2,341 2,111 ------ ------ ------ Gain from operations before taxes 631 677 789 Income tax expense 356 452 467 ------ ------ ------ Net gain from operations 275 225 322 Net realized capital gains 414 395 137 ------ ------ ------ Net income $ 689 $ 620 $ 459 ====== ====== ======
The accompanying notes are an integral part of the financial statements. 50 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF CHANGES IN GENERAL CONTINGENCY RESERVE (in millions)
For the year ended December 31, ---------------------- 1997 1996 1995 ------ ------ ------ Beginning of year balance $3,515 $2,786 $2,225 Net income 689 620 459 Increase in net unrealized capital gains 576 295 373 Increase in investment reserves (526) (176) (237) Other, net (153) (10) (34) ------ ------ ------ Net increase in general contingency reserve 586 729 561 ------ ------ ------ End of year balance $4,101 $3,515 $2,786 ====== ====== ======
The accompanying notes are an integral part of the financial statements. 51 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (in millions)
For the year ended December 31, ------------------------- 1997 1996 1995 ------- ------- ------- Cash flows from operating activities Insurance and annuity premiums $8,093 $7,361 $6,864 Investment income received 3,928 3,634 3,480 Net disbursement of policy loans (360) (326) (331) Benefits paid to policyowners and beneficiaries (3,316) (2,912) (2,939) Net transfers to separate accounts (565) (579) (236) Policyowner dividends paid (2,347) (2,105) (1,945) Operating expenses and taxes (1,722) (1,663) (1,364) Other, net 564 1,558 381 ------- ------- ------- Net cash provided by operating activities 4,275 4,968 3,910 ------- ------- ------- Cash flows from investing activities Proceeds from investments sold or matured Bonds 38,284 31,942 25,317 Common and preferred stocks 9,057 4,570 2,465 Mortgage loans 1,012 1,253 431 Real estate 302 178 48 Other invested assets 398 316 149 ------- ------- ------- 49,053 38,259 28,410 ------- ------- ------- Cost of investments acquired Bonds 41,169 35,342 27,596 Common and preferred stocks 9,848 4,463 2,562 Mortgage loans 2,309 2,455 1,883 Real estate 202 125 202 Other invested assets 359 255 336 ------- ------- ------- 53,887 42,640 32,579 ------- ------- ------- Net cash used in investing activities (4,834) (4,381) (4,169) ------- ------- ------- Net (decrease) increase in cash and temporary investments (559) 587 (259) Cash and temporary investments, beginning of year 1,131 544 803 ------- ------- ------- Cash and temporary investments, end of year $ 572 $ 1,131 $ 544 ======= ======= =======
The accompanying notes are an integral part of the financial statements. 52 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 NOTE 1 - PRINCIPAL ACCOUNTING POLICIES The accompanying consolidated statutory financial statements include the accounts of The Northwestern Mutual Life Insurance Company ("Company") and its wholly-owned life insurance subsidiary, Northwestern Long Term Care Insurance Company ( "Subsidiary"). The Company offers life, annuity and disability income products to the personal, business, estate and tax-qualified markets. The consolidated financial statements have been prepared using accounting policies prescribed or permitted by the Office of the Commissioner of Insurance of the State of Wisconsin ("statutory basis of accounting"). Prior to December 15, 1995, these policies were considered generally accepted accounting principles ("GAAP") for mutual life insurance enterprises. However, in April 1993, the Financial Accounting Standards Board issued Interpretation No. 40, "Applicability of Generally Accepted Accounting Principles to Mutual Life Insurance Companies and Other Enterprises," which established a different definition of GAAP for mutual life insurance enterprises. Under the Interpretation, financial statements of mutual life insurance enterprises for periods beginning after December 15, 1995 which are prepared on the statutory basis of accounting are no longer characterized as being in conformity with GAAP. Financial statements prepared on the statutory basis of accounting vary from financial statements prepared on a GAAP basis primarily because on a GAAP basis (1) policy acquisition costs are deferred and amortized, (2) investment valuations and insurance reserves are based on different assumptions, (3) funds received under deposit-type contracts are not reported as premium revenue, and (4) deferred taxes are provided for temporary differences between book and tax basis of certain assets and liabilities. The effects on the financial statements of the differences between the statutory basis of accounting and GAAP are material to the Company. The preparation of financial statements in conformity with the statutory basis of accounting requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual future results could differ from these estimates. Investments The Company's investments are valued on the following bases: Bonds - Amortized cost using the interest method; loan-backed and structured securities are amortized using estimated prepayment rates and, generally, the prospective adjustment method - 1 - 53 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 Common and preferred stocks - Common stocks are carried at market value, preferred stocks are generally carried at cost, and unconsolidated subsidiaries are recorded as equity in subsidiaries' net assets Mortgage loans - Amortized cost Real estate - Lower of cost, less depreciation and encumbrances, or estimated net realizable value Policy loans - Unpaid principal balance, which approximates fair value Other investments - Consists primarily of joint ventures which are valued at equity in ventures' net assets Cash and temporary investments - Amortized cost, which approximates fair value Cash and Temporary Investments Temporary investments consist of debt securities that have maturities of one year or less at acquisition. Net Investment Income Net investment income includes interest and dividends received or due and accrued on debt securities and stocks, equity in unconsolidated subsidiaries' earnings and the Company's prorated portion of joint venture income. Net investment income is reduced by investment management expenses, real estate depreciation and depletion related to energy assets. Interest Maintenance Reserve The Company is required to maintain an interest maintenance reserve ("IMR"). The IMR is used to defer realized gains and losses, net of tax, on fixed income investments resulting from changes in interest rates. Net realized gains and losses deferred to the IMR are amortized into investment income over the approximate remaining term to maturity of the investment sold. Asset Valuation Reserve The Company is required to maintain an asset valuation reserve ("AVR"). The AVR establishes a general reserve for invested assets held by the Company using a formula prescribed by state regulations. The AVR is designed to stabilize the general contingency reserves against potential declines in the value of investments. - 2 - 54 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 Separate Account Business Separate account assets and related policy liabilities represent the segregation of funds deposited by "variable" life insurance and annuity policyowners. Policyowners bear the investment performance risk associated with variable products. Separate account assets are invested at the direction of the policyowner in a variety of Company-managed mutual funds and/or a fixed interest rate option. Separate account assets are reported at fair market value. Reserves for Policy Benefits Reserves for policy benefits are determined by actuarial estimates based on mortality and morbidity experience tables and valuation interest rates prescribed by the Office of the Commissioner of Insurance of the State of Wisconsin. See Note 3. Premium Revenue and Operating Expenses Life insurance premiums are recognized as revenue at the beginning of each policy year. Annuity and disability income premiums are recognized when received by the Company. Operating expenses, including costs of acquiring new policies, are charged to operations as incurred. Policyowner Dividends All life insurance policies, and certain annuity and disability income policies, issued by the Company are participating. Annually, the Company's Board of Trustees approves dividends payable on participating policies in the following fiscal year, which are accrued and charged to operations when approved. Reclassification Certain 1996 and 1995 financial statement balances have been reclassified to conform to the current year presentation. NOTE 2 - INVESTMENTS Debt Securities Debt securities consist of all bonds and fixed-maturity preferred stocks. The estimated market values of debt securities are based upon quoted market prices, if available. For securities not actively traded, fair values are estimated using independent pricing services or internally developed pricing models. - 3 - 55 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 Statement value, which principally represents amortized cost, and estimated market value of the Company's debt securities at December 31, 1997 and 1996 are as follows:
December 31, 1997 Reconciliation to Estimated Market Value - ----------------- ---------------------------------------------- Gross Gross Estimated Statement Unrealized Unrealized Market Value Appreciation Depreciation Value --------- -------------- -------------- -------------- (in millions) US Government and political obligations $ 3,695 $ 336 $ (3) $ 4,028 Mortgage-backed securities 7,015 264 (4) 7,275 Corporate and other debt securities 21,649 1,098 (208) 22,539 --------- -------------- -------------- -------------- 32,359 1,698 (215) 33,842 Preferred stocks 167 4 (2) 169 --------- -------------- -------------- -------------- Total $ 32,526 $ 1,702 $ (217) $ 34,011 ========= ============== ============== ============== December 31, 1996 Reconciliation to Estimated Market Value - ----------------- ---------------------------------------------- Gross Gross Estimated Statement Unrealized Unrealized Market Value Appreciation Depreciation Value --------- -------------- -------------- -------------- (in millions) US Government and political obligations $ 4,789 $ 171 $ (2) $ 4,958 Mortgage-backed securities 6,747 179 (38) 6,888 Corporate and other debt securities 17,540 776 (99) 18,217 --------- -------------- -------------- -------------- 29,076 1,126 (139) 30,063 Preferred stocks 84 6 (1) 89 --------- -------------- -------------- -------------- Total $ 29,160 $ 1,132 $ (140) $ 30,152 ========= ============== ============== ==============
- 4 - 56 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 The statement value of debt securities by contractual maturity at December 31, 1997 and 1996 is shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. December 31, December 31, 1997 1996 ------------ ------------- (in millions) Due in one year or less $ 605 $ 457 Due after one year through five years 4,878 4,077 Due after five years through ten years 9,760 7,802 Due after ten years 10,268 10,077 -------- --------- 25,511 22,413 Mortgage-backed securities 7,015 6,747 -------- --------- $ 32,526 $ 29,160 ======== ========= Stocks The estimated market values of common and perpetual preferred stocks are based upon quoted market prices, if available. For securities not actively traded, fair values are estimated using independent pricing services or internally developed pricing models. The cost of common and preferred stock held by the Company at December 31, 1997 and 1996 is $5.0 billion and $3.7 billion, respectively. Mortgage Loans and Real Estate Mortgage loans are collateralized by properties located throughout the United States and Canada. The Company attempts to minimize mortgage loan investment risk by diversification of geographic locations and types of properties. The fair value of mortgage loans as of December 31, 1997 and 1996 was approximately $11.5 billion and $9.8 billion, respectively. The fair value of the mortgage loan portfolio is estimated by discounting the future estimated cash flows using current interest rates of debt securities with similar credit risk and maturities, or utilizing net realizable values. - 5 - 57 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 At December 31, 1997, real estate includes $61 million acquired through foreclosure and $124 million of home office real estate. In 1997 and 1996, the Company recorded unrealized losses of $2 million and $43 million, respectively, for the excess of carrying value over fair value of certain real estate investments and mortgage loans. Realized Gains and Losses Realized investment gains and losses for the years ended December 31, 1997, 1996 and 1995 are as follows:
For the year ended For the year ended For the year ended December 31, 1997 December 31, 1996 December 31, 1995 ----------------------------- ---------------------------- ---------------------------- Net Net Net Realized Realized Realized Realized Realized Gains Realized Realized Gains Realized Realized Gains Gains Losses (Losses) Gains Losses (Losses) Gains Losses (Losses) --------- --------- --------- -------- -------- ---------- -------- -------- --------- (In millions) Bonds $ 518 $ (269) $ 249 $ 396 $ (383) $ 13 $ 576 $ (130) $ 446 Common and preferred Stocks 533 (150) 383 580 (115) 465 574 (429) 145 Mortgage loans 14 (14) - 2 (15) (13) 2 (32) (30) Real estate 100 (2) 98 36 0 36 14 (3) 11 Other invested assets 338 (105) 233 204 (51) 153 188 (95) 93 ------- ------- ------ ------- ------- ------ ------ ------- ------ $ 1,503 $ (540) $ 963 $ 1,218 $ (564) $ 654 $1,354 $ (689) $ 665 ======= ======= ====== ======= ======= ====== ====== ======= ====== Less: Capital gains taxes 340 224 239 Less: IMR deferrals 209 35 289 ------ ------ ------ Net realized capital gains $ 414 $ 395 $ 137 ====== ====== ======
Securities Lending The Company has entered into a securities lending agreement whereby certain securities are loaned to third parties, primarily major brokerage firms. The Company's policy requires a minimum of 102 percent of the fair value of the loaned securities as collateral, calculated on a daily basis in the form of either cash or securities. Collateral assets received and related liability due to counterparties of $1.5 billion and $1.0 billion are included in the consolidated statements of financial position at December 31, 1997 and 1996, respectively, and approximate the statement value of securities loaned at those dates. - 6 - 58 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 Investment in MGIC The Company owns 18.4% (20.9 million shares) of the outstanding common stock of MGIC Investment Corporation ("MGIC"). This investment is accounted for using the equity method. At December 31, 1997, the market value of the Company's investment in MGIC exceeded the statement value of $273 million by $768 million. In July 1995, the Company entered into a forward contract with a brokerage firm to deliver 8.8 million to 10.7 million shares of MGIC (or cash in an amount equal to the market value of the MGIC shares at contract maturity) in August, 1998, in exchange for a fixed cash payment of $247 million ($24 per share). The Company's objective in entering into the forward contract was to hedge against depreciation in the value of its MGIC holdings during the contract period below the initial spot price of $24, while partially participating in appreciation, if any, during the forward contract's duration. Derivative Financial Instruments In the normal course of business, the Company enters into transactions to reduce its exposure to fluctuations in interest rates, foreign currency exchange rates and market volatility. These hedging strategies include the use of forwards, futures, options and swaps. In addition to the use of derivatives for hedging purposes, equity swaps were held for investment purposes during 1997. The Company held the following positions for hedging purposes at December 31, 1997:
Notional Derivative Financial Instrument Amounts Risks Reduced - -------------------------------------- ---------------- ---------------------------------------- (inmillions) Foreign Currency Forward Contracts $564 Currency exposure on foreign- denominated investments. Common Stock Futures 327 Stock market price fluctuation. Bond Futures 95 Bond market price fluctuation. Options to acquire Interest Rate Swaps 530 Interest rates payable on certain annuity and insurance contracts. Foreign Currency and Interest Rate Swaps 209 Interest rates on variable rate notes and currency exposure on foreign- denominated bonds.
The notional or contractual amounts of derivative financial instruments are used to denominate - 7 - 59 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 these types of transactions and do not represent the amounts exchanged between the parties. The notional amount of equity swaps outstanding at December 31, 1997 was $143 million. The hedges are recorded by the Company in the same manner as the underlying investments. Foreign currency forwards, foreign currency swaps, stock futures, and options to acquire interest rate swaps are reported at market value. There is no statement value reported for interest rate swaps and bond futures prior to the settlement of the contract. Changes in the values of these contracts are expected to offset gains and losses on the hedged items. For hedges reported at market value, gains and losses are unrealized until expiration of the contract. The effect of derivative transactions is not material to the Company's results of operations or financial position. NOTE 3 - RESERVES FOR POLICY BENEFITS Life insurance reserves on substantially all policies issued since 1978 are based on the Commissioner's Reserve Valuation Method ("CRVM") with interest rates ranging from 3-1/2% to 5-1/2%. Other life policy reserves are based primarily on the net level premium method employing various mortality tables at interest rates ranging from 2% to 4-1/2%. Deferred annuity reserves on contracts issued since 1985 are valued using CRVM with interest rates ranging from 3-1/2% to 6-1/4%. Other deferred annuity reserves are based on the contract value. Immediate annuity reserves are based on present values of expected benefit payments at interest rates ranging from 3-1/2% to 7-1/2%. Active life reserves for disability income ("DI") policies issued since 1987 are primarily based on the two-year preliminary term method using a 4% interest rate and the 1985 Commissioner's Individual Disability Table A ("CIDA") for morbidity. Active life reserves for prior DI policies are estimated using the net level premium method, a 3% to 4% interest rate and the 1964 Commissioner's Disability Table for morbidity. Disabled life reserves for DI policies are based on the present values of expected benefit payments using primarily the 1985 CIDA (modified for Company experience in the first two years of disability) with interest rates ranging from 3% to 5-1/2%. Use of these actuarial tables and methods involves estimation of future mortality and morbidity based on past experience. Actual future experience could differ from these estimates. - 8 - 60 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 NOTE 4 - EMPLOYEE AND AGENT BENEFIT PLANS The Company sponsors noncontributory defined benefit retirement plans for all eligible employees and agents. The expense associated with these plans is generally recorded by the Company in the period contributions to the plans are funded. As of January 1, 1997, the most recent actuarial valuation date available, the defined benefit plans were fully funded. In addition, the Company has a contributory 401(k) plan for eligible employees and a noncontributory defined contribution plan for all full-time agents. The Company's contributions are expensed in the period contributions are required under the plan. The defined benefit and defined contribution plans' assets of $1.4 billion at December 31, 1997 are primarily invested in the separate accounts of the Company. In addition to pension benefits, the Company provides certain health care and life insurance benefits ("postretirement benefits") for retired employees. Substantially all employees may become eligible for these benefits if they reach retirement age while working for the Company. Postretirement benefit cost for the year ended December 31, 1997 was a net benefit of $1.3 million; it includes the expected cost of postretirement benefits for newly eligible and vested employees, interest cost and return on plan assets totaling $3.6 million, offset by gains from favorable differences between actuarial assumptions and actual experience of $4.9 million.
December 31, December 31, 1997 1996 ------------ ----------- Unfunded postretirement benefit obligation for retirees and other fully eligible employees $34 million $35 million (Accrued in statement of financial position) Estimated postretirement benefit obligation for active non-vested employees (Not accrued until employee vests) $50 million $43 million Discount rate 7% 7% Health care cost trend rate 10% to an ultimate 10% to an ultimate 5%, declining 1% 5%, declining 1% for 5 years for 5 years
If the health care cost trend rate assumptions were increased by 1%, the accrued postretirement benefit obligation as of December 31, 1997 would be increased by $4 million. At December 31, 1997, the recorded postretirement benefit obligation was reduced by $20 million for assets funded for postretirement health care benefits. - 9 - 61 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 NOTE 5 - REINSURANCE In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding to reinsurers under excess coverage and co-insurance contracts. The Company retains a maximum of $15 million of coverage per individual life and $20 million maximum of coverage per joint life. The Company has an excess reinsurance contract for disability income policies with retention limits varying based upon on coverage type. The amounts shown in the accompanying consolidated financial statements are net of reinsurance activity. Benefit reserves at December 31, 1997 and 1996 are reported net of reinsurance of $435 million and $355 million, respectively. The effect of reinsurance on premiums and benefits for the years ended December 31, 1997, 1996 and 1995 is as follows:
(in millions) 1997 1996 1995 ------ ------- ------ Direct premiums $7,647 $7,064 $6,452 Reinsurance ceded (353) (397) (256) ------ ------- ------ Net premium revenue $7,294 $6,667 $6,196 ====== ======= ====== Benefits to policyowners and beneficiaries $8,057 $7,348 $6,818 Reinsurance recoveries (136) (147) (142) ------ ------- ------ Net benefits to policyowners and beneficiaries $7,921 $7,201 $6,676 ====== ======= ======
In addition, the Company received $115 million, $93 million and $67 million in 1997, 1996 and 1995 respectively, from reinsurers representing reimbursement of commissions and other expenses. These amounts are included in other income in the consolidated statement of operations. Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company; consequently, allowances are established for amounts deemed uncollectible. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies - 10 - 62 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 NOTE 6 - INCOME TAXES Provisions for income taxes are based on current income tax payable without recognition of deferred taxes. The Company files a consolidated life-nonlife federal income tax return. Federal income tax returns for years through 1988 are closed as to further assessment of tax. Adequate provision has been made in the financial statements for any additional taxes which may become due with respect to the open years. The Company's effective tax rate on gains from operations before income tax expense (after dividends) in 1997, 1996 and 1995 were 56%, 67% and 60%, respectively. The Company's effective tax rate exceeds the federal corporate rate of 35% because, (1) the Company pays a tax that is assessed only on mutual life insurance companies which treats a portion of policyholder dividends like nondeductible dividends paid to shareholders of stock companies ("equity tax"), and (2) the Company must capitalize and amortize (as opposed to immediately deducting) an amount deemed to represent the cost of acquiring new business ("DAC tax"). NOTE 7 - CONTINGENCIES The Company has guaranteed certain obligations of its affiliates. These guarantees totaled approximately $112 million at December 31, 1997 and are generally supported by the underlying net asset values of the affiliates. The Company is engaged in various legal actions in the normal course of its investment and insurance operations. In the opinion of management, any losses resulting from such actions would not have a material effect on the Company's financial condition. Doc. No. 79585 - 11 - 63 The Northwestern Mutual Life Insurance Company Form 10-K EXHIBIT I Reference is made to a form of deferred compensation agreement filed as Exhibit B-2 with Form 10-K for 1970 and The Northwestern Mutual Employee Savings Plan filed as Exhibit II for 1985. Pursuant to such contracts the following amounts were deferred in 1997: Executive Officers - ------------------ James D. Ericson $ 224,500 Robert E. Carlson 81,500 Walt J. Wojcik 202,000 Mason G. Ross 18,300 Frederic H. Sweet 15,780 James F. Reiskytl 16,700 Richard L. Hall 27,950 Gary E. Long 57,500 Donald L. Mellish 46,800 Deborah A. Beck 33,500 Edward J. Zore 33,500 Dennis Tamcsin 71,500 Peter W. Bruce 58,220 Mark G. Doll 57,500 John M. Bremer 45,500 James W. Ehrenstrom 60,500 William C. Koenig 15,000 Leonard F. Stecklein 14,100 Martha M. Valerio 111,830 W. Ward White 32,508 Barbara F. Piehler 38,500 Thomas E. Dyer 31,900 Steven T. Catlett 11,856 Gregory C. Oberland 9,500 Susan A. Lueger 41,760 Meridee J. Maynard 47,200 William H. Beckley 19,100 Robert J. Berdan 17,300 Bruce L. Miller 24,500 John E. Schlifske 13,520 Trustees - -------- Stephen F. Keller 45,750 R. Quintus Anderson #2 51,250 Jake E. Gallegos #2 45,750 Patricia Albjerg Graham #2 46,750 Robert C. Buchanan 42,150 Edward E. Barr 46,750 Sherwood H. Smith, Jr. 50,250 John J. Stollenwerk 83,650 Herman M. Sizemore 45,750 George A. Dickerman 43,250 John E. Steuri 50,250 Barbara A. King 28,000 $2,059,374 ========== 64 The Northwestern Mutual Life Insurance Company Form 10-K SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY (Registrant) By James D. Ericson ------------------------------------- James D. Ericson President and Chief Executive Officer By Gary E. Long ------------------------------------- Gary E. Long Vice President and Controller Date: March 23, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Title James D. Ericson Trustee, President and Chief Executive Officer - ----------------------- James D. Ericson Dated March 23, 1998 65 The Northwestern Mutual Life Insurance Company Form 10-K SIGNATURES (continued) R. QUINTUS ANDERSON* Trustee - ------------------------------- R. Quintus Anderson EDWARD E. BARR* Trustee - ------------------------------- Edward E. Barr GORDON T. BEAHAM, III* Trustee - ------------------------------- Gordon T. Beaham, III ROBERT C. BUCHANAN* Trustee - ------------------------------- Robert C. Buchanan ROBERT E. CARLSON* Trustee - ------------------------------- Robert E. Carlson GEORGE A. DICKERMAN* Trustee - ------------------------------- George A. Dickerman PIERRE S. DU PONT* Trustee Dated March 23, 1998 - ------------------------------- Pierre S. Du Pont J. E. GALLEGOS* Trustee - ------------------------------- J. E. Gallegos STEPHEN N. GRAFF* Trustee - ------------------------------- Stephen N. Graff PATRICIA ALBJERG GRAHAM* Trustee - ------------------------------- Patricia Alberg Graham 66 The Northwestern Mutual Life Insurance Company Form 10-K SIGNATURES (continued) STEPHEN F. KELLER* Trustee - ------------------------------------- Stephen F. Keller BARBARA A. KING* Trustee - ------------------------------------- Barbara A. King J. THOMAS LEWIS* Trustee - ------------------------------------- J. Thomas Lewis DANIEL F. McKEITHAN, JR.* Trustee - ------------------------------------- Daniel F. McKeithan, Jr. GUY A. OSBORN* Trustee - ------------------------------------- Guy A. Osborn TIMOTHY D. PROCTOR* Trustee - ------------------------------------- Timothy D. Proctor DONALD J. SCHUENKE* Trustee Dated March 23, 1998 - ------------------------------------- Donald J. Schuenke H. MASON SIZEMORE, JR.* Trustee - ------------------------------------- H. Mason Sizemore, Jr. HAROLD B. SMITH* Trustee - ------------------------------------- Harold B. Smith SHERWOOD H. SMITH, JR.* Trustee - ------------------------------------- Sherwood H. Smith, Jr. JOHN E. STEURI* Trustee - ------------------------------------- John E. Steuri JOHN J. STOLLENWERK* Trustee - ------------------------------------- John J. Stollenwerk BARRY L. WILLIAMS* Trustee - ------------------------------------- Barry L. Williams KATHRYN D. WRISTON* Trustee - ------------------------------------- Kathryn D. Wriston *By JAMES D. ERICSON* --------------------------------- James D. Ericson, Attorney in fact, pursuant to the Power of Attorney attached hereto 67 The Northwestern Mutual Life Insurance Company Form 10-K POWER OF ATTORNEY The undersigned Trustees of THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY hereby constitute and appoint James D. Ericson and Robert E. Carlson, or either of them, their true and lawful attorneys and agents to sign the names of the undersigned Trustees to (1) the registration statement or statements to be filed under the Securities Act of 1933 and to any instrument or document filed as part thereof or in connection therewith or in any way related thereto, and any and all amendments thereto in connection with variable contracts issued or sold by The Northwestern Mutual Life Insurance Company or any separate account credited therein and (2) the Form 10-K Annual Report or Reports of The Northwestern Mutual Life Insurance Company and/or its separate accounts for its or their fiscal year ended December 31, 1998 to be filed as part thereof or in connection therewith or in any way related thereto, and any and all amendments thereto. "Variable contracts" as used herein means any contracts providing for benefits or values which may vary according to the investment experience of any separate account maintained by The Northwestern Mutual Life Insurance Company, including variable annuity contracts and variable life insurance policies. Each of the undersigned hereby ratifies and confirms all that said attorneys and agents shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has subscribed these presents this 23rd day of July, 1997. R. QUINTUS ANDERSON Trustee ------------------------------ R. Quintus Anderson EDWARD E. BARR Trustee ------------------------------ Edward E. Barr GORDON T. BEAHAM, III Trustee ------------------------------ Gordon T. Beaham, III ROBERT C. BUCHANAN Trustee ------------------------------ Robert C. Buchanan ROBERT E. CARLSON Trustee ------------------------------ Robert E. Carlson GEORGE A. DICKERMAN Trustee ------------------------------ George A. Dickerman PIERRE S. DU PONT Trustee ------------------------------ Pierre S. Du Pont JAMES D. ERICSON Trustee ------------------------------ James D. Ericson J. E. GALLEGOS Trustee ------------------------------ J. E. Gallegos STEPHEN N. GRAFF Trustee ------------------------------ Stephen N. Graff PATRICIA ALBJERG GRAHAM Trustee ------------------------------ Patricia Albjerg Graham 68 The Northwestern Mutual Life Insurance Company Form 10-K STEPHEN F. KELLER Trustee ------------------------------ Stephen F. Keller BARBARA A. KING Trustee ------------------------------ Barbara A. King J. THOMAS LEWIS Trustee ------------------------------ J. Thomas Lewis DANIEL F. McKEITHAN, JR. Trustee ------------------------------ Daniel F. McKeithan, Jr. GUY A. OSBORN Trustee ------------------------------ Guy A. Osborn TIMOTHY D. PROCTOR Trustee ------------------------------ Timothy D. Proctor DONALD J. SCHUENKE Trustee ------------------------------ Donald J. Schuenke H. MASON SIZEMORE, JR. Trustee ------------------------------ H. Mason Sizemore, Jr. HAROLD B. SMITH Trustee ------------------------------ Harold B. Smith SHERWOOD H. SMITH, JR. Trustee ------------------------------ Sherwood H. Smith, Jr. JOHN E. STEURI Trustee ------------------------------ John E. Steuri JOHN J. STOLLENWERK Trustee ------------------------------ John J. Stollenwerk BARRY L. WILLIAMS Trustee ------------------------------ Barry L. Williams KATHRYN D. WRISTON Trustee ------------------------------ Kathryn D. Wriston EX-27.1 2 EX-27.1 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT, DECEMBER 31, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH POST-EFFECTIVE AMENDMENT. 1000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 468,890 649,887 1,878 0 0 651,765 0 0 3,370 3,370 648,395 0 0 0 0 0 0 0 0 348,395 33,253 0 0 7,047 26,206 23,135 56,364 105,705 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
EX-27.2 3 EX-27.2
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT, DECEMBER 31, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH POST-EFFECTIVE AMENDMENT. 1000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 381,997 493,768 1,387 0 0 495,155 0 0 1,387 1387 493,768 0 0 0 0 0 0 0 0 493,768 20,337 0 0 1,119 19,218 9,097 24,920 53,235 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
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