10-K405 1 c61049e10-k405.txt FORM 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, 2000 ----------------- COMMISSION FILE NUMBERS 333-72913 AND 2-89905-01 ------------------------ THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY IN RESPECT OF NML VARIABLE ANNUITY ACCOUNT A & NML VARIABLE ANNUITY ACCOUNT C ----------------------------------------------------------------------------- (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 12(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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. Not Applicable -------------- Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. None ---- DOCUMENTS INCORPORATED BY REFERENCE None ---- 2 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY FORM 10-K PART I ITEM 1. BUSINESS Accounts A & C NML Variable Annuity Account A ("Account A") and NML Variable Annuity Account C ("Account C") are segregated asset accounts of The Northwestern Mutual Life Insurance Company ("Northwestern Mutual") formed to provide retirement annuity benefits for (i) employees of corporate employers who adopt pension or profit sharing plans meeting the requirements of Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), or annuity purchase plans meeting the requirements of Section 403(a) of the Code (collectively, "Corporate Plans"), and (ii) for self-employed individuals (and their eligible employees) who adopt plans meeting the requirements of Sections 401 or 403(a) of the Code ("HR-10 Plans"). Account A receives payments under individual variable annuity contracts issued by Northwestern Mutual in connection with Corporate Plans and HR-10 Plans. Account C receives payments under group combination variable annuity contracts issued by Northwestern Mutual in connection with Corporate Plans and HR-10 Plans. The variable annuity contracts issued by Northwestern Mutual in connection with Corporate Plans and HR-10 Plans are hereinafter referred to as the "Contracts." Account A and Account C were established on February 14, 1968 and July 22, 1970, respectively, by action of the Board of Trustees of Northwestern Mutual in accordance with the provisions of Wisconsin insurance law. Neither Account A nor Account C is registered as an investment company under the Investment Company Act of 1940. The Contracts provide for the accumulation of funds and the payment of retirement benefits to participants and their beneficiaries ("Annuitants"). Account A and Account C each have 16 divisions. Money invested to provide variable benefits under the Contracts is placed in one or more divisions of the applicable Account which are in turn invested in 11 portfolios of Northwestern Mutual Series Fund, Inc. (Small Cap Growth Stock Portfolio, Aggressive Growth Stock Portfolio, International Equity Portfolio, Index 400 Stock Portfolio, Growth Stock Portfolio, Growth and Income Stock Portfolio, Index 500 Stock Portfolio, Balanced Portfolio, High Yield Bond Portfolio, Select Bond Portfolio and Money Market Portfolio) and 5 funds of Russell Insurance Funds (Multi-Style Equity Fund, Aggressive Equity Fund, Non-U.S. Fund, Real Estate Securities Fund and Core Bond Fund), each of which corresponds to one of the Account divisions, all as directed by the Annuitant. Northwestern Mutual Series Fund, Inc. and Russell Insurance Funds, which are affiliates of Northwestern Mutual, are registered as investment companies under the Investment Company Act of 1940. The Contracts are sold through individuals who, in addition to being licensed insurance agents of Northwestern Mutual, are registered representatives of Northwestern Mutual Investment Services, LLC ("NMIS"), a wholly-owned subsidiary of Northwestern Mutual and a registered broker-dealer under the Securities Exchange Act of 1934. Under Wisconsin law, the investment operations of each of Account A and Account C are kept separate from the operations of Northwestern Mutual. Northwestern Mutual and its creditors cannot reach assets in Account A or Account C to satisfy non-Contract related obligations until all obligations under the Contracts have been satisfied. See Item 8 herein for the audited financial statements of Account A and Account C. Northwestern Mutual Founded in 1857, Northwestern Mutual is a mutual insurance company organized under the laws of the State of Wisconsin. Northwestern Mutual's products consist of a complete range of permanent and term life insurance, disability income insurance, long-term care insurance, mutual funds and annuities for personal, estate, retirement, business and benefits planning. Northwestern Mutual markets its insurance products and services in all 50 states of the United States and in the District of Columbia through an exclusive network of approximately 7,500 agents at December 31, 2000 associated with over 100 general agencies. At December 31, 2000, Northwestern Mutual had approximately 3,900 full- and part-time employees. 2 3 Northwestern Mutual's three principal lines of business are: (i) life insurance, which provides a full range of individual life insurance products, including traditional whole life, CompLife, variable life and term policies to meet the needs of middle to upper income individuals, small business owners and professionals, estates and selected large corporations; (ii) disability income insurance, which provides a complete line of individual and group products, including individual non-cancelable, guaranteed renewable loss of earnings, buyout, key person, and short and long-term group coverages, marketed primarily to middle to upper income individuals, professionals, and small- to medium-sized businesses and their owners; and (iii) annuity and accumulation products, which provide individual variable, fixed and immediate annuities offered in conjunction with qualified pension plans, retirement plans for self employed individuals, individual retirement and personal non-tax qualified situations, group annuities and a family of retail mutual funds known as Mason Street Funds, marketed primarily to middle to upper income individuals, small business owners and professionals. A new business line for Northwestern Mutual, long-term care insurance, commenced in August 1998 with the introduction of its QuietCare product. For the years ended December 31, 2000, 1999, and 1998, Northwestern Mutual had total premiums, including annuity considerations and deposit funds, of $8.9 billion, $8.3 billion, and $8.0 billion, respectively, of which $7.3 billion, $6.8 billion, and $6.5 billion, respectively, was attributable to life insurance, $0.6 billion, $0.5 billion, and $0.5 billion, respectively, was attributable to disability income insurance and $1.0 billion, $1.0 billion, and $1.0 billion, respectively, was attributable to annuity and accumulation products. The life insurance industry is mature and highly competitive. Competitiveness in the life insurance business is affected by various factors including, but not limited to, product quality, financial strength and stability, claims-paying ratings, size and competence of agency force, range of product lines, customer service, and reputation. During 2000, there were approximately 1,500 life insurance companies in the United States and many of these companies offer individual life insurance and annuity products similar to those offered by Northwestern Mutual. In addition, Northwestern Mutual competes with banks, brokerage firms, investment advisers, mutual funds and other financial entities for investment and savings customers. In the individual and group disability markets, Northwestern Mutual competes with a limited number of major national and regional companies offering these specialized products. National banks, with their pre-existing customer bases for financial services products, may pose increasing competition in the future to insurers who sell life insurance and annuity products, including Northwestern Mutual. Recent United States Supreme Court decisions have expanded the authority of national banks to sell life insurance products and annuities. In addition, legislation to overturn Depression-era restrictions on bank affiliations, the Gramm-Leach-Bliley Act (the "Act"), was signed into law on November 12, 1999, implementing fundamental changes in the regulation of the financial services industry in the U.S. Generally effective March 11, 2000, the Act eliminates certain barriers to and restrictions on affiliations between banks, securities firms and insurance companies that were previously contained in the Glass-Steagall Act of 1933, as amended, and the Bank Holding Company Act of 1956, as amended. Under the Act, through the use of two new structures, financial holding companies and financial subsidiaries, qualifying bank holding companies and state and national banks will be allowed to provide a wide variety of financial services, including the authority to engage in certain insurance activities (e.g., the sale and, in the case of qualifying bank holding companies only, the underwriting of insurance and annuities). As a result of the Act, among other things, bank holding companies may acquire insurers and insurance holding companies may acquire banks. While it is too early to assess the effects of the Act on Northwestern Mutual, the Act may change the competitive and regulatory environment in which Northwestern Mutual and its subsidiaries conduct their businesses and may result in additional competition in one or more markets in which they sell their products and services. Northwestern Mutual is licensed to transact its insurance business in, and is subject to regulation and supervision by, all 50 states of the United States and the District of Columbia. Northwestern Long Term Care Insurance Company, Northwestern Mutual's only insurance subsidiary, is authorized and regulated in all jurisdictions in which it conducts its long-term care business. The extent of such regulation varies, but most jurisdictions have laws and regulations governing the financial aspects of insurance companies, including standards of solvency, reserves, reinsurance, capital adequacy and the business conduct of insurance companies. In addition, statutes and regulations usually require the licensing of insurers and their agents, the approval of policy forms and related materials and, for certain lines of insurance, the approval of rates. Such statutes and regulations also prescribe the permitted types and concentration of investments. The Act reaffirms that the states are to remain responsible for regulating the business of insurance. However, subject to certain exceptions, no state authority can prevent or restrict depository institutions and their affiliates from affiliating with insurance companies as permitted under the Act. In addition, certain state laws and regulations that place restrictions on a depository institution's insurance sales activities would be preempted. 3 4 Robert W. Baird & Co. Incorporated ("Baird"), a subsidiary of Northwestern Mutual, is one of the nation's largest investment banking firms headquartered outside New York based on dollar volume of underwritings, amount of equity capital, and the number of financial advisors and branch offices. Baird, a member of the New York Stock Exchange, Inc., provides broker-dealer, asset management, equity research, investment banking, merchant banking and public finance services for individuals, corporations, municipalities and institutional investors. On January 1, 1999, Northwestern Mutual acquired all the outstanding common stock of Frank Russell Company ("Frank Russell"). Founded in 1936, Frank Russell is a leading investment management and consulting firm, providing investment advice, analytical tools and funds to institutional and individual investors in more than 30 countries. Through its subsidiaries, at December 31, 2000, Frank Russell managed approximately $66 billion in assets. Frank Russell is also well known for its family of market indices, including the Russell 2000, which provide complete sets of performance benchmarks for investors in Canada, Japan, the United Kingdom and the United States. See Item 14 herein for the audited consolidated financial statements of Northwestern Mutual. Purpose of Annual Report This Annual Report on Form 10-K of Northwestern Mutual is filed with respect to its Account A and Account C. While certain information in this Form 10-K relates to Northwestern Mutual as a whole, this Form 10-K is intended to provide information with respect to such Account A and Account C where relevant. ITEM 2. PROPERTIES Account A and Account C own no physical properties. Northwestern Mutual owns and occupies all of the space in its home office complex in Milwaukee, Wisconsin. Northwestern Mutual is the lessee of nine leases covering its real estate regional offices in locations throughout the United States. ITEM 3. LEGAL PROCEEDINGS Neither Account A nor Account C are involved in any pending legal proceedings. Northwestern Mutual is subject to various claims and proceedings, including claims or proceedings related to its investments, that occur in the ordinary course of its business. Based on information currently available to Northwestern Mutual, Northwestern Mutual believes that none of these current claims or proceedings, either individually or in the aggregate, will have a material adverse effect on the financial position of Northwestern Mutual. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS As segregated asset accounts, Account A and Account C have no common equity securities issued by them. As a mutual life insurance company, Northwestern Mutual has no common equity securities issued by it. The Contracts issued in connection with Account A and Account C, and interests in those Contracts, are offered on a continuous basis to Corporate Plans and HR-10 Plans. The Contracts for Corporate Plans are not registered under the Securities Act of 1933, in reliance on the exemption provided by Section 3(a)(2) thereof. All of the Contracts are offered exclusively by agents of the Northwestern Mutual who are also registered representatives of NMIS. 4 5 During 2000, the following aggregate dollar amounts of such unregistered securities were sold to Corporate Plans, generating the aggregate commissions stated: ACCOUNT A ACCOUNT C AMOUNT SOLD COMMISSIONS AMOUNT SOLD COMMISSIONS --------------- -------------- ---------------- -------------- $38,241,379 (A) $1,397,072 (B) $105,609,072 (A) $1,232,674 (B) ---------- (A) Reflects premiums paid by Contract holders as well as dividend additions. (B) Reflects an estimate of amounts paid to Northwestern Mutual financial representatives for sales to Corporate Plans based on a pro rata allocation of all Contract sales under the Account. Accumulation units in Account A and Account C represent the interests of Contract owners. Purchase payments are applied to credit additional accumulation units based on the accumulation unit value next determined after each payment is received. Accumulation units are valued as of the close of business on the New York Stock Exchange on each business day. 5 6 ITEM 6. SELECTED FINANCIAL DATA The following tables set forth selected historical financial data for Account A for the five years in the period ended December 31, 2000. The data should be read in conjunction with the financial statements and notes thereto of Account A contained in Item 8 of this Annual Report. Results of Operations for Account A for each of the five years ending December 31, follows:
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Investment Income Dividend Income from Northwestern Mutual Series Fund, Inc. Small Cap Growth Stock Portfolio #..... $ 378,559 $ 149,387 N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock Portfolio...... 13,411,284 2,871,237 $ 3,294,065 $ 5,046,819 $ 2,456,762 Dividend Income from Northwestern Mutual Series Fund, Inc. International Equity Portfolio......... 3,228,510 6,194,164 2,854,899 1,627,765 1,820,972 Dividend Income from Northwestern Mutual Series Fund, Inc. Index 400 Stock Portfolio #............ 801,065 29,809 N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Growth Stock Portfolio................. 1,855,431 1,225,768 460,727 769,950 379,453 Dividend Income from Northwestern Mutual Series Fund, Inc. Growth and Income Stock Portfolio...... 1,773,860 4,191,005 294,097 5,154,785 1,206,606 Dividend Income from Northwestern Mutual Series Fund, Inc. Index 500 Stock Portfolio.............. 6,161,699 3,676,359 4,267,429 3,229,605 1,906,168 Dividend Income from Northwestern Mutual Series Fund, Inc. Balanced Portfolio..................... 24,058,096 34,011,393 19,089,250 13,244,993 14,325,426 Dividend Income from Northwestern Mutual Series Fund, Inc. High Yield Bond Portfolio.............. 610,844 821,476 951,201 1,418,106 473,729 Dividend Income from Northwestern Mutual Series Fund, Inc. Select Bond Portfolio.................. 1,462,693 2,087,636 1,767,739 1,556,695 906,892 Dividend Income from Northwestern Mutual Series Fund, Inc. Money Market Portfolio................. 1,609,111 1,410,026 1,254,017 1,203,410 1,024,534 Dividend Income from Russell Insurance Funds Multi-Style Equity Fund #........ 134,059 76,045 N/A N/A N/A Dividend Income from Russell Insurance Funds Aggressive Equity Fund #......... 261,068 4,518 N/A N/A N/A Dividend Income from Russell Insurance Funds Non-U.S. Fund #.................. 226,127 37,184 N/A N/A N/A Dividend Income from Russell Insurance Funds Real Estate Securities Fund #.... 42,652 12,094 N/A N/A N/A Dividend Income from Russell Insurance Funds Core Bond Fund #................. 50,161 21,682 N/A N/A N/A ------------- ------------ ------------ ------------ ------------ Total Dividend Income............... 56,065,219 56,819,783 34,233,424 33,252,128 24,500,542 Annuity Rate and Expense Guarantees...... 8,884,413 8,723,746 8,068,866 7,048,888 5,783,739 ------------- ------------ ------------ ------------ ------------ Net Investment Income.................... $ 47,180,806 $ 48,096,037 $ 26,164,558 $ 26,203,240 $ 18,716,803 ============= ============ ============ ============ ============ Realized and Unrealized Gain on Investments Realized Gain on Investments............. $ 56,764,374 $ 51,300,014 $ 37,627,804 $23,135,675 $13,967,988 Unrealized Appreciation/(Depreciation) of Investments During the Year.............. (120,838,136) 9,271,096 36,249,405 56,364,111 33,051,905 ------------- ------------ ------------ ------------ ------------ Net Gain/(Loss) on Investments......... (64,072,762) 60,571,110 73,877,209 79,499,786 47,019,893 Increase/(Decrease) in Equity Derived from Investment Activity......................... $ (16,891,956) $108,667,147 $100,041,767 $105,703,026 $ 65,736,696 ============= ============ ============ ============ ============
-------------------- # Became an investment option under the Contracts effective April 30, 1999. 6 7 Changes in Equity for Account A for each of the five years ending December 31, follows:
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- From Investment Activities Net Investment Income........ $ 47,180,806 $ 48,096,037 $ 26,164,558 $ 26,203,240 $ 18,716,803 Net Realized Gain on Investments................ 56,764,374 51,300,014 37,627,804 23,135,675 13,967,988 Net Change in Unrealized Appreciation/(Depreciation) of Investments.............. (120,838,136) 9,271,096 36,249,405 56,364,111 33,051,905 -------------- ------------- ------------- ------------- ------------- Increase/(Decrease) in Equity Derived From Investment Activities................... (16,892,956) 108,667,147 100,041,767 105,703,026 65,736,696 -------------- ------------- ------------- ------------- ------------- From Equity Transactions Contract Owners' Net Payments.................... 54,157,406 55,484,960 62,320,941 61,964,558 65,169,358 Surrenders and Other (Net).. (124,114,709) (105,581,191) (85,123,298) (66,793,535) (53,207,441) ------------- ------------- ------------- ------------- ------------- Increase (Decrease) in Equity Derived from Equity Transactions................ (69,957,303) (50,096,231) (22,802,357) (4,828,977) 11,961,917 ------------- ------------- ------------- ------------- ------------- Net Increase/(Decrease) in Equity...................... (86,850,259) 58,570,916 77,239,410 100,874,049 77,698,613 Equity, Beginning of Year...... 784,204,415 725,633,499 648,394,089 547,520,040 469,821,427 ------------- ------------- ------------- ------------- ------------- Equity, End of Year............ $ 697,354,156 $ 784,204,415 $ 725,633,499 $ 648,394,089 $ 547,520,040 ============= ============= ============= ============= =============
Total Assets of Account A at December 31, follows:
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Assets Investments at Market Value: Northwestern Mutual Series Fund, Inc. Small Cap Growth Stock Portfolio #... $ 16,292,789 $ 4,846,983 N/A N/A N/A Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock Portfolio.... 106,815,024 104,344,155 $ 87,973,307 $ 89,428,723 $ 78,087,972 Northwestern Mutual Series Fund, Inc. International Equity Portfolio....... 40,332,888 45,439,022 44,994,454 50,148,435 41,497,787 Northwestern Mutual Series Fund, Inc. Index 400 Growth Stock Portfolio #... 7,162,165 2,204,952 N/A N/A N/A Northwestern Mutual Series Fund, Inc. Growth Stock Portfolio .............. 38,036,808 39,031,078 26,774,398 17,260,514 9,523,179 Northwestern Mutual Series Fund, Inc. Growth and Income Stock Portfolio.... 26,081,332 35,735,343 36,439,779 23,575,574 13,199,558 Northwestern Mutual Series Fund, Inc. Index 500 Stock Portfolio ........... 133,526,095 169,861,157 143,375,448 111,140,823 80,917,025 Northwestern Mutual Series Fund, Inc. Balanced Portfolio .................. 266,410,798 319,677,680 325,287,406 302,749,909 270,745,111 Northwestern Mutual Series Fund, Inc. High Yield Bond Portfolio ........... 5,135,248 6,939,731 9,287,355 8,743,385 4,907,490 Northwestern Mutual Series Fund, Inc. Select Bond Portfolio ............... 20,275,069 22,161,495 25,969,869 25,252,973 26,648,961 Northwestern Mutual Series Fund, Inc. Money Market Portfolio .............. 25,479,644 28,975,194 26,910,774 21,586,115 23,380,205 Russell Insurance Funds Multi-Style Equity Fund # ........... 4,097,132 2,500,013 N/A N/A N/A Russell Insurance Funds Aggressive Equity Fund # ............ 2,497,479 1,142,441 N/A N/A N/A Russell Insurance Funds Non-U.S. Fund # ..................... 3,244,356 1,383,194 N/A N/A N/A Russell Insurance Funds Real Estate Securities Fund # ....... 1,328,065 331,977 N/A N/A N/A Russell Insurance Funds Core Bond Fund # .................... 1,184,206 692,598 N/A N/A N/A Due from Northwestern Mutual ............ 0 1,011,681 22,305 322,747 123,152 Due from Sale of Fund Shares ............ 665,277 1,329,077 1,407,778 1,555,441 387,086 ------------ ------------ ------------ ------------ ------------ Total Assets ........................ $698,564,375 $787,607,771 $728,442,873 $651,764,639 $549,417,526 ============ ============ ============ ============ ============
------------ # Became an investment option under the Contracts effective April 30, 1999. 7 8 The following tables set forth selected historical financial data for Account C for the five years in the period ended December 31, 2000. The data should be read in conjunction with the financial statements and notes thereto of Account C contained in Item 8 of this Annual Report.
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Investment Income Dividend Income from Northwestern Mutual Series Fund, Inc. Small Cap Growth Stock Portfolio #........... $ 98,481 $ 30,993 N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock Portfolio............ 20,221,355 3,671,476 $ 4,152,153 $ 6,049,655 $ 2,574,462 Dividend Income from Northwestern Mutual Series Fund, Inc. International Equity Portfolio............... 5,035,928 8,183,887 3,732,935 1,945,549 1,805,160 Dividend Income from Northwestern Mutual Series Fund, Inc. Index 400 Stock Portfolio #.................. 1,180,048 6,302 N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Growth Stock Portfolio....................... 2,101,099 1,222,775 447,543 712,380 366,920 Dividend Income from Northwestern Mutual Series Fund, Inc. Growth and Income Stock Portfolio............ 2,123,394 4,566,474 343,472 5,940,640 1,146,200 Dividend Income from Northwestern Mutual Series Fund, Inc. Index 500 Stock Portfolio.................... 8,370,128 4,674,819 5,270,794 3,755,769 2,082,261 Dividend Income from Northwestern Mutual Series Fund, Inc. Balanced Portfolio........................... 12,908,496 18,031,473 9,908,961 6,460,653 7,534,370 Dividend Income from Northwestern Mutual Series Fund, Inc. High Yield Bond Portfolio.................... 557,885 758,789 883,190 1,028,027 309,003 Dividend Income from Northwestern Mutual Series Fund, Inc. Select Bond Portfolio........................ 1,093,125 1,570,275 1,357,040 1,057,558 566,451 Dividend Income from Northwestern Mutual Series Fund, Inc. Money Market Portfolio....................... 971,120 1,015,173 899,183 738,932 609,543 Dividend Income from Russell Insurance Funds Multi-Style Equity Fund #.................... 79,426 48,375 N/A N/A N/A Dividend Income from Russell Insurance Funds Aggressive Equity Fund #..................... 73,694 1,284 N/A N/A N/A Dividend Income from Russell Insurance Funds Non-U.S. Fund #.............................. 60,941 13,306 N/A N/A N/A Dividend Income from Russell Insurance Funds Real Estate Securities Fund #................ 51,452 4,030 N/A N/A N/A Dividend Income from Russell Insurance Funds Core Bond Fund #............................. 22,243 15,069 N/A N/A N/A ----------- ------------ ----------- ----------- ------------ Total Dividend Income...................... 54,948,815 43,814,500 26,995,271 27,689,163 16,994,370 Annuity Rate and Expense Guarantees............ 2,896,681 3,445,294 3,154,686 2,501,975 1,738,625 ----------- ------------ ----------- ----------- ------------ Net Investment Income.......................... $52,052,134 $ 40,369,206 $23,840,585 $25,187,188 $ 15,255,745 =========== ============ =========== =========== ============ Realized and Unrealized Gain on Investments Realized Gain on Investments.................... $54,861,323 $ 41,105,768 $29,250,486 $18,686,284 $ 8,855,390 Unrealized Appreciation/(Depreciation) of Investments During the Year..................... (121,850,155) 36,856,549 37,105,560 44,241,434 29,832,124 ------------ ------------- ----------- ----------- ------------ Net Gain/(Loss) on Investments............... (66,988,832) 77,962,317 66,356,046 62,927,718 38,687,514 Increase/(Decrease) in Equity Derived from Investment Activity......................... $(14,936,698) $118,331,523 $90,196,631 $88,114,906 $ 53,943,259 ============ ============= =========== =========== ============
------------------ # Became an investment option under the Contracts effective April 30, 1999. 8 9 Changes in Equity for Account C for each of the five years ending December 31, follows:
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- From Investment Activities Net Investment Income ............. $ 52,052,134 $ 40,369,206 $ 23,840,585 $ 25,187,188 $ 15,255,745 Net Realized Gain on Investments .. 54,861,323 41,105,768 29,250,486 18,686,284 8,855,390 Net Change in Unrealized Appreciation/ (Depreciation) of Investments................... (121,850,155) 36,856,549 37,105,561 44,241,434 29,832,124 ------------- ------------- ------------- ------------- ------------- Increase/(Decrease) in Equity Derived From Investment Activities ........ (14,936,698) 118,331,523 90,196,632 88,114,906 53,943,259 ------------- ------------- ------------- ------------- ------------- From Equity Transactions Contract Owners' Net Payments ..... 103,967,430 74,901,848 93,658,882 91,195,224 89,650,916 Surrenders and Other (Net) ........ (136,912,453) (117,603,594) (86,757,540) (57,974,180) (34,747,640) ------------- ------------- ------------- ------------- ------------- Increase/(Decrease) in Equity Derived From Equity Transactions .......... (32,945,023) (42,701,746) 6,901,342 33,221,044 54,903,276 ------------- ------------- ------------- ------------- ------------- Net Increase in Equity .............. (47,881,721) 75,629,777 97,097,974 121,335,950 108,846,535 Equity, Beginning of Year ........... 720,716,274 645,086,497 547,988,523 426,652,573 317,806,038 ------------- ------------- ------------- ------------- ------------- Equity, End of Year ................. $ 672,834,553 $ 720,716,274 $ 645,086,497 $ 547,988,523 $ 426,652,573 ============= ============= ============= ============= ============= .............
Total Assets of Account C at December 31, follows:
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Assets Investments at Market Value: Northwestern Mutual Series Fund, Inc. Small Cap Growth Stock Portfolio #.... $ 20,037,824 $ 949,166 N/A N/A N/A Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock Portfolio..... 157,369,180 139,738,783 $ 112,355,230 $111,586,520 $ 95,276,983 Northwestern Mutual Series Fund, Inc. International Equity Portfolio........ 65,489,046 64,556,193 59,264,930 63,877,146 49,461,520 Northwestern Mutual Series Fund, Inc. Index 400 Stock Portfolio #........... 11,398,931 473,356 N/A N/A N/A Northwestern Mutual Series Fund, Inc. Growth Stock Portfolio................ 42,696,219 39,775,147 27,819,393 15,850,257 9,734,427 Northwestern Mutual Series Fund, Inc. Growth and Income Stock Portfolio..... 29,723,056 41,105,386 40,353,938 27,484,626 13,034,961 Northwestern Mutual Series Fund, Inc. Index 500 Stock Portfolio............. 173,397,772 220,074,926 183,326,114 133,927,705 93,249,123 Northwestern Mutual Series Fund, Inc. Balanced Portfolio.................... 136,008,639 167,443,550 172,971,811 153,733,599 131,324,909 Northwestern Mutual Series Fund, Inc. High Yield Bond Portfolio............. 4,239,363 6,380,157 8,611,383 6,568,438 2,983,258 Northwestern Mutual Series Fund, Inc. Select Bond Portfolio................. 14,027,394 17,537,190 20,754,940 18,059,926 17,803,016 Northwestern Mutual Series Fund, Inc. Money Market Portfolio................ 12,101,600 19,341,129 19,628,758 16,900,306 13,784,374 Russell Insurance Funds Multi-Style Equity Fund #............ 1,745,513 1,705,658 N/A N/A N/A Russell Insurance Funds Aggressive Equity Fund #............. 642,689 351,582 N/A N/A N/A Russell Insurance Funds Non-U.S. Fund #...................... 817,929 565,156 N/A N/A N/A Russell Insurance Funds Real Estate Securities Fund #........ 2,653,592 102,204 N/A N/A N/A Russell Insurance Funds Core Bond Fund #..................... 485,806 384,069 N/A N/A N/A Due from Northwestern Mutual............. 15,630 395,300 355,553 196,511 1,662,368 Due from Sale of Fund Shares............. 195,486 798,688 495,042 2,927,350 52,909 Due from Participants.................... 0 232,622 0 0 0 ------------ ------------ ------------- ------------ ------------ Total Assets......................... $673,045,669 $721,910,262 $ 645,937,092 $551,112,384 $428,367,848 ============ ============ ============= ============ ============
-------------------- # Became an investment option under the Contracts effective April 30, 1999. 9 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity The assets of Account A and Account C are invested solely in shares of Northwestern Mutual Series Fund, Inc. ("Series Fund") and the Russell Insurance Funds ("Russell Funds," and collectively with the Series Fund, the "Funds"). The Series Fund consists of the Small Cap Growth Stock Portfolio, Aggressive Growth Stock Portfolio, International Equity Portfolio, Index 400 Stock Portfolio, Growth Stock Portfolio, Growth and Income Stock Portfolio, Index 500 Stock Portfolio, Balanced Portfolio, High Yield Bond Portfolio, Select Bond Portfolio and the Money Market Portfolio. The Russell Funds consist of the Multi-Style Equity Fund, Aggressive Equity Fund, Non-U.S. Fund, Real Estate Securities Fund and Core Bond Fund. The Funds are open-end investment companies registered under the Investment Company Act of 1940. In order to pay annuity benefits and expenses, the Accounts redeem shares in the Funds. Capital Resources All payments from Contract owners of Account A and Account C are invested in shares of the Funds. The capital resources of Account A and Account 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. Results of Operations Accumulation units in Account A and Account C represent the interests of Contract owners. The value of an accumulation unit in each division varies with the investment experience of the division, which in turn is determined by the investment experience of the corresponding portfolio or fund. Set forth below for each of Account A and Account C are accumulation unit values at December 31, 2000, 1999, and 1998 for each division, and the percentage change in such values from year to year. ACCOUNT A Accumulation Unit Values Contracts Issued Prior to December 17, 1981:
DIVISION 12/31/00 % CHANGE 12/31/99 % CHANGE 12/31/98* ---------- ----------- -------- ----------- -------- ------------ Small Cap Growth Stock #........... $ 1.961375 5.92% $ 1.851783 85.18% $ 1.000000 Aggressive Growth Stock............ 5.963354 5.39 5.658407 42.71 3.964849 International Equity............... 2.339241 -1.53 2.375600 21.98 1.947470 Index 400 Stock #.................. 1.306094 16.34 1.122676 12.27 1.000000 Growth Stock....................... 2.999890 -3.21 3.099518 21.58 2.549324 Growth and Income Stock............ 2.401649 -7.66 2.600855 6.68 2.437983 Index 500 Stock.................... 4.567635 -9.43 5.043329 20.01 4.202480 Balanced........................... 8.062822 -0.91 8.136959 10.37 7.372322 High Yield Bond.................... 1.480422 -5.30 1.563339 -1.20 1.582307 Select Bond........................ 8.294952 9.39 7.582833 -1.76 7.718724 Money Market....................... 2.912624 5.50 2.760791 4.32 2.646458 Russell Multi-Style Equity #....... 0.932346 -12.91 1.070614 7.06 1.000000 Russell Aggressive Equity #........ 1.088117 -1.40 1.103591 10.36 1.000000 Russell Non-U.S. #................. 1.059216 -15.07 1.247160 24.72 1.000000 Russell Real Estate Securities #... 1.165389 26.29 0.922768 -7.72 1.000000 Russell Core Bond #................ 1.077032 9.18 0.986452 -1.35 1.000000
-------------------- # Became an investment option under the Contracts effective April 30, 1999. * Includes accumulation unit values at inception date in 1999 for portfolios becoming effective after December 31, 1998. 10 11 Accumulation Unit Values Contracts Issued After December 16, 1981 and Prior to March 31, 1995:
DIVISION 12/31/00 % CHANGE 12/31/99 % OF CHANGE 12/31/98* ---------- ----------- -------- ----------- ----------- ----------- Small Cap Growth Stock #.......... $ 1.945087 5.39% $ 1.845580 84.56% $ 1.000000 Aggressive Growth Stock........... 5.671037 4.86 5.407959 42.00 3.808330 International Equity.............. 2.251266 -2.02 2.297694 21.38 1.893030 Index 400 Stock #................. 1.295242 15.76 1.118909 11.89 1.000000 Growth Stock...................... 2.901600 -3.70 3.012947 20.98 2.490522 Growth and Income Stock........... 2.322995 -8.12 2.528256 6.15 2.381813 Index 500 Stock................... 4.343830 -9.88 4.820195 19.41 4.036666 Balanced.......................... 7.332002 -1.40 7.436406 9.82 6.771353 High Yield Bond................... 1.431888 -5.78 1.519653 -1.69 1.545816 Select Bond....................... 7.541503 8.85 6.928532 -2.25 7.088069 Money Market...................... 2.648821 4.97 2.523294 3.80 2.430915 Russell Multi-Style Equity #...... 0.924598 -13.35 1.067018 6.70 1.000000 Russell Aggressive Equity #....... 1.079072 -1.89 1.099895 9.99 1.000000 Russell Non-U.S. #................ 1.050412 -15.49 1.242993 24.30 1.000000 Russell Real Estate Securities #.. 1.155691 25.66 0.919674 -8.03 1.000000 Russell Core Bond #............... 1.068073 8.64 0.983142 -1.69 1.000000
-------------------- # Became an investment option under the Contracts effective April 30, 1999. * Includes accumulation unit values at inception date in 1999 for portfolios becoming effective after December 31, 1998. Accumulation Unit Values Contracts Issued On or After March 31, 1995 and Prior to March 31, 2000 - Front Load Version:
DIVISION 12/31/00 % CHANGE 12/31/99 % OF CHANGE 12/31/98* ---------- ------------- -------- ----------- ----------- ----------- Small Cap Growth Stock #.......... $ 1.972747 6.29% $ 1.856086 85.61% $ 1.000000 Aggressive Growth Stock........... 2.815081 5.75 2.661899 43.21 1.858751 International Equity.............. 1.940943 -1.19 1.964300 22.41 1.604722 Index 400 Stock #................. 1.313674 16.74 1.125296 12.53 1.000000 Growth Stock...................... 2.814641 -2.88 2.898070 22.00 2.375383 Growth and Income Stock........... 2.252648 -7.34 2.431081 7.05 2.270962 Index 500 Stock................... 2.842665 -9.12 3.127888 20.43 2.597374 Balanced.......................... 2.105871 -0.57 2.117903 10.75 1.912247 High Yield Bond................... 1.409248 -4.98 1.483036 -0.86 1.495835 Select Bond....................... 1.461268 9.77 1.331215 -1.42 1.350384 Money Market...................... 1.333271 5.86 1.259407 4.68 1.203067 Russell Multi-Style Equity #...... 0.937760 -12.61 1.073107 7.31 1.000000 Russell Aggressive Equity #....... 1.094433 -1.06 1.106159 10.62 1.000000 Russell Non-U.S. #................ 1.065355 -14.78 1.250059 25.01 1.000000 Russell Real Estate Securities #.. 1.172137 26.73 0.924920 -7.51 1.000000 Russell Core Bond #............... 1.083276 9.56 0.988747 -1.13 1.000000
-------------------- # Became an investment option under the Contracts effective April 30, 1999. * Includes accumulation unit values at inception date in 1999 for portfolios becoming effective after December 31, 1998. Accumulation Unit Values Contracts Issued On or After March 31, 1995 and Prior to March 31, 2000 - Back Load Version:
DIVISION 12/31/00 % CHANGE 12/31/99 % OF CHANGE 12/31/98* ---------- ----------- -------- ----------- ----------- ----------- Small Cap Growth Stock #.... $ 1.945087 5.39% $ 1.845580 84.56% $ 1.000000 Aggressive Growth Stock..... 5.671037 4.86 5.407959 42.00 3.808330 International Equity........ 2.251266 -2.02 2.297694 21.38 1.893030 Index 400 Stock #........... 1.295242 15.76 1.118909 11.89 1.000000 Growth Stock................ 2.901600 -3.70 3.012947 20.98 2.490522 Growth and Income Stock..... 2.322995 -8.12 2.528256 6.15 2.381813 Index 500 Stock............. 4.343830 -9.88 4.820195 19.41 4.036666 Balanced.................... 7.332002 -1.40 7.436406 9.82 6.771353
11 12
High Yield Bond................... 1.431888 -5.78 1.519653 -1.69 1.545816 Select Bond....................... 7.541503 8.85 6.928532 -2.25 7.088069 Money Market...................... 2.648821 4.97 2.523294 3.80 2.430915 Russell Multi-Style Equity #...... 0.924598 -13.35 1.067018 6.70 1.000000 Russell Aggressive Equity #....... 1.079072 -1.89 1.099895 9.99 1.000000 Russell Non-U.S. #................ 1.050412 -15.49 1.242993 24.30 1.000000 Russell Real Estate Securities #.. 1.155691 25.66 0.919674 -8.03 1.000000 Russell Core Bond #............... 1.068073 8.64 0.983142 -1.69 1.000000
# Became an investment option under the Contracts effective April 30, 1999. * Includes accumulation unit values at inception date in 1999 for portfolios becoming effective after December 31, 1998. Accumulation Unit Values Contracts Issued On or After March 31, 2000 - Front Load Version:
DIVISION 12/31/00 % CHANGE 3/31/00 ---------- ---------- -------- ----------- Small Cap Growth Stock ......... $ 0.904342 -9.57% $1.000000 Aggressive Growth Stock......... 0.901909 -9.81 1.000000 International Equity............ 0.995643 -0.44 1.000000 Index 400 Stock ................ 1.035589 3.56 1.000000 Growth Stock.................... 0.916924 -8.31 1.000000 Growth and Income Stock......... 0.887072 -11.29 1.000000 Index 500 Stock................. 0.888477 -11.15 1.000000 Balanced........................ 0.973123 -2.69 1.000000 High Yield Bond................. 0.963375 -3.66 1.000000 Select Bond..................... 1.078901 7.89 1.000000 Money Market.................... 1.044325 4.43 1.000000 Russell Multi-Style Equity...... 0.880119 -11.99 1.000000 Russell Aggressive Equity....... 0.930436 -6.96 1.000000 Russell Non-U.S. ............... 0.850723 -14.93 1.000000 Russell Real Estate Securities.. 1.240862 24.09 1.000000 Russell Core Bond .............. 1.074705 7.47 1.000000
Accumulation Unit Values Contracts Issued On or After March 31, 2000 - Back Load Version:
DIVISION 12/31/00 % CHANGE 3/31/00 ---------- ----------- ---------- --------- Small Cap Growth Stock ......... $ 1.945087 94.51% $1.000000 Aggressive Growth Stock......... 5.671037 467.10% 1.000000 International Equity............ 2.251266 125.13% 1.000000 Index 400 Stock ................ 1.295242 29.52% 1.000000 Growth Stock.................... 2.901600 190.16% 1.000000 Growth and Income Stock......... 2.322995 132.30% 1.000000 Index 500 Stock................. 4.343830 334.38% 1.000000 Balanced........................ 7.332002 633.20% 1.000000 High Yield Bond................. 1.431888 43.19% 1.000000 Select Bond..................... 7.541503 654.15% 1.000000 Money Market.................... 2.648821 164.88% 1.000000 Russell Multi-Style Equity...... 0.924598 -7.54% 1.000000 Russell Aggressive Equity....... 1.079072 7.91% 1.000000 Russell Non-U.S................. 1.050412 5.04% 1.000000 Russell Real Estate Securities.. 1.155691 15.57% 1.000000 Russell Core Bond .............. 1.068073 6.81% 1.000000
TOTAL EQUITY:
12/31/00 12/31/99 12/31/98 -------- -------- -------- $697,354,156 $784,204,415 $725,633,499
12 13 The changes in Total Equity are largely derived from investment activities within the Account: A $16,892,956 decrease for the year ended December 31, 2000, a $108,667,147 increase for the year ended December 31, 1999, and a $100,041,767 increase for the year ended December 31, 1998. Net contributions (surrenders) from Contract owners amounted to ($69,957,303) for the year ended December 31, 2000, ($50,096,231) for the year ended December 31, 1999, and ($22,802,357) for the year ended December 31, 1998. ACCOUNT C Accumulation Unit Values Contracts Issued Prior to December 17, 1981 or between April 30, 1984 and December 31, 1991:
DIVISION 12/31/00 % CHANGE 12/31/99 % OF CHANGE 12/31/98* -------- ------------ -------- ----------- ---------- ------------ Small Cap Growth Stock #.......... $ 19.859931 6.71% $ 18.610781 86.11% $ 10.000000 Aggressive Growth Stock........... 60.845203 6.18 57.304251 43.78 39.854126 International Equity.............. 2.477334 -0.79 2.497127 22.90 2.031842 Index 400 Stock #................. 13.224995 17.21 11.283278 12.83 10.000000 Growth Stock...................... 31.531943 -2.49 32.336967 22.49 26.398692 Growth and Income Stock........... 25.243989 -6.97 27.134671 7.48 25.245888 Index 500 Stock................... 51.325633 -8.75 56.249780 20.91 46.522428 Balanced.......................... 94.345469 -0.17 94.505378 11.20 84.986573 High Yield Bond................... 15.560950 -4.59 16.310402 -0.46 16.385350 Select Bond....................... 98.036463 10.21 88.954059 -1.02 89.873176 Money Market...................... 32.311690 6.29 30.399653 5.10 28.923541 Russell Multi-Style Equity #...... 9.440627 -12.26 10.760032 7.60 10.000000 Russell Aggressive Equity #....... 11.017913 -0.66 11.091435 10.91 10.000000 Russell Non-U.S. #................ 10.725190 -14.43 12.534266 25.34 10.000000 Russell Real Estate Securities #.. 11.800164 27.24 9.274172 -7.26 10.000000 Russell Core Bond #............... 10.905549 10.00 9.914196 -0.86 10.000000
-------------------- # Became an investment option under the Contracts effective April 30, 1999. * Includes accumulation unit values at inception date in 1999 for portfolios becoming effective after December 31, 1998. Accumulation Unit Values Contracts Issued After December 16, 1981 and Prior to May 1, 1984:
DIVISION 12/31/00 % CHANGE 12/31/99 % OF CHANGE 12/31/98* -------- ------------ -------- ------------ ----------- ------------ Small Cap Growth Stock #.......... $ 19.695066 6.18 $ 18.548596 85.49% $ 10.000000 Aggressive Growth Stock........... 57.897540 5.65 54.800923 43.07 38.303948 International Equity.............. 2.384172 -1.29 2.415234 22.29 1.975051 Index 400 Stock #................. 13.115131 16.63 11.245478 12.45 10.000000 Growth Stock...................... 30.498976 -2.97 31.433960 21.88 25.790044 Growth and Income Stock........... 24.416867 -7.43 26.376796 6.95 24.663747 Index 500 Stock................... 48.834231 -9.21 53.786850 20.31 44.708227 Balanced.......................... 85.820221 -0.67 86.395292 10.65 78.082648 High Yield Bond................... 15.050970 -5.07 15.854730 -0.95 16.007423 Select Bond....................... 89.133511 9.66 81.280078 -1.52 82.531570 Money Market...................... 29.426661 5.76 27.823703 4.58 26.605346 Russell Multi-Style Equity #...... 9.362193 -12.70 10.723983 7.24 10.000000 Russell Aggressive Equity #....... 10.926333 -1.16 11.054275 10.54 10.000000 Russell Non-U.S. #................ 10.636093 -14.86 12.492336 24.92 10.000000 Russell Real Estate Securities #.. 11.702144 26.60 9.243071 -7.57 10.000000 Russell Core Bond #............... 10.814951 9.45 9.880973 -1.19 10.000000
-------------------- # Became an investment option under the Contracts effective April 30, 1999. * Includes accumulation unit values at inception date in 1999 for portfolios becoming effective after December 31, 1998. 13 14 Accumulation Unit Values Contracts Issued After December 31, 1991 - Front Load Version:
DIVISION 12/31/00 % CHANGE 12/31/99 % OF CHANGE 12/31/98* -------- ----------- -------- ----------- ----------- ----------- Small Cap Growth Stock #...... $ 1.964602 6.02% $ 1.853001 85.30% $ 1.000000 Aggressive Growth Stock....... 3.785207 5.49 3.588119 42.85 2.511728 International Equity.......... 2.357007 -1.43 2.391284 22.10 1.958397 Index 400 Stock #............. 1.308249 16.45 1.123423 12.34 1.000000 Growth Stock.................. 3.019678 -3.12 3.116901 21.70 2.561090 Growth and Income Stock....... 2.417488 -7.57 2.615436 6.79 2.449237 Index 500 Stock............... 3.570426 -9.34 3.938401 20.13 3.278539 Balanced...................... 2.499718 -0.81 2.520233 10.48 2.281157 High Yield Bond............... 1.490196 -5.21 1.572112 -1.10 1.589625 Select Bond................... 1.706832 9.50 1.558775 -1.66 1.585144 Money Market.................. 1.442872 5.60 1.366307 4.42 1.308441 Russell Multi-Style Equity #.. 0.933887 -12.83 1.071323 7.13 1.000000 Russell Aggressive Equity #... 1.089907 -1.30 1.104316 10.43 1.000000 Russell Non-U.S. #............ 1.060950 -14.99 1.247967 24.80 1.000000 Russell Real Estate Securities #.................. 1.167301 26.42 0.923380 -7.66 1.000000 Russell Core Bond #........... 1.078791 9.29 0.987105 -1.29 1.000000
-------------------- # Became an investment option under the Contracts effective April 30, 1999. * Includes accumulation unit values at inception date in 1999 for portfolios becoming effective after December 31, 1998. Accumulation Unit Values Contracts Issued After December 31, 1991 - Simplified Load Version:
DIVISION 12/31/00 % CHANGE 12/31/99 % OF CHANGE 12/31/98* -------- ----------- -------- ----------- ----------- ----------- Small Cap Growth Stock #...... $ 1.945087 5.39% $ 1.845580 84.56% $ 1.000000 Aggressive Growth Stock....... 5.691856 4.86 5.427804 42.00 3.822308 International Equity.......... 2.251266 -2.02 2.297694 21.38 1.893030 Index 400 Stock #............. 1.295242 15.76 1.118909 11.89 1.000000 Growth Stock.................. 2.901600 -3.70 3.012947 20.98 2.490522 Growth and Income Stock....... 2.322995 -8.12 2.528256 6.15 2.381813 Index 500 Stock............... 4.432423 -9.88 4.918509 19.41 4.119000 Balanced...................... 7.368231 -1.40 7.473141 9.82 6.804809 High Yield Bond............... 1.431888 -5.78 1.519653 -1.69 1.545816 Select Bond................... 7.615016 8.85 6.996057 -2.25 7.157135 Money Market.................. 2.654580 4.98 2.528768 3.80 2.436196 Russell Multi-Style Equity #.. 0.924598 -13.35 1.067018 6.70 1.000000 Russell Aggressive Equity #... 1.079072 -1.89 1.099895 9.99 1.000000 Russell Non-U.S. #............ 1.050412 -15.49 1.242993 24.30 1.000000 Russell Real Estate 1.155691 25.66 0.919674 -8.03 1.000000 Securities #.................. Russell Core Bond #........... 1.068073 8.64 0.983142 -1.69 1.000000
-------------------- # Became an investment option under the Contracts effective April 30, 1999. * Includes accumulation unit values at inception date in 1999 for portfolios becoming effective after December 31, 1998.
TOTAL EQUITY: 12/31/00 12/31/99 12/31/98 -------- -------- -------- $672,834,553 $720,716,274 $645,086,497
The changes in Total Equity are largely derived from investment activities within the Account: A $14,936,698 decrease for the year ended December 31, 2000, a $118,331,523 increase for the year ended December 31, 1999, and an $90,196,632 increase for the year ended December 31, 1998. Net contributions (surrenders) from Contract owners amounted to ($32,945,023) for the year ended December 31, 2000, ($42,701,746) for the year ended December 31, 1999, and $6,901,342 for the year ended December 31, 1998. 14 15 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The assets of Account A and Account C consist entirely of shares of the 11 portfolios of the Series Fund and 5 portfolios of the Russell Funds, together with current amounts due from the sale of Series Fund and Russell Funds shares and due from Northwestern Mutual. The liabilities of each of Account A and Account C consist of current amounts due to Contract owners, due to Northwestern Mutual and due on purchase of Series Fund and Russell Funds shares. Neither of the Accounts enters into any market risk sensitive instruments, either for trading purposes or for purposes other than trading purposes. Derivative Financial Instruments In the normal course of business, the Series Fund and the Russell Funds enter into transactions to reduce their exposure to fluctuations in interest rates, foreign currency exchange rates and market volatility. These hedging strategies include the use of forwards, futures, and written options. The Series Fund and Russell Funds held the following positions for hedging purposes at December 31, 2000 and 1999:
SERIES FUND ----------- UNREALIZED APPRECIATION DERIVATIVE FINANCIAL INSTRUMENT NOTIONAL VALUE (DEPRECIATION) RISKS REDUCED ------------------------------- -------------- -------------- ------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 2000 1999 ---- ---- ---- ---- (IN THOUSANDS) (IN THOUSANDS) Stock Future Contracts $ 455,971 $ 289,268 $ 1,664 $11,332 Stock market price fluctuation Bond Future Contracts 7,237 16,416 (56) (25) Bond market price fluctuation
RUSSELL FUNDS ------------- UNREALIZED APPRECIATION DERIVATIVE FINANCIAL INSTRUMENT NOTIONAL VALUE (DEPRECIATION) RISKS REDUCED ------------------------------- -------------- -------------- ------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 2000 1999 ---- ---- ---- ---- (IN THOUSANDS) (IN THOUSANDS) Stock Future Contracts $30,801 $49,706 $ (346) $2,592 Stock market price fluctuation Bond Future Contracts 7,960 3,068 (130) (10) Bond market price fluctuation Foreign Currency Forward Contracts 12,615 22,740 379 10 Currency exposure on foreign- denominated investments Foreign Currency Spot Contracts 10,346 -- 2 -- Currency exposure on foreign denominated investments Written Options 2,109 -- 6 -- Bond market price fluctuation
The notional or contractual amounts of derivative financial instruments are used to denominate these types of transactions and do not represent the amounts exchanged between the parties. Stock and bond futures, foreign currency forwards and spot contracts, and written options are reported at fair value on a daily basis. Resulting gains and losses on these contracts are unrealized until expiration of the contract. All of the stock and bond futures, foreign currency forwards and spot contracts, and written options of the Funds at December 31, 2000 will expire or settle in 2001. Changes in the value of derivative investments are expected to offset gains and losses on the hedged investments. The effect of derivative instruments in 2000 and 1999 was not material to the Funds' results of operations. 15 16 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA NML VARIABLE ANNUITY ACCOUNT A STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31 ----------- ASSETS 2000 1999 ---- ---- Investments at market value: Northwestern Mutual Series Fund, Inc. Small Cap Growth Stock 2000: 8,778,443 shares (cost $17,680,885)..................... $ 16,292,789 1999: 2,701,963 shares (cost $4,384,369)...................... $ 4,846,983 Aggressive Growth Stock 2000: 23,890,634 shares (cost $84,660,339).................... 106,815,024 1999: 21,708,005 shares (cost $63,876,558).................... 104,344,155 International Equity 2000: 24,698,645 shares (cost $39,875,457).................... 40,332,888 1999: 25,519,106 shares (cost $39,067,307).................... 45,439,022 Index 400 Stock 2000: 6,260,634 shares (cost $7,422,499)...................... 7,162,165 1999: 1,981,567 shares (cost $2,050,979)...................... 2,204,952 Growth Stock 2000: 15,411,997 shares (cost $34,938,452).................... 38,036,808 1999: 14,699,227 shares (cost $29,389,393).................... 39,031,078 Growth and Income Stock 2000: 19,051,375 shares (cost $28,135,900)..................... 26,081,332 1999: 22,898,038 shares (cost $34,014,600)..................... 35,735,343 Index 500 Stock 2000: 39,191,692 shares (cost $92,331,134)..................... 133,526,095 1999: 43,710,778 shares (cost $89,440,254)..................... 169,861,157 Balanced 2000: 130,978,760 shares (cost $221,088,801)................... 266,410,798 1999: 143,907,127 shares (cost $230,277,308)................... 319,677,680 High Yield Bond 2000: 7,431,618 shares (cost $6,676,645)....................... 5,135,248 1999: 8,444,761 shares (cost $8,362,273)....................... 6,939,731 Select Bond 2000: 17,523,828 shares (cost $20,614,745)..................... 20,275,069 1999: 19,599,330 shares (cost $23,331,292)..................... 22,161,495 Money Market 2000: 25,479,645 shares (cost $25,479,644)..................... 25,479,644 1999: 28,967,243 shares (cost $28,967,243)..................... 28,975,194 Russell Insurance Funds Multi Style Equity 2000: 290,165 shares (cost $4,599,941)......................... 4,097,132 1999: 148,936 shares (cost $2,437,889)......................... 2,500,013 Aggressive Equity ................................................. 2000: 212,914 shares (cost $2,738,781)......................... 2,497,479 1999: 85,535 shares (cost $1,024,233).......................... 1,142,441 Non-U.S. 2000: 290,974 shares (cost $3,769,019)......................... 3,244,356 1999: 97,503 shares (cost $1,228,520).......................... 1,383,194 Real Estate Securities 2000: 124,350 shares (cost $1,240,425)......................... 1,328,065 1999: 37,690 shares (cost $341,826)............................ 331,977 Core Bond 2000: 117,795 shares (cost $1,141,774)......................... 1,184,206 ------------ 1999: 71,866 shares (cost $716,227)............................ 692,598 ------------ 697,899,098 785,267,013 Due from Sales of Fund Shares............................................... 665,277 1,329,077 Due from The Northwestern Mutual Life Insurance Company..................... 0 1,011,681 ------------ ------------ Total Assets....................................................... $698,564,375 $787,607,771 ============ ============ LIABILITIES Due to Participants................................................... $ 544,942 1,062,598 Due to The Northwestern Mutual Life Insurance Company................. 665,277 1,329,077 Due from Purchase of Fund Shares...................................... 0 1,011,681 ------------ ------------ Total Liabilities.................................................. $ 1,210,219 3,403,356 ============ ============
16 17 NML VARIABLE ANNUITY ACCOUNT A STATEMENT OF ASSETS AND LIABILITIES CONTINUED
DECEMBER 31 ----------- 2000 1999 ---- ---- EQUITY Contracts Issued Prior to December 17, 1981: 59,961,120 74,251,329 Contracts Issued After December 16, 1981 and Prior to March 31, 1995: 504,557,097 584,435,626 Contracts Issued On or After March 31, 1995: Back Load Version 108,156,511 104,801,385 Front Load Version 22,697,813 20,716,075 Contracts Issued On or After March 31, 2000: Back Load Version: 1,478,496 N/A Front Load Version 503,119 N/A Total Equity.................................. $ 697,354,156 $ 784,204,415 ------------- ------------- Total Liabilities and Equity.................. $ 698,564,375 $ 787,607,771 ============= =============
The Accompanying Notes are an Integral Part of the Financial Statements. NML VARIABLE ANNUITY ACCOUNT A COMBINED STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31
2000 1999 1998 ------------- ------------- ------------- Investment Income Dividend Income................................................ $ 56,065,219 $ 56,819,783 $ 34,233,423 Annuity Rate and Expense Guarantees............................ 8,884,413 8,723,746 8,068,865 ------------- ------------- ------------- Net Investment Income.......................................... 47,180,806 48,096,037 26,164,558 ------------- ------------- ------------- Realized and Unrealized Gain on Investments Realized Gain on Investments................................... 56,764,374 51,300,014 37,627,804 Unrealized Appreciation/(Depreciation) During the Year......... (120,838,136) 9,271,096 36,249,405 ------------- ------------- ------------- Net Gain/(Loss) on Investments................................. (64,073,762) 60,571,110 73,877,209 ------------- ------------- ------------- Increase/(Decrease) in Equity Derived from Investment Activity.... $ (16,892,956) $ 108,667,147 $ 100,041,767 ------------- ------------- -------------
The Accompanying Notes are an Integral Part of the Financial Statements. NML VARIABLE ANNUITY ACCOUNT A COMBINED STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31
2000 1999 1998 -------------- ------------- ------------- Operations: Net Investment Income.......................................... $ 47,180,806 $ 48,096,037 $ 26,164,558 Realized and Unrealized Gain on Investments Realized Gain on Investments................................... 56,764,374 51,300,014 37,627,804 Unrealized Appreciation/(Depreciation) During the Year......... (120,838,136) 9,271,096 36,249,405 -------------- ------------- ------------- Increase/(Decrease) in Equity Derived from Investment Activity.... (16,892,956) 108,667,147 100,041,767 -------------- ------------- ------------- Equity Transactions: Contract Owners' Net Payments.................................. $ 54,157,406 $ 5,484,960 $ 62,320,941 Annuity Payments............................................... (1,472,152) (1,467,552) (1,305,331) Surrenders and Other (Net)..................................... (121,403,362) (102,496,600) (80,847,378) Transfers from Other Divisions or Sponsor...................... 137,543,003) 128,159,774 95,970,732 Transfers to Other Divisions or Sponsor........................ (138,782,198) (129,776,813) (98,941,321) ------------- ------------- ------------- (Decrease) in Equity Derived from Equity Transactions................................................... (69,957,303) (50,096,231) (22,802,357) ------------- ------------- ------------- Net Increase/(Decrease) in Equity................................. (86,850,259) 58,570,916 77,239,410 Equity, Beginning of Year......................................... 784,204,415 725,633,499 648,394,089 ------------- ------------- ------------- Equity, End of Year............................................... $ 697,354,156 $ 784,204,415 $ 725,633,499 ============= ============= =============
The Accompanying Notes are an Integral Part of the Financial Statements. 17 18 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" 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 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. and the Russell Insurance Funds (collectively known as the "Funds"). The shares are valued at the Funds' offering and redemption price per share. The Funds are open-end investment companies registered under the Investment Company Act of 1940. Note 4--Annuity reserves are based on published annuity tables with age 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% or 5%. For variable payment plans issued on or after January 1, 1974 and before January 1, 1995, 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 1985 Individual Annuity Table with assumed interest rates of 3-1/2% or 5%. Note 5--Dividend income from the Funds is recorded on the record date of the dividends. Transactions in the Funds shares are accounted for on the trade date. The basis for determining cost on sale of the Funds shares is identified cost. Purchases and sales of the Funds shares for the years ended December 31 by each Division are shown below:
PURCHASES 2000 1999 1998 ---------------------------------- ------------ ------------ ------------ Small Cap Growth Stock Division.......................................... $ 17,753,003 $ 7,208,705 $ N/A Aggressive Growth Division............................................... 28,757,540 9,958,208 10,360,035 International Equity Division............................................ 7,202,129 7,974,310 6,698,885 Index 400 Stock Division................................................. 6,518,127 2,853,810 N/A Growth Stock Division.................................................... 10,541,938 11,793,727 9,097,053 Growth & Income Stock Division........................................... 3,648,384 9,919,814 10,667,937 Index 500 Stock Division................................................. 12,680,244 20,410,794 18,355,852 Balanced Division........................................................ 27,444,656 44,419,512 28,049,864 High Yield Bond Division................................................. 1,229,855 2,095,955 5,801,403 Select Bond Division..................................................... 3,277,738 4,931,954 5,372,185 Money Market Division.................................................... 17,944,328 20,905,226 24,597,925 Russell Multi-Style Division............................................. 3,100,268 2,666,402 N/A Russell Aggressive Equity Division....................................... 2,220,376 1,593,605 N/A Russell Non-U.S. Division................................................ 3,003,918 1,498,221 N/A Russell Real Estate Securities Division.................................. 2,492,535 357,723 N/A Russell Core Bond Division............................................... 1,780,876 758,431 N/A SALES 2000 1999 1998 ---------------------------------- ------------ ------------ ------------ Small Cap Growth Stock Division.......................................... $ 5,283,832 $ 3,374,541 $ N/A Aggressive Growth Division............................................... 19,230,800 22,717,778 14,639,276 International Equity Division............................................ 8,640,998 10,228,782 11,198,223 Index 400 Stock Division................................................. 1,353,450 821,170 N/A Growth Stock Division.................................................... 8,573,786 5,237,895 4,198,359 Growth & Income Stock Division........................................... 9,525,030 9,006,288 3,780,324 Index 500 Stock Division................................................. 29,656,415 20,135,029 13,607,476 Balanced Division........................................................ 56,250,284 50,211,717 40,333,474 High Yield Bond Division................................................. 2,157,663 3,579,846 4,113,088 Select Bond Division..................................................... 5,660,540 6,390,659 4,608,524
18 19 Money Market Division.................................................... 21,431,894 18,848,756 19,273,286 Russell Multi-Style Division............................................. 864,610 225,476 N/A Russell Aggressive Equity Division....................................... 548,989 535,192 N/A Russell Non-U.S. Division................................................ 484,146 279,802 N/A Russell Real Estate Securities Division.................................. 1,636,969 13,625 N/A Russell Core Bond Division............................................... 1,332,763 41,756 N/A
Note 6--A deduction for annuity rate and expense guarantees is determined daily and paid to Northwestern Mutual as compensation for assuming the risk that annuity payments will continue for longer periods than anticipated because the annuitants as a group live longer than expected, and the risk that the charges made by Northwestern Mutual may be insufficient to cover the actual costs incurred in connection with the contracts. For contracts issued on or after March 31, 2000, 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 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. For these contracts, the rates may be increased or decreased by the Board of Trustees of Northwestern Mutual not to exceed 3/4 of 1% and 1-1/2% annual rates, respectively. The current charges will not be increased for five years from the date of the most recent Prospectus. For contracts issued on or after March 31, 1995 and prior to March 31, 2000, 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 a 1-1/4%, respectively, of the net assets of each Division attributable to these contracts and is paid to Northwestern Mutual. For these contracts, the rates may be increased or decreased by the Board of Trustees of Northwestern Mutual not to exceed 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 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 not to exceed a 1% annual rate. Since 1995, Northwestern Mutual 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 7--Northwestern Mutual 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. Under current law, no federal income taxes are payable with respect to the Account. Accordingly, no provision for any such liability has been made. Note 8--Equity Values by Division for the year ended December 31, 2000 are shown below:
Contracts Issued: Contracts Issued: After December 16, 1981 and Prior to December 17, 1981 Prior to March 31, 1995 --------------------------------------------------------------------------------------------- Accumulation Unit Units Accumulation Units Division Value Outstanding Equity Unit Value Outstanding Equity ---------------------------------------------------------------------------------------------------------------------------------- Small Cap Growth Stock.............. $ 1.961375 261,141 $ 512,195 $ 1.945087 5,885,472 11,447,755 Aggressive Growth Stock............. 5.963354 388,193 2,314,933 5.671037 13,812,637 78,331,974 International Equity................ 2.339241 375,719 878,897 2.251266 13,283,821 29,905,413 Index 400 Stock..................... 1.306094 288,383 376,655 1.295242 3,499,606 4,532,837 Growth Stock........................ 2.999890 334,831 1,004,457 2.901600 8,296,584 24,073,369 Growth and Income................... 2.401649 180,854 434,349 2.322995 6,946,403 16,136,459 Index 500 Stock..................... 4.567635 5,706,738 26,066,296 4.343830 17,587,215 76,395,873 Balanced............................ 8.062822 2,213,090 17,843,753 7.332002 29,328,998 215,040,269 High Yield Bond..................... 1.480422 80,510 119,189 1.431888 2,029,262 2,905,676 Select Bond......................... 8.294952 495,713 4,111,913 7.541503 1,634,871 12,329,386 Money Market........................ 2.912624 732,845 2,134,502 2.648821 6,248,637 16,551,521 Russell Multi-Style Equity.......... 0.932346 60,602 55,998 0.924598 2,365,883 2,187,490 Russell Aggressive Equity........... 1.088117 58,734 63,909 1.079072 1,455,003 1,570,053 Russell Non-U.S..................... 1.059216 51,562 54,615 1.050412 2,019,287 2,121,083 Russell Real Estate Securities...... 1.165389 25,462 29,673 1.155691 652,555 754,152 Russell Core Bond................... 1.077032 22,616 24,358 1.068073 728,086 777,649 ----------- -----------
19 20 =========== ============ Equity.............................. 56,025,692 495,060,959 Annuity Reserves.................... 3,935,428 9,496,138 ----------- ------------ Total Equity........................ $59,961,120 $504,557,097 =========== ============
Contracts Issued: On or After March 31, 1995 Contracts Issued: On or After March 31, 1995 and Prior to March 31, 2000 and Prior to March 31, 2000 Front Load Version Back Load Version ---------------------------------------------------------------------------------------------- Accumulation Units Accumulation Units Division Unit Value Outstanding Equity Unit Value Outstanding Equity ---------------------------------------------------------------------------------------------------------------------------------- Small Cap Growth Stock.............. $ 1.972747 321,211 $ 633,669 $ 1.945087 1,675,122 $ 3,258,259 Aggressive Growth Stock............. 2.815081 1,322,419 3,722,716 5.671037 3,831,806 21,730,312 International Equity................ 1.940943 950,116 1,844,122 2.251266 3,242,296 7,299,271 Index 400 Stock..................... 1.313674 226,675 297,777 1.295242 1,069,393 1,385,123 Growth Stock........................ 2.814641 688,920 1,939,063 2.901600 3,697,631 10,729,045 Growth and Income................... 2.252648 721,964 1,626,331 2.322995 3,046,744 7,077,571 Index 500 Stock..................... 2.842665 1,267,405 3,602,808 4.343830 5,436,581 23,615,584 Balanced............................ 2.105871 1,936,776 4,078,602 7.332002 2,907,554 21,318,188 High Yield Bond..................... 1.409248 278,582 392,591 1.431888 1,154,997 1,653,826 Select Bond......................... 1.461268 352,753 515,467 7.541503 353,449 2,665,540 Money Market........................ 1.333271 1,852,761 2,470,232 2.648821 1,397,046 3,700,525 Russell Multi-Style Equity.......... 0.937760 653,396 612,729 0.924598 1,250,824 1,156,510 Russell Aggressive Equity........... 1.094433 205,450 224,852 1.079072 558,206 602,345 Russell Non-U.S..................... 1.065355 239,460 255,110 1.050412 734,746 771,786 Russell Real Estate Securities...... 1.172137 73,595 86,263 1.155691 324,452 374,967 Russell Core Bond................... 1.083276 35,410 38,359 1.068073 310,796 331,953 ----------- ------------ Equity............................ 22,340,691 107,670,805 Annuity Reserves.................. 357,122 485,706 ----------- ------------ Total Equity...................... $22,697,813 $108,156,511 =========== ============
Contracts Issued: Contracts Issued: On or After March 31, 2000 On or After March 31, 2000 Front Load Version Back Load Version ---------------------------------------------------------------------------------------------- Accumulation Units Accumulation Units Division Unit Value Outstanding Equity Unit Value Outstanding Equity ---------------------------------------------------------------------------------------------------------------------------------- Small Cap Growth Stock.............. $ 0.904342 87,187 78,847 $ 1.945087 69,946 $ 136,052 Aggressive Growth Stock............. 0.901909 54,097 48,790 5.671037 35,017 198,585 International Equity................ 0.995643 24,076 23,971 2.251266 42,413 95,483 Index 400 Stock..................... 1.035589 114,473 118,547 1.295242 48,800 63,208 Growth Stock........................ 0.916924 30,267 27,752 2.901600 63,702 184,837 Growth and Income................... 0.887072 31,528 27,968 2.322995 15,035 34,927 Index 500 Stock..................... 0.888477 24,617 21,872 4.343830 54,215 235,499 Balanced............................ 0.973123 52,519 51,107 7.332002 46,538 341,214 High Yield Bond..................... 0.963375 - - 1.431888 6,687 9,576 Select Bond......................... 1.078901 537 580 7.541503 4,112 31,009 Money Market........................ 1.044325 538 562 2.648821 22,631 59,945 Russell Multi-Style Equity.......... 0.880119 1,678 1,477 0.924598 17,408 16,096 Russell Aggressive Equity........... 0.930436 17,481 16,265 1.079072 18,584 20,053 Russell Non-U.S..................... 0.850723 11,781 10,022 1.050412 30,216 31,739 Russell Real Estate Securities...... 1.240862 60,731 75,359 1.155691 5,539 6,401 Russell Core Bond................... 1.074705 - - 1.068073 12,988 13,872 ---------- ----------- Equity............................ 503,119 1,478,496 Annuity Reserves.................. - - ---------- ----------- Total Equity...................... $ 503,119 $ 1,478,496 ========== ===========
20 21 Equity Values by Division for the year ended December 31, 1999 are shown below:
Contracts Issued: Contracts Issued: After December 16, 1981 and Prior to December 17, 1981 Prior to March 31, 1995 ---------------------------------------------------------------------------------------------- Accumulation Unit Units Accumulation Units Division Value Outstanding Equity Unit Value Outstanding Equity ---------------------------------------------------------------------------------------------------------------------------------- Small Cap Growth Stock.............. $ 1.851783 95,329 $ 176,529 $ 1.845580 1,898,627 $ 3,504,067 Aggressive Growth Stock............. 5.658407 370,787 2,098,068 5.407959 14,666,263 79,314,551 International Equity................ 2.375600 630,123 1,496,920 2.297694 15,307,814 35,172,671 Index 400 Stock..................... 1.122676 167,651 188,218 1.118909 1,241,398 1,389,011 Growth Stock........................ 3.099518 372,659 1,155,064 3.012947 8,576,102 25,839,341 Growth and Income................... 2.600855 254,027 660,688 2.528256 9,502,862 24,025,667 Index 500 Stock..................... 5.043329 6,687,759 33,728,572 4.820195 20,900,522 100,744,593 Balanced............................ 8.136959 2,738,126 22,280,021 7.436406 35,440,432 263,549,442 High Yield Bond..................... 1.563339 77,269 120,798 1.519653 2,904,325 4,413,566 Select Bond......................... 7.582833 715,024 5,421,908 6.928532 1,914,749 13,266,399 Money Market........................ 2.760791 898,198 2,479,738 2.523294 7,329,873 18,495,423 Russell Multi-Style Equity.......... 1.070614 7,554 8,088 1.067018 1,475,825 1,574,732 Russell Aggressive Equity........... 1.103591 7,374 8,138 1.099895 760,721 836,714 Russell Non-U.S..................... 1.247160 12,237 15,261 1.242993 813,542 1,011,227 Russell Real Estate Securities...... 0.922768 4,656 4,297 0.919674 248,726 228,747 Russell Core Bond................... 0.986452 2,617 2,582 0.983142 580,967 571,173 ------------ ------------- Equity............................ 69,844,890 573,937,324 Annuity Reserves.................. 4,406,439 10,498,302 ------------ ------------- Total Equity...................... $ 74,251,329 $ 584,435,626 ============ =============
Contracts Issued: Contracts Issued: On or After March 31, 1995 On or After March 31, 1995 Front Load Version Back Load Version ---------------------------------------------------------------------------------------------- Accumulation Units Accumulation Units Division Unit Value Outstanding Equity Unit Value Outstanding Equity ---------------------------------------------------------------------------------------------------------------------------------- Small Cap Growth Stock.............. $ 1.856086 149,996 $ 278,405 $ 1.845580 481,140 $ 887,982 Aggressive Growth Stock............. 2.661899 1,185,824 3,156,543 5.407959 3,585,337 19,389,354 International Equity................ 1.964300 727,940 1,429,893 2.297694 3,063,127 7,038,129 Index 400 Stock..................... 1.125296 162,971 183,391 1.118909 388,194 434,353 Growth Stock........................ 2.898070 613,097 1,776,797 3.012947 3,381,484 10,188,233 Growth and Income................... 2.431081 757,434 1,841,384 2.528256 3,306,924 8,360,751 Index 500 Stock..................... 3.127888 1,247,611 3,902,386 4.820195 5,417,756 26,114,640 Balanced............................ 2.117903 1,800,477 3,813,235 7.436406 2,897,246 21,545,097 High Yield Bond..................... 1.483036 380,690 564,577 1.519653 1,174,446 1,784,751 Select Bond......................... 1.331215 214,565 285,633 6.928532 364,139 2,522,952 Money Market........................ 1.259407 1,980,615 2,494,401 2.523294 1,892,502 4,775,339 Russell Multi-Style Equity.......... 1.073107 321,514 345,019 1.067018 535,268 571,141 Russell Aggressive Equity........... 1.106159 87,678 96,984 1.099895 182,385 200,604 Russell Non-U.S..................... 1.250059 81,105 101,385 1.242993 205,407 255,320 Russell Real Estate Securities...... 0.924920 19,288 17,840 0.919674 88,176 81,093 Russell Core Bond................... 0.988747 26,817 26,515 0.983142 93,910 92,326 ----------- ------------ Equity............................ 20,314,388 104,242,065 Annuity Reserves.................. 401,687 559,320 ----------- ------------ Total Equity...................... $20,716,075 $104,801,385 =========== ============
21 22 Report of Independent Accountants To The Northwestern Mutual Life Insurance Company and Contract Owners of NML Variable Annuity Account A In our opinion, the statements appearing on pages 16 through 21 present fairly, in all material respects, the financial position of NML Variable Annuity Account A at December 31, 2000 and 1999, and the results of its operations and the changes in its equity for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of The Northwestern Mutual Life Insurance Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included direct confirmation of the number of shares owned at December 31, 2000 with Northwestern Mutual Series Fund, Inc., and the Russell Insurance Funds, provide a reasonable basis for our opinion. /s/ PRICEWATERHOUSECOOPERS LLP Milwaukee, Wisconsin January 26, 2001 22 23 NML VARIABLE ANNUITY ACCOUNT C STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31 ------------------------------- ASSETS 2000 1999 --------------------------------------------------- -------------- ------------ Investments at Market Value: Northwestern Mutual Series Fund, Inc. Small Cap Growth Stock 2000: 10,796,241 shares (cost $21,731,628)...................................... $ 20,037,824 1999: 529,175 shares (cost $746,064)............................................ $ 949,166 Aggressive Growth Stock 2000: 35,197,759 shares (cost $127,672,324)..................................... 157,369,180 1999: 29,072,234 shares (cost $89,365,021)...................................... 139,738,783 International Equity 2000: 40,103,518 shares (cost $66,608,516)...................................... 65,489,046 1999: 36,249,699 shares (cost $57,059,536)...................................... 64,556,193 Index 400 Stock 2000: 9,964,101 shares (cost $12,291,386)....................................... 11,398,931 1999: 425,398 shares (cost $442,230)............................................ 473,356 Growth Stock 1999: 17,299,927 shares (cost $39,130,890)...................................... 42,696,219 2000: 14,976,894 shares (cost $30,335,095)...................................... 39,775,147 Growth and Income Stock 2000: 21,711,509 shares (cost $32,369,328)...................................... 29,723,056 1999: 26,336,018 shares (cost $39,527,301)...................................... 41,105,386 Index 500 Stock 2000: 50,894,562 shares (cost $127,244,309)..................................... 173,397,772 1999: 56,622,314 shares (cost $120,506,073)..................................... 220,074,926 Balanced 2000: 66,867,567 shares (cost $124,702,698)..................................... 136,008,639 1999: 75,364,260 shares (cost $128,710,511)..................................... 167,443,550 High Yield Bond 2000: 6,135,113 shares (cost $5,231,274)........................................ 4,239,363 1999: 7,762,704 shares (cost $7,872,845)........................................ 6,380,157 Select Bond 2000: 12,123,936 shares (cost $13,964,856)...................................... 14,027,394 1999: 15,507,986 shares (cost $18,559,097)...................................... 17,537,190 Money Market 2000: 12,101,600 shares (cost $12,101,600)...................................... 12,101,600 1999: 19,345,920 shares (cost $19,345,920)...................................... 19,341,129 Russell Insurance Funds Multi-Style Equity 2000: 123,584 shares (cost $1,963,533).......................................... 1,745,513 1999: 101,611 shares (cost $1,641,897).......................................... 1,705,658 Aggressive Equity 2000: 54,790 shares (cost $720,017)............................................. 642,689 1999: 26,321 shares (cost $325,516)............................................. 351,582 Non-U.S. 2000: 73,357 shares (cost $945,134)............................................. 817,929 1999: 39,836 shares (cost $492,817)............................................. 565,156 Real Estate Securities 2000: 248,471 shares (cost $2,534,206).......................................... 2,653,592 1999: 11,601 shares (cost $108,462)............................................. 102,204 Core Bond 2000: 48,242 shares (cost $477,171)............................................. 485,806 1999: 39,849 shares (cost $398,722)............................................. 384,069 ------------- ------------ 672,834,553 720,483,652 Due from Sales of Fund Shares................................................................ 195,486 798,688 Due from Northwestern Mutual Life Insurance Company.......................................... 15,630 395,300 Due from Participants........................................................................ 0 232,622 ------------- ------------ Total Assets.................................................................... $ 673,045,669 $721,910,262 ============= ============ LIABILITIES Due to Northwestern Mutual Life Insurance Company...................................... $ 195,486 $ 798,688 Due from Purchase of Fund Shares....................................................... 15,630 395,300 ------------- ------------ Total Liabilities............................................................... $ 211,116 $ 1,193,988 ============= ============
23 24 NML VARIABLE ANNUITY ACCOUNT C STATEMENT OF ASSETS AND LIABILITIES CONTINUED
DECEMBER 31 -------------------------------- EQUITY 2000 1999 ------------------------------------------------------------------------------------------ -------------- -------------- Contracts Issued Before December 17, 1981 or Between April 30, 1984 and December 31, 1991: 459,962,642 453,198,507 Contracts Issued After December 16, 1981 and Prior to May 1, 1984: 4,160,489 4,972,618 Contracts Issued After December 31, 1991: Front Load Version 42,945,213 62,645,059 Simplified Load Version 165,766,209 199,900,090 Total Equity................................................................. $ 672,834,553 $ 720,716,274 -------------- -------------- Total Liabilities and Equity................................................. $ 673,045,669 $ 721,910,262 ============== ==============
The Accompanying Notes are an Integral Part of the Financial Statements. NML VARIABLE ANNUITY ACCOUNT C COMBINED STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31
Investment Income 2000 1999 1998 ------------- ------------- ------------- Dividend Income........................................................... $ 54,948,815 $ 43,814,500 $ 26,995,272 Annuity Rate and Expense Guarantees....................................... 2,896,681 3,445,294 3,154,687 ------------- ------------- ------------- Net Investment Income..................................................... 52,052,134 40,369,206 23,840,585 ------------- ------------- ------------- Realized and Unrealized Gain on Investments Realized Gain on Investments.............................................. 54,861,323 41,105,768 29,250,486 Unrealized Appreciation/(Depreciation) During the Year.................... (121,850,155) 36,856,549 37,105,561 ------------- ------------- ------------- Net Gain/(Loss) on Investments............................................ (66,988,832) 77,962,317 66,356,047 ------------- ------------- ------------- Increase/(Decrease) in Equity Derived from Investment Activity............... $ (14,936,698) $ 118,331,523 $ 90,196,632 ------------- ------------- -------------
The Accompanying Notes are an Integral Part of the Financial Statements. NML VARIABLE ANNUITY ACCOUNT C COMBINED STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31
Operations: 2000 1999 1998 -------------- -------------- -------------- Net Investment Income..................................................... $ 52,052,134 $ 40,369,206 $ 23,840,585 Realized and Unrealized Gain on Investments: Realized Gain on Investments.............................................. 54,861,323 41,105,768 29,250,486 Unrealized Appreciation/(Depreciation) During the Year.................... (121,850,155) 36,856,549 37,105,561 ------------- ------------- ------------- Increase/(Decrease) in Equity Derived from Investment Activity............... (14,936,698) 118,331,523 90,196,632 ------------- ------------- ------------- Equity Transactions: Contract Owners' Net Payments............................................. 103,967,430 74,901,848 93,658,882 Annuity Payments.......................................................... (75,413) (67,477) (55,735) Surrenders and Other (Net)................................................ (135,735,449) (119,040,591) (87,764,730) Transfers from Other Divisions or Sponsor................................. 91,474,812 70,709,573 72,491,325 Transfers to Other Divisions or Sponsor................................... (92,576,403) (69,205,099) (71,428,400) ------------- ------------- ------------- Increase (Decrease) in Equity Derived from Equity Transactions............... (32,945,023) (42,701,746) 6,901,342 ------------- ------------- ------------- Net Increase in Equity....................................................... (47,881,721) 75,629,777 97,097,974 Equity, Beginning of Year.................................................... 720,716,274 645,086,497 547,988,523 ------------- ------------- ------------- Equity, End of Year.......................................................... $ 672,834,553 $ 720,716,274 $ 645,086,497 ============= ============= =============
The Accompanying Notes are an Integral Part of the Financial Statements. 24 25 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" 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. and the Russell Insurance Funds (collectively know as the "Funds"). The shares are valued at the Funds' offering and redemption price per share. The Funds are open-end investment companies registered under the Investment Company Act of 1940. Note 4-- Annuity reserves are based on published annuity tables with age adjustments and benefit payments which reflect actual investment experience. Annuity reserves are based on the 1983 Table with assumed interest rates of 3-1/2% or 5%. Note 5-- Dividend income from the Funds is recorded on the record date of the dividends. Transactions in the Funds shares are accounted for on the trade date. The basis for determining cost on sale of the Funds shares is identified cost. Purchases and sales of the Funds shares for the years ended December 31 by each Division are shown below:
PURCHASES 2000 1999 1998 ---------------------------------- ------------ ------------ ------------ Small Cap Growth Division.............................................. $ 21,822,710 $ 759,215 $ N/A Aggressive Growth Division............................................. 47,835,326 12,206,930 15,042,444 International Equity Division.......................................... 31,939,632 13,196,712 10,115,335 Index 400 Stock Division............................................... 12,366,486 468,108 N/A Growth Stock Division.................................................. 12,950,757 11,622,415 11,736,176 Growth & Income Stock Division......................................... 5,847,806 12,666,073 12,220,296 Index 500 Stock Division............................................... 21,135,615 24,489,112 27,128,970 Balanced Division...................................................... 19,926,273 27,037,531 25,547,459 High Yield Bond Division............................................... 2,046,585 1,696,507 4,842,682 Select Bond Division................................................... 5,061,775 3,699,428 7,219,542 Money Market Division.................................................. 14,029,450 22,540,096 28,689,880 Russell Multi-Style Division........................................... 851,426 1,676,900 N/A Russell Aggressive Equity Division..................................... 646,095 763,162 N/A Russell Non-U.S. Division.............................................. 646,150 494,961 N/A Russell Real Estate Securities Division................................. 3,116,036 109,105 N/A Russell Core Bond Division.............................................. 179,473 403,049 N/A
25 26
SALES 2000 1999 1998 ---------------------------------- ------------ ------------ ------------ Small Cap Growth Stock Division....................................... $ 1,131,840 $ 13,802 $ N/A Aggressive Growth Division............................................ 18,536,546 23,468,462 18,315,682 International Equity Division......................................... 25,522,098 11,938,339 13,861,624 Index 400 Stock Division.............................................. 615,601 26,390 N/A Growth Stock Division................................................. 6,871,377 5,373,768 4,445,344 Growth & Income Stock Division........................................ 12,730,171 10,170,106 6,047,669 Index 500 Stock Division.............................................. 42,005,726 21,511,153 12,386,814 Balanced Division..................................................... 38,332,517 32,467,107 24,616,712 High Yield Bond Division.............................................. 3,398,369 3,114,104 1,661,445 Select Bond Division.................................................. 9,000,392 5,152,171 4,504,138 Money Market Division................................................. 21,273,753 22,822,933 25,961,429 Russell Multi-Style Division.......................................... 510,026 35,224 N/A Russell Aggressive Equity Division.................................... 276,105 443,034 N/A Russell Non-U.S. Division............................................. 208,804 2,369 N/A Russell Real Estate Securities Division............................... 736,889 569 N/A Russell Core Bond Division............................................ 97,425 4,229 N/A
Note 6-- A deduction for annuity rate and expense guarantees is determined daily and paid to Northwestern Mutual as compensation for assuming the risk that annuity payments will continue for longer periods than anticipated because the annuitants as a group live longer than expected and the risk that the charges made by Northwestern Mutual may be insufficient to cover the actual costs incurred in connection with the contracts. Generally, for contracts issued after December 31, 1991, for the Front Load Version and the Simplified Load Version, the deduction for annuity rate and expense guarantees is 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. For these contracts, the rates may be increased or decreased by the Board of Trustees of Northwestern Mutual not to exceed 1% and 1-1/2% annual rates, respectively. For contracts issued after December 16, 1981, and prior to May 1, 1984, the deduction is determined daily at an annual rate of 1/2 of 1% of the net assets of each Division attributable to these contracts and is paid to Northwestern Mutual. For these contracts, the rate may be increased or decreased by the Board of Trustees of Northwestern Mutual not to exceed a 3/4 of 1% annual rate. Since 1996, Northwestern Mutual has paid a dividend to certain contracts. The dividend is re-invested in the Account and has been reflected as a Contract Owners' Net Payment in the accompanying financial statements. Note 7-- Northwestern Mutual is taxed as a "life insurance company" under the Internal Revenue Code and the operations of the Account form a part of and are taxed with those of Northwestern Mutual. Under current law, no federal income taxes are payable with respect to the Account. Accordingly, no provision for any such liability has been made. Note 8-- Equity Values by Division for the year ended December 31, 2000 are shown below:
Contracts Issued: Contracts Issued: Prior to December 17, 1981 or between After December 16, 1981 and April 30, 1984 and December 31, 1991 Prior to May 1, 1984 ------------------------------------------------------------------------------------------ Accumulation Units Accumulation Units Division Unit Value Outstanding Equity Unit Value Outstanding Equity ----------------------------------------------------------------------------------------------------------------------------- Small Cap Growth Stock............... $ 19.859931 859,005 $ 17,059,771 $ 19.695066 420 $ 8,276 Aggressive Growth Stock.............. 60.845203 1,855,240 112,882,454 57.897540 1,574 91,112 International Equity................. 2.477334 20,581,223 50,986,564 2.384172 26,354 62,833 Index 400 Stock...................... 13.224995 756,727 10,007,706 13.115131 - - Growth Stock......................... 31.531943 978,021 30,838,902 30.498976 104 3,159 Growth and Income.................... 25.243989 650,867 16,430,474 24.416867 1,820 44,438 Index 500 Stock...................... 51.325633 2,463,257 126,428,232 48.834231 9,467 462,299 Balanced............................. 94.345469 884,725 83,469,825 85.820221 30,736 2,637,770 High Yield Bond...................... 15.560950 151,658 2,359,941 15.050970 342 5,151 Select Bond.......................... 98.036463 59,938 5,876,077 89.133511 229 20,403 Money Market......................... 32.311690 33,651 1,087,330 29.426661 - - Russell Multi-Style Equity........... 9.440627 24,295 229,356 9.362193 - - Russell Aggressive Equity............ 11.017913 939 10,341 10.926333 - - Russell Non-U.S...................... 10.725190 2,822 30,262 10.636093 - - Russell Real Estate Securities....... 11.800164 191,981 2,265,407 11.702144 - - Russell Core Bond.................... 10.905549 - - 10.814951 - - ------------ ----------- Equity............................ 459,962,642 3,335,441 Annuity Reserves..................... - 825,048 ------------ ----------- Total Equity......................... $459,962,642 $ 4,160,489 ------------ -----------
26 27
Contracts Issued: Contracts Issued: After December 31, 1991 After December 31, 1991 Front Load Version Simplified Load Version ---------------------------------------------------------------------------------------------- Accumulation Units Accumulation Units Division Unit Value Outstanding Equity Unit Value Outstanding Equity ---------------------------------------------------------------------------------------------------------------------------------- Small Cap Growth Stock............. $ 1.964602 326,150 $ 640,755 $ 1.945087 1,197,387 $ 2,329,022 Aggressive Growth Stock............ 3.785207 2,114,652 8,004,397 5.691856 6,384,710 36,340,852 International Equity............... 2.357007 1,653,777 3,897,964 2.251266 4,672,038 10,517,999 Index 400 Stock.................... 1.308249 295,347 386,387 1.295242 775,791 1,004,838 Growth Stock....................... 3.019678 814,788 2,460,397 2.901600 3,220,718 9,345,235 Growth and Income.................. 2.417488 1,319,721 3,190,410 2.322995 4,329,641 10,057,734 Index 500 Stock.................... 3.570426 2,724,196 9,726,539 4.432423 8,286,039 36,727,230 Balanced........................... 2.499718 4,447,958 11,118,640 7.368231 5,215,778 38,431,060 High Yield Bond.................... 1.490196 166,175 247,633 1.431888 1,125,550 1,611,661 Select Bond........................ 1.706832 736,742 1,257,494 7.615016 895,503 6,819,270 Money Market....................... 1.442872 640,788 924,575 2.654580 3,715,872 9,864,080 Russell Multi-Style Equity......... 0.933887 381,014 355,824 0.924598 1,254,417 1,159,831 Russell Aggressive Equity.......... 1.089907 139,940 152,522 1.079072 444,666 479,827 Russell Non-U.S.................... 1.060950 207,716 220,377 1.050412 540,064 567,290 Russell Real Estate Securities..... 1.167301 69,412 81,025 1.155691 263,698 304,753 Russell Core Bond.................. 1.078791 259,803 280,274 1.068073 192,428 205,527 ------------ ------------- Equity........................... 42,945,213 165,766,209 Annuity Reserves................. - - ------------ ------------- Total Equity..................... $ 42,945,213 $ 165,766,209 ============ =============
Equity Values by Division for the year ended December 31, 1999 are shown below:
Contracts Issued: Contracts Issued: Prior to December 17, 1981 or between After December 16, 1981 and April 30, 1984 and December 31, 1991 Prior to May 1, 1984 --------------------------------------------------------------------------------------------- Accumulation Unit Units Accumulation Units Division Value Outstanding Equity Unit Value Outstanding Equity -------------------------------------------------------------------------------------------------------------------------------- Small Cap Growth Stock............... $ 18.610781 7,543 $ 140,375 $ 18.548596 420 $ 7,795 Aggressive Growth Stock.............. 57.304251 1,627,058 93,237,331 54.800923 1,438 78,796 International Equity................. 2.497127 18,571,580 46,375,593 2.415234 24,296 58,680 Index 400 Stock...................... 11.283278 1,071 12,082 11.245478 - - Growth Stock......................... 32.336967 792,443 25,625,190 31.433960 137 4,310 Growth and Income.................... 27.134671 798,290 21,661,354 26.376796 1,381 36,430 Index 500 Stock...................... 56.249780 2,756,358 155,044,524 53.786850 8,293 446,068 Balanced............................. 94.505378 1,066,999 100,837,077 86.395292 37,494 3,239,303 High Yield Bond...................... 16.310402 205,407 3,350,268 15.854730 214 3,398 Select Bond.......................... 88.954059 72,427 6,442,736 81.280078 456 37,103 Money Market......................... 30.399653 7,939 241,341 27.823703 - - Russell Multi-Style Equity........... 10.760032 17,246 185,568 10.723983 - - Russell Aggressive Equity............ 11.091435 950 10,539 11.054275 - - Russell Non-U.S...................... 12.534266 - - 12.492336 480 6,007 Russell Real Estate Securities....... 9.274172 3,723 34,529 9.243071 - - Russell Core Bond.................... 9.914196 - - 9.880973 - - ------------ ------------ Equity............................. 453,198,507 3,917,890 Annuity Reserves................... - 1,054,728 ------------ ------------ Total Equity....................... $453,198,507 $ 4,972,618 ============ ============
27 28
Contracts Issued: Contracts Issued: After December 31, 1991 After December 31, 1991 Front Load Version Simplified Load Version ---------------------------------------------------------------------------------------------- Accumulation Units Accumulation Units Division Unit Value Outstanding Equity Unit Value Outstanding Equity ---------------------------------------------------------------------------------------------------------------------------------- Small Cap Growth Stock............. $ 1.853001 73,643 $ 136,461 $ 1.845580 360,069 $ 664,535 Aggressive Growth Stock............ 3.588119 2,776,961 9,964,067 5.427804 6,707,103 36,404,843 International Equity............... 2.391284 2,301,771 5,504,188 2.297694 5,480,221 12,591,871 Index 400 Stock.................... 1.123423 13,563 15,237 1.118909 398,635 446,037 Growth Stock....................... 3.116901 995,796 3,103,799 3.012947 3,646,722 10,987,379 Growth and Income.................. 2.615436 1,704,699 4,458,532 2.528256 5,912,799 14,949,070 Index 500 Stock.................... 3.938401 4,131,824 16,272,782 4.918509 9,809,484 48,248,037 Balanced........................... 2.520233 6,183,051 15,582,729 7.473141 6,319,468 47,226,272 High Yield Bond.................... 1.572112 409,857 644,342 1.519653 1,556,400 2,365,187 Select Bond........................ 1.558775 2,264,883 3,530,442 6.996057 1,068,272 7,473,695 Money Market....................... 1.366307 1,879,181 2,567,539 2.528768 6,539,184 16,536,079 Russell Multi-Style Equity......... 1.071323 297,016 318,200 1.067018 1,126,401 1,201,891 Russell Aggressive Equity.......... 1.104316 79,144 87,400 1.099895 230,607 253,643 Russell Non-U.S.................... 1.247967 151,721 189,343 1.242993 297,512 369,806 Russell Real Estate Securities..... 0.923380 36,624 33,818 0.919674 36,814 33,857 Russell Core Bond.................. 0.987105 239,265 236,180 0.983142 150,425 147,888 ------------ ------------- Equity........................... $ 62,645,059 $ 199,900,090 Annuity Reserves - - ------------ ------------- Total Equity..................... $ 62,645,059 $ 199,900,090 ============ =============
28 29 Report of Independent Accountants To The Northwestern Mutual Life Insurance Company and Contract Owners of NML Variable Annuity Account C In our opinion, the statements appearing on pages 23 through 28 present fairly, in all material respects, the financial position of NML Variable Annuity Account C at December 31, 2000 and 1999, and the results of its operations and the changes in its equity for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of The Northwestern Mutual Life Insurance Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included direct confirmation of the number of shares owned at December 31, 2000 with Northwestern Mutual Series Fund, Inc., and the Russell Insurance Funds, provide a reasonable basis for our opinion. /s/ PRICEWATERHOUSECOOPERS LLP Milwaukee, Wisconsin January 26, 2001 29 30 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 30 31 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Neither Account A nor Account C have any directors or executive officers. The following information as of March 1, 2001, is provided with respect to each director, including persons chosen to become directors, of Northwestern Mutual. Northwestern Mutual uses the title of Trustee to denote the directors.
YEAR EXPIRATION OF OTHER POSITIONS PRESENTLY TRUSTEE AGE ELECTED TERM OF OFFICE HELD WITH REGISTRANT ------- --- ------- -------------- -------------------- R. Quintus Anderson ...... 70 1984 May 2003 (1) Chairman, Audit Committee Edward E. Barr ........... 64 1991 May 2003 Member, Human Resources and Public Policy Committee Gordon T. Beaham, III .... 69 1988 May 2001 (2) Member, Operations and Technology Committee Robert C. Buchanan ....... 60 1991 May 2003 Member, Audit, Executive and Finance Committees George A. Dickerman ...... 62 1994 May 2004 Member, Agency and Marketing Committee Pierre S. du Pont ........ 66 1985 May 2002 Member, Agency and Marketing Committee James D. Ericson ......... 65 1989 May 2004 Chairman and C.E.O.; Member, Agency and Marketing, Human Resources and Public Policy, and Operations and Technology Committees; Chairman, Executive and Finance Committees J. E. Gallegos ........... 65 1985 May 2004 Member, Audit Committee Stephen N. Graff ......... 66 1996 May 2004 Member, Audit, Executive, and Finance Committees Patricia Albjerg Graham .. 66 1980 May 2004 Member, Human Resources and Public Policy Committee James P. Hackett ......... 45 2000 May 2001 (2) Member, Operations and Technology Committee Stephen F. Keller ........ 62 1984 May 2003 Member, Human Resources and Public Policy Committee Barbara A. King .......... 54 1996 May 2002 Member, Agency and Marketing Committee J. Thomas Lewis .......... 64 1978 May 2002 Chairman, Human Resources and Public Policy Committee Daniel F. McKeithan, Jr .. 65 1988 May 2003 Member, Executive, Finance, and Human Resources and Public Policy Committees Guy A. Osborn ............ 65 1994 May 2001 (2) Member, Executive, Finance, and Operations and Technology Committees Timothy D. Proctor ....... 51 1997 May 2001 (2) Member, Audit Committee H. Mason Sizemore, Jr .... 59 1993 May 2003 Member, Agency and Marketing Committee Harold B. Smith .......... 67 1973 May 2004 Member, Operations and Technology Committee Sherwood H. Smith, Jr .... 66 1992 May 2004 Chairman, Agency and Marketing Committee Peter M. Sommerhauser .... 58 1999 May 2002 Member, Executive, Finance, and Operations and Technology Committees John E. Steuri ........... 61 1994 May 2003 Chairman, Operations and Technology Committee John J. Stollenwerk ...... 61 1993 May 2001 (2) Member, Agency and Marketing, Executive and Finance Committees Barry L. Williams ........ 56 1987 May 2001 (2) Member, Human Resources and Public Policy Committee Kathryn D. Wriston ....... 62 1986 May 2001 (2) Member, Audit Committee Edward J. Zore ........... 55 2000 May 2001 (2) President; Member, Agency and Marketing, Human Resources and Public Policy, Operations and Technology, Executive and Finance Committees --------------------
31 32 (1) Mr. Anderson is retiring from the Board of Trustees effective May 23, 2001. (2) Candidate proposed for re-election by the Board of Trustees for the election to be held at the May 2001 Annual meeting of Policyowners. If re-elected, these Trustees' terms will expire in May 2005, except that Mr. Hackett's term will expire in May 2002. 32 33 The business experience and directorships of Northwestern Mutual's Trustees are as follows:
PRINCIPAL OCCUPATION TRUSTEE DURING PAST FIVE YEARS DIRECTORSHIPS ----------------------- ------------------------------------------- -------------------------------- R. Quintus Anderson Chairman, The Aarque Capital Corporation Cold Metal Products Company, Inc. (diversified metal products manufacturing), Oneida, Ltd. Lakewood, New York, since 1997. Prior thereto, Chairman, The Aarque Companies. Edward E. Barr Chairman, Sun Chemical Group, B.V. (graphic First Union Corporation arts), Fort Lee, New Jersey, since 1998. Chairman and CEO, 1997-1998. Prior thereto, President and Chief Executive Officer, 1987-1997. Gordon T. Beaham, III Chairman and President, Faultless Starch/Bon Ami Company (consumer products manufacturer), Kansas City, Missouri, since 1987. Robert C. Buchanan President and Chief Executive Officer, Fox W. H. Brady Corporation Valley Corporation (manufacturer of gift wrap and writing paper), Appleton, Wisconsin, since 1980. George A. Dickerman Chairman Emeritus, Spalding Sports Worldwide (manufacturer of sporting equipment), Chicopee, Massachusetts, since 1999. Prior thereto, Chairman, 1997-1998, and President, 1981-1997. Pierre S. du Pont Partner with Richards, Layton & Finger PepsiAmericas, Inc. (law Firm); Wilmington, Delaware, since 1985. James D. Ericson Chairman and Chief Executive Officer of Kohl's Corporation. Northwestern Mutual since 2000. Prior Green Bay Packaging, Inc. thereto, President and Chief Executive Marcus Corporation Officer since 1993. Mason Street Funds, Inc. MGIC Investment Corporation Northwestern Mutual Series Fund, Inc. J. E. Gallegos Attorney, Gallegos Law Firm, Santa Fe, New Mexico, since 1988. Stephen N. Graff Office Managing Partner (retired), Arthur Mason Street Funds, Inc. Andersen LLP, Milwaukee, Wisconsin, Northwestern Mutual Series 1981-1994. Fund, Inc. Regal-Beloit Corporation Patricia Albjerg Professor of the History of American Graham Education, Harvard University, Cambridge, Massachusetts, since 1974; President, Spencer Foundation (social and behavioral sciences), Chicago, Illinois, 1991-2000. James P. Hackett President and Chief Executive Officer of Old Kent Financial Corporation Steelcase Inc. since 1994. Steelcase Inc. Stephen F. Keller Attorney, Los Angeles, California, since 1962. Chairman, The Santa Anita Companies, Arcadia, California, 1993-1996. Barbara A. King President, Landscape Structures, Inc. (manufacturer of playground equipment), Delano, Minnesota, since 1973. J. Thomas Lewis Attorney (sole practitioner), New Orleans, Louisiana, since 1998. Prior thereto, associated with Monroe & Lemann (law firm), New Orleans, Louisiana, 1965-1998. Daniel F. McKeithan, Jr. President, Tamarack Petroleum Co., Inc. Firstar Corporation
33 34 (operator of oil and gas wells), The Marcus Corporation Milwaukee, Wisconsin, since 1982. Guy A. Osborn Retired Chairman, Universal Foods Corp., Fleming Companies, Inc. Milwaukee, Wisconsin, since 1997. Chairman, 1996-1997. Chairman and Chief Executive Officer, 1990-1996. Timothy D. Proctor Group General Counsel, Diageo PLC (manufacturer, marketer and distributor of food and beverage products), London, England, since 2000. Prior thereto, Director, Worldwide Human Resources, Glaxo Wellcome plc, 1998-1999; Senior Vice President Human Resources, General Counsel and Secretary, Glaxo Wellcome Inc., 1996-1998; and Senior Vice President, General Counsel and Secretary, 1994-1996. H. Mason Sizemore, Jr. President and Chief Operating Officer, The Seattle Times, Seattle, Washington, since 1985. Harold B. Smith Chairman, Executive Committee, Illinois Illinois Tool Works Inc. Tool Works Inc. (engineered components Northern Trust Corporation and industrial systems and consumables), W. W. Grainger, Inc. Glenview, Illinois, since 1982. Sherwood H. Smith, Jr. Chairman Emeritus, Carolina Power & Light Wachovia Corporation Company, Raleigh, North Carolina, since Nortel Networks Corporation May 1999. Prior thereto, Chairman, Springs Industries, Inc. 1996-1999, and Chairman and Chief Executive Officer, 1992-1996. Peter M. Sommerhauser Attorney, Shareholder, Vice President and Kohl's Corporation Member of the Management Committee, Godfrey & Kahn, S.C. (law firm), Milwaukee, Wisconsin, since 1969. John E. Steuri Chairman, Advanced Thermal Technologies Superior Financial Corp. (heating, air conditioning and humidity control), Little Rock, Arkansas, since 1997. Prior thereto, Chairman and CEO, ALLTEL Information Services, Inc., Little Rock, Arkansas, since 1989. John J. Stollenwerk President and Chief Executive Officer, Badger Meter, Inc. Allen-Edmonds Shoe Corporation, Port Firstar Corporation Washington, Wisconsin, since 1998. Prior Koss Corporation thereto, President and Owner, 1980-1998. Barry L. Williams President and Chief Executive Officer, Pacific Gas & Electric Company Williams Pacific Ventures, Inc. (venture R. H. Donnelly Corporation capital), San Francisco, California, since Simpson Manufacturing Co., Inc. 1993. Synavant Inc. The Newhall Land and Farming Company USA Education, Inc. Kathryn D. Wriston Director of various corporations. The Stanley Works Edward J. Zore President of Northwestern Mutual since MGIC Investment Corporation 2000. Prior thereto, Executive Vice Manpower Inc. President (Finance and Investments) since Mason Street Funds, Inc. 1995. Northwestern Mutual Series Fund, Inc.
34 35 The following information as of March 1, 2001, is provided with respect to each Executive Officer of Northwestern Mutual. The term of office for all Executive Officers is one year expiring May 31, 2001.
NAME AGE POSITION ---------------------- --- ------------------------------------------------------------- James D. Ericson .... 65 Chairman and Chief Executive Officer; Trustee Edward J. Zore ...... 55 President; Trustee John M. Bremer ...... 53 Senior Executive Vice President and Secretary (Administration/Chief Compliance Officer) Peter W. Bruce ...... 55 Senior Executive Vice President (Insurance) Deborah A. Beck ..... 53 Executive Vice President (Planning and Technology) William H. Beckley .. 53 Executive Vice President (Agencies) Bruce L. Miller ..... 58 Executive Vice President (Marketing) Mark G. Doll ......... 51 Senior Vice President (Public Markets) Richard L. Hall ..... 55 Senior Vice President (Life Insurance) William C. Koenig .... 53 Senior Vice President and Chief Actuary Donald L. Mellish .... 62 Senior Vice President (Field Systems Administration) Gary A. Poliner ...... 47 Senior Vice President and Chief Financial Officer Charles D. Robinson .. 56 Senior Vice President (Investment Products and Services) Mason G. Ross ........ 57 Senior Vice President and Chief Investment Officer John E. Schlifske .... 41 Senior Vice President (Securities and Real Estate) Leonard F. Stecklein 54 Senior Vice President (Annuity and Accumulation Products) Frederic H. Sweet .... 57 Senior Vice President (Corporate and Government Relations) Walt J. Wojcik ....... 61 Senior Vice President (Information Systems) Robert J. Berdan .... 54 Vice President and General Counsel Steven T. Catlett .... 51 Vice President (New Business) Thomas E. Dyer ....... 55 Vice President (Corporate Services) Christine H. Fiasca .. 46 Vice President (Agency Development) Gary E. Long ......... 56 Vice President and Controller Susan A. Lueger 47 Vice President (Human Resources) Jean M. Maier ........ 46 Vice President (Field Services Support) Meridee J. Maynard .. 45 Vice President (Marketing) Gregory C. Oberland .. 43 Vice President (Disability Income) Barbara F. Piehler ... 50 Vice President (Internet) James F. Reiskytl .... 63 Vice President (Tax and Financial Planning) Marcia Rimai ......... 45 Vice President (Policyowner Services) Lora A. Rosenbaum .... 44 Vice President (Compliance/Best Practices) J. Edward Tippetts ... 56 Vice President (Field Training and Development) Martha M. Valerio ... 54 Vice President (Technology Research and Web Resources) David B. Wescoe ...... 46 Vice President (Northwestern Mutual Investment Services) W. Ward White ........ 61 Vice President (Communications) Michael L. Youngman .. 49 Vice President (Government Relations)
All of the Executive Officers, except Bruce L. Miller, David B. Wescoe and Charles D. Robinson, have been associated with Northwestern Mutual, although not necessarily in their present positions, for more than five years. Bruce L. Miller has been Executive Vice President (Marketing) since March 2000. He joined Northwestern Mutual as a Senior Vice President in July, 1996. Prior thereto he participated in private equity investing, operating and serving as a consultant to various firms in the financial services and healthcare industries since 1989. Mr. Wescoe joined Northwestern Mutual in August 1999 as a Vice President and was named Vice President (Northwestern Mutual Investment Services) in March 2000. From 1994 to 1999, Mr. Wescoe was employed with Manpower, Inc. as Vice President and General Counsel. Mr. Robinson joined Northwestern Mutual in February 2001 as Senior Vice President (Investment Products and Services). Prior thereto he was with AIG, Global Retirement Services Division as Chief Marketing Officer and Senior Vice President from 1999 to 2000. From 1980 to 1999, Mr. Robinson served in various positions of increasing responsibility with VALIC/American General Group, most recently as Senior Vice President, Institutional Marketing. 35 36 ITEM 11. EXECUTIVE COMPENSATION Not applicable. Account A and Account C have no directors or executive officers, the Executive Officers and Trustees of Northwestern Mutual spend no substantial portion of their time on matters relating to Accounts A and C, and the amounts of compensation received by the Executive Officers and Trustees of Northwestern Mutual have no bearing on the values associated with the Contracts issued in connection with Accounts A and C. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Not applicable. As segregated asset accounts, Account A and Account C have no shareholders. As a mutual life insurance company, Northwestern Mutual has no shareholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Northwestern Mutual's subsidiary, NMIS, serves as the investment advisor to the Series Fund. Northwestern Mutual is party to investment advisory agreements with the Series Fund. The Board of the Series Fund approved the continuation of the investment advisory agreements during 2000. Various Trustees and Executive Officers of Northwestern Mutual serve as directors and officers of the Series Fund and may be deemed to have a direct or indirect material interest in the existence of the investment advisory agreements. Northwestern Mutual's subsidiary, Frank Russell, provides the Russell Funds and its investment adviser, Frank Russell Investment Management Company ("FRIMCo"), a subsidiary of Frank Russell, with asset management consulting services that it provides to its other consulting clients. The Russell Funds do not compensate Frank Russell for these services. FRIMCo is party to an investment advisory agreement with the Russell Funds, the renewal of which was approved in 2000. Certain Trustees and Executive Officers of Northwestern Mutual serve as directors of Frank Russell and may be deemed to have a direct or indirect material interest in the existence of the investment management agreement. Various Trustees and Executive Officers of Northwestern Mutual have securities accounts with Baird and effected transactions through such accounts during the fiscal year, including transactions in mutual funds sponsored by Frank Russell. Trustees and executive officers of Northwestern Mutual (and their family members and associates) own insurance policies and/or other contracts issued by Northwestern Mutual or an insurance affiliate in the ordinary course of business. Loans are made to Northwestern Mutual's Trustees and Executive Officers (and their family members and associates) in accordance with the provisions of insurance policies or other contracts which they may own. Such loans are made in the ordinary course of business and are administered solely in accordance with the terms of such policies. In the ordinary course of its business, Northwestern Mutual makes loans to its general agents in connection with their business operations. Interest on such loans is tied to Northwestern Mutual's cost of funds or the prime rate, depending upon the purpose of the loan. On occasion, a general agent who has incurred such loans may assume an Executive Officer position at Northwestern Mutual. In such circumstances, the outstanding loans remain in place and are satisfied in accordance with the terms of the underlying loan documentation. Peter M. Sommerhauser, a Northwestern Mutual Trustee since May 1999, is a Shareholder, Vice President and a Member of the Management Committee of Godfrey & Kahn, S.C. Godfrey & Kahn provided a de minimis amount of legal services to Northwestern Mutual during 2000 with respect to a matter that dates to 1996, when the firm was retained by Northwestern Mutual. Mr. Sommerhauser is the beneficial owner of approximately 12.1% of the outstanding common stock of Kohl's Corporation, primarily by virtue of his serving as a trustee of several trusts for the benefit of the families of current and former executive officers of Kohl's Corporation and as a director of charitable foundations established by executive officers of Kohl's Corporation. While Mr. Sommerhauser has sole or shared voting and investment power over such shares held in the trusts and foundations, he has no pecuniary interest in those shares. In 1994, a number of years prior to Mr. Sommerhauser becoming a Northwestern Mutual Trustee, Northwestern Mutual lent (as part of its normal portfolio investment activities) to Kohl's Department Stores, Inc., a subsidiary of Kohl's Corporation, $40,000,000 and received a 6.57% Senior Note, guaranteed by Kohl's Corporation, due March 31, 2004. The principal amount of such indebtedness was reduced to $33,333,333 during 2000, which remains outstanding at March 1, 2001. 36 37
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K PAGE (a) Financial Statements and Exhibits (1) NML Variable Annuity Account A (in Part II, Item 8)............ 16 Statement of Assets and Liabilities at December 31, 2000 and 1999 Statement of Operations for years ended December 31, 2000, 1999 and 1998 Statement of Changes in Equity for years ended December 31, 2000, 1999 and 1998 Notes to Financial Statements Report of Independent Accountants (2) NML Variable Annuity Account C (in Part II, Item 8)............ 23 Statement of Assets and Liabilities at December 31, 2000 and 1999 Statement of Operations for years ended December 31, 2000, 1999 and 1998 Statement of Changes in Equity for years ended December 31, 2000, 1999 and 1998 Notes to Financial Statements Report of Independent Accountants (3) The Northwestern Mutual Life Insurance Company................. 38 Immediately following this page are: Report of Independent Accountants Consolidated Statement of Financial Position at December 31, 2000 and 1999 Consolidated Statement of Operations for years ended December 31, 2000, 1999 and 1998 Consolidated Statement of Changes in Surplus for years ended December 31, 2000, 1999 and 1998 Consolidated Statement of Cash Flows for years ended December 31, 2000, 1999 and 1998 Notes to Consolidated Statutory Financial Statements (b) No reports on Form 8-K have been filed during the last quarter of the year ended December 31, 2000. (c) See Index to Exhibits on page 53, which is incorporated herein by reference............................................ 53
37 38 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, 2000 and 1999, and the related consolidated statements of operations, of changes in surplus and of cash flows for each of the three years in the period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note 1 to the financial statements, the Company prepared these consolidated financial statements using accounting practices prescribed or permitted by the Office of the Commissioner of Insurance of the State of Wisconsin (statutory basis of accounting), which practices differ from accounting principles generally accepted in the United States of America. Accordingly, the consolidated financial statements are not intended to represent a presentation in accordance with generally accepted accounting principles. The effects on the consolidated financial statements of the variances between the statutory basis of accounting and generally accepted accounting principles, although not reasonably determinable, are presumed to be material. In our opinion, the consolidated financial statements audited by us (1) do not present fairly in conformity with generally accepted accounting principles, the financial position of The Northwestern Mutual Life Insurance Company and its subsidiary as of December 31, 2000 and 1999, or the results of their operations or their cash flows for each of the three years in the period ended December 31, 2000 because of the effects of the variances between the statutory basis of accounting and generally accepted accounting principles referred to in the preceding paragraph, and (2) do present fairly, in all material respects, the financial position of The Northwestern Mutual Life Insurance Company and its subsidiary as of December 31, 2000 and 1999 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, on the basis of accounting described in Note 1. /s/ PRICEWATERHOUSECOOPERS LLP January 23, 2001 38 39 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF FINANCIAL POSITION (IN MILLIONS)
DECEMBER 31, 2000 1999 ASSETS Bonds $40,607 $36,792 Common and preferred stocks 6,216 7,108 Mortgage loans 14,431 13,416 Real estate 1,627 1,666 Policy loans 8,504 7,938 Other investments 4,508 3,443 Cash and temporary investments 1,217 1,159 ------- ------- Total investments 77,110 71,522 Due and accrued investment income 1,008 893 Deferred premium and other assets 1,510 1,409 Separate account assets 12,497 12,161 ------- ------- Total assets $92,125 $85,985 ======= ======= LIABILITIES AND SURPLUS Reserves for policy benefits $62,816 $57,992 Policyowner dividends payable 3,350 3,100 Interest maintenance reserve 378 491 Asset valuation reserve 2,298 2,371 Income taxes payable 1,228 1,192 Other liabilities 3,662 3,609 Separate account liabilities 12,497 12,161 ------- ------- Total liabilities 86,229 80,916 Surplus 5,896 5,069 ------- ------- Total liabilities and surplus $92,125 $85,985 ======= =======
The accompanying notes are an integral part of these financial statements. 39 40 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF OPERATIONS (IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, 2000 1999 1998 --------------------------------------------- Revenue Premiums $ 8,925 $ 8,344 $ 8,021 Net investment income 5,339 4,766 4,536 Other income 1,118 970 922 --------------------------------------------- Total revenue 15,382 14,080 13,479 --------------------------------------------- Benefits and expenses Benefit payments to policyowners and beneficiaries 4,541 4,023 3,602 Net additions to policy benefit reserves 4,815 4,469 4,521 Net transfers to separate accounts 469 516 564 --------------------------------------------- Total benefits 9,825 9,008 8,687 Operating expenses 1,416 1,287 1,297 --------------------------------------------- Total benefits and expenses 11,241 10,295 9,984 --------------------------------------------- Gain from operations before dividends and taxes 4,141 3,785 3,495 Policyowner dividends 3,334 3,091 2,869 --------------------------------------------- Gain from operations before taxes 807 694 626 Income tax expense 125 203 301 --------------------------------------------- Net gain from operations 682 491 325 Net realized capital gains 1,147 846 484 --------------------------------------------- Net income $ 1,829 $ 1,337 $ 809 =============================================
The accompanying notes are an integral part of these financial statements. 40 41 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF CHANGES IN SURPLUS (IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, 2000 1999 1998 ----------------------------------------------- Beginning of year balance $ 5,069 $ 4,741 $ 4,101 Net income 1,829 1,337 809 (Decrease) increase in net unrealized gains (1,043) 213 (147) Decrease (increase) in asset valuation reserve 73 (377) (20) Charge-off of goodwill (Note 7) (12) (842) -- Other, net (20) (3) (2) ------- ------- ------- Net increase in surplus 827 328 640 ------- ------- ------- End of year balance $ 5,896 $ 5,069 $ 4,741 ======= ======= =======
The accompanying notes are an integral part of these financial statements. 41 42 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, 2000 1999 1998 -------------------------------------- Cash flows from operating activities Insurance and annuity premiums $ 7,051 $ 6,585 $ 6,405 Investment income received 5,000 4,476 4,216 Disbursement of policy loans, net of repayments (566) (358) (416) Benefits paid to policyowners and beneficiaries (4,739) (4,199) (3,740) Net transfers to separate accounts (469) (516) (564) Operating expenses and taxes (1,845) (1,699) (1,749) Other, net 224 (56) (83) -------------------------------------- Net cash provided by operating activities 4,656 4,233 4,069 -------------------------------------- Cash flows from investing activities Proceeds from investments sold or matured Bonds 29,539 20,788 28,720 Common and preferred stocks 9,437 13,331 10,359 Mortgage loans 1,198 1,356 1,737 Real estate 302 216 159 Other investments 659 830 768 -------------------------------------- 41,135 36,521 41,743 -------------------------------------- Cost of investments acquired Bonds 33,378 22,849 30,873 Common and preferred stocks 8,177 13,794 9,642 Mortgage loans 2,261 2,500 3,135 Real estate 224 362 268 Other investments 1,535 1,864 567 -------------------------------------- 45,575 41,369 44,485 -------------------------------------- Net (decrease) increase due to securities lending and other (158) 499 (624) -------------------------------------- Net cash used in investing activities (4,598) (4,349) (3,366) -------------------------------------- Net increase (decrease) in cash and temporary investments 58 (116) 703 Cash and temporary investments, beginning of year 1,159 1,275 572 -------------------------------------- Cash and temporary investments, end of year $ 1,217 $ 1,159 $ 1,275 ======================================
The accompanying notes are an integral part of these financial statements. 42 43 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated statutory financial statements include the accounts of The Northwestern Mutual Life Insurance Company ("Company") and its wholly-owned subsidiary, Northwestern Long Term Care Insurance Company ("Subsidiary"). The Company and its Subsidiary offer life, annuity, disability income and long-term care products to the personal, business, estate and tax-qualified markets. The consolidated financial statements have been prepared using accounting policies prescribed or permitted by the Office of the Commissioner of Insurance ("OCI") of the State of Wisconsin ("statutory basis of accounting"). In 1998, the National Association of Insurance Commissioners ("NAIC") adopted the Codification of Statutory Accounting Principles guidance ("Codification"), which replaces the current Accounting Practices and Procedures manual as the NAIC's primary guidance on statutory accounting as of January 1, 2001. Codification provides guidance regarding matters where statutory accounting has been silent and changes current statutory accounting regarding some matters. The OCI has adopted Codification effective January 1, 2001. The effect of adoption on the Company's statutory surplus is expected to be an increase, primarily as a result of deferred tax accounting and investment valuations. Financial statements prepared on the statutory basis of accounting vary from financial statements prepared on the basis of generally accepted accounting principles ("GAAP") primarily because on a GAAP basis: (1) policy acquisition costs are deferred and amortized, (2) investment valuations and insurance reserves are based on different assumptions, (3) funds received under deposit-type contracts are not reported as premium revenue, (4) deferred taxes are provided for temporary differences between book and tax basis of certain assets and liabilities and (5) majority-owned non-insurance subsidiaries are consolidated. The effects on the financial statements of the differences between the statutory basis of accounting and GAAP are material to the Company. The preparation of financial statements in conformity with the statutory basis of accounting requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual future results could differ from these estimates. INVESTMENTS The Company's investments are valued on the following bases: Bonds - Amortized cost using the interest method; loan-backed and structured securities are amortized using estimated prepayment rates and, generally, the prospective adjustment method Common and preferred stocks - Common stocks are carried at fair value, preferred stocks are generally carried at lower of cost or market, and unconsolidated subsidiaries and affiliates are recorded using the equity method Mortgage loans - Amortized cost Real estate - Lower of cost (less depreciation and encumbrances) or estimated net realizable value Policy loans - Unpaid principal balance, which approximates fair value Other investments - Consists primarily of joint venture investments which are valued at equity in ventures' net assets Cash and temporary investments - Amortized cost, which approximates fair value TEMPORARY INVESTMENTS Temporary investments consist of debt securities that have maturities of one year or less at acquisition. 43 44 NET INVESTMENT INCOME AND CAPITAL GAINS Net investment income includes interest and dividends received or due and accrued on investments, equity in unconsolidated subsidiaries and affiliates' earnings and the Company's share of joint venture income. Net investment income is reduced by investment management expenses, real estate depreciation, depletion related to energy assets and costs associated with securities lending. Realized investment gains and losses are reported in income based upon specific identification of securities sold. Unrealized investment gains and losses include changes in the fair value of common stocks and changes in valuation allowances made for bonds, preferred stocks, mortgage loans and other investments considered by management to be impaired. INTEREST MAINTENANCE RESERVE The Company is required to maintain an interest maintenance reserve ("IMR"). The IMR is used to defer realized gains and losses, net of tax, on fixed income investments resulting from changes in interest rates. Net realized gains and losses deferred to the IMR are amortized into investment income over the approximate remaining term to maturity of the investment sold. ASSET VALUATION RESERVE The Company is required to maintain an asset valuation reserve ("AVR"). The AVR establishes a general reserve for invested asset valuation using a formula prescribed by state regulations. The AVR is designed to stabilize surplus against potential declines in the value of investments. Increases or decreases in AVR are recorded directly to surplus. SEPARATE ACCOUNTS Separate account assets and related policy liabilities represent the segregation of funds deposited by variable life insurance and annuity policyowners. Policyowners bear the investment performance risk associated with variable products. Separate account assets are invested at the direction of the policyowner in a variety of Company-managed mutual funds. Variable product policyowners also have the option to invest in a fixed interest rate annuity in the general account of the Company. Separate account assets are reported at fair value. PREMIUM REVENUE AND OPERATING EXPENSES Life insurance premiums are recognized as revenue at the beginning of each policy year. Annuity and disability income premiums are recognized when received by the Company. Operating expenses, including costs of acquiring new policies, are charged to operations as incurred. OTHER INCOME Other income includes considerations on supplementary contracts, ceded reinsurance expense allowances and miscellaneous policy charges. BENEFIT PAYMENTS TO POLICYOWNERS AND BENEFICIARIES Benefit payments to policyowners and beneficiaries include death, surrender, annuity and disability benefits, matured endowments and supplementary contract payments. RESERVES FOR POLICY BENEFITS Reserves for policy benefits are determined using actuarial estimates based on mortality and morbidity experience tables and valuation interest rates prescribed by the OCI. (See Note 3.) POLICYOWNER DIVIDENDS Almost all life insurance policies, and certain annuity and disability income policies issued by the Company are participating. Annually, the Company's Board of Trustees approves dividends payable on participating policies in the following fiscal year, which are accrued and charged to operations when approved. Participating policy owners generally have the option to direct their dividends to be paid in cash, used to reduce future premiums due, or used to purchase additional insurance. The vast majority of dividends are used by policy owners to purchase additional insurance and are reported as premiums in the Statement of Operations. These dividends are reported as a reduction of premium cash inflow in the Statement of Cash Flows. 44 45 2. INVESTMENTS DEBT SECURITIES Debt securities consist of all bonds and fixed-maturity preferred stocks. The estimated fair values of debt securities are based upon quoted market prices, if available. For securities not actively traded, fair values are estimated using independent pricing services or internally developed pricing models. Statement value, which principally represents amortized cost, and estimated fair value of the Company's debt securities at December 31, 2000 and 1999 were as follows:
December 31, 2000 Reconciliation to Estimated Fair Value ----------------- ----------------------------------------------------------------- (in millions) Gross Gross Estimated Statement Unrealized Unrealized Fair Value Gains Losses Value ---------------- ------------- -------------- ---------------- U.S. Government and political obligations $ 3,761 $ 279 $ (48) $ 3,992 Mortgage-backed securities 9,551 242 (50) 9,743 Corporate and other debt securities 27,295 536 (940) 26,891 ---------------- ------------- -------------- ---------------- 40,607 1,057 (1,038) 40,626 Preferred stocks 257 11 (1) 267 ---------------- ------------- -------------- ---------------- Total $ 40,864 $ 1,068 $ (1,039) $ 40,893 ================ ============= ============== ================
December 31, 1999 Reconciliation to Estimated Fair Value ----------------- ----------------------------------------------------------------- (in millions) Gross Gross Estimated Statement Unrealized Unrealized Fair Value Gains Losses Value ---------------- ------------- ------------- ---------------- U.S. Government and political obligations $ 3,855 $ 72 $ (167) $ 3,760 Mortgage-backed securities 7,736 65 (256) 7,545 Corporate and other debt securities 25,201 249 (1,088) 24,362 ---------------- ------------- -------------- ---------------- 36,792 386 (1,511) 35,667 Preferred stocks 85 2 -- 87 ---------------- ------------- -------------- ---------------- Total $ 36,877 $ 388 $ (1,511) $ 35,754 ================ ============= ============== ================
The statement value and estimated fair value of debt securities by contractual maturity at December 31, 2000 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.
Statement Estimated Value Fair Value (in millions) ------------------------------ Due in one year or less $ 566 $ 570 Due after one year through five years 6,173 6,100 Due after five years through ten years 12,871 12,789 Due after ten years 11,703 11,691 ------------- ------------- 31,313 31,150 Mortgage-backed securities 9,551 9,743 ------------- ------------- $ 40,864 $ 40,893 ============= =============
45 46 STOCKS The estimated fair values of common and perpetual preferred stocks are based upon quoted market prices, if available. For securities not actively traded, fair values are estimated using independent pricing services or internally developed pricing models. The adjusted cost of common and preferred stock held by the Company at December 31, 2000 and 1999 was $4.7 billion and $4.9 billion, respectively. MORTGAGE LOANS AND REAL ESTATE Mortgage loans are collateralized by properties located throughout the United States and Canada. The Company attempts to minimize mortgage loan investment risk by diversification of geographic locations and types of collateral properties. The fair value of mortgage loans as of December 31, 2000 and 1999 was $14.7 billion and $13.2 billion, respectively. The fair value of the mortgage loan portfolio is estimated by discounting the future estimated cash flows using current interest rates of debt securities with similar credit risk and maturities, or utilizing net realizable values. At December 31, 2000 and 1999, real estate includes $29 million and $39 million, respectively, acquired through foreclosure and $109 million and $114 million, respectively, of home office real estate. REALIZED AND UNREALIZED GAINS AND LOSSES Realized investment gains and losses for the years ended December 31, 2000, 1999 and 1998 were as follows:
For the year ended For the year ended For the year ended December 31, 2000 December 31, 1999 December 31, 1998 --------------------------------------------------------------------------------------------------- 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 $ 369 $ (416) $ (47) $ 219 $ (404) $ (185) $ 514 $ (231) $ 283 Common and preferred stocks 1,534 (333) 1,201 1,270 (255) 1,015 885 (240) 645 Mortgage loans -- (25) (25) 22 (12) 10 18 (11) 7 Real estate 101 -- 101 92 -- 92 41 -- 41 Other invested assets 395 (177) 218 308 (189) 119 330 (267) 63 ------- ------ ------ ------ ------ ------ ------ ------ ------ 2,399 (951) 1,448 1,911 (860) 1,051 1,788 (749) 1,039 ------- ------ ------ ------ ------ ------ ------ ------ ------ Less: Capital gains taxes 353 244 358 Less: IMR (losses) gains (52) (39) 197 ------ ------ ------ Net realized capital gains $1,147 $ 846 $ 484 ====== ====== ======
Changes in net unrealized investment gains and losses for the years ended December 31, 2000, 1999 and 1998 were as follows:
For the year ended December 31, 2000 1999 1998 (in millions) ------------------------------------- Bonds $ (208) $ (178) $ (97) Common and preferred Stock (851) 415 29 Mortgage loans (2) (10) (16) Real estate (4) (2) -- Other 22 (12) (63) ------- ------ ------ $(1,043) $ 213 $ (147) ======= ====== ======
46 47 SECURITIES LENDING The Company has entered into securities lending agreements whereby certain securities are loaned to third parties, primarily major brokerage firms. The Company's policy requires a minimum of 102% of the fair value of the loaned securities as collateral, calculated on a daily basis in the form of either cash or securities. Collateral assets received and related liability due to counterparties of $1.4 billion and $2.1 billion, respectively, are included in the consolidated statements of financial position at December 31, 2000 and 1999, and approximate the statement value of securities loaned at those dates. 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, floors and swaps. The Company held the following positions for hedging purposes at December 31, 2000 and 1999:
Derivative Financial Instrument Notional Amounts Risks Reduced (in millions) December 31, 2000 1999 ---------------------------------------------------------------------------------------------- Forward Contracts $ 1,203 $ 967 Currency exposure on foreign- denominated investments and future commitments. Common Stock Futures and Swaps 565 620 Stock market price fluctuation. Bond Futures -- 50 Bond market price fluctuation. Options to acquire Interest 452 419 Interest rates payable on certain Rate Swaps annuity and insurance contracts. Foreign Currency and Interest Rate Swaps 200 203 Interest rates on variable rate notes and currency exposure on foreign-denominated bonds. Default Swaps 52 52 Default exposure on certain bond investments. Interest rate floors 525 -- Interest rates payable on certain annuity contracts.
The notional or contractual amounts of derivative financial instruments are used to denominate these types of transactions and do not represent the amounts exchanged between the parties. In addition to the use of derivatives for hedging purposes, equity swaps were held for investment purposes during 2000 and 1999. The notional amount of equity swaps outstanding at December 31, 2000 and 1999 was $0 and $136 million, respectively. Foreign currency forwards, foreign currency swaps, stock futures and equity swaps are reported at fair value. Resulting gains and losses on these contracts are unrealized until expiration of the contract. Fair valuation adjustments for interest rate swaps, bond futures and options to acquire interest rate swaps are deferred to IMR. Changes in the value of derivative instruments are expected to offset gains and losses on the hedged investments. During 2000, 1999 and 1998, net realized and unrealized gains on investments were partially offset by net realized gains (losses) of $117 million, $(55) million and $(104) million, respectively, and net unrealized gains (losses) of $42 million, $17 million and $(58) million, respectively, on derivative instruments. 3. RESERVES FOR POLICY BENEFITS Life insurance reserves on substantially all policies issued since 1978 are based on the Commissioner's Reserve Valuation Method with interest rates ranging from 3-1/2% to 5-1/2%. Other life policy reserves are primarily based on the net level premium method employing various mortality tables at interest rates ranging from 2% to 4-1/2%. 47 48 Deferred annuity reserves on contracts issued since 1985 are valued primarily using the Commissioner's Annuity Reserve Valuation Method with interest rates ranging from 3-1/2% to 6-1/4%. Other deferred annuity reserves are based on contract value. Immediate annuity reserves are based on present values of expected benefit payments at interest rates ranging from 3-1/2% to 7-1/2%. Active life reserves for disability income ("DI") policies issued since 1987 are primarily based on the two-year preliminary term method using a 4% interest rate and the 1985 Commissioner's Individual Disability Table A ("CIDA") for morbidity. Active life reserves for prior DI policies are based on the net level premium method, a 3% to 4% interest rate and the 1964 Commissioner's Disability Table for morbidity. Disabled life reserves for DI policies are based on the present values of expected benefit payments primarily using the 1985 CIDA (modified for Company experience in the first four years of disability) with interest rates ranging from 3% to 5-1/2%. Use of these actuarial tables and methods involves estimation of future mortality and morbidity. Actual future experience could differ from these estimates. 4. EMPLOYEE AND AGENT BENEFIT PLANS The Company sponsors noncontributory defined benefit retirement plans for all eligible employees and agents. The expense associated with these plans is generally recorded by the Company in the period contributions are funded. As of January 1, 2000, the most recent actuarial valuation date available, the qualified defined benefit plans were fully funded. The Company recorded a liability of $122 million and $109 million for nonqualified defined benefit plans at December 31, 2000 and 1999, respectively. In addition, the Company has a contributory 401(k) plan for eligible employees and a noncontributory defined contribution plan for all full-time agents. The Company's contributions are expensed in the period contributions are made to the plans. The Company recorded $32 million, $31 million and $29 million of total expense related to its defined benefit and defined contribution plans for the years ended December 31, 2000, 1999 and 1998, respectively. The defined benefit and defined contribution plans' assets of $2.3 billion and $2.2 billion at December 31, 2000 and 1999, respectively, were primarily invested in the separate accounts of the Company. In addition to pension and retirement benefits, the Company provides certain health care and life insurance benefits ("postretirement benefits") for retired employees. Substantially all employees may become eligible for these benefits if they reach retirement age while working for the Company. Postretirement benefit costs for the years ended December 31, 2000, 1999 and 1998 were a net expense of $6.8 million, $5.0 million and $1.8 million, respectively.
December 31, December 31, 2000 1999 ------------- ------------- Unfunded postretirement benefit obligation for retirees and other fully eligible employees $47 million $40 million (Accrued in statement of financial position) Estimated postretirement benefit obligation for active non-vested employees (Not accrued until employee vests) $76 million $68 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, 2000 and 1999 would have been increased by $7 million and $6 million, respectively. At December 31, 2000 and 1999, the recorded postretirement benefit obligation was reduced by $22 million and $28 million, respectively, for health care benefit plan assets. These assets were primarily invested in the separate accounts of the Company. 48 49 5. REINSURANCE In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding to reinsurers under excess coverage and coinsurance contracts. The Company retains a maximum of $25 million of coverage per individual life and $35 million maximum of coverage per joint life. The Company has an excess reinsurance contract for disability income policies with retention limits varying based upon coverage type. The amounts shown in the accompanying consolidated financial statements are net of reinsurance. Reserves for policy benefits at December 31, 2000 and 1999 were reported net of ceded reserves of $663 million and $584 million, respectively. The effect of reinsurance on premiums and benefits for the years ended December 31, 2000, 1999 and 1998 was as follows:
2000 1999 1998 (in millions) ------------------------------------- Direct premiums $ 9,419 $ 8,785 $ 8,426 Premiums ceded (494) (441) (405) ------------------------------------- Net premiums $ 8,925 $ 8,344 $ 8,021 ===================================== Benefits to policyowners and beneficiaries $ 10,063 $ 9,205 $ 8,869 Benefits ceded (238) (197) (182) ------------------------------------- Net benefits to policyowners and beneficiaries $ 9,825 $ 9,008 $ 8,687 =====================================
In addition, the Company received $146 million, $133 million and $121 million for the years ended December 31, 2000, 1999 and 1998, respectively, from reinsurers representing allowances for reimbursement of commissions and other expenses. These amounts are included in other income in the consolidated statement of operations. Reinsurance contracts do not relieve the Company from its obligations to policyowners. Failure of reinsurers to honor 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. 6. INCOME TAXES Provisions for income taxes are based on current income tax payable without recognition of deferred taxes. The Company files a consolidated life-nonlife federal income tax return. Federal income tax returns for years through 1995 are closed as to further assessment of tax. Adequate provision has been made in the financial statements for any additional taxes, which may become due with respect to the open years. The Company's taxable income can vary significantly from gain from operations before taxes due to differences between book and tax valuation of assets and liabilities (e.g., investments and policy benefit reserves). The Company pays a tax that is assessed only on the surplus of mutual life insurance companies ("equity tax"), and also, the Company must capitalize and amortize, as opposed to immediately deducting, an amount deemed to represent the cost of acquiring new business ("DAC tax"). The Company's effective tax rate on gains from operations before taxes for the years ended December 31, 2000, 1999 and 1998 was 16%, 29%, and 48% respectively. In 2000 and 1999, the effective rates were less than the federal corporate rate of 35% due primarily to differences between book and tax investment income and, in 2000, prior year adjustments. In 1998, the effective rate was greater than 35% due primarily to the equity tax and DAC tax. 49 50 7. RELATED PARTY TRANSACTIONS The Company acquired Frank Russell Company ("Frank Russell") effective January 1, 1999 for a purchase price of approximately $955 million. Frank Russell is a leading investment management and consulting firm, providing investment advice, analytical tools and investment vehicles to institutional and individual investors in more than 30 countries. This investment is accounted for using the equity method and is included in common stocks in the consolidated statement of financial position. In 2000 and 1999, the Company charged-off directly from surplus approximately $12 million and $842 million respectively, representing the goodwill associated with the acquisition. The Company has received permission from the OCI for this charge-off. The Company has unconditionally guaranteed certain debt obligations of Frank Russell, including $350 million of senior notes and up to $150 million of other credit facilities. During 2000 and 1999, the Company transferred appreciated equity investments to wholly-owned subsidiaries as a capital contribution to the subsidiaries. Realized capital gains of $220 million and $287 million for 2000 and 1999, respectively, were recorded on this transaction, based on the fair value of the assets upon transfer. 8. CONTINGENCIES The Company has guaranteed certain obligations of its affiliates. These guarantees totaled approximately $101 million at December 31, 2000 and are generally supported by the underlying net asset values of the affiliates. In addition, the Company routinely makes commitments to fund mortgage loans or other investments in the normal course of business. These commitments aggregated to $1.8 billion at December 31, 2000 and were extended at market interest rates and terms. The Company is engaged in various legal actions in the normal course of its investment and insurance operations. In the opinion of management, any losses resulting from such actions would not have a material effect on the Company's results of operations or financial position. 50 51 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 In respect of NML Variable Annuity Account A and NML Variable Annuity Account C (Registrant) By /s/ James D. Ericson ---------------------------------------- James D. Ericson Chairman and Chief Executive Officer Date: March 23, 2001 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 ----- /s/ JAMES D. ERICSON Trustee, Chairman and -------------------- Chief Executive Officer James D. Ericson /s/ GARY A. POLINER Senior Vice President and ------------------- Chief Financial Officer Gary A. Poliner /s/ GARY E. LONG Vice President and ---------------- Controller Gary E. Long 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 GEORGE A. DICKERMAN* Trustee -------------------- George A. Dickerman PIERRE S. DU PONT* Trustee ------------------ Pierre S. du Pont J. E. GALLEGOS* Trustee --------------- J. E. Gallegos STEPHEN N. GRAFF* Trustee ----------------- Stephen N. Graff PATRICIA ALBJERG GRAHAM* Trustee ------------------------ Patricia Albjerg Graham ---------------- Trustee James P. Hackett STEPHEN F. KELLER* Trustee ------------------ Stephen F. Keller BARBARA A. KING* Trustee ---------------- Barbara A. King 51 52 J. THOMAS LEWIS* Trustee ---------------- J. Thomas Lewis DANIEL F. McKEITHAN, JR.* Trustee ------------------------- Daniel F. McKeithan, Jr. GUY A. OSBORN* Trustee -------------- Guy A. Osborn ------------------ Trustee Timothy D. Proctor 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. PETER M. SOMMERHAUSER* Trustee ---------------------- Peter M. Sommerhauser 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 EDWARD J. ZORE* Trustee --------------- Edward J. Zore Each of the above signatures is affixed as of March 23, 2001 *By /s/ JAMES D. ERICSON ------------------------------------------------- James D. Ericson, Attorney in Fact, pursuant to the Power of Attorney attached as exhibit 24.1 hereto. 52 53 INDEX TO EXHIBITS EXHIBIT DESCRIPTION PAGE ------- ----------- ---- 3.1 Restated Articles of Incorporation of The Northwestern Mutual Life Insurance Company. (This exhibit was filed in electronic format with Post-Effective Amendment No. 6 on Form N-4 for NML Variable Annuity Account A, File No. 33-58476, CIK 0000790162, dated November 13, 1995, and is incorporated herein by reference.) 3.2 Amended By-Laws of The Northwestern Mutual Life Insurance Company. (This exhibit was filed in electronic format with the Registration Statement on Form S-6 for Northwestern Mutual Variable Life Account, File No. 333-59103, CIK 0000742277, dated July 15, 1998, and is incorporated herein by reference.) 3.3 Resolution of the Board of Trustees of The Northwestern Mutual Life Insurance Company creating "Northwestern Mutual Variable Annuity Account A". (This exhibit was filed in electronic format with the Registration Statement on Form N-4 for NML Variable Annuity Account A, File No. 333-22455, CIK 0000790162, dated February 27, 1997, and is incorporated herein by reference.) 3.4 Resolution of the Board of Trustees of The Northwestern Mutual Life Insurance Company creating Separate Account C. (This exhibit was filed in electronic format with the Annual Report on Form 10-K for the fiscal year ended December 31, 1999 of The Northwestern Mutual Life Insurance Company in respect of NML Variable Annuity Account A and NML Variable Annuity Account C, dated March 28, 2000 ("1999 Form 10-K"), and is incorporated herein by reference.) 3.5 Resolution of the Board of Trustees of The Northwestern Mutual Life Insurance Company to use Separate Account C to facilitate the issuance and maintenance of the Contracts and renaming the Account "NML Variable Annuity Account C". (This exhibit was filed in electronic format with the 1999 Form 10-K and is incorporated herein by reference.) 10.1 Flexible Payment Variable Annuity Front Load Contract, RR.V.A. (032000) (sex neutral). (This exhibit was filed in electronic format with the Registration Statement on Form N-4 for NML Variable Annuity Account A, File No. 333-72913, CIK 0000790162, dated January 27, 2000, and is incorporated herein by reference.) 10.2 Flexible Payment Variable Annuity Back Load Contract, RR.V.A. (032000) (sex neutral). (This exhibit was filed in electronic format with the Registration Statement on Form N-4 for NML Variable Annuity Account A, File No. 333-72913, CIK 0000790162, dated January 27, 2000, and is incorporated herein by reference.) 10.3 Variable Annuity Front Load and Back Load Contract Payment Rate Tables, RR.V.A.B (032000), included in Exhibits 10.1 and 10.2 above (sex distinct). 10.4 Enhanced Death Benefit for Front Load and Back Load Contracts, VA. EDB. (032000), included in Exhibits 10.1 and 10.2 above. 10.5 Waiver of Withdrawal Charge for Back Load Contract, VA.WWC. (032000), included in Exhibit 10.2 above. 10.6 Application forms for Front Load and Back Load Contracts, included in Exhibits 10.1 and 10.2 above. 10.7 Form of Participation Agreement Among Russell Insurance Funds, Russell Fund Distributors, Inc. and The Northwestern Mutual Life Insurance Company. (This exhibit was filed in electronic format with the Registration Statement on Form N-4 for NML Variable Annuity Account A, File No. 333-72913, CIK 0000790162, dated February 25, 1999, and is incorporated herein by reference.) 10.8 Form of Administrative Service Fee Agreement between The Northwestern Mutual Life Insurance Company and Frank Russell Company. (This exhibit was filed in electronic format with the Registration Statement on Form N-4 for NML Variable Annuity Account A, File No. 333-72913, CIK 0000790162, dated February 25, 1999, and is incorporated herein by reference.) 10.9 Distribution Contract. (This exhibit was filed in electronic format with the Registration Statement on Form N-4 for NML Variable Annuity Account A, File No. 333-22455, CIK 0000790162, dated February 27, 1997, and is incorporated herein by reference.) 54 10.10 Group Combination Annuity Contract, NVP.1C.(0594), with amended application, including Contract amendment (sex neutral). (This exhibit was filed in electronic format with Post-Effective Amendment No. 19 on Form N-4 for NML Variable Annuity Account C, File No. 2-89905-01, CIK 0000790163, dated February 25, 1999, and is incorporated herein by reference.) 10.11 Application Form for Group Combination Annuity Contract, included in Exhibit 10.10 above. 21.1 Subsidiaries of The Northwestern Mutual Life Insurance Company 55 24.1 Power of Attorney 57 54