-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OBtWIO83h0Wo8wfXtQgNyAbj0hNUX7pSa3WU5P/Pin4a4LA9DooW0j2nFe0R6CGf LozElpdwqf1d5XhtjVpcHw== 0000950134-03-004726.txt : 20030327 0000950134-03-004726.hdr.sgml : 20030327 20030327171032 ACCESSION NUMBER: 0000950134-03-004726 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWESTERN MUTUAL LIFE INSURANCE CO CENTRAL INDEX KEY: 0000073076 IRS NUMBER: 390509570 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 002-64683 FILM NUMBER: 03621762 BUSINESS ADDRESS: STREET 1: 720 E WISCONSIN AVENUE CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4142992508 MAIL ADDRESS: STREET 1: 720 EAST WISCONSIN AVENUE CITY: MILWAUKEE STATE: WI ZIP: 53202 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NML VARIABLE ANNUITY ACCT C OF NORTHWESTERN MUT LIFE INS CO CENTRAL INDEX KEY: 0000790163 IRS NUMBER: 390509570 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 002-89905-01 FILM NUMBER: 03621763 BUSINESS ADDRESS: STREET 1: 720 E WISCONSIN AVE CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4142992508 MAIL ADDRESS: STREET 1: 720 EAST WISCONSIN AVENUE CITY: MILWAUKEE STATE: WI ZIP: 53202 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NML VARIABLE ANNUITY ACCOUNT A CENTRAL INDEX KEY: 0000790162 IRS NUMBER: 390509570 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-72913 FILM NUMBER: 03621764 BUSINESS ADDRESS: STREET 1: 720 EAST WISCONSIN AVE CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4142992508 MAIL ADDRESS: STREET 1: 720 EAST WISCONSIN AVENUE CITY: MILWAUKEE STATE: WI ZIP: 53202 10-K 1 c75562e10vk.txt FORM 10-K ================================================================================ UNITED STATES 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, 2002 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] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ] No [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 last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter. 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 ================================================================================ THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY IN RESPECT OF NML VARIABLE ANNUITY ACCOUNT A AND NML VARIABLE ANNUITY ACCOUNT C 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) self-employed individuals (and their eligible employees) who adopt plans ("HR-10 Plans") meeting the requirements of Sections 401 or 403(a) of the Internal Revenue Code of 1986, as amended (the "Code") and (ii) employees of corporate employers who adopt pension or profit sharing plans meeting the requirements of Section 401(a) of the Code, or annuity purchase plans meeting the requirements of Section 403(a) of the Code (collectively, "Corporate Plans"). Account A receives payments under individual variable annuity contracts issued by Northwestern Mutual in connection with HR-10 Plans and Corporate Plans. Account C receives payments under group combination variable annuity contracts issued by Northwestern Mutual in connection with HR-10 Plans and Corporate Plans. The variable annuity contracts issued by Northwestern Mutual in connection with HR-10 Plans and Corporate 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 20 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 15 portfolios of Northwestern Mutual Series Fund, Inc. (Small Cap Growth Stock Portfolio, T. Rowe Price Small Cap Value Portfolio, Aggressive Growth Stock Portfolio, International Growth Portfolio, Franklin Templeton International Equity Portfolio, Index 400 Stock Portfolio, Growth Stock Portfolio, Large Cap Core Stock Portfolio (formerly known as the J.P. Morgan Select Growth and Income Stock Portfolio until January 31, 2003), Capital Guardian Domestic Equity Portfolio, Index 500 Stock Portfolio, Asset Allocation 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 also permit investment on a fixed basis, at rates determined by Northwestern Mutual. 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 company 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 (other than those Contract investments on a fixed basis) 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 6 herein for Account A and Account C historical financial information regarding results of operations, changes in equity and total assets. See Item 8 herein for the audited financial statements of Account A and Account C. 2 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 and annuities for the personal, business, estate planning and pension markets. Mutual funds, equity and debt securities, long-term care insurance and trust services are offered and/or sold through subsidiaries. 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 more than 7,900 financial representatives at December 31, 2002 located in more than 350 offices nationwide. At December 31, 2002, Northwestern Mutual had approximately 4,300 full- and part-time employees. Northwestern Mutual's website address is www.northwesternmutual.com. Northwestern Mutual's principal lines of business are: (i) life insurance, which provides a full range of individual life insurance products, including traditional whole life, permanent and term combination, 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-term and long-term group coverages, marketed primarily to middle to upper income individuals, professionals, and small- to medium-sized businesses and their owners; (iii) investment products and services, 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, retail mutual funds (including associated funds offered by Mason Street Funds, Inc. and Frank Russell Investment Company), brokerage services (offered through its subsidiary Northwestern Mutual Investment Services, LLC) and trust services (offered through its subsidiary Northwestern Mutual Trust Company), marketed primarily to middle to upper income individuals, business owners and professionals; and (iv) long-term care insurance, offered through its subsidiary Northwestern Long Term Care Insurance Company, marketed primarily to middle to upper income individuals, small business owners and professionals. For the years ended December 31, 2002, 2001, and 2000, Northwestern Mutual had (a) total premiums of $10.1 billion, $9.4 billion and $9.0 billion, respectively, of which $8.6 billion, $7.9 billion and $7.3 billion, respectively, was attributable to life insurance, $0.6 billion for each year was attributable to disability income insurance and $0.9 billion, $0.9 billion and $1.1 billion, respectively, was attributable to annuity products in the investment products and services line of business; (b) net income of $158 million, $650 million and $1.8 billion, respectively, of which $(18) million, $440 million and $1.5 billion, respectively, was attributable to life insurance, $149 million, $147 million and $0.2 billion, respectively, was attributable to disability income insurance, $44 million, $74 million and $0.1 billion, respectively, was attributable to annuity products in the investment products and services line of business, and $(17) million, $(11) million and $0.0 billion, respectively, was attributable to long term care insurance; and (c) total assets of $102.9 billion, $98.4 billion and $92.1 billion, respectively, of which $82.8 billion, $77.2 billion and $70.6 billion, respectively, was attributable to life insurance, $5.9 billion, $5.8 billion and $5.4 billion, respectively, was attributable to disability income insurance and $14.2 billion, $15.4 billion and $16.1 billion, respectively, was attributable to annuity products in the investment products and services line of business. 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, third party ratings, size and competence of agency force, range of product lines, customer service, and reputation. Based on total admitted statutory assets at December 31, 2001, Northwestern Mutual was the 4th largest U.S. domiciled life insurance company on an individual basis and the 9th largest on a corporate family basis. During 2002, there were more than 1,000 life insurance companies doing business 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. In the long-term care business, Northwestern Mutual competes primarily with a limited number of national companies. 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. United States Supreme Court decisions have expanded 3 the authority of national banks to sell life insurance products and annuities. In addition, legislation enacted in 1999 to overturn Depression-era restrictions on bank affiliations, the Gramm-Leach-Bliley Act (the "Act"), implemented fundamental changes in the regulation of the financial services industry in the U.S. The Act eliminated 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 are 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. Over time, 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, and its insurance subsidiary Northwestern Long Term Care Insurance Company, are licensed to transact their insurance business in, and are subject to regulation and supervision by, all 50 states of the United States and the District of Columbia. 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 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 are preempted. Frank Russell Company ("Russell"), a subsidiary of Northwestern Mutual, is a global investment services firm providing multi-manager investment products and services in 35 countries. Together with its subsidiaries, Russell managed $67.0 billion in assets at December 31, 2002 and advises clients representing $1.6 trillion worldwide. 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 the United States. Robert W. Baird & Co. Incorporated ("Baird"), a subsidiary of Northwestern Mutual, is a registered broker-dealer providing (through it and its affiliates) asset management, investment banking, wealth management and private equity services via offices in the United States, United Kingdom, France, Spain and Germany. Baird serves individuals, corporations, institutional investors and municipalities as financial advisor, asset manager, equity research specialist, investment banker, private equity investor and public finance specialist. It is a member of the New York Stock Exchange and other principal exchanges. NMIS, a wholly-owned company of Northwestern Mutual, is a full-service registered broker-dealer serving the investment planning and product needs of individuals and businesses. Through its registered representatives, NMIS offers mutual funds, variable annuities, variable life insurance products, stocks and bonds to its customers in more than 60 cities nationwide. NMIS is a member of the National Association of Securities Dealers, Inc. See Item 15 herein for the audited consolidated financial statements of Northwestern Mutual, including footnote 1 thereto which describes changes to statutory accounting rules required to be adopted effective January 1, 2001 that affect the comparability of certain financial information from prior periods. 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. 4 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 owns land in Franklin, Wisconsin on which it has begun construction of an additional office campus which it will occupy. Until the Franklin Campus is completed, Northwestern Mutual, as lessee, is occupying temporary space in three buildings adjacent to its Milwaukee complex. Northwestern Mutual is the lessee of eight leases covering its real estate regional offices in locations throughout the United States. Russell and Baird lease their principal office space located in Tacoma, Washington and Milwaukee, Wisconsin, respectively. Northwestern Mutual believes that its owned and leased properties are suitable and adequate for its current operations. ITEM 3. LEGAL PROCEEDINGS Neither Account A nor Account C are parties to 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 do not issue common equity securities. As a mutual life insurance company, Northwestern Mutual does not issue common equity securities. 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 financial representatives of the Northwestern Mutual who are also registered representatives of NMIS. During 2002, 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 ----------------- ----------- --------------- ------------ $ 32,577,196 (A) $ 1,447,332 (B) $ 83,190,071 (A) $ 725,711 (B)
- ---------- (A) Reflects premiums paid by Contract holders, dividend additions and Northwestern Mutual plan contributions, as applicable. (B) Reflects an estimate of amounts paid to Northwestern Mutual financial representatives for sales to Corporate Plans based on a pro rata allocation of Contract sales generating commissions 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 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, 2002. 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: (IN THOUSANDS)
2002 2001 2000 1999 1998 ----------- ----------- ----------- ----------- ----------- Investment Income Dividend Income from Northwestern Mutual Series Fund, Inc. Small Cap Growth Stock Portfolio** ................... $ 26 $ 1 $ 379 $ 149 N/A Dividend Income from Northwestern Mutual Series Fund, Inc. T. Rowe Price Small Cap Value Portfolio # ............ 14 1 N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock Portfolio .................... 61 19,094 13,412 2,871 $ 3,294 Dividend Income from Northwestern Mutual Series Fund, Inc. International Growth Stock Portfolio # ............... 3 -- N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Franklin Templeton International Equity Portfolio .... 574 3,729 3,228 6,194 2,855 Dividend Income from Northwestern Mutual Series Fund, Inc. Index 400 Stock Portfolio** .......................... 76 97 801 30 N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Growth Stock Portfolio ............................... 324 1,497 1,855 1,225 461 Dividend Income from Northwestern Mutual Series Fund, Inc. J.P. Morgan Select Growth and Income Stock Portfolio ............................................ 170 876 1,774 4,191 294 Dividend Income from Northwestern Mutual Series Fund, Inc. Capital Guardian Domestic Equity Portfolio # ......... 20 1 N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Index 500 Stock Portfolio ............................ 1,197 5,168 6,161 3,676 4,267 Dividend Income from Northwestern Mutual Series Fund, Inc. Asset Allocation Portfolio # ......................... 45 6 N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Balanced Portfolio ................................... 7,949 19,440 24,058 34,011 19,089 Dividend Income from Northwestern Mutual Series Fund, Inc. High Yield Bond Portfolio ............................ 456 529 611 821 951 Dividend Income from Northwestern Mutual Series Fund, Inc. Select Bond Portfolio ................................ 1,181 1,257 1,463 2,088 1,768
6
2002 2001 2000 1999 1998 ----------- ----------- ----------- ----------- ----------- Dividend Income from Northwestern Mutual Series Fund, Inc. Money Market Portfolio ............................... 440 1,067 1,609 1,410 1,254 Dividend Income from Russell Insurance Funds Multi-Style Equity Fund** ............................ 22 91 134 76 N/A Dividend Income from Russell Insurance Funds Aggressive Equity Fund** ............................. -- 3 261 4 N/A Dividend Income from Russell Insurance Funds Non-U.S. Fund** ...................................... 41 17 226 37 N/A Dividend Income from Russell Insurance Funds Real Estate Securities Fund** ........................ 142 93 43 12 N/A Dividend Income from Russell Insurance Funds Core Bond Fund** ..................................... 55 78 50 22 N/A ----------- ----------- ----------- ----------- ----------- Total Dividend Income ............................. 12,796 53,045 56,065 56,817 34,233 Annuity Rate and Expense Guarantees ..................... (6,269) (7,425) (8,884) (8,722) (8,067) ----------- ----------- ----------- ----------- ----------- Net Investment Income ................................... $ 6,527 $ 45,620 $ 47,181 $ 48,095 $ 26,166 =========== =========== =========== =========== =========== Realized and Unrealized Gain (Loss) on Investments: Realized Gain (Loss) on Investments ..................... $ (14,549) $ 15,197 $ 56,764 $ 51,300 $ 37,625 Unrealized Appreciation (Depreciation) of Investments During the Year ........................ (74,854) (124,257) (120,838) 9,270 36,250 ----------- ----------- ----------- ----------- ----------- Net Gain (Loss) on Investments .................. (89,403) (109,060) (64,074) 60,570 73,875 ----------- ----------- ----------- ----------- ----------- Increase (Decrease) in Equity Derived from Investment Activity .............................................. $ (82,876) $ (63,440) $ (16,893) $ 108,665 $ 100,041 =========== =========== =========== =========== ===========
- ---------- ** Became an investment option under the Contracts effective April 30, 1999. # Became an investment option under the Contracts effective July 31, 2001. CHANGES IN EQUITY FOR ACCOUNT A: (IN THOUSANDS)
2002 2001 2000 1999 1998 ----------- ----------- ----------- ----------- ----------- Operations Net Investment Income ................................. $ 6,527 $ 45,620 $ 47,181 $ 48,095 $ 26,166 Net Realized Gain (Loss) .............................. (14,549) 15,197 56,764 51,300 37,625 Net Change in Unrealized Appreciation (Depreciation) .. (74,854) (124,257) (120,838) 9,270 36,250 ----------- ----------- ----------- ----------- ----------- Increase (Decrease) in Equity Derived from Investment Activity .............................................. (82,876) (63,440) (16,893) 108,665 100,041 ----------- ----------- ----------- ----------- ----------- Equity Transactions Contract Owners' Net Payments ......................... 46,958 46,213 54,157 55,489 62,325 Annuity Payments ...................................... (1,186) (1,316) (1,472) (1,469) (1,306) Surrenders and Other (Net) ............................ (86,526) (83,649) (121,406) (102,935) (80,848) Transfers from Other Divisions or Sponsor ............. 89,970 83,322 137,543 125,332 95,967 Transfers to Other Divisions or Sponsor ............... (91,980) (84,772) (138,779) (126,511) (98,941) ----------- ----------- ----------- ----------- ----------- Increase (Decrease) in Equity Derived from Equity Transactions .......................................... (42,764) (40,202) (69,957) (50,094) (22,803) ----------- ----------- ----------- ----------- ----------- Net Increase (Decrease) in Equity ........................ (125,640) (103,642) (86,850) 58,571 77,238 Equity Beginning of Period ................................... 593,712 697,354 784,204 725,633 648,395 ----------- ----------- ----------- ----------- ----------- End of Period ......................................... $ 468,072 $ 593,712 $ 697,354 $ 784,204 $ 725,633 =========== =========== =========== =========== ===========
7 TOTAL ASSETS OF ACCOUNT A: (IN THOUSANDS)
2002 2001 2000 1999 1998 ----------- ----------- ----------- ----------- ----------- ASSETS Investments at Market Value: Northwestern Mutual Series Fund, Inc. Small Cap Growth Stock Portfolio ** ............. $ 14,422 $ 15,624 $ 16,293 $ 4,847 N/A Northwestern Mutual Series Fund, Inc. T. Rowe Price Small Cap Value Portfolio # ....... 2,692 585 N/A N/A N/A Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock Portfolio ............... 51,966 77,633 106,815 104,344 $ 87,973 Northwestern Mutual Series Fund, Inc. International Growth Stock Portfolio # .......... 598 157 N/A N/A N/A Northwestern Mutual Series Fund, Inc. Franklin Templeton International Equity Portfolio 22,529 30,810 40,333 45,439 44,995 Northwestern Mutual Series Fund, Inc. Index 400 Stock Portfolio ** .................... 8,330 9,168 7,162 2,205 N/A Northwestern Mutual Series Fund, Inc. Growth Stock Portfolio .......................... 23,486 32,717 38,037 39,031 26,774 Northwestern Mutual Series Fund, Inc. J.P. Morgan Select Growth and Income Stock Portfolio ................................. 13,703 23,058 26,081 35,735 36,440 Northwestern Mutual Series Fund, Inc. Capital Guardian Domestic Equity Portfolio # ... 1,670 291 N/A N/A N/A Northwestern Mutual Series Fund, Inc. Index 500 Stock Portfolio ....................... 69,524 104,943 133,526 169,861 143,376 Northwestern Mutual Series Fund, Inc. Asset Allocation Portfolio # .................... 2,800 800 N/A N/A N/A Northwestern Mutual Series Fund, Inc. Balanced Portfolio .............................. 181,610 229,239 266,410 319,678 325,287 Northwestern Mutual Series Fund, Inc. High Yield Bond Portfolio ....................... 4,280 5,018 5,135 6,940 9,287 Northwestern Mutual Series Fund, Inc. Select Bond Portfolio ........................... 31,441 23,983 20,275 22,162 25,970 Northwestern Mutual Series Fund, Inc. Money Market Portfolio .......................... 26,634 27,159 25,480 28,975 26,910 Russell Insurance Funds Multi-Style Equity Fund ** ...................... 3,042 4,111 4,097 2,500 N/A Russell Insurance Funds Aggressive Equity Fund ** ....................... 2,283 2,947 2,497 1,142 N/A Russell Insurance Funds Non-U.S. Fund ** ................................ 2,284 2,861 3,244 1,383 N/A Russell Insurance Funds Real Estate Securities Fund ** .................. 3,056 1,820 1,328 332 N/A Russell Insurance Funds Core Bond Fund ** ............................... 2,331 1,527 1,186 693 N/A Due from Northwestern Mutual .......................... 211 8 -- 1,012 22 Due from Sale of Fund Shares .......................... -- 39 665 1,329 1,408 ----------- ----------- ----------- ----------- ----------- Total Assets .......................................... $ 468,892 $ 594,498 $ 698,564 $ 787,608 $ 728,442 =========== =========== =========== =========== ===========
- ---------- ** Became an investment option under the Contracts effective April 30, 1999. # Became an investment option under the Contracts effective July 31, 2001. 8 The following tables set forth selected historical financial data for Account C for the five years in the period ended December 31, 2001. 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. RESULTS OF OPERATIONS FOR ACCOUNT C: (IN THOUSANDS)
2002 2001 2000 1999 1998 ----------- ----------- ----------- ----------- ----------- Investment Income Dividend Income from Northwestern Mutual Series Fund, Inc. Small Cap Growth Stock Portfolio ** ............. $ 32 $ 2 $ 99 $ 32 N/A Dividend Income from Northwestern Mutual Series Fund, Inc. T. Rowe Price Small Cap Value Portfolio # ....... 2 -- N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock Portfolio ............... 90 27,284 20,221 3,671 $ 4,152 Dividend Income from Northwestern Mutual Series Fund, Inc. International Growth Stock Portfolio # .......... -- -- N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Franklin Templeton International Equity Portfolio 906 5,914 5,036 8,184 3,732 Dividend Income from Northwestern Mutual Series Fund, Inc. Index 400 Stock Portfolio ** .................... 140 194 1,180 6 N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Growth Stock Portfolio .......................... 330 1,614 2,101 1,223 447 Dividend Income from Northwestern Mutual Series Fund, Inc. J.P. Morgan Select Growth and Income Stock Portfolio ....................................... 180 957 2,123 4,566 343 Dividend Income from Northwestern Mutual Series Fund, Inc. Capital Guardian Domestic Equity Portfolio # .... 7 -- N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Index 500 Stock Portfolio ....................... 1,468 6,550 8,370 4,675 5,271 Dividend Income from Northwestern Mutual Series Fund, Inc. Asset Allocation Portfolio # .................... 24 -- N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Balanced Portfolio .............................. 3,922 9,705 12,909 18,031 9,909 Dividend Income from Northwestern Mutual Series Fund, Inc. High Yield Bond Portfolio ....................... 415 487 558 759 883 Dividend Income from Northwestern Mutual Series Fund, Inc. Select Bond Portfolio ........................... 863 911 1,093 1,570 1,357 Dividend Income from Northwestern Mutual Series Fund, Inc. Money Market Portfolio .......................... 221 523 971 1,015 899
9
2002 2001 2000 1999 1998 ----------- ----------- ----------- ----------- ----------- Dividend Income from Russell Insurance Funds Multi-Style Equity Fund ** .................... 7 37 79 48 N/A Dividend Income from Russell Insurance Funds Aggressive Equity Fund ** ..................... -- 1 74 1 N/A Dividend Income from Russell Insurance Funds Non-U.S. Fund ** .............................. 9 4 61 13 N/A Dividend Income from Russell Insurance Funds Real Estate Securities Fund ** ................ 481 290 52 4 N/A Dividend Income from Russell Insurance Funds Core Bond Fund ** ............................. 20 48 22 15 N/A ----------- ----------- ----------- ----------- ----------- Total Dividend Income ....................... 9,117 54,521 54,949 43,813 26,993 Annuity Rate and Expense Guarantees .............. (1,432) (2,007) (2,896) (3,444) (3,155) ----------- ----------- ----------- ----------- ----------- Net Investment Income ............................ $ 7,685 $ 52,514 $ 52,053 $ 40,369 $ 23,838 =========== =========== =========== =========== =========== Realized and Unrealized Gain (Loss) on Investments: Realized Gain (Loss) on Investments .............. $ (35,241) $ 8,705 $ 54,861 $ 41,106 $ 29,249 Unrealized Appreciation (Depreciation) of Investments During the Year ................... (58,211) (133,527) (121,850) 36,856 37,108 ----------- ----------- ----------- ----------- ----------- Net Gain (Loss) on Investments .............. (93,452) (124,822) (66,989) 77,962 66,357 ----------- ----------- ----------- ----------- ----------- Increase (Decrease) in Equity Derived from Investment Activity ......................................... $ (85,767) $ (72,308) $ (14,936) $ 118,331 $ 90,195 =========== =========== =========== =========== ===========
- ---------- ** Became an investment option under the Contracts effective April 30, 1999. # Became an investment option under the Contracts effective July 31, 2001. CHANGES IN EQUITY FOR ACCOUNT C: (IN THOUSANDS)
2002 2001 2000 1999 1998 ----------- ----------- ----------- ----------- ----------- Operations Net Investment Income ................................ $ 7,685 $ 52,514 $ 52,053 $ 40,369 $ 23,838 Net Realized Gain (Loss) ............................. (35,241) 8,705 54,861 41,106 29,249 Net Change in Unrealized Appreciation (Depreciation) (58,211) (133,527) (121,850) 36,856 37,108 ----------- ----------- ----------- ----------- ----------- Increase (Decrease) in Equity Derived from Investment Activity ............................................. (85,767) (72,308) (14,936) 118,331 90,195 ----------- ----------- ----------- ----------- ----------- Equity Transactions Contract Owners' Net Payments ........................ 78,994 90,774 103,967 74,900 93,657 Annuity Payments ..................................... (58) (64) (75) (67) (54) Surrenders and Other (Net) ........................... (160,876) (140,073) (135,735) (119,041) (87,761) Transfers from Other Divisions or Sponsor ............ 49,213 55,326 91,474 70,710 72,485 Transfers to Other Divisions or Sponsor .............. (50,870) (53,674) (92,576) (69,203) (71,425) ----------- ----------- ----------- ----------- ----------- Increase (Decrease) in Equity Derived from Equity Transactions ......................................... (83,597) (47,711) (32,945) (42,701) 6,902 ----------- ----------- ----------- ----------- ----------- Net Increase (Decrease) in Equity ....................... (169,364) (120,019) (47,881) 75,630 97,097 Equity Beginning of Period .................................. 552,816 672,835 720,716 645,086 547,989 ----------- ----------- ----------- ----------- ----------- End of Period ........................................ $ 383,452 $ 552,816 $ 672,835 $ 720,716 $ 645,086 =========== =========== =========== =========== ===========
10 TOTAL ASSETS OF ACCOUNT C: (IN THOUSANDS)
2002 2001 2000 1999 1998 ----------- ----------- ----------- ----------- ----------- ASSETS Investments at Market Value: Northwestern Mutual Series Fund, Inc. Small Cap Growth Stock Portfolio** ................ $ 16,885 $ 21,098 $ 20,038 $ 949 N/A Northwestern Mutual Series Fund, Inc. T. Rowe Price Small Cap Value Portfolio # ......... 454 165 N/A N/A N/A Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock Portfolio ................. 71,638 112,232 157,369 139,739 $ 112,355 Northwestern Mutual Series Fund, Inc. International Growth Stock Portfolio # ............ 58 38 N/A N/A N/A Northwestern Mutual Series Fund, Inc. Franklin Templeton International Equity Portfolio.. 35,006 48,902 65,489 64,556 59,265 Northwestern Mutual Series Fund, Inc. Index 400 Stock Portfolio ** ...................... 14,520 16,849 11,399 473 N/A Northwestern Mutual Series Fund, Inc. Growth Stock Portfolio ............................ 22,261 33,016 42,696 39,776 27,819 Northwestern Mutual Series Fund, Inc. J.P. Morgan Select Growth and Income Stock Portfolio ................................... 13,872 25,473 29,723 41,105 40,354 Northwestern Mutual Series Fund, Inc. Capital Guardian Domestic Equity Portfolio # ...... 580 211 N/A N/A N/A Northwestern Mutual Series Fund, Inc. Index 500 Stock Portfolio ......................... 77,810 131,489 173,398 220,075 183,326 Northwestern Mutual Series Fund, Inc. Asset Allocation Portfolio # ...................... 1,491 46 N/A N/A N/A Northwestern Mutual Series Fund, Inc. Balanced Portfolio ................................ 82,213 115,972 136,009 167,444 172,972 Northwestern Mutual Series Fund, Inc. High Yield Bond Portfolio ......................... 3,894 4,583 4,239 6,380 8,611 Northwestern Mutual Series Fund, Inc. Select Bond Portfolio ............................. 19,561 17,379 14,027 17,537 20,755 Northwestern Mutual Series Fund, Inc. Money Market Portfolio ............................ 10,973 15,185 12,102 19,341 19,629 Russell Insurance Funds Multi-Style Equity Fund ** ........................ 751 1,403 1,745 1,706 N/A Russell Insurance Funds Aggressive Equity Fund ** ......................... 527 710 643 352 N/A Russell Insurance Funds Non-U.S. Fund ** .................................. 527 672 818 565 N/A Russell Insurance Funds Real Estate Securities Fund ** .................... 9,566 6,600 2,654 102 N/A Russell Insurance Funds Core Bond Fund ** ................................. 804 793 486 384 N/A Due from Northwestern Mutual ............................ 67 37 16 395 356 Due from Sale of Fund Shares ............................ -- 13 195 798 495 Due from Participants ................................... -- -- -- 232 -- ----------- ----------- ----------- ----------- ----------- Total Assets ............................................ $ 383,458 $ 552,866 $ 673,046 $ 721,909 $ 645,937 =========== =========== =========== =========== ===========
- ---------- ** Became an investment option under the Contracts effective April 30, 1999. # Became an investment option under the Contracts effective July 31, 2001. 11 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, T. Rowe Price Small Cap Value Portfolio, Aggressive Growth Stock Portfolio, International Growth Portfolio, Franklin Templeton International Equity Portfolio, Index 400 Stock Portfolio, Growth Stock Portfolio, Large Cap Core Stock Portfolio (formerly known as the J.P. Morgan Select Growth and Income Stock Portfolio until January 31, 2003), Capital Guardian Domestic Equity Portfolio, Index 500 Stock Portfolio, Asset Allocation 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 Separate Accounts A and C have no material commitments for capital expenditures as of December 31, 2002, the end of the most recent fiscal year. All payments from Contract owners of Account A and Account C, less any sales load or installation fee, 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, 2002, 2001, and 2000 for each division, and the percentage change in such values from year to year. 12 ACCOUNT A ACCUMULATION UNIT VALUES CONTRACTS ISSUED PRIOR TO DECEMBER 17, 1981:
DIVISION 12/31/02 % CHANGE 12/31/01 % CHANGE 12/31/00* - -------- ----------- -------- --------- -------- ------------ Small Cap Growth Stock........................... $ 1.516823 -19.03% $ 1.873388 -4.49% $ 1.961375 T. Rowe Price Small Cap Value # ................. 0.950636 -6.28 1.014387 1.44 1.000000 Aggressive Growth Stock ......................... 3.711325 -21.74 4.742335 -20.48 5.963354 International Growth Stock # .................... 0.785836 -12.99 0.903153 -9.68 1.000000 Franklin Templeton International Equity ......... 1.636881 -18.02 1.996677 -14.64 2.339241 Index 400 Stock ................................. 1.092338 -15.18 1.287807 -1.40 1.306094 Growth Stock .................................... 2.006974 -21.42 2.554121 -14.86 2.999890 J.P. Morgan Select Growth and Income Stock ...... 1.566688 -28.73 2.198364 -8.46 2.401649 Capital Guardian Domestic Equity # .............. 0.762191 -21.83 0.975051 -2.49 1.000000 Index 500 Stock ................................. 3.089894 -22.65 3.994853 -12.54 4.567635 Asset Allocation # .............................. 0.869281 -10.93 0.975908 -2.41 1.000000 Balanced ........................................ 7.112654 -8.23 7.750204 -3.88 8.062822 High Yield Bond ................................. 1.487426 -3.62 1.543249 4.24 1.480422 Select Bond ..................................... 10.108841 11.25 9.086342 9.54 8.294952 Money Market .................................... 3.030949 0.90 3.004024 3.14 2.912624 Russell Multi-Style Equity ...................... 0.605230 -23.76 0.793888 -14.85 0.932346 Russell Aggressive Equity ....................... 0.847132 -19.66 1.054435 -3.10 1.088117 Russell Non-U.S ................................. 0.690333 -15.78 0.819680 -22.61 1.059216 Russell Real Estate Securities .................. 1.285091 3.03 1.247315 7.03 1.165389 Russell Core Bond ............................... 1.240286 8.03 1.148123 6.60 1.077032
- ---------- # Became an investment option under the Contracts effective July 31, 2001. * Includes accumulation unit values at inception date in 2001 for portfolios becoming effective after December 31, 2000. ACCUMULATION UNIT VALUES CONTRACTS ISSUED AFTER DECEMBER 16, 1981 AND PRIOR TO MARCH 31, 1995:
DIVISION 12/31/02 % CHANGE 12/31/01 % CHANGE 12/31/00* - -------- ----------- -------- ---------- -------- ------------ Small Cap Growth Stock........................... $ 1.489185 -19.44% $ 1.848493 -4.97% $ 1.945087 T. Rowe Price Small Cap Value # ................. 0.943905 -6.75 1.012260 1.23 1.000000 Aggressive Growth Stock ......................... 3.494085 -22.13 4.487184 -20.88 5.671037 International Growth Stock # .................... 0.780276 -13.42 0.901258 -9.87 1.000000 Franklin Templeton International Equity ......... 1.559571 -18.43 1.911919 -15.07 2.251266 Index 400 Stock ................................. 1.072428 -15.60 1.270690 -1.90 1.295242 Growth Stock .................................... 1.921805 -21.81 2.458020 -15.29 2.901600 J.P. Morgan Select Growth and Income Stock ...... 1.500218 -29.09 2.115675 -8.92 2.322995 Capital Guardian Domestic Equity # .............. 0.756787 -22.22 0.973004 -2.70 1.000000 Index 500 Stock ................................. 2.909123 -23.04 3.780024 -12.98 4.343830 Asset Allocation # .............................. 0.863125 -11.37 0.973862 -2.61 1.000000 Balanced ........................................ 6.403383 -8.68 7.012362 -4.36 7.332002 High Yield Bond ................................. 1.424293 -4.10 1.485164 3.72 1.431888 Select Bond ..................................... 9.098961 10.70 8.219594 8.99 7.541503 Money Market .................................... 2.728924 0.39 2.718250 2.62 2.648821 Russell Multi-Style Equity ...................... 0.594202 -24.14 0.783335 -15.28 0.924598 Russell Aggressive Equity ....................... 0.831686 -20.06 1.040412 -3.58 1.079072 Russell Non-U.S ................................. 0.677755 -16.20 0.808779 -23.00 1.050412 Russell Real Estate Securities .................. 1.261665 2.51 1.230726 6.49 1.155691 Russell Core Bond ............................... 1.217720 7.49 1.132872 6.07 1.068073
- ---------- # Became an investment option under the Contracts effective July 31, 2001 * Includes accumulation unit values at inception date in 2001 for portfolios becoming effective after December 31, 2000. 13 ACCUMULATION UNIT VALUES CONTRACTS ISSUED ON OR AFTER MARCH 31, 1995 AND PRIOR TO MARCH 31, 2000 - FRONT LOAD VERSION:
DIVISION 12/31/02 % CHANGE 12/31/01 % CHANGE 12/31/00* - -------- ----------- -------- ---------- -------- ------------ Small Cap Growth Stock........................... $ 1.536295 -18.75% $ 1.890848 -4.15% $ 1.972747 T. Rowe Price Small Cap Value # ................. 0.955324 -5.96 1.015860 1.59 1.000000 Aggressive Growth Stock ......................... 1.764232 -21.47 2.246524 -20.20 2.815081 International Growth Stock # .................... 0.789715 -12.69 0.904464 -9.55 1.000000 Franklin Templeton International Equity ......... 1.367662 -17.73 1.662501 -14.35 1.940943 Index 400 Stock ................................. 1.106344 -14.88 1.299809 -1.06 1.313674 Growth Stock .................................... 1.896210 -21.15 2.404787 -14.56 2.814641 J. P. Morgan Select Growth and Income Stock ..... 1.479747 -28.49 2.069175 -8.14 2.252648 Capital Guardian Domestic Equity #............... 0.765966 -21.56 0.976476 -2.35 1.000000 Index 500 Stock ................................. 1.936439 -22.38 2.494890 -12.23 2.842665 Asset Allocation # .............................. 0.873571 -10.62 0.977328 -2.27 1.000000 Balanced ........................................ 1.870656 -7.91 2.031286 -3.54 2.105871 High Yield Bond ................................. 1.425787 -3.28 1.474181 4.61 1.409248 Select Bond ..................................... 1.793220 11.64 1.606263 9.92 1.461268 Money Market .................................... 1.397113 1.25 1.379910 3.50 1.333271 Russell Multi-Style Equity ...................... 0.613006 -23.50 0.801293 -14.55 0.937760 Russell Aggressive Equity ....................... 0.857996 -19.38 1.064253 -2.76 1.094433 Russell Non-U.S ................................. 0.699179 -15.49 0.827309 -22.34 1.065355 Russell Real Estate Securities .................. 1.301549 3.39 1.258915 7.40 1.172137 Russell Core Bond ............................... 1.256188 8.40 1.158815 6.97 1.083276
- ---------- # Became an investment option under the Contracts effective July 31, 2001. * Includes accumulation unit values at inception date in 2001 for portfolios becoming effective after December 31, 2000. ACCUMULATION UNIT VALUES CONTRACTS ISSUED ON OR AFTER MARCH 31, 1995 AND PRIOR TO MARCH 31, 2000 - BACK LOAD VERSION:
DIVISION 12/31/02 % CHANGE 12/31/01 % CHANGE 12/31/00* - -------- ----------- -------- ---------- -------- ------------ Small Cap Growth Stock........................... $ 1.489185 -19.44% $ 1.848493 -4.97% $ 1.945087 T. Rowe Price Small Cap Value # ................. 0.943905 -6.75 1.012260 1.23 1.000000 Aggressive Growth Stock ......................... 3.494085 -22.13 4.487184 -20.88 5.671037 International Growth Stock # .................... 0.780276 -13.42 0.901258 -9.87 1.000000 Franklin Templeton International Equity ......... 1.559571 -18.43 1.911919 -15.07 2.251266 Index 400 Stock ................................. 1.072428 -15.60 1.270690 -1.90 1.295242 Growth Stock .................................... 1.921805 -21.81 2.458020 -15.29 2.901600 J.P. Morgan Select Growth and Income Stock ...... 1.500218 -29.09 2.115675 -8.92 2.322995 Capital Guardian Domestic Equity # .............. 0.756787 -22.22 0.973004 -2.70 1.000000 Index 500 Stock ................................. 2.909123 -23.04 3.780024 -12.98 4.343830 Asset Allocation # .............................. 0.863125 -11.37 0.973862 -2.61 1.000000 Balanced ........................................ 6.403383 -8.68 7.012362 -4.36 7.332002 High Yield Bond ................................. 1.424293 -4.10 1.485164 3.72 1.431888 Select Bond ..................................... 9.098961 10.70 8.219594 8.99 7.541503 Money Market .................................... 2.728924 0.39 2.718250 2.62 2.648821 Russell Multi-Style Equity ...................... 0.594202 -24.14 0.783335 -15.28 0.924598 Russell Aggressive Equity ....................... 0.831686 -20.06 1.040412 -3.58 1.079072 Russell Non-U.S ................................. 0.677755 -16.20 0.808779 -23.00 1.050412 Russell Real Estate Securities .................. 1.261665 2.51 1.230726 6.49 1.155691 Russell Core Bond ............................... 1.217720 7.49 1.132872 6.07 1.068073
- ---------- # Became an investment option under the Contract effective July 31, 2001. * Includes accumulation unit values at inception date in 2001 for portfolios becoming effective after December 31, 2000. 14 ACCUMULATION UNIT VALUES CONTRACTS ISSUED ON OR AFTER MARCH 31, 2000 - FRONT LOAD VERSION:
DIVISION 12/31/02 % CHANGE 12/31/01 % CHANGE 12/31/00* - -------- ----------- -------- ---------- -------- ------------ Small Cap Growth Stock........................... $ 0.702869 -18.83% $ 0.865935 -4.25% $ 0.904342 T. Rowe Price Small Cap Value # ................. 0.953992 -6.05 1.015445 1.54 1.000000 Aggressive Growth Stock ......................... 0.564112 -21.55 0.719033 -20.28 0.901909 International Growth Stock # .................... 0.788618 -12.77 0.904093 -9.59 1.000000 Franklin Templeton International Equity ......... 0.700185 -17.81 0.851962 -14.43 0.995643 Index 400 Stock ................................. 0.870423 -14.97 1.023646 -1.15 1.035589 Growth Stock .................................... 0.616498 -21.23 0.782628 -14.65 0.916924 J.P. Morgan Select Growth and Income Stock....... 0.581563 -28.56 0.814020 -8.24 0.887072 Capital Guardian Domestic Equity # .............. 0.764893 -21.64 0.976072 -2.39 1.000000 Index 500 Stock ................................. 0.604035 -22.46 0.779001 -12.32 0.888477 Asset Allocation # .............................. 0.872356 -10.70 0.976926 -2.31 1.000000 Balanced ........................................ 0.862735 -8.00 0.937735 -3.64 0.973123 High Yield Bond ................................. 0.972766 -3.38 1.006773 4.50 0.963375 Select Bond ..................................... 1.321394 11.53 1.184790 9.81 1.078901 Money Market .................................... 1.092171 1.15 1.079788 3.40 1.044325 Russell Multi-Style Equity ...................... 0.574187 -23.57 0.751294 -14.64 0.880119 Russell Aggressive Equity ....................... 0.727980 -19.46 0.903873 -2.85 0.930436 Russell Non-U.S ................................. 0.557227 -15.57 0.659991 -22.42 0.850723 Russell Real Estate Securities .................. 1.375137 3.28 1.331406 7.30 1.240862 Russell Core Bond ............................... 1.243794 8.30 1.148513 6.87 1.074705
- ---------- # Became an investment option under the Contracts effective July 31, 2001. * Includes accumulation unit values at inception date in 2001 for portfolios becoming effective after December 31, 2000. ACCUMULATION UNIT VALUES CONTRACTS ISSUED ON OR AFTER MARCH 31, 2000 - BACK LOAD VERSION:
DIVISION 12/31/02 % CHANGE 12/31/01 % CHANGE 12/31/00* - -------- ----------- -------- ---------- -------- ------------ Small Cap Growth Stock........................... $ 1.489185 -19.44% $ 1.848493 -4.97% $ 1.945087 T. Rowe Price Small Cap Value # ................. 0.943905 -6.75 1.012260 1.23 1.000000 Aggressive Growth Stock ......................... 3.494085 -22.13 4.487184 -20.88 5.671037 International Growth Stock # .................... 0.780276 -13.42 0.901258 -9.87 1.000000 Franklin Templeton International Equity ......... 1.559571 -18.43 1.911919 -15.07 2.251266 Index 400 Stock ................................. 1.072428 -15.60 1.270690 -1.90 1.295242 Growth Stock .................................... 1.921805 -21.81 2.458020 -15.29 2.901600 J.P. Morgan Select Growth and Income Stock....... 1.500218 -29.09 2.115675 -8.92 2.322995 Capital Guardian Domestic Equity # .............. 0.756787 -22.22 0.973004 -2.70 1.000000 Index 500 Stock ................................. 2.909123 -23.04 3.780024 -12.98 4.343830 Asset Allocation # .............................. 0.863125 -11.37 0.973862 -2.61 1.000000 Balanced ........................................ 6.403383 -8.68 7.012362 -4.36 7.332002 High Yield Bond ................................. 1.424293 -4.10 1.485164 3.72 1.431888 Select Bond ..................................... 9.098961 10.70 8.219594 8.99 7.541503 Money Market .................................... 2.728924 0.39 2.718250 2.62 2.648821 Russell Multi-Style Equity ...................... 0.594202 -24.14 0.783335 -15.28 0.924598 Russell Aggressive Equity ....................... 0.831686 -20.06 1.040412 -3.58 1.079072 Russell Non-U.S ................................. 0.677755 -16.20 0.808779 -23.00 1.050412 Russell Real Estate Securities .................. 1.261665 2.51 1.230726 6.49 1.155691 Russell Core Bond ............................... 1.217720 7.49 1.132872 6.07 1.068073
- ---------- # Became an investment option under the Contracts effective July 31, 2001. * Includes accumulation unit values at inception date in 2001 for portfolios becoming effective after December 31, 2000. 15 TOTAL EQUITY: (IN THOUSANDS)
12/31/02 12/31/01 12/31/00 -------- -------- -------- $468,072 $593,712 $697,354
The decline in 2002's Total Equity was attributable primarily to investment activities within the Account: the net change in unrealized depreciation of $74,854 led to a decrease in equity derived from investment activities of $82,876 for the year ended December 31, 2002. The decline in 2001's Total Equity was also attributable primarily to investment activities within the Account: the net change in unrealized depreciation of $124,257 led to a decrease in equity derived from investment activities of $63,440 for the year ended December 31, 2001. ACCOUNT C ACCUMULATION UNIT VALUES CONTRACTS ISSUED PRIOR TO DECEMBER 17, 1981 OR BETWEEN APRIL 30, 1984 AND DECEMBER 31, 1991:
DIVISION 12/31/02 % CHANGE 12/31/01 % CHANGE 12/31/00* - -------- ----------- -------- ---------- -------- ------------ Small Cap Growth Stock........................... $ 15.591407 -18.42% $19.112629 -3.76% $ 19.859931 T. Rowe Price Small Cap Value # ................. 9.607906 -5.58 10.175772 1.76 10.000000 Aggressive Growth Stock ......................... 38.441232 -21.15 48.753408 -19.87 60.845203 International Growth Stock # .................... 7.942434 -12.34 9.060000 -9.40 10.000000 Franklin Templeton International Equity ......... 1.759773 -17.40 2.130553 -14.00 2.477334 Index 400 Stock ................................. 11.227976 -14.54 13.138452 -0.65 13.224995 Growth Stock .................................... 21.414901 -20.83 27.049526 -14.22 31.531943 J.P. Morgan Select Growth and Income Stock ...... 16.717038 -28.20 23.281928 -7.77 25.243989 Capital Guardian Domestic Equity # .............. 7.703469 -21.24 9.781208 -2.19 10.000000 Index 500 Stock ................................. 35.246385 -22.07 45.228886 -11.88 51.325633 Asset Allocation # .............................. 8.785751 -10.26 9.789803 -2.10 10.000000 Balanced ........................................ 84.486469 -7.54 91.372736 -3.15 94.345469 High Yield Bond ................................. 15.870922 -2.89 16.343831 5.03 15.560950 Select Bond ..................................... 121.279762 12.09 108.200259 10.37 98.036463 Money Market .................................... 34.132616 1.65 33.577318 3.92 32.311690 Russell Multi-Style Equity ...................... 6.221208 -23.19 8.099453 -14.21 9.440627 Russell Aggressive Equity ....................... 8.707578 -19.06 10.757522 -2.36 11.017913 Russell Non-U.S ................................. 7.095865 -15.15 8.362558 -22.03 10.725190 Russell Real Estate Securities .................. 13.208871 3.80 12.725061 7.84 11.800164 Russell Core Bond ............................... 12.748590 8.84 11.713217 7.41 10.905549
- ---------- # Became an investment option under the Contracts effective July 31, 2001. * Includes accumulation unit values at inception date in 2001 for portfolios becoming effective after December 31, 2000. 16 ACCUMULATION UNIT VALUES CONTRACTS ISSUED AFTER DECEMBER 16, 1981 AND PRIOR TO MAY 1, 1984:
DIVISION 12/31/02 % CHANGE 12/31/01 % CHANGE 12/31/00* - -------- ----------- -------- ---------- -------- ------------ Small Cap Growth Stock........................... $ 15.307344 -18.83% $18.858687 -4.25% $ 19.695066 T. Rowe Price Small Cap Value # ................. 9.539874 -6.05 10.154423 1.54 10.000000 Aggressive Growth Stock ......................... 36.213065 -21.55 46.158193 -20.28 57.897540 International Growth Stock # .................... 7.886164 -12.77 9.040958 -9.59 10.000000 Franklin Templeton International Equity ......... 1.676652 -17.82 2.040110 -14.43 2.384172 Index 400 Stock ................................. 11.023428 -14.97 12.963870 -1.15 13.115131 Growth Stock .................................... 20.506308 -21.23 26.031963 -14.65 30.498976 J.P. Morgan Select Growth and Income Stock ...... 16.007652 -28.56 22.405970 -8.24 24.416867 Capital Guardian Domestic Equity # .............. 7.648889 -21.64 9.760679 -2.39 10.000000 Index 500 Stock ................................. 33.200274 -22.46 42.817258 -12.32 48.834231 Asset Allocation # .............................. 8.723560 -10.70 9.769272 -2.31 10.000000 Balanced ........................................ 76.084739 -8.00 82.699005 -3.64 85.820221 High Yield Bond ................................. 15.197603 -3.38 15.728914 4.50 15.050970 Select Bond ..................................... 109.16634 11.53 97.881219 9.81 89.133511 Money Market .................................... 30.774871 1.15 30.425952 3.40 29.426661 Russell Multi-Style Equity ...................... 6.107844 -23.57 7.991801 -14.64 9.362193 Russell Aggressive Equity ....................... 8.548899 -19.46 10.614527 -2.85 10.926333 Russell Non-U.S ................................. 6.966578 -15.57 8.251395 -22.42 10.636093 Russell Real Estate Securities .................. 12.968435 3.28 12.556055 7.30 11.702144 Russell Core Bond ............................... 12.516564 8.30 11.557668 6.87 10.814951
- ---------- # Became an investment option under the Contracts effective July 31, 2001. * Includes accumulation unit values at inception date in 2001 for portfolios becoming effective after December 31, 2000. ACCUMULATION UNIT VALUES CONTRACTS ISSUED AFTER DECEMBER 31, 1991 - FRONT LOAD VERSION:
DIVISION 12/31/02 % CHANGE 12/31/01 % CHANGE 12/31/00* - -------- ----------- -------- --------- -------- ------------ Small Cap Growth Stock........................... $ 1.522337 -18.95% $ 1.878336 -4.39% $ 1.964602 T. Rowe Price Small Cap Value # ................. 0.951956 -6.19 1.014805 1.48 1.000000 Aggressive Growth Stock ......................... 2.360410 -21.66 3.013165 -20.40 3.785207 International Growth Stock # .................... 0.786940 -12.90 0.903525 -9.65 1.000000 Franklin Templeton International Equity ......... 1.652585 -17.94 2.013838 -14.56 2.357007 Index 400 Stock ................................. 1.096297 -15.10 1.291211 -1.30 1.308249 Growth Stock .................................... 2.024216 -21.34 2.573522 -14.77 3.019678 J.P. Morgan Select Growth and Income Stock ...... 1.580140 -28.66 2.215050 -8.37 2.417488 Capital Guardian Domestic Equity # .............. 0.763266 -21.75 0.975455 -2.45 1.000000 Index 500 Stock ................................. 2.420098 -22.58 3.125796 -12.45 3.570426 Asset Allocation # .............................. 0.870499 -10.84 0.976312 -2.37 1.000000 Balanced ........................................ 2.209502 -8.14 2.405185 -3.78 2.499718 High Yield Bond ................................. 1.500210 -3.52 1.554978 4.35 1.490196 Select Bond ..................................... 2.084184 11.36 1.871532 9.65 1.706832 Money Market .................................... 1.504462 1.00 1.489628 3.24 1.442872 Russell Multi-Style Equity ...................... 0.607438 -23.69 0.795993 -14.77 0.933887 Russell Aggressive Equity ....................... 0.850202 -19.58 1.057215 -3.00 1.089907 Russell Non-U.S ................................. 0.692822 -15.70 0.821829 -22.54 1.060950 Russell Real Estate Securities .................. 1.289736 3.13 1.250590 7.14 1.167301 Russell Core Bond ............................... 1.244772 8.13 1.151142 6.71 1.078791
- ---------- # Became an investment option under the Contracts effective July 31, 2001. * Includes accumulation unit values at inception date in 2001 for portfolios becoming effective after December 31, 2000. 17 ACCUMULATION UNIT VALUES CONTRACTS ISSUED AFTER DECEMBER 31, 1991 - SIMPLIFIED LOAD VERSION:
DIVISION 12/31/02 % CHANGE 12/31/01 % CHANGE 12/31/00* - -------- ----------- -------- ---------- -------- ------------ Small Cap Growth Stock........................... $ 1.489185 -19.44% $ 1.848493 -4.97% $ 1.945087 T. Rowe Price Small Cap Value # ................. 0.943905 -6.75 1.012260 1.23 1.000000 Aggressive Growth Stock ......................... 3.506913 -22.13 4.503663 -20.88 5.691856 International Growth Stock # .................... 0.780276 -13.42 0.901258 -9.87 1.000000 Franklin Templeton International Equity ......... 1.559571 -18.43 1.911919 -15.07 2.251266 Index 400 Stock ................................. 1.072428 -15.60 1.270690 -1.90 1.295242 Growth Stock .................................... 1.921805 -21.81 2.458020 -15.29 2.901600 J.P. Morgan Select Growth and Income Stock ...... 1.500218 -29.09 2.115675 -8.92 2.322995 Capital Guardian Domestic Equity # .............. 0.756787 -22.22 0.973004 -2.70 1.000000 Index 500 Stock ................................. 2.968449 -23.04 3.857114 -12.98 4.432423 Asset Allocation # .............................. 0.863125 -11.37 0.973862 -2.61 1.000000 Balanced ........................................ 6.435011 -8.68 7.047000 -4.36 7.368231 High Yield Bond ................................. 1.424293 -4.10 1.485164 3.72 1.431888 Select Bond ..................................... 9.187656 10.70 8.299723 8.99 7.615016 Money Market .................................... 2.734853 0.39 2.724154 2.62 2.654580 Russell Multi-Style Equity ...................... 0.594202 -24.14 0.783335 -15.28 0.924598 Russell Aggressive Equity ....................... 0.831686 -20.06 1.040412 -3.58 1.079072 Russell Non-U.S ................................. 0.677755 -16.20 0.808779 -23.00 1.050412 Russell Real Estate Securities................... 1.261665 2.51 1.230726 6.49 1.155691 Russell Core Bond ............................... 1.217720 7.49 1.132872 6.07 1.068073
- ---------- # Became an investment option under the Contracts effective July 31, 2001. * Includes accumulation unit values at inception date in 2001 for portfolios becoming effective after December 31, 2000. TOTAL EQUITY: (IN THOUSANDS)
12/31/02 12/31/01 12/31/00 -------- -------- -------- $383,452 $552,816 $672,835
The changes in 2002's Total Equity was attributable primarily to investment activities within the Account: the net change in unrealized depreciation of $58,211 led to a decrease in equity derived from investment activities of $85,767 for the year ended December 31, 2002. The change in 2001's Total Equity was also attributable primarily to investment activities within the Account: the net change in unrealized depreciation of $133,527 led to a decrease in equity derived from investment activities of $72,308 for the year ended December 31, 2001. CRITICAL ACCOUNTING POLICIES Dividend income and distributions of net realized gains received from the Funds are recorded on the ex-date of the dividends. Transactions in the Funds' shares are accounted for on the trade date. Annuity reserves are based on published annuity tables. A deduction for annuity rate and expense guarantees is determined daily. Under current law, no federal income taxes are payable with respect to Accounts A and C. Accordingly, no provisions for any such liability has been made. 18 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The assets of Account A and Account C consist entirely of shares of the 15 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. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA NML VARIABLE ANNUITY ACCOUNT A STATEMENTS OF ASSETS AND LIABILITIES (IN THOUSANDS)
DECEMBER 31 -------------------------- 2002 2001 ------------ ----------- ASSETS Investments at market value: Northwestern Mutual Series Fund, Inc. Small Cap Growth Stock 2002: 9,912 shares (cost $18,759).......... $ 14,422 2001: 8,748 shares (cost $17,350).......... $ 15,624 T. Rowe Price Small Cap Value # 2002: 2,825 shares (cost $2,981)........... 2,692 2001: 576 shares (cost $543)............... 585 Aggressive Growth Stock 2002: 23,805 shares (cost $81,640)......... 51,966 2001: 27,500 shares (cost $96,370)......... 77,633 International Growth Stock # 2002: 758 shares (cost $666)............... 598 2001: 173 shares (cost $165)............... 157 Franklin Templeton International Equity 2002: 22,001 shares (cost $34,441)......... 22,529 2001: 24,394 shares (cost $39,250)......... 30,810 Index 400 Stock 2002: 8,750 shares (cost $9,843)........... 8,330 2001: 8,172 shares (cost $9,465)........... 9,168 Growth Stock 2002: 14,790 shares (cost $33,032)......... 23,486 2001: 16,139 shares (cost $37,094)......... 32,717 J.P. Morgan Select Growth and Income Stock 2002: 15,786 shares (cost $22,115)......... 13,703 2001: 18,915 shares (cost $27,776)......... 23,058 Capital Guardian Domestic Equity # 2002: 2,203 shares (cost $1,904)........... 1,670 2001: 298 shares (cost $277)............... 291 Index 500 Stock 2002: 32,083 shares (cost $81,840)......... 69,524 2001: 36,502 shares (cost $93,314)......... 104,943 Asset Allocation # 2002: 3,263 shares (cost $3,031)........... 2,800 2001: 822 shares (cost $787)............... 800 Balanced 2002: 111,967 shares (cost $194,101)....... 181,610 2001: 125,956 shares (cost $218,603)....... 229,239
19
December 31 -------------------------- 2002 2001 ------------ ----------- High Yield Bond 2002: 7,602 shares (cost $5,620)........................................... 4,280 2001: 7,733 shares (cost $6,179)........................................... 5,018 Select Bond 2002: 24,737 shares (cost $29,435)......................................... 31,441 2001: 19,936 shares (cost $23,404)......................................... 23,983 Money Market 2002: 26,634 shares (cost $26,634)......................................... 26,634 2001: 27,159 shares (cost $27,159)......................................... 27,159 Russell Insurance Funds Multi Style Equity 2002: 336 shares (cost $4,489)............................................. 3,042 2001: 341 shares (cost $5,063)............................................. 4,111 Aggressive Equity 2002: 247 shares (cost $2,928)............................................. 2,283 2001: 258 shares (cost $3,182)............................................. 2,947 Non-U.S 2002: 317 shares (cost $3,341)............................................. 2,284 2001: 328 shares (cost $3,838)............................................. 2,861 Real Estate Securities 2002: 291 shares (cost $3,120)............................................. 3,056 2001: 169 shares (cost $1,794)............................................. 1,820 Core Bond 2002: 224 shares (cost $2,275)............................................. 2,331 2001: 151 shares (cost $1,497)............................................. 1,527 Due from Sales of Fund Shares..................................................... -- 39 Due from Northwestern Mutual Life Insurance Company............................... 211 8 ------------ ----------- Total Assets............................................................... $ 468,892 $ 594,498 ============ =========== LIABILITIES AND EQUITY LIABILITIES Due to Participants ........................................................... $ 597 739 Due to Northwestern Mutual Life Insurance Company.............................. 223 39 Due on Purchase of Fund Shares................................................. -- 8 ------------ ----------- Total Liabilities.......................................................... 820 786 ------------ ----------- EQUITY Group Variable Annuity Contracts Issued: Before December 17, 1981:...................................................... 35,373 46,841 After December 16, 1981 and Prior to March 31, 1995:........................... 320,815 421,383 On or After March 31, 1995 and Prior to March 31, 2000 - Front Load Version.... 15,937 96,699 On or After March 31, 1995 and Prior to March 31, 2000 - Back Load Version..... 79,380 20,123 On or After March 31, 2000 - Front Load Version:............................... 2,529 6,604 On or After March 31, 2000 - Back Load Version................................. 14,038 2,062 ------------ ----------- Total Equity............................................................... 468,072 593,712 ------------ ----------- Total Liabilities and Equity............................................... $ 468,892 $ 594,498 ============ ===========
- ---------- # The initial investment was made July 31, 2001. The Accompanying Notes are an Integral Part of the Financial Statements. 20 NML VARIABLE ANNUITY ACCOUNT A STATEMENTS OF OPERATIONS (IN THOUSANDS)
COMBINED SMALL CAP GROWTH STOCK DIVISION ---------------------------------------- --------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ----------- ----------- ----------- ----------- ----------- ----------- Investment Income Dividend Income ............................ $ 12,796 $ 53,045 $ 56,065 $ 26 $ 1 $ 379 Annuity Rate and Expense Guarantees ........ (6,269) (7,425) (8,884) (198) (179) (153) ----------- ----------- ----------- ----------- ----------- ----------- Net Investment Income (Loss) .................. 6,527 45,620 47,181 (172) (178) 226 ----------- ----------- ----------- ----------- ----------- ----------- Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments ........ (14,549) 15,197 56,764 (785) (343) 827 Unrealized Appreciation (Depreciation) During the Year .......................... (74,854) (124,257) (120,838) (2,610) (338) (1,850) ----------- ----------- ----------- ----------- ----------- ----------- Net Gain (Loss) on Investments ................ (89,403) (109,060) (64,074) (3,395) (681) (681) ----------- ----------- ----------- ----------- ----------- ----------- Increase (Decrease) in Equity Derived from Investment Activity ........... $ (82,876) $ (63,440) $ (16,893) $ (3,567) $ (859) $ (797) =========== =========== =========== =========== =========== ===========
T. ROWE PRICE SMALL CAP VALUE DIVISION # AGGRESSIVE GROWTH STOCK DIVISION -------------------------- ----------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 2000 ----------- ----------- ----------- ----------- ----------- Investment Income Dividend Income ............................... $ 14 $ 1 $ 61 $ 19,094 $ 13,412 Annuity Rate and Expense Guarantees ........... (26) (1) (766) (1,021) (1,395) ----------- ----------- ----------- ----------- ----------- Net Investment Income (Loss) ..................... (12) -- (705) 18,073 12,017 ----------- ----------- ----------- ----------- ----------- Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments ........... (73) -- (4,414) 906 11,257 Unrealized Appreciation (Depreciation) During the Year ............................ (329) 41 (10,937) (40,892) (18,313) ----------- ----------- ----------- ----------- ----------- Net Gain (Loss) on Investments ................... (402) 41 (15,351) (39,986) (7,056) ----------- ----------- ----------- ----------- ----------- Increase (Decrease) in Equity Derived from Investment Activity .............. $ (414) $ 41 $ (16,056) $ (21,913) $ 4,961 =========== =========== =========== =========== ===========
- ---------- # The initial investment in this Division was made on July 31, 2001. 21 NML VARIABLE ANNUITY ACCOUNT A STATEMENTS OF OPERATIONS CONTINUED (IN THOUSANDS)
FRANKLIN TEMPLETON INTERNATIONAL GROWTH STOCK INTERNATIONAL DIVISION # EQUITY DIVISION ---------------------------- -------------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ Investment Income Dividend Income ................................. $ 3 $ -- $ 574 $ 3,729 $ 3,228 Annuity Rate and Expense Guarantees ............. (5) -- (327) (415) (515) ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ....................... (2) -- 247 3,314 2,713 ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments ............. (3) (8) (2,073) (245) 2,247 Unrealized Appreciation (Depreciation) During the Year .............................. (59) -- (3,472) (8,897) (5,914) ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments ..................... (62) (8) (5,545) (9,142) (3,667) ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ................ $ (64) $ (8) $ (5,298) $ (5,828) $ (954) ============ ============ ============ ============ ============
INDEX 400 STOCK DIVISION GROWTH STOCK DIVISION ---------------------------------------- ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ Investment Income Dividend Income .......................... $ 76 $ 97 $ 801 $ 324 $ 1,497 $ 1,855 Annuity Rate and Expense Guarantees ...... (109) (94) (55) (337) (403) (473) ------------ ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ................ (33) 3 746 (13) 1,094 1,382 ------------ ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments ...... (352) (41) 207 (1,842) 464 3,581 Unrealized Appreciation (Depreciation) During the Year ........................ (1,217) (36) (414) (5,170) (7,478) (6,543) ------------ ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments .............. (1,569) (77) (207) (7,012) (7,014) (2,962) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ......... $ (1,602) $ (74) $ 539 $ (7,025) $ (5,920) $ (1,580) ============ ============ ============ ============ ============ ============
J.P. MORGAN SELECT GROWTH AND INCOME CAPITAL GUARDIAN STOCK DIVISION EQUITY DIVISION# -------------------------------------------- ---------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 ------------ ------------ ------------ ------------ ------------ Investment Income Dividend Income ............................... $ 170 $ 876 $ 1,774 $ 20 $ 1 Annuity Rate and Expense Guarantees ........... (212) (286) (362) (12) -- ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ..................... (42) 590 1,412 8 1 ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments ........... (2,738) (278) (2) (54) -- Unrealized Appreciation (Depreciation) During the Year ............................. (3,694) (2,664) (3,775) (248) 12 ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments ................... (6,432) (2,942) (3,777) (302) 12 ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity .............. $ (6,474) $ (2,352) $ (2,365) $ (294) $ 13 ============ ============ ============ ============ ============
- ---------- # The initial investment in this Division was made on July 31, 2001. 22 NML VARIABLE ANNUITY ACCOUNT A STATEMENTS OF OPERATIONS CONTINUED (IN THOUSANDS)
INDEX 500 STOCK DIVISION ASSET ALLOCATION DIVISION # -------------------------------------------- ---------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 ------------ ------------ ------------ ------------ ------------ Investment Income Dividend Income ................................. $ 1,197 $ 5,168 $ 6,161 $ 45 $ 6 Annuity Rate and Expense Guarantees ............. (976) (1,297) (1,722) (22) (2) ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ....................... 221 3,871 4,439 23 4 ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments ............. 483 8,880 19,865 (35) -- Unrealized Appreciation (Depreciation) During the Year .............................. (23,945) (29,565) (39,225) (244) 11 ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments ..................... (23,462) (20,685) (19,360) (279) 11 ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ................ $ (23,241) $ (16,814) $ (14,921) $ (256) $ 15 ============ ============ ============ ============ ============
BALANCED DIVISION HIGH YIELD BOND DIVISION ---------------------------------------- ---------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ Investment Income Dividend Income ........................... $ 7,949 $ 19,440 $ 24,058 $ 456 $ 529 $ 611 Annuity Rate and Expense Guarantees ....... (2,466) (2,955) (3,494) (55) (62) (68) ------------ ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ................. 5,483 16,485 20,564 401 467 543 ------------ ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments ...... (1,610) 6,981 19,864 (439) (655) (756) Unrealized Appreciation (Depreciation) During the Year ........................ (23,128) (34,686) (44,078) (179) 381 (119) ------------ ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments .............. (24,738) (27,705) (24,214) (618) (274) (875) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ......... $ (19,255) $ (11,220) $ (3,650) $ (217) $ 193 $ (332) ============ ============ ============ ============ ============ ============
SELECT BOND DIVISION MONEY MARKET DIVISION ---------------------------------------- ----------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ Investment Income Dividend Income .......................... $ 1,181 $ 1,257 $ 1,463 $ 440 $ 1,067 $ 1,609 Annuity Rate and Expense Guarantees ...... (299) (248) (228) (304) (318) (296) ------------ ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ................ 882 1,009 1,235 136 749 1,313 ------------ ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments ...... 437 (65) (333) -- -- -- Unrealized Appreciation (Depreciation) During the Year ........................ 1,426 919 830 -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments .............. 1,863 854 497 -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ......... $ 2,745 $ 1,863 $ 1,732 $ 136 $ 749 $ 1,313 ============ ============ ============ ============ ============ ============
- ---------- # The initial investment in this Division was made on July 31, 2001. 23 NML VARIABLE ANNUITY ACCOUNT A STATEMENTS OF OPERATIONS CONTINUED (IN THOUSANDS)
RUSSELL MULTI-STYLE EQUITY DIVISION RUSSELL AGGRESSIVE EQUITY DIVISION ---------------------------------------- ---------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ Investment Income Dividend Income ......................... $ 22 $ 91 $ 134 $ -- $ 3 $ 261 Annuity Rate and Expense Guarantees ..... (41) (44) (43) (29) (29) (26) ------------ ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ............... (19) 47 91 (29) (26) 235 ------------ ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments ..... (547) (154) (74) (133) (69) 43 Unrealized Appreciation (Depreciation) During the Year ....................... (495) (517) (564) (409) 6 (359) ------------ ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments ............. (1,042) (671) (638) (542) (63) (316) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ........ $ (1,061) $ (624) $ (547) $ (571) $ (89) $ (81) ============ ============ ============ ============ ============ ============
RUSSELL NON-U.S. DIVISION RUSSELL REAL ESTATE SECURITIES DIVISION ---------------------------------------- ---------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ Investment Income Dividend Income ........................... $ 41 $ 17 $ 226 $ 142 $ 93 $ 43 Annuity Rate and Expense Guarantees ....... (32) (34) (33) (30) (21) (9) ------------ ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ................. 9 (17) 193 112 72 34 ------------ ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments ....... (459) (287) 21 3 95 40 Unrealized Appreciation (Depreciation) During the Year ......................... (80) (480) (679) (90) (61) 97 ------------ ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments ............... (539) (767) (658) (87) 34 137 ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity .......... $ (530) $ (784) $ (465) $ 25 $ 106 $ 171 ============ ============ ============ ============ ============ ============
RUSSELL CORE BOND DIVISION -------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 ------------ ------------ ------------ Investment Income Dividend Income .............................................. $ 55 $ 78 $ 50 Annuity Rate and Expense Guarantees .......................... (23) (16) (12) ------------ ------------ ------------ Net Investment Income (Loss) .................................... 32 62 38 ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments .......................... 85 16 (23) Unrealized Appreciation (Depreciation) During the Year ........................................... 26 (13) 68 ------------ ------------ ------------ Net Gain (Loss) on Investments .................................. 111 3 45 ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ............................. $ 143 $ 65 $ 83 ============ ============ ============
The Accompanying Notes are an Integral Part of the Financial Statements. 24 NML VARIABLE ANNUITY ACCOUNT A STATEMENTS OF CHANGES IN EQUITY (IN THOUSANDS)
COMBINED SMALL CAP GROWTH STOCK DIVISION ------------------------------------------ ------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------- Operations: Net Investment Income ............... $ 6,527 $ 45,620 $ 47,181 $ (172) $ (178) $ 226 Net Realized Gain (Loss) ............ (14,549) 15,197 56,764 (785) (343) 827 Net Change in Unrealized Appreciation (Depreciation) ....... (74,854) (124,257) (120,838) (2,610) (338) (1,850) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity .... (82,876) (63,440) (16,893) (3,567) (859) (797) ------------ ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ........ 46,958 46,213 54,157 1,990 1,932 2,791 Annuity Payments .................... (1,186) (1,316) (1,472) (2) (7) (13) Surrenders and Other (Net) .......... (86,526) (83,649) (121,406) (1,772) (1,362) (1,308) Transfers from Other Divisions or Sponsors ....................... 89,970 83,322 137,543 5,993 4,029 19,138 Transfers to Other Divisions or Sponsors ....................... (91,980) (84,772) (138,779) (3,844) (4,403) (8,365) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions .... (42,764) (40,202) (69,957) 2,365 189 12,243 ------------ ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ...... (125,640) (103,642) (86,850) (1,202) (670) 11,446 Equity: Beginning of Period ................. 593,712 697,354 784,204 15,623 16,293 4,847 ------------ ------------ ------------ ------------ ------------ ------------ End of Period ....................... $ 468,072 $ 593,712 $ 697,354 $ 14,421 $ 15,623 $ 16,293 ============ ============ ============ ============ ============ ============
T. ROWE PRICE SMALL CAP VALUE DIVISION # AGGRESSIVE GROWTH STOCK DIVISION --------------------------- ------------------------------------------ PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ Operations: Net Investment Income .............................. $ (12) $ -- $ (705) $ 18,073 $ 12,017 Net Realized Gain (Loss) ........................... (73) -- (4,414) 906 11,257 Net Change in Unrealized Appreciation (Depreciation) (329) 41 (10,937) (40,892) (18,313) ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ................... (414) 41 (16,056) (21,913) 4,961 ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ....................... 744 87 5,565 6,978 8,119 Annuity Payments ................................... (21) -- (30) (37) (49) Surrenders and Other (Net) ......................... (399) -- (9,556) (10,388) (19,221) Transfers from Other Divisions or Sponsors ......... 4,185 490 5,187 7,243 26,450 Transfers to Other Divisions or Sponsors ........... (1,985) (34) (10,758) (10,995) (17,887) ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ................... 2,524 543 (9,592) (7,199) (2,588) ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ..................... 2,110 584 (25,648) (29,112) 2,373 Equity: Beginning of Period ................................ 584 -- 77,631 106,743 104,370 ------------ ------------ ------------ ------------ ------------ End of Period ...................................... $ 2,694 $ 584 $ 51,983 $ 77,631 $ 106,743 ============ ============ ============ ============ ============
- ---------- # The initial investment in this Division was made on July 31, 2001. 25 NML VARIABLE ANNUITY ACCOUNT A STATEMENTS OF CHANGES IN EQUITY CONTINUED (IN THOUSANDS)
INTERNATIONAL GROWTH FRANKLIN TEMPLETON STOCK DIVISION # INTERNATIONAL EQUITY DIVISION --------------------------- ------------------------------------------ YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ Operations: Net Investment Income .................... $ (2) $ -- $ 247 $ 3,314 $ 2,713 Net Realized Gain (Loss) ................. (3) (8) (2,073) (245) 2,247 Net Change in Unrealized Appreciation (Depreciation) ............ (59) -- (3,472) (8,897) (5,914) ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ......... (64) (8) (5,298) (5,828) (954) ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ............. 198 24 2,567 2,894 3,890 Annuity Payments ......................... -- -- (14) (17) (19) Surrenders and Other (Net) ............... (15) -- (4,346) (4,910) (6,674) Transfers from Other Divisions or Sponsors 678 154 3,446 3,316 7,129 Transfers to Other Divisions or Sponsors . (356) (13) (4,630) (4,969) (8,486) ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ......... 505 165 (2,977) (3,686) (4,160) ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ........... 441 157 (8,275) (9,514) (5,114) Equity: Beginning of Period ...................... 157 -- 30,784 40,298 45,412 ------------ ------------ ------------ ------------ ------------ End of Period ............................ $ 598 $ 157 $ 22,509 $ 30,784 $ 40,298 ============ ============ ============ ============ ============
INDEX 400 STOCK DIVISION GROWTH STOCK DIVISION ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ Operations: Net Investment Income ................ $ (33) $ 3 $ 746 $ (13) $ 1,094 $ 1,382 Net Realized Gain (Loss) ............. (352) (41) 207 (1,842) 464 3,581 Net Change in Unrealized Appreciation (Depreciation) ........ (1,217) (36) (414) (5,170) (7,478) (6,543) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ..... (1,602) (74) 539 (7,025) (5,920) (1,580) ------------ ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ......... 1,618 1,347 1,061 3,233 3,713 4,161 Annuity Payments ..................... (14) (16) (22) (4) (5) (5) Surrenders and Other (Net) ........... (1,479) (708) 28 (3,860) (3,538) (6,808) Transfers from Other Divisions or Sponsors ........................ 4,135 4,453 5,651 3,299 5,424 14,158 Transfers to Other Divisions or Sponsors ........................ (3,493) (3,006) (2,290) (4,869) (4,981) (10,930) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ..... 767 2,070 4,428 (2,201) 613 576 ------------ ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ....... (835) 1,996 4,967 (9,226) (5,307) (1,004) Equity: Beginning of Period .................. 9,158 7,162 2,195 32,717 38,024 39,028 ------------ ------------ ------------ ------------ ------------ ------------ End of Period ........................ $ 8,323 $ 9,158 $ 7,162 $ 23,491 $ 32,717 $ 38,024 ============ ============ ============ ============ ============ ============
- ---------- # The initial investment in this Division was made on July 31, 2001. 26 NML VARIABLE ANNUITY ACCOUNT A STATEMENTS OF CHANGES IN EQUITY CONTINUED (IN THOUSANDS)
J.P. MORGAN SELECT GROWTH CAPITAL GUARDIAN DOMESTIC AND INCOME STOCK DIVISION EQUITY DIVISION # --------------------------- ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 ------------ ------------ ------------ ------------ ------------ Operations: Net Investment Income ........................ $ (42) $ 590 $ 1,412 $ 8 $ 1 Net Realized Gain (Loss) ..................... (2,738) (278) (2) (54) -- Net Change in Unrealized Appreciation (Depreciation) ................ (3,694) (2,664) (3,775) (248) 12 ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ............. (6,474) (2,352) (2,365) (294) 13 ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ................. 2,184 2,138 2,864 449 25 Annuity Payments ............................. (51) (66) (77) -- -- Surrenders and Other (Net) ................... (3,074) (3,087) (5,329) (121) (2) Transfers from Other Divisions or Sponsors ... 2,022 3,370 3,239 2,055 254 Transfers to Other Divisions or Sponsors .... (3,947) (3,033) (7,981) (709) -- ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ............. (2,866) (678) (7,284) 1,674 277 ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ............... (9,340) (3,030) (9,649) 1,380 290 Equity: Beginning of Period .......................... 23,057 26,087 35,736 290 -- ------------ ------------ ------------ ------------ ------------ End of Period ................................ $ 13,717 $ 23,057 $ 26,087 $ 1,670 $ 290 ============ ============ ============ ============ ============
INDEX 500 STOCK DIVISION ASSET ALLOCATION DIVISION # ------------------------------------------ --------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 ------------ ------------ ------------ ------------ ------------ Operations: Net Investment Income ....................... $ 221 $ 3,871 $ 4,439 $ 23 $ 4 Net Realized Gain (Loss) .................... 483 8,880 19,865 (35) -- Net Change in Unrealized Appreciation (Depreciation) .............. (23,945) (29,565) (39,225) (244) 11 ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ............ (23,241) (16,814) (14,921) (256) 15 ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ................ 6,935 7,565 9,486 578 86 Annuity Payments ............................ (273) (337) (468) -- -- Surrenders and Other (Net) .................. (14,951) (15,093) (24,033) (147) 2 Transfers from Other Divisions or Sponsors .. 8,032 9,028 16,159 2,148 699 Transfers to Other Divisions or Sponsors .... (12,115) (12,955) (22,419) (326) (2) ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ............ (12,372) (11,792) (21,275) 2,253 785 ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity .............. (35,613) (28,606) (36,196) 1,997 800 Equity: Beginning of Period ......................... 104,907 133,513 169,709 800 -- ------------ ------------ ------------ ------------ ------------ End of Period ............................... $ 69,294 $ 104,907 $ 133,513 $ 2,797 $ 800 ============ ============ ============ ============ ============
- ---------- # The initial investment in this Division was made on July 31, 2001. 27 NML VARIABLE ANNUITY ACCOUNT A STATEMENTS OF CHANGES IN EQUITY CONTINUED (IN THOUSANDS)
BALANCED DIVISION HIGH YIELD BOND DIVISION ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ Operations: Net Investment Income ................ $ 5,483 $ 16,485 $ 20,564 $ 401 $ 467 $ 543 Net Realized Gain (Loss) ............. (1,610) 6,981 19,864 (439) (655) (756) Net Change in Unrealized Appreciation (Depreciation) ........ (23,128) (34,686) (44,078) (179) 381 (119) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ..... (19,255) (11,220) (3,650) (217) 193 (332) ------------ ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ......... 11,208 12,043 13,081 633 523 765 Annuity Payments ..................... (640) (684) (715) (4) (11) (4) Surrenders and Other (Net) ........... (31,038) (32,253) (44,386) (895) (888) (968) Transfers from Other Divisions or Sponsors ........................ 8,932 9,588 8,372 1,378 1,921 746 Transfers to Other Divisions or Sponsors ........................ (16,839) (14,552) (25,634) (1,636) (1,860) (2,016) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ..... (28,377) (25,858) (49,282) (524) (315) (1,477) ------------ ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ....... (47,632) (37,078) (52,932) (741) (122) (1,809) Equity: Beginning of Period .................. 228,923 266,001 318,933 5,008 5,130 6,939 ------------ ------------ ------------ ------------ ------------ ------------ End of Period ........................ $ 181,291 $ 228,923 $ 266,001 $ 4,267 $ 5,008 $ 5,130 ============ ============ ============ ============ ============ ============
SELECT BOND DIVISION MONEY MARKET DIVISION ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ Operations: Net Investment Income ................. $ 882 $ 1,009 $ 1,235 $ 136 $ 749 $ 1,313 Net Realized Gain (Loss) .............. 437 (65) (333) -- -- -- Net Change in Unrealized Appreciation (Depreciation) ......... 1,426 919 830 -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ...... 2,745 1,863 1,732 136 749 1,313 ------------ ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment .......... 2,605 1,760 1,609 4,308 2,973 3,498 Annuity Payments ...................... (82) (84) (54) (34) (42) (44) Surrenders and Other (Net) ............ (4,465) (3,070) (3,755) (8,347) (7,417) (8,367) Transfers from Other Divisions or Sponsors ......................... 11,827 5,887 1,998 17,060 19,263 21,967 Transfers to Other Divisions or Sponsors ......................... (4,953) (2,868) (3,403) (13,683) (13,859) (21,732) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ...... 4,932 1,625 (3,605) (696) 918 (4,678) ------------ ------------ ------------ ------------ ------------ ------------ Net Increase Decrease) in Equity ......... 7,677 3,488 (1,873) (560) 1,667 (3,365) Equity: Beginning of Period ................... 23,757 20,269 22,142 27,147 25,480 28,845 ------------ ------------ ------------ ------------ ------------ ------------ End of Period ......................... $ 31,434 $ 23,757 $ 20,269 $ 26,587 $ 27,147 $ 25,480 ============ ============ ============ ============ ============ ============
28 NML VARIABLE ANNUITY ACCOUNT A STATEMENTS OF CHANGES IN EQUITY CONTINUED (IN THOUSANDS)
RUSSELL MULTI-STYLE EQUITY DIVISION RUSSELL AGGRESSIVE EQUITY DIVISION ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ Operations: Net Investment Income ................. $ (19) $ 47 $ 91 $ (29) $ (26) $ 235 Net Realized Gain (Loss) .............. (547) (154) (74) (133) (69) 43 Net Change in Unrealized Appreciation (Depreciation) ......... (495) (517) (564) (409) 6 (359) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ...... (1,061) (624) (547) (571) (89) (81) ------------ ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment .......... 566 675 1,088 320 447 556 Annuity Payments ...................... (7) (6) (2) -- -- -- Surrenders and Other (Net) ............ (651) (216) (119) (210) (200) (198) Transfers from Other Divisions or Sponsors ........................ 2,286 2,557 2,889 1,428 1,011 1,921 Transfers to Other Divisions or Sponsors ........................ (2,140) (2,372) (1,712) (1,623) (792) (842) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ...... 54 638 2,144 (85) 466 1,437 ------------ ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ........ (1,007) 14 1,597 (656) 377 1,356 Equity: Beginning of Period ................... 4,111 4,097 2,500 2,875 2,498 1,142 ------------ ------------ ------------ ------------ ------------ ------------ End of Period ......................... $ 3,104 $ 4,111 $ 4,097 $ 2,219 $ 2,875 $ 2,498 ============ ============ ============ ============ ============ ============
RUSSELL NON-U.S. DIVISION RUSSELL REAL ESTATE SECURITIES DIVISION ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ Operations: Net Investment Income ................ $ 9 $ (17) $ 193 $ 112 $ 72 $ 34 Net Realized Gain (Loss) ............. (459) (287) 21 3 95 40 Net Change in Unrealized Appreciation (Depreciation) ........ (80) (480) (679) (90) (61) 97 ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ..... (530) (784) (465) 25 106 171 Equity Transactions: Contract Owners' Net Payment ......... 361 505 712 597 316 234 Annuity Payments ..................... (2) -- -- (8) (4) -- Surrenders and Other (Net) ........... (356) (270) (203) (375) (127) (17) Transfers from Other Divisions or Sponsors ....................... 1,492 1,782 3,039 2,817 2,039 3,101 Transfers to Other Divisions or Sponsors ........................ (1,516) (1,616) (1,221) (1,819) (1,838) (2,492) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ..... (21) 401 2,327 1,212 386 826 ------------ ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ....... (551) (383) 1,862 1,237 492 997 Equity: Beginning of Period .................. 2,862 3,245 1,383 1,820 1,328 331 ------------ ------------ ------------ ------------ ------------ ------------ End of Period ........................ $ 2,311 $ 2,862 $ 3,245 $ 3,057 $ 1,820 $ 1,328 ============ ============ ============ ============ ============ ============
29 NML VARIABLE ANNUITY ACCOUNT A STATEMENTS OF CHANGES IN EQUITY CONTINUED (IN THOUSANDS)
RUSSELL CORE BOND DIVISION ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 ------------ ------------ ------------ Operations: Net Investment Income ....................... $ 32 $ 62 $ 38 Net Realized Gain (Loss) .................... 85 16 (23) Net Change in Unrealized Appreciation (Depreciation) .............. 26 (13) 68 ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ............ 143 65 83 ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ................ 299 182 242 Annuity Payments ............................ -- -- -- Surrenders and Other (Net) .................. (469) (122) (48) Transfers from Other Divisions or Sponsors .. 1,570 814 1,586 Transfers to Other Divisions or Sponsors .... (739) (624) (1,369) ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ............ 661 250 411 ------------ ------------ ------------ Net Increase (Decrease) in Equity .............. 804 315 494 Equity: Beginning of Period ......................... 1,501 1,186 692 ------------ ------------ ------------ End of Period ............................... $ 2,305 $ 1,501 $ 1,186 ============ ============ ============
The Accompanying Notes are an Integral Part of the Financial Statements. 30 FINANCIAL HIGHLIGHTS NML VARIABLE ANNUITY ACCOUNT A (FOR A UNIT OUTSTANDING DURING THE PERIOD)
DIVIDEND INCOME AS A % OF UNIT VALUE AVERAGE NET EXPENSE RATIO TOTAL RETURN (2) DIVISION LOWEST TO HIGHEST ASSETS LOWEST TO HIGHEST LOWEST TO HIGHEST - -------- ------------------------- ------------ ----------------- --------------------- Small Cap Growth Stock Year Ended 12/31/02.................. $0.702869 to $ 1.536295 0.16% 0.40% to 1.25% (19.44%) to (18.75%) Year Ended 12/31/01.................. $0.865935 to $ 1.890848 0.01% 0.40% to 1.25% (4.97%) to (4.15%) T. Rowe Price Small Cap Value(1) Year Ended 12/31/02.................. $0.943905 to $ 0.955324 0.57% 0.40% to 1.25% (6.75%) to (5.96%) Period Ended 12/31/01................ $1.012260 to $ 1.015860 0.44% 0.40% to 1.25% 1.23% to 1.59% Aggressive Growth Stock Year Ended 12/31/02.................. $0.564112 to $ 3.711325 0.10% 0.40% to 1.25% (22.13%) to (21.47%) Year Ended 12/31/01.................. $0.719033 to $ 4.742335 22.82% 0.40% to 1.25% (20.88%) to (20.20%) International Growth Stock(1) Year Ended 12/31/02.................. $0.780276 to $ 0.789715 0.73% 0.40% to 1.25% (13.42%) to (12.69%) Period Ended 12/31/01................ $0.901258 to $ 0.904464 0.00% 0.40% to 1.25% (9.87%) to (9.55%) Franklin Templeton International Equity Year Ended 12/31/02.................. $0.700185 to $ 1.636881 2.12% 0.40% to 1.25% (18.43%) to (17.73%) Year Ended 12/31/01.................. $0.851962 to $ 1.996677 10.94% 0.40% to 1.25% (15.07%) to (14.35%) Index 400 Stock Year Ended 12/31/02.................. $0.870423 to $ 1.106344 0.82% 0.40% to 1.25% (15.60%) to (14.88%) Year Ended 12/31/01.................. $1.023646 to $ 1.299809 1.20% 0.40% to 1.25% (1.90%) to (1.06%) Growth Stock Year Ended 12/31/02.................. $0.616498 to $ 2.006974 1.16% 0.40% to 1.25% (21.81%) to (21.15%) Year Ended 12/31/01.................. $0.782628 to $ 2.554121 4.47% 0.40% to 1.25% (15.29%) to (14.56%) J.P. Morgan Select Growth and Income Stock Year Ended 12/31/02.................. $0.581563 to $ 1.566688 0.96% 0.40% to 1.25% (29.09%) to (28.49%) Year Ended 12/31/01.................. $0.814020 to $ 2.198364 3.66% 0.40% to 1.25% (8.92%) to (8.14%) Capital Guardian Domestic Equity(1) Year Ended 12/31/02.................. $0.756787 to $ 0.765966 1.82% 0.40% to 1.25% (22.22%) to (21.56%) Period Ended 12/31/01................ $0.973004 to $ 0.976476 0.72% 0.40% to 1.25% (2.70%) to (2.35%) Index 500 Stock Year Ended 12/31/02.................. $0.604035 to $ 3.089894 1.40% 0.40% to 1.25% (23.04%) to (22.38%) Year Ended 12/31/01.................. $0.779001 to $ 3.994853 4.55% 0.40% to 1.25% (12.98%) to (12.23%) Asset Allocation(1) Year Ended 12/31/02.................. $0.863125 to $ 0.873571 2.26% 0.40% to 1.25% (11.37%) to (10.62%) Period Ended 12/31/01................ $0.973862 to $ 0.977328 1.20% 0.40% to 1.25% (2.61%) to (2.27%) Balanced Year Ended 12/31/02.................. $0.862735 to $ 7.112654 3.92% 0.40% to 1.25% (8.68%) to (7.91%) Year Ended 12/31/01.................. $0.937735 to $ 7.750204 8.01% 0.40% to 1.25% (4.36%) to (3.54%) High Yield Bond Year Ended 12/31/02.................. $0.972766 to $ 1.487426 9.94% 0.40% to 1.25% (4.10%) to (3.28%) Year Ended 12/31/01.................. $1.006773 to $ 1.543249 10.16% 0.40% to 1.25% 3.72% to 4.61% Select Bond Year Ended 12/31/02.................. $1.321394 to $ 10.108841 4.40% 0.40% to 1.25% 10.70% to 11.64% Year Ended 12/31/01.................. $1.184790 to $ 9.086342 5.71% 0.40% to 1.25% 8.99% to 9.92% Money Market Year Ended 12/31/02.................. $1.092171 to $ 3.030949 1.65% 0.40% to 1.25% 0.39% to 1.25% Year Ended 12/31/01.................. $1.079788 to $ 3.004024 3.80% 0.40% to 1.25% 2.62% to 3.50% Russell Multi-Style Equity Year Ended 12/31/02.................. $0.574187 to $ 0.613006 0.60% 0.40% to 1.25% (24.14%) to (23.50%) Year Ended 12/31/01.................. $0.751294 to $ 0.801293 2.33% 0.40% to 1.25% (15.28%) to (14.55%) Russell Aggressive Equity Year Ended 12/31/02.................. $0.727980 to $ 0.857996 0.00% 0.40% to 1.25% (20.06%) to (19.38%) Year Ended 12/31/01.................. $0.903873 to $ 1.064253 0.11% 0.40% to 1.25% (3.58%) to (2.76%) Russell Non-U.S Year Ended 12/31/02.................. $0.557227 to $ 0.699179 1.48% 0.40% to 1.25% (16.20%) to (15.49%) Year Ended 12/31/01.................. $0.659991 to $ 0.827309 0.60% 0.40% to 1.25% (23.00%) to (22.34%)
31 FINANCIAL HIGHLIGHTS NML VARIABLE ANNUITY ACCOUNT A CONTINUED (FOR A UNIT OUTSTANDING DURING THE PERIOD) Russell Core Bond Year Ended 12/31/02.............. $1.217720 to $ 1.256188 2.87% 0.40% to 1.25% 7.49% to 8.40% Year Ended 12/31/01.............. $1.132872 to $ 1.158815 5.90% 0.40% to 1.25% 6.07% to 6.97% Russell Real Estate Securities Year Ended 12/31/02.............. $1.261665 to $ 1.375137 5.39% 0.40% to 1.25% 2.51% to 3.39% Year Ended 12/31/01.............. $1.230726 to $ 1.331406 5.13% 0.40% to 1.25% 6.49% to 7.40%
- ------------ (1) Portfolio commenced operations on July 31, 2001. (2) Total Return includes deductions for management and other expenses; excludes deductions for sales loads and other charges. Returns are not annualized for periods less than one year. The Accompanying Notes are an Integral Part of the Financial Statements. 32 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") 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. Currently, two versions of the contract are offered: Front Load contracts with a sales charge up to 4.5% of purchase payments and Back Load contracts with a withdrawal charge of 0-6%. NOTE 2--The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America 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 diversified 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, 1985, annuity reserves are based on the 1971 Individual Annuity Table with assumed interest rates of 3-1/2% or 5%. For variable payment plans issued on or after January 1, 1985, annuity reserves are based on the 1983 Annuity Table a adjusted with assumed interest rates of 3-1/2% or 5%. NOTE 5--Dividend income from the Funds is recorded on the ex-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 2002 2001 2000 - --------- ----------- ----------- ----------- Small Cap Growth Stock ..................... $ 4,461,452 $ 3,119,762 $17,753,003 T. Rowe Price Small Cap Value# ............ 3,056,595 544,334 N/A Aggressive Growth Stock .................... 7,414,573 23,504,270 28,757,540 International Growth Stock#................. 519,948 164,575 N/A Franklin Templeton International Equity .... 3,334,140 5,754,067 79,974,310 Index 400 Stock ............................ 2,397,162 4,038,686 2,853,810 Growth Stock .............................. 3,786,154 6,550,789 11,793,727 J.P. Morgan Select Growth and Income Stock.. 2,595,415 3,711,176 9,919,814 Capital Guardian Domestic Equity#........... 1,827,157 277,299 N/A Index 500 Stock ............................ 10,496,270 11,216,245 20,410,794 Asset Allocation#........................... 2,448,370 787,179 N/A Balanced ................................... 19,743,059 27,209,702 44,419,512 High Yield Bond ........................... 1,107,893 1,951,937 2,095,955 Select Bond ................................ 11,093,552 6,619,324 4,931,954 Money Market .............................. 8,251,938 15,154,072 20,905,226 Russell Multi-Style ........................ 814,757 1,097,267 2,666,402 Russell Aggressive Equity ................. 343,250 871,028 1,593,605 Russell Non-U.S. ........................... 474,958 973,304 1,498,221 Russell Core Bond ......................... 1,316,732 1,738,713 758,431 Russell Real Estate Securities.............. 1,982,942 586,923 357,723
33 NML VARIABLE ANNUITY ACCOUNT A NOTES TO FINANCIAL STATEMENTS CONTINUED
SALES 2002 2001 2000 - ----- ----------- ----------- ----------- Small Cap Growth Stock ..................... $ 2,267,772 $ 3,107,912 $ 5,283,832 T. Rowe Price Small Cap Value# ............. 544,753 1,251 N/A Aggressive Growth Stock .................... 16,374,895 12,700,645 19,230,800 International Growth Stock# ............... 15,440 1 N/A Franklin Templeton International Equity .... 6,070,557 6,134,228 8,640,998 Index 400 Stock ............................ 1,666,098 1,955,209 1,353,450 Growth Stock .............................. 6,005,545 4,859,534 8,573,786 J.P. Morgan Select Growth and Income Stock.. 5,518,037 3,793,450 9,525,030 Capital Guardian Domestic Equity# ......... 145,921 36 N/A Index 500 Stock ............................ 20,459,679 19,112,689 29,656,415 Asset Allocation#........................... 169,149 8 N/A Balanced ................................... 42,633,986 36,676,777 56,250,284 High Yield Bond ........................... 1,228,005 1,795,043 2,157,663 Select Bond ................................ 5,331,758 3,765,014 5,660,540 Money Market .............................. 8,777,655 13,474,404 21,431,894 Russell Multi-Style ........................ 841,367 483,989 864,610 Russell Aggressive Equity ................. 465,120 364,836 548,989 Russell Non-U.S. ........................... 512,890 616,921 484,146 Russell Core Bond ......................... 562,906 249,167 1,332,763 Russell Real Estate Securities.............. 645,240 1,297,610 1,636,969
- --------- # Initial Investment in this division was made on July 31, 2001. 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 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. 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 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 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 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. 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. 34 NML VARIABLE ANNUITY ACCOUNT A NOTES TO FINANCIAL STATEMENTS CONTINUED NOTE 8--Equity Values by Division for the year ended December 31, 2002 are shown below: (in thousands, except accumulation unit values)
CONTRACTS ISSUED: CONTRACTS ISSUED: AFTER DECEMBER 16, 1981 AND PRIOR TO DECEMBER 17, 1981 PRIOR TO MARCH 31, 1995 ------------------------------------ ------------------------------------- ACCUMULATION ACCUMULATION UNIT UNITS UNIT UNITS DIVISION VALUE OUTSTANDING EQUITY VALUE OUTSTANDING EQUITY - -------- ----------- ----------- -------- ------------ ----------- ------- Small Cap Growth Stock ............. $ 1.516823 196 $ 297 $ 1.489185 6,573 $ 9,788 T. Rowe Price Small Cap Value 0.950636 230 219 0.943905 1,401 1,322 Aggressive Growth Stock ............ 3.711325 256 950 3.494085 10,045 35,098 International Growth Stock ......... 0.785836 13 10 0.780276 317 247 Franklin Templeton International Equity ........................ 1.636881 326 534 1.559571 9,896 15,434 Index 400 Stock .................... 1.092338 243 265 1.072428 4,143 4,443 Growth Stock ....................... 2.006974 313 628 1.921805 6,983 13,420 J.P. Morgan Select Growth and Income Stock .................. 1.566688 125 196 1.500218 5,160 7,741 Capital Guardian Domestic Equity 1 0.762191 107 82 0.756787 1,190 901 Index 500 Equity ................... 3.089894 3,965 12,251 2.909123 12,908 37,551 Asset Allocation ................... 0.869281 41 36 0.863125 2,124 1,833 Balanced ........................... 7.112654 1,322 9,403 6.403383 22,433 143,647 High Yield Bond .................... 1.487426 69 103 1.424293 1,461 2,081 Select Bond ........................ 10.108841 603 6,096 9.098961 1,840 16,742 Money Market ....................... 3.030949 460 1,394 2.728924 6,073 16,573 Russell Multi-Style Equity ......... 0.605230 6 4 0.594202 2,539 1,509 Russell Aggressive Equity .......... 0.847132 113 96 0.831686 1,279 1,064 Russell Non-U.S .................... 0.690333 33 23 0.677755 1,927 1,306 Russell Real Estate Securities ..... 1.285091 55 71 1.261665 1,199 1,513 Russell Core Bond .................. 1.240286 11 14 1.217720 996 1,213 --------- --------- Equity ........................ 32,672 313,426 Annuity Reserves .............. 2,701 7,389 --------- --------- Total Equity .................. $ 35,373 $ 320,815 ========= =========
CONTRACTS ISSUED: CONTRACTS ISSUED: ON OR AFTER MARCH 31, 1995 AND ON OR AFTER MARCH 31, 1995 AND PRIOR TO MARCH 31, 2000 PRIOR TO MARCH 31, 2000 FRONT LOAD VERSION BACK LOAD VERSION ------------------------------------ ------------------------------------- ACCUMULATION ACCUMULATION UNIT UNITS UNIT UNITS DIVISION VALUE OUTSTANDING EQUITY VALUE OUTSTANDING EQUITY - -------- ------------ ----------- --------- ------------ ----------- --------- Small Cap Growth Stock ............... $ 1.536295 323 $ 496 $ 1.489185 1,965 $ 2,926 T. Rowe Small Cap Value .............. 0.955324 272 260 0.943905 591 558 Aggressive Growth Stock .............. 1.764232 1,184 2,089 3.494085 3,455 12,072 International Growth Stock ........... 0.789715 6 5 0.780276 214 167 Franklin Templeton International Equity .......................... 1.367662 870 1,190 1.559571 2,870 4,476 Index 400 Stock ...................... 1.106344 344 381 1.072428 2,052 2,201 Growth Stock ......................... 1.896210 591 1,121 1.921805 3,629 6,974 J.P. Morgan Select Growth and Income Stock .................... 1.479747 641 949 1.500218 2,625 3,938 Capital Guardian Domestic Equity 1 0.765966 37 28 0.756787 409 310 Index 500 Equity ..................... 1.936439 1,084 2,099 2.909123 4,606 13,399 Asset Allocation ..................... 0.873571 107 93 0.863125 584 504 Balanced ............................. 1.870656 1,610 3,012 6.403383 2,544 16,290 High Yield Bond ...................... 1.425787 138 197 1.424293 1,056 1,504 Select Bond .......................... 1.793220 482 864 9.098961 605 5,505 Money Market ......................... 1.397113 1,308 1,827 2.728924 1,724 4,705 Russell Multi-Style Equity ........... 0.613006 634 389 0.594202 1,405 835 Russell Aggressive Equity ............ 0.857996 281 241 0.831686 714 594 Russell Non-U.S ...................... 0.699179 256 179 0.677755 818 554 Russell Real Estate Securities ....... 1.301549 153 199 1.261665 656 828 Russell Core Bond .................... 1.256188 66 83 1.217720 599 729 --------- --------- Equity .......................... 15,702 79,069 Annuity Reserves ................ 235 311 --------- --------- Total Equity .................... $ 15,937 $ 79,380 ========= =========
35 NML VARIABLE ANNUITY ACCOUNT A NOTES TO FINANCIAL STATEMENTS CONTINUED
CONTRACTS ISSUED: CONTRACTS ISSUED: ON OR AFTER MARCH 31, 2000 ON OR AFTER MARCH 31, 2000 FRONT LOAD VERSION BACK LOAD VERSION ---------------------------------- ------------------------------------- ACCUMULATION ACCUMULATION UNIT UNITS UNIT UNITS DIVISION VALUE OUTSTANDING EQUITY VALUE OUTSTANDING EQUITY - -------- ------------ ----------- ------ ------------ ----------- -------- Small Cap Growth Stock .............. $ 0.702869 154 $ 108 $1.489185 522 $ 777 T. Rowe Small Cap Value ............. 0.953992 28 27 0.943905 328 310 Aggressive Growth Stock ............. 0.564112 222 125 3.494085 412 1,440 International Growth Stock .......... 0.788618 23 18 0.780276 193 151 Franklin Templeton International .... Equity ......................... 0.700185 133 93 1.559571 403 629 Index 400 Stock ..................... 0.870423 181 158 1.072428 740 794 Growth Stock ........................ 0.616498 140 86 1.921805 635 1,220 J.P. Morgan Select Growth and Income Stock ................... 0.581563 206 120 1.500218 244 366 Capital Guardian Domestic Equity 1 0.764893 44 34 0.756787 418 316 Index 500 Equity .................... 0.604035 281 170 2.909123 653 1,900 Asset Allocation .................... 0.872356 131 114 0.863125 251 217 Balanced ............................ 0.862735 829 715 6.403383 329 2,107 High Yield Bond ..................... 0.972766 60 58 1.424293 197 281 Select Bond ......................... 1.321394 183 242 9.098961 106 964 Money Market ........................ 1.092171 197 215 2.728924 513 1,400 Russell Multi-Style Equity .......... 0.574187 72 41 0.594202 403 239 Russell Aggressive Equity ........... 0.727980 52 38 0.831686 226 188 Russell Non-U.S ..................... 0.557227 94 52 0.677755 258 175 Russell Real Estate Securities ...... 1.375137 46 63 1.261665 280 353 Russell Core Bond ................... 1.243794 42 52 1.217720 173 211 ------ -------- Equity ......................... 2,529 14,038 Annuity Reserves ............... -- -- ------ -------- Total Equity ................... $2,529 $ 14,038 ====== ========
Equity Values by Division for the year ended December 31, 2001 are shown below: (in thousands, except accumulation unit values)
CONTRACTS ISSUED: CONTRACTS ISSUED: AFTER DECEMBER 16, 1981 AND PRIOR TO DECEMBER 17, 1981 PRIOR TO MARCH 31, 1995 --------------------------------------- ------------------------------------- ACCUMULATION ACCUMULATION UNIT UNITS UNIT UNITS DIVISION VALUE OUTSTANDING EQUITY VALUE OUTSTANDING EQUITY - -------- ------------ ----------- -------- ------------ ----------- --------- Small Cap Growth Stock ............ $ 1.873388 243 $ 454 $ 1.848493 5,700 $ 10,537 T. Rowe Price Small Cap Value ..... 1.014387 11 11 1.012260 293 296 Aggressive Growth Stock ........... 4.742335 305 1,444 4.487184 12,273 55,072 International Growth Stock ........ 0.903153 11 10 0.901258 91 82 Franklin Templeton International Equity ....................... 1.996677 340 679 1.911919 11,504 21,995 Index 400 Stock ................... 1.287807 335 431 1.270690 4,225 5,368 Growth Stock ...................... 2.554121 311 795 2.458020 8,243 20,262 J.P. Morgan Select Growth and Income Stock ................. 2.198364 182 400 2.115675 6,685 14,144 Capital Guardian Domestic Equity ......................... 0.975051 11 11 0.973004 193 188 Index 500 Equity .................. 3.994853 4,934 19,712 3.780024 15,617 59,034 Asset Allocation .................. 0.975908 11 11 0.973862 477 464 Balanced .......................... 7.750204 1,566 12,135 7.012362 26,333 184,658 High Yield Bond ................... 1.543249 74 114 1.485164 1,881 2,794 Select Bond ....................... 9.086342 515 4,675 8.219594 1,651 13,573 Money Market ...................... 3.004024 766 2,301 2.718250 6,010 16,336 Russell Multi-Style Equity ........ 0.793888 27 21 0.783335 2,727 2,136 Russell Aggressive Equity ......... 1.054435 64 67 1.040412 1,623 1,689 Russell Non-U.S ................... 0.819680 52 42 0.808779 2,184 1,767 Russell Real Estate Securities .... 1.247315 23 28 1.230726 812 999 Russell Core Bond ................. 1.148123 17 19 1.132872 793 898 -------- --------- Equity ....................... 43,360 412,292 Annuity Reserves ............. 3,481 9,091 -------- --------- Total Equity ................. $ 46,841 $ 421,383 ======== =========
36 NML VARIABLE ANNUITY ACCOUNT A NOTES TO FINANCIAL STATEMENTS CONTINUED
CONTRACTS ISSUED: CONTRACTS ISSUED: ON OR AFTER MARCH 31, 1995 AND ON OR AFTER MARCH 31, 1995 AND PRIOR TO MARCH 31, 2000 PRIOR TO MARCH 31, 2000 FRONT LOAD VERSION BACK LOAD VERSION ------------------------------------- -------------------------------------- ACCUMULATION ACCUMULATION UNIT UNITS UNIT UNITS DIVISION VALUE OUTSTANDING EQUITY VALUE OUTSTANDING EQUITY - -------- ------------- ----------- -------- ------------ ----------- -------- Small Cap Growth Stock ............ $ 1.890848 324 $ 612 $ 1.848493 1,809 $ 3,344 T. Rowe Small Cap Value ........... 1.015860 96 98 1.012260 151 153 Aggressive Growth Stock ........... 2.246524 1,271 2,856 4.487184 3,733 16,752 International Growth Stock ........ 0.904464 8 7 0.901258 31 28 Franklin Templeton International Equity ....................... 1.662501 870 1,446 1.911919 3,194 6,106 Index 400 Stock ................... 1.299809 253 329 1.270690 1,706 2,167 Growth Stock ...................... 2.404787 677 1,628 2.458020 3,786 9,305 J.P. Morgan Select Growth and Income Stock ................. 2.069175 657 1,359 2.115675 2,910 6,156 Capital Guardian Domestic Equity .. 0.976476 7 6 0.973004 71 69 Index 500 Equity .................. 2.494890 1,234 3,078 3.780024 5,051 19,091 Asset Allocation .................. 0.977328 83 81 0.973862 215 209 Balanced .......................... 2.031286 1,745 3,545 7.012362 2,779 19,490 High Yield Bond ................... 1.474181 211 312 1.485164 1,073 1,593 Select Bond ....................... 1.606263 301 483 8.219594 437 3,595 Money Market ...................... 1.379910 2,064 2,848 2.718250 1,759 4,782 Russell Multi-Style Equity ........ 0.801293 609 488 0.783335 1,505 1,179 Russell Aggressive Equity ......... 1.064253 278 296 1.040412 685 713 Russell Non-U.S ................... 0.827309 254 210 0.808779 820 663 Russell Real Estate Securities .... 1.258915 97 122 1.230726 395 486 Russell Core Bond ................. 1.158815 21 24 1.132872 367 416 --------- -------- Equity ....................... 19,828 96,297 Annuity Reserves ............. 295 402 --------- -------- Total Equity ................. $ 20,123 $ 96,699 ========= ========
CONTRACTS ISSUED: CONTRACTS ISSUED: ON OR AFTER MARCH 31, 2000 ON OR AFTER MARCH 31, 2000 FRONT LOAD VERSION BACK LOAD VERSION -------------------------------------- ----------------------------------- ACCUMULATION ACCUMULATION UNIT UNITS UNIT UNITS DIVISION VALUE OUTSTANDING EQUITY VALUE OUTSTANDING EQUITY - -------- ------------ ----------- -------- ------------ ----------- ------- Small Cap Growth Stock ............ $ 0.865935 140 $ 122 $ 1.848493 284 $ 525 T. Rowe Small Cap Value ........... 1.015445 -- -- 1.012260 26 26 Aggressive Growth Stock ........... 0.719033 168 120 4.487184 243 1,093 International Growth Stock ........ 0.904093 18 16 0.901258 15 14 Franklin Templeton International Equity ....................... 0.851962 93 79 1.911919 146 279 Index 400 Stock ................... 1.023646 164 167 1.270690 362 460 Growth Stock ...................... 0.782628 66 52 2.458020 253 622 J.P. Morgan Select Growth and Income Stock ................. 0.814020 138 113 2.115675 124 263 Capital Guardian Domestic Equity .. 0.976072 8 8 0.973004 8 8 Index 500 Equity .................. 0.779001 231 180 3.780024 277 1,049 Asset Allocation .................. 0.976926 -- -- 0.973862 35 34 Balanced .......................... 0.937735 819 768 7.012362 143 1,000 High Yield Bond ................... 1.006773 70 71 1.485164 52 77 Select Bond ....................... 1.184790 96 114 8.219594 26 214 Money Market ...................... 1.079788 1 1 2.718250 180 489 Russell Multi-Style Equity ........ 0.751294 77 58 0.783335 137 107 Russell Aggressive Equity ......... 0.903873 48 43 1.040412 64 67 Russell Non-U.S ................... 0.659991 92 61 0.808779 114 92 Russell Real Estate Securities .... 1.331406 35 46 1.230726 69 85 Russell Core Bond ................. 1.148513 38 43 1.132872 89 100 -------- ------- Equity ....................... 2,062 6,604 Annuity Reserves ............. -- -- -------- ------- Total Equity ................. $ 2,062 $ 6,604 ======== =======
37 REPORT OF INDEPENDENT ACCOUNTANTS To The Northwestern Mutual Life Insurance Company and Contract Owners of NML Variable Annuity Account A In our opinion, the accompanying statements of assets and liabilities and the related statements of operations and of changes in equity and the financial highlights present fairly, in all material respects, the financial position of NML Variable Annuity Account A and its Small Cap Growth Stock Division, T. Rowe Price Small Cap Value Division, Aggressive Growth Stock Division, International Growth Stock Division, Franklin Templeton International Equity Division, Index 400 Stock Division, Growth Stock Division, J.P. Morgan Select Growth & Income Stock Division, Capital Guardian Domestic Equity Division, Index 500 Stock Division, Asset Allocation Division, Balanced Division, High Yield Bond Division, Select Bond Division, Money Market Division, Russell Multi-Style Equity Division, Russell Aggressive Equity Division, Russell Non-U.S. Division, Russell Real Estate Securities Division and Russell Core Bond Division at December 31, 2002 and 2001, and the results of each of their operations, the changes in each of their equity and their financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "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 securities owned at December 31, 2002 and 2001 with Northwestern Mutual Series Fund, Inc. and the Russell Insurance Funds, provide a reasonable basis for our opinion. /s/ PRICEWATERHOUSECOOPERS LLP - ------------------------------ Milwaukee, Wisconsin January 30, 2003 38 NML VARIABLE ANNUITY ACCOUNT C STATEMENTS OF ASSETS AND LIABILITIES (IN THOUSANDS)
DECEMBER 31 -------------------------- 2002 2001 ----------- ----------- ASSETS Investments at Market Value: Northwestern Mutual Series Fund, Inc. Small Cap Growth Stock 2002: 11,605 shares (cost $21,588)......... $ 16,885 2001: 11,812 shares (cost $22,806)......... $ 21,098 T. Rowe Price Small Cap Value# 2002: 476 shares (cost $493) .............. 454 2001: 162 shares (cost $159) .............. 165 Aggressive Growth Stock 2002: 32,817 shares (cost $112,089) ....... 71,638 2001: 39,756 shares (cost $140,948) ....... 112,232 International Growth Stock# 2002: 73 shares (cost $68) ................ 58 2001: 41 shares (cost $39) ................ 38 Franklin Templeton International Equity 2002: 34,186 shares (cost $44,997) ........ 35,006 2001: 38,694 shares (cost $58,397) ........ 48,902 Index 400 Stock 2002: 15,253 shares (cost $17,298) ........ 14,520 2001: 15,015 shares (cost $17,465) ........ 16,849 Growth Stock 2002: 14,018 shares (cost $31,269) ........ 22,261 2001: 16,290 shares (cost $37,853) ........ 33,016 J.P. Morgan Select Growth and Income Stock 2002: 15,981 shares (cost $22,258) ........ 13,872 2001: 20,895 shares (cost $30,763) ........ 25,473 Capital Guardian Domestic Equity# 2002: 765 shares (cost $646) .............. 580 2001: 216 shares (cost $204) .............. 211 Index 500 Stock 2002: 35,907 shares (cost $97,006) ........ 77,810 2001: 47,737 shares (cost $124,634) ....... 131,489 Asset Allocation# 2002: 1,738 shares (cost $1,612) .......... 1,491 2001: 47 shares (cost $45) ................ 46 Balanced 2002: 50,686 shares (cost $95,393) ........ 82,213 2001: 63,722 shares (cost $122,051) ....... 115,972 High Yield Bond 2002: 6,917 shares (cost $4,705) .......... 3,894 2001: 7,061 shares (cost $5,126) .......... 4,583 Select Bond 2002: 15,390 shares (cost $18,303) ........ 19,561 2001: 14,446 shares (cost $16,739) ........ 17,379 Money Market 2002: 10,973 shares (cost $10,973) ........ 10,973 2001: 15,185 shares (cost $15,185) ........ 15,185
39
DECEMBER 31 -------------------------- 2002 2001 ----------- ----------- Russell Insurance Funds Multi-Style Equity 2002: 83 shares (cost $1,140) ............................................ 751 2001: 118 shares (cost $1,766) ........................................... 1,403 Aggressive Equity 2002: 57 shares (cost $688) .............................................. 527 2001: 62 shares (cost $778) .............................................. 710 Non-U.S 2002: 73 shares (cost $800) .............................................. 527 2001: 78 shares (cost $957) .............................................. 672 Real Estate Securities 2002: 910 shares (cost $9,865) ........................................... 9,566 2001: 614 shares (cost $6,485) ........................................... 6,600 Core Bond 2002: 77 shares (cost $796) .............................................. 804 2001: 78 shares (cost $798) .............................................. 793 Due from Sales of Fund Shares .................................................. 0 13 Due from Northwestern Mutual Life Insurance Company ............................ 67 37 ----------- ----------- Total Assets ............................................................. 383,458 552,866 ----------- ----------- LIABILITIES AND EQUITY LIABILITIES Due to Northwestern Mutual Life Insurance Company............................... $ 6 $ 13 Due on Purchase of Fund Shares ................................................. 0 37 ----------- ----------- Total Liabilities ........................................................ 6 50 ----------- ----------- EQUITY Group Variable Annuity Contracts Issued: Before December 17, 1981 or between April 30, 1984 and December 31, 1991 .... 287,155 390,128 After December 16, 1981 and Prior to May 1, 1984 ............................ 2,947 3,636 After December 31, 1991 - Front Load Version ................................ 20,761 29,953 After December 31, 1991 - Simplified Load Version ........................... 72,589 129,099 ----------- ----------- Total Equity ............................................................. 383,452 552,816 ----------- ----------- Total Liabilities and Equity.............................................. $ 383,458 $ 552,866 =========== ===========
- ---------- # The initial investment was made on July 31, 2001. The Accompanying Notes are an Integral Part of the Financial Statements. 40 NML VARIABLE ANNUITY ACCOUNT C STATEMENTS OF OPERATIONS (IN THOUSANDS)
COMBINED SMALL CAP GROWTH STOCK DIVISION ---------------------------------------- ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ Investment Income Dividend Income ........................ $ 9,117 $ 54,521 $ 54,949 $ 32 $ 2 $ 99 Annuity Rate and Expense Guarantees .... (1,432) (2,007) (2,896 (25) (28) (26) ------------ ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) .............. 7,685 52,514 52,053 7 (26) 73 ------------ ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments .... (35,241) 8,705 54,861 (1,245) (886) 295 Unrealized Appreciation (Depreciation) During the Year ..................... (58,211) (133,527) (121,850) (2,995) (14) (1,897) ------------ ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments ............ (93,452) (124,822) (66,989) (4,240) (900) (1,602) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ....... $ (85,767) $ (72,308) $ (14,936) $ (4,233) $ (926) $ (1,529) ============ ============ ============ ============ ============ ============
T. ROWE PRICE SMALL CAP VALUE DIVISION # AGGRESSIVE GROWTH STOCK DIVISION --------------------------- ------------------------------------------ YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ Investment Income Dividend Income ...................... $ 2 $ -- $ 90 $ 27,284 $ 20,221 Annuity Rate and Expense Guarantees .. (5) -- (231) (358) (614) ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ............ (3) -- (141) 26,926 19,607 ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments .. (27) -- (10,519) 511 9,000 Unrealized Appreciation (Depreciation) During the Year ................... (44) 5 (11,735) (58,412) (20,677) ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments .......... (71) 5 (22,254) (57,901) (11,677) ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ..... $ (74) $ 5 $ (22,395) $ (30,975) $ 7,930 ============ ============ ============ ============ ============
INTERNATIONAL GROWTH STOCK FRANKLIN TEMPLETON INTERNATIONAL DIVISION # EQUITY DIVISION --------------------------- ------------------------------------------ YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ Investment Income Dividend Income ...................... $ -- $ -- $ 906 $ 5,914 $ 5,036 Annuity Rate and Expense Guarantees .. -- -- (78) (121) (186) ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ............ -- -- 828 5,793 4,850 ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments .. (42) -- (8,378) (6,258) 3,131 Unrealized Appreciation (Depreciation) During the Year ................... (8) (2) (496) (8,375) (8,616) ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments .......... (50) (2) (8,874) (14,633) (5,485) ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ..... $ (50) $ (2) $ (8,046) $ (8,840) $ (635) ============ ============ ============ ============ ============
- ---------- # The initial investment in this Division was made on July 31, 2001. 41 NML VARIABLE ANNUITY ACCOUNT C STATEMENTS OF OPERATIONS CONTINUED (IN THOUSANDS)
INDEX 400 STOCK DIVISION GROWTH STOCK DIVISION ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ Investment Income Dividend Income ...................... $ 140 $ 194 $ 1,180 $ 330 $ 1,614 $ 2,101 Annuity Rate and Expense Guarantees .. (20) (19) (11) (77) (111) (152) ------------ ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ............ 120 175 1,169 253 1,503 1,949 ------------ ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments .. (823) (575) 98 (2,757) 777 2,717 Unrealized Appreciation (Depreciation) During the Year ................... (2,160) 275 (923) (4,172) (8,402) (5,875) ------------ ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments .......... (2,983) (300) (825) (6,929) (7,625) (3,158) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ..... $ (2,863) $ (125) $ 344 $ (6,676) $ (6,122) $ (1,209) ============ ============ ============ ============ ============ ============
J.P. MORGAN SELECT GROWTH AND INCOME CAPITAL GUARDIAN DOMESTIC STOCK DIVISION EQUITY DIVISION # ------------------------------------------- --------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 ------------ ------------ ------------ ------------ ------------ Investment Income Dividend Income ...................... $ 180 $ 957 $ 2,123 $ 7 $ -- Annuity Rate and Expense Guarantees .. (78) (124) (178) (3) -- ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ............ 102 833 1,945 4 -- ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments .. (3,735) (545) (276) (8) -- Unrealized Appreciation (Depreciation) During the Year ................... (3,096) (2,643) (4,224) (72) 6 ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments .......... (6,831) (3,188) (4,500) (80) 6 ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ..... $ (6,729) $ (2,355) $ (2,555) $ (76) $ 6 ============ ============ ============ ============ ============
INDEX 500 STOCK DIVISION ASSET ALLOCATION DIVISION # ------------------------------------------ --------------------------- PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 ------------ ------------ ------------ ------------ ------------ Investment Income Dividend Income ............................... $ 1,468 $ 6,550 $ 8,370 $ 24 $ -- Annuity Rate and Expense Guarantees ........... (259) (420) (688) (8) -- ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ..................... 1,209 6,130 7,682 16 -- ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments ........... (2,524) 12,916 27,391 (23) -- Unrealized Appreciation (Depreciation) During the Year ............................ (26,051) (39,298) (53,361) (121) -- ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments ................... (28,575) (26,382) (25,970) (144) -- ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity .............. $ (27,366) $ (20,252) $ (18,288) $ (128) $ -- ============ ============ ============ ============ ============
- ---------- # The initial investment in this Division was made on July 31, 2001. 42 NML VARIABLE ANNUITY ACCOUNT C STATEMENTS OF OPERATIONS CONTINUED (IN THOUSANDS)
BALANCED DIVISION HIGH YIELD BOND DIVISION ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ Investment Income Dividend Income ...................... $ 3,922 $ 9,705 $ 12,909 $ 415 $ 487 $ 558 Annuity Rate and Expense Guarantees .. (356) (497) (688) (15) (22) (30) ------------ ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ............ 3,566 9,208 12,221 400 465 528 ------------ ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments .. (5,135) 3,486 14,398 (278) (737) (1,290) Unrealized Appreciation (Depreciation) During the Year ................... (7,102) (17,384) (27,427) (267) 448 501 ------------ ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments .......... (12,237) (13,898) (13,029) (545) (289) (789) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ..... $ (8,671) $ (4,690) $ (808) $ (145) $ 176 $ (261) ============ ============ ============ ============ ============ ============
SELECT BOND DIVISION MONEY MARKET DIVISION ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ Investment Income Dividend Income ...................... $ 863 $ 911 $ 1,093 $ 221 $ 523 $ 971 Annuity Rate and Expense Guarantees .. (93) (99) (109) (144) (163) (174) ------------ ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ............ 770 812 984 77 360 797 ------------ ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments .. 541 32 (655) -- -- -- Unrealized Appreciation (Depreciation) During the Year ................... 617 578 1,084 -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments .......... 1,158 610 429 -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ..... $ 1,928 $ 1,422 $ 1,413 $ 77 $ 360 $ 797 ============ ============ ============ ============ ============ ============
RUSSELL MULTI-STYLE EQUITY DIVISION RUSSELL AGGRESSIVE EQUITY DIVISION ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ Investment Income Dividend Income ...................... $ 7 $ 37 $ 79 $ -- $ 1 $ 74 Annuity Rate and Expense Guarantees .. (10) (14) (19) (7) (7) (7) ------------ ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ............ (3) 23 60 (7) (6) 67 ------------ ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments .. (274) (120) (20) (35) (17) 24 Unrealized Appreciation (Depreciation) During the Year ................... (26) (144) (282) (93) 9 (103) ------------ ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments .......... (300) (264) (302) (128) (8) (79) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ..... $ (303) $ (241) $ (242) $ (135) $ (14) $ (12) ============ ============ ============ ============ ============ ============
43 NML VARIABLE ANNUITY ACCOUNT C STATEMENTS OF OPERATIONS CONTINUED (IN THOUSANDS)
RUSSELL NON-U.S. DIVISION RUSSELL REAL ESTATE SECURITIES DIVISION ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ Investment Income Dividend Income ...................... $ 9 $ 4 $ 61 $ 481 $ 290 $ 52 Annuity Rate and Expense Guarantees .. (6) (8) (8) (11) (9) (2) ------------ ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ............ 3 (4) 53 470 281 50 ------------ ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments .. (107) (33) 15 101 140 36 Unrealized Appreciation (Depreciation) During the Year ................... 13 (158) (199) (414) (4) 126 ------------ ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments .......... (94) (191) (184) (313) 136 162 ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ..... $ (91) $ (195) $ (131) $ 157 $ 417 $ 212 ============ ============ ============ ============ ============ ============
RUSSELL CORE BOND DIVISION ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 ------------ ------------ ------------ Investment Income Dividend Income .............................................. $ 20 $ 48 $ 22 Annuity Rate and Expense Guarantees .......................... (6) (7) (4) ------------ ------------ ------------ Net Investment Income (Loss) .................................... 14 41 18 ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments .......................... 27 14 (3) Unrealized Appreciation (Depreciation) During the Year ........................................... 11 (12) 23 ------------ ------------ ------------ Net Gain (Loss) on Investments .................................. 38 2 20 ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ............................. $ 52 $ 43 $ 38 ============ ============ ============
The Accompanying Notes are an Integral Part of the Financial Statements. 44 NML VARIABLE ANNUITY ACCOUNT C STATEMENTS OF CHANGES IN EQUITY (IN THOUSANDS)
COMBINED SMALL CAP GROWTH STOCK DIVISION ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ Operations: Net Investment Income (Loss) ........ $ 7,685 $ 52,514 $ 52,053 $ 7 $ (26) $ 73 Net Realized Gain (Loss) ............ (35,241) 8,705 54,861 (1,245) (886) 295 Net Change in Unrealized Appreciation (Depreciation) ...... (58,211) (133,527) (121,850) (2,995) (14) (1,897) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity .... (85,767) (72,308) (14,936) (4,233) (926) (1,529) ------------ ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ........ 78,994 90,774 103,967 3,161 3,160 4,045 Annuity Payments .................... (58) (64) (75) -- -- -- Surrenders and Other (Net) .......... (160,876) (140,073) (135,735) (3,415) (3,044) (373) Transfers from Other Divisions or Sponsors ....................... 49,213 55,326 91,474 3,066 4,837 17,508 Transfers to Other Divisions or Sponsors ........................ (50,870) (53,674) (92,576) (2,791) (2,967) (562) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions .... (83,597) (47,711) (32,945) 21 1,986 20,618 ------------ ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ...... (169,364) (120,019) (47,881) (4,212) 1,060 19,089 Equity: Beginning of Period ................. 552,816 672,835 720,716 21,098 20,038 949 ------------ ------------ ------------ ------------ ------------ ------------ End of Period ....................... $ 383,452 $ 552,816 $ 672,835 $ 16,886 $ 21,098 $ 20,038 ============ ============ ============ ============ ============ ============
T. ROWE PRICE SMALL CAP VALUE DIVISION # AGGRESSIVE GROWTH STOCK DIVISION --------------------------- ------------------------------------------ YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ Operations: Net Investment Income (Loss) ........ $ (3) $ -- $ (141) $ 26,926 $ 19,607 Net Realized Gain (Loss) ............ (27) -- (10,519) 511 9,000 Net Change in Unrealized Appreciation (Depreciation) ...... (44) 5 (11,735) (58,412) (20,677) ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity .... (74) 5 (22,395) (30,975) 7,930 ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ........ 96 94 9,670 13,427 23,615 Annuity Payments .................... -- -- -- (3) (5) Surrenders and Other (Net) .......... (78) -- (23,497) (23,656) (20,763) Transfers from Other Divisions or Sponsors ....................... 592 66 2,021 4,001 16,356 Transfers to Other Divisions or Sponsors ....................... (247) -- (6,377) (7,931) (9,504) ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions .... 363 160 (18,183) (14,162) 9,699 ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ...... 289 165 (40,578) (45,137) 17,629 Equity: Beginning of Period ................. 165 -- 112,232 157,369 139,740 ------------ ------------ ------------ ------------ ------------ End of Period ....................... $ 454 $ 165 $ 71,654 $ 112,232 $ 157,369 ============ ============ ============ ============ ============
- ---------- # The initial investment in this Division was made on July 31, 2001. 45 NML VARIABLE ANNUITY ACCOUNT C STATEMENTS OF CHANGES IN EQUITY CONTINUED (IN THOUSANDS)
INTERNATIONAL GROWTH FRANKLIN TEMPLETON INTERNATIONAL STOCK DIVISION # EQUITY DIVISION ---------------------------- -------------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ Operations: Net Investment Income (Loss) ................. $ -- $ -- $ 828 $ 5,793 $ 4,850 Net Realized Gain (Loss) ..................... (42) -- (8,378) (6,258) 3,131 Net Change in Unrealized Appreciation (Depreciation) ............... (8) (2) (496) (8,375) (8,616) ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ............. (50) (2) (8,046) (8,840) (635) ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ................. 67 11 30,003 27,273 22,162 Annuity Payments ............................. -- -- (2) (2) (2) Surrenders and Other (Net) ................... (10) -- (39,024) (32,422) (22,407) Transfers from Other Divisions or Sponsors ... 159 29 6,265 2,545 9,389 Transfers to Other Divisions or Sponsors ..... (145) -- (3,090) (5,144) (7,571) ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ............. 71 40 (5,848) (7,750) 1,571 ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ............... 21 38 (13,894) (16,590) 936 Equity: Beginning of Period .......................... 38 -- 48,902 65,492 64,556 ------------ ------------ ------------ ------------ ------------ End of Period ................................ $ 59 $ 38 $ 35,008 $ 48,902 $ 65,492 ============ ============ ============ ============ ============
INDEX 400 STOCK DIVISION GROWTH STOCK DIVISION ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ Operations: Net Investment Income (Loss) ....... $ 120 $ 175 $ 1,169 $ 253 $ 1,503 $ 1,949 Net Realized Gain (Loss) ........... (823) (575) 98 (2,757) 777 2,717 Net Change in Unrealized Appreciation (Depreciation) ..... (2,160) 275 (923) (4,172) (8,402) (5,875) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ... (2,863) (125) 344 (6,676) (6,122) (1,209) ------------ ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ....... 2,788 3,343 881 3,727 4,918 6,941 Annuity Payments ................... (1) -- -- (3) (4) (4) Surrenders and Other (Net) ......... (3,440) (2,104) (366) (6,378) (6,927) (6,269) Transfers from Other Divisions or Sponsors ...................... 2,998 6,318 10,283 2,570 2,504 6,640 Transfers to Other Divisions or Sponsors ...................... (1,810) (1,982) (217) (3,995) (4,049) (3,179) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ... 535 5,575 10,581 (4,079) (3,558) 4,129 ------------ ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ..... (2,328) 5,450 10,925 (10,755) (9,680) 2,920 Equity: Beginning of Period ................ 16,849 11,399 474 33,016 42,696 39,776 ------------ ------------ ------------ ------------ ------------ ------------ End of Period ...................... $ 14,521 $ 16,849 $ 11,399 $ 22,261 $ 33,016 $ 42,696 ============ ============ ============ ============ ============ ============
- ---------- # The initial investment in this Division was made on July 31, 2001. 46 NML VARIABLE ANNUITY ACCOUNT C STATEMENTS OF CHANGES IN EQUITY CONTINUED (IN THOUSANDS)
J.P. MORGAN SELECT GROWTH AND INCOME CAPITAL GUARDIAN DOMESTIC STOCK DIVISION EQUITY DIVISION # ------------------------------------------ --------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 ------------ ------------ ------------ ------------ ------------ Operations: Net Investment Income (Loss) ................. $ 102 $ 833 $ 1,945 $ 4 $ -- Net Realized Gain (Loss) ..................... (3,735) (545) (276) (8) -- Net Change in Unrealized Appreciation (Depreciation) ............... (3,096) (2,643) (4,224) (72) 6 ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ............. (6,729) (2,355) (2,555) (76) 6 ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ................. 2,377 3,353 4,010 62 103 Annuity Payments ............................. -- -- -- -- -- Surrenders and Other (Net) ...................... (5,579) (5,302) (6,461) (55) -- Transfers from Other Divisions or Sponsors ... 973 2,133 2,472 509 102 Transfers to Other Divisions or Sponsors ..... (2,644) (2,079) (8,848) (67) -- ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ............. (4,873) (1,895) (8,827) 449 205 ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ............... (11,602) (4,250) (11,382) 373 211 Equity: Beginning of Period .......................... 25,473 29,723 41,105 211 -- ------------ ------------ ------------ ------------ ------------ End of Period ................................ $ 13,871 $ 25,473 $ 29,723 $ 584 $ 211 ============ ============ ============ ============ ============
INDEX 500 STOCK DIVISION ASSET ALLOCATION DIVISION # ------------------------------------------ --------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 ------------ ------------ ------------ ------------ ------------ Operations: Net Investment Income (Loss) ................. $ 1,209 $ 6,130 $ 7,682 $ 16 $ -- Net Realized Gain (Loss) ..................... (2,524) 12,916 27,391 (23) -- Net Change in Unrealized Appreciation (Depreciation) ............... (26,051) (39,298) (53,361) (121) -- ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ............. (27,366) (20,252) (18,288) (128) -- ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ................. 10,129 15,810 20,521 185 15 Annuity Payments ............................. (3) (4) (5) (10) -- Surrenders and Other (Net) ................... (31,783) (31,233) (31,320) (9) -- Transfers from Other Divisions or Sponsors ... 1,762 4,024 6,728 1,406 31 Transfers to Other Divisions or Sponsors ..... (6,390) (10,254) (24,313) -- -- ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ............. (26,285) (21,657) (28,389) 1,572 46 ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ............... (53,651) (41,909) (46,677) 1,444 46 Equity: Beginning of Period .......................... 131,489 173,398 220,075 46 -- ------------ ------------ ------------ ------------ ------------ End of Period ................................ $ 77,838 $ 131,489 $ 173,398 $ 1,490 $ 46 ============ ============ ============ ============ ============
- ---------- # The initial investment in this Division was made on July 31, 2001. 47 NML VARIABLE ANNUITY ACCOUNT C STATEMENTS OF CHANGES IN EQUITY CONTINUED (IN THOUSANDS)
BALANCED DIVISION HIGH YIELD BOND DIVISION ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ Operations: Net Investment Income (Loss) ......... $ 3,566 $ 9,208 $ 12,221 $ 400 $ 465 $ 528 Net Realized Gain (Loss) ............. (5,135) 3,486 14,398 (278) (737) (1,290) Net Change in Unrealized Appreciation (Depreciation) ...... (7,102) (17,384) (27,427) (267) 448 501 ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity .. (8,671) (4,690) (808) (145) 176 (261) ------------ ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ...... 6,606 8,917 13,295 531 1,643 698 Annuity Payments .................. (26) (28) (37) (1) (1) (1) Surrenders and Other (Net) ........ (24,451) (18,268) (26,734) (1,020) (2,091) (1,212) Transfers from Other Divisions or Sponsors ...................... 4,001 3,462 2,847 709 2,647 669 Transfers to Other Divisions or Sponsors ...................... (11,207) (9,430) (19,997) (763) (2,030) (2,034) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions .. (25,077) (15,347) (30,626) (544) 168 (1,880) ------------ ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity .... (33,748) (20,037) (31,434) (689) 344 (2,141) Equity: Beginning of Period ............... 115,972 136,009 167,443 4,583 4,239 6,380 ------------ ------------ ------------ ------------ ------------ ------------ End of Period ..................... $ 82,224 $ 115,972 $ 136,009 $ 3,894 $ 4,583 $ 4,239 ============ ============ ============ ============ ============ ============
SELECT BOND DIVISION MONEY MARKET DIVISION ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ Operations: Net Investment Income (Loss) ...... $ 770 $ 812 $ 984 $ 77 $ 360 $ 797 Net Realized Gain (Loss) .......... 541 32 (655) -- -- -- Net Change in Unrealized Appreciation (Depreciation) .... 617 578 1,084 -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity .. 1,928 1,422 1,413 77 360 7979 ------------ ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ...... 2,853 2,126 2,655 4,425 4,807 4,448 Annuity Payments .................. (6) (5) (4) (5) (17) (17) Surrenders and Other (Net) ........ (5,251) (3,607) (4,440) (13,638) (10,053) (14,734) Transfers from Other Divisions or Sponsors ...................... 6,188 5,722 2,504 10,654 12,104 11,630 Transfers to Other Divisions or Sponsors ...................... (3,530) (2,306) (5,638) (5,725) (4,118) (9,596) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions .. 254 1,930 (4,923) (4,289) 2,723 (8,269) ------------ ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity .... 2,182 (3,352) (3,510) (4,212) 3,083 (7,472) Equity: Beginning of Period ............... 17,379 14,027 17,537 15,185 12,102 19,574 ------------ ------------ ------------ ------------ ------------ ------------ End of Period ..................... $ 19,561 $ 17,379 $ 14,027 $ 10,973 $ 15,185 $ 12,102 ============ ============ ============ ============ ============ ============
48 NML VARIABLE ANNUITY ACCOUNT C STATEMENTS OF CHANGES IN EQUITY CONTINUED (IN THOUSANDS)
RUSSELL MULTI-STYLE EQUITY DIVISION RUSSELL AGGRESSIVE EQUITY DIVISION ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ Operations: Net Investment Income (Loss) ....... $ (3) $ 23 $ 60 $ (7) $ (6) $ 67 Net Realized Gain (Loss) ........... (274) (120) (20) (35) (17) 24 Net Change in Unrealized Appreciation (Depreciation) ..... (26) (144) (282) (93) 9 (103) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ... (303) (241) (242) (135) (14) (12) ------------ ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ....... 312 228 210 92 120 133 Annuity Payments ................... -- -- -- -- -- -- Surrenders and Other (Net) ......... (345) (119) (243) (145) (72) (170) Transfers from Other Divisions or Sponsors .......................... 90 61 672 67 84 472 Transfers to Other Divisions or Sponsors ....................... (406) (271) (357) (62) (51) (131) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ... (349) (101) 282 (48) 81 304 ------------ ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ..... (652) (342) 40 (183) 67 292 Equity: Beginning of Period ................ 1,403 1,745 1,705 710 643 351 ------------ ------------ ------------ ------------ ------------ ------------ End of Period ...................... $ 751 $ 1,403 $ 1,745 $ 527 $ 710 $ 643 ============ ============ ============ ============ ============ ============
RUSSELL NON-U.S. DIVISION RUSSELL REAL ESTATE SECURITIES DIVISION ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ Operations: Net Investment Income (Loss) ...... $ 3 $ (4) $ 53 $ 470 $ 281 $ 50 Net Realized Gain (Loss) .......... (107) (33) 15 101 140 36 Net Change in Unrealized Appreciation (Depreciation) .... 13 (158) (199) (414) (4) 126 ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity .. (91) (195) (131) 157 417 212 ------------ ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ...... 85 114 125 1,725 1,245 151 Annuity Payments .................. -- -- -- (1) -- -- Surrenders and Other (Net) ........ (147) (86) (152) (2,490) (1,081) (48) Transfers from Other Divisions or Sponsors ......................... 109 21 516 4,673 4,382 2,707 Transfers to Other Divisions or Sponsors ...................... (101) -- (105) (1,098) (1,014) (473) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions .. (54) 49 384 2,809 3,532 2,337 ------------ ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity .... (145) (146) 253 2,966 3,949 2,549 Equity: Beginning of Period ............... 672 818 565 6,600 2,651 102 ------------ ------------ ------------ ------------ ------------ ------------ End of Period ..................... $ 527 $ 672 $ 818 $ 9,566 $ 6,600 $ 2,651 ============ ============ ============ ============ ============ ============
49 NML VARIABLE ANNUITY ACCOUNT C STATEMENTS OF CHANGES IN EQUITY CONTINUED (IN THOUSANDS)
RUSSELL CORE BOND DIVISION ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 ------------ ------------ ------------ Operations: Net Investment Income (Loss) ................. $ 14 $ 41 $ 18 Net Realized Gain (Loss) ..................... 27 14 (3) Net Change in Unrealized Appreciation (Depreciation) ............... 11 (12) 23 ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ............. 52 43 38 ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ................. 100 67 77 Annuity Payments ............................. -- -- -- Surrenders and Other (Net) ................... (121) (8) (43) Transfers from Other Divisions or Sponsors ... 401 253 81 Transfers to Other Divisions or Sponsors ..... (422) (48) (51) ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ............. (42) 264 64 ------------ ------------ ------------ Net Increase (Decrease) in Equity ............... 10 307 102 Equity: Beginning of Period .......................... 793 486 384 ------------ ------------ ------------ End of Period ................................ $ 803 $ 793 $ 486 ============ ============ ============
The Accompanying Notes are an Integral Part of the Financial Statements. 50 FINANCIAL HIGHLIGHTS NML VARIABLE ANNUITY ACCOUNT C (FOR A UNIT OUTSTANDING DURING THE PERIOD)
DIVIDEND INCOME AS A % OF UNIT VALUE AVERAGE NET EXPENSE RATIO TOTAL RETURN(2) DIVISION LOWEST TO HIGHEST ASSETS LOWEST TO HIGHEST LOWEST TO HIGHEST - -------- ------------------------ ----------- ----------------- ---------------------- Small Cap Growth Stock Year Ended 12/31/02...................... $1.489185 to $ 15.591407 0.16% 0.00% to 1.25% (19.44%) to (18.42%) Year Ended 12/31/01...................... $1.848493 to $ 19.112629 0.01% 0.00% to 1.25% (4.97%) to (3.76%) T. Rowe Price Small Cap Value(1) ........... Year Ended 12/31/02...................... $0.943905 to $ 9.607906 0.49% 0.00% to 1.25% (6.75%) to (5.58%) Period Ended 12/31/01.................... $1.012260 to $ 10.175772 0.38% 0.00% to 1.25% 1.23% to 1.76% Aggressive Growth Stock Year Ended 12/31/02...................... $2.360410 to $ 38.441232 0.10% 0.00% to 1.25% (22.13%) to (21.15%) Year Ended 12/31/01...................... $3.013165 to $ 48.753408 22.56% 0.00% to 1.25% (20.88%) to (19.87%) International Growth Stock(1) Year Ended 12/31/02...................... $0.780276 to $ 7.942434 0.27% 0.00% to 1.25% (13.42%) to (12.34%) Period Ended 12/31/01....... ............ $0.901258 to $ 9.060000 0.00% 0.00% to 1.25% (9.87%) to (9.40%) Franklin Templeton International Equity Year Ended 12/31/02...................... $1.559571 to $ 1.759773 2.11% 0.00% to 1.25% (18.43%) to (17.40%) Year Ended 12/31/01...................... $1.911919 to $ 2.130553 10.95% 0.00% to 1.25% (15.07%) to (14.00%) Index 400 Stock Year Ended 12/31/02...................... $1.072428 to $ 11.227976 0.84% 0.00% to 1.25% (15.60%) to (14.54%) Year Ended 12/31/01...................... $1.270690 to $ 13.138452 1.30% 0.00% to 1.25% (1.90%) to (0.65%) Growth Stock Year Ended 12/31/02...................... $1.921805 to $ 21.414901 1.20% 0.00% to 1.25% (21.81%) to (20.83%) Year Ended 12/31/01...................... $2.458020 to $ 27.049526 4.53% 0.00% to 1.25% (15.29%) to (14.22%) J.P. Morgan Select Growth and Income Stock Year Ended 12/31/02...................... $1.500218 to $ 16.717038 0.97% 0.00% to 1.25% (29.09%) to (28.20%) Year Ended 12/31/01...................... $2.115675 to $ 23.281928 3.63% 0.00% to 1.25% (8.92%) to (7.77%) Capital Guardian Domestic Equity(1) Year Ended 12/31/02...................... $0.756787 to $ 7.703469 2.12% 0.00% to 1.25% (22.22%) to (21.24%) Period Ended 12/31/01.................... $0.973004 to $ 9.781208 0.71% 0.00% to 1.25% (2.70%) to (2.19%) Index 500 Stock Year Ended 12/31/02...................... $2.420098 to $ 35.246385 1.44% 0.00% to 1.25% (23.04%) to (22.07%) Year Ended 12/31/01...................... $3.125796 to $ 45.228886 4.54% 0.00% to 1.25% (12.98%) to (11.88%) Asset Allocation(1) Year Ended 12/31/02...................... $0.863125 to $ 8.785751 2.61% 0.00% to 1.25% (11.37%) to (10.26%) Period Ended 12/31/01.................... $0.973862 to $ 9.789803 0.72% 0.00% to 1.25% (2.61%) to (2.10%) Balanced Year Ended 12/31/02...................... $2.209502 to $ 84.486469 4.05% 0.00% to 1.25% (8.68%) to (7.54%) Year Ended 12/31/01...................... $2.405185 to $ 91.372736 7.91% 0.00% to 1.25% (4.36%) to (3.15%) High Yield Bond Year Ended 12/31/02...................... $1.424293 to $ 15.870922 10.23% 0.00% to 1.25% (4.10%) to (2.89%) Year Ended 12/31/01...................... $1.485164 to $ 16.343831 10.11% 0.00% to 1.25% 3.72% to 5.03% Select Bond Year Ended 12/31/02...................... $2.084184 to $121.279762 4.77% 0.00% to 1.25% 10.70% to 12.09% Year Ended 12/31/01...................... $1.871532 to $108.200259 5.60% 0.00% to 1.25% 8.99% to 10.37% Money Market Year Ended 12/31/02...................... $1.504462 to $ 34.132616 1.66% 0.00% to 1.25% 0.39% to 1.65% Year Ended 12/31/01...................... $1.489628 to $ 33.577318 3.74% 0.00% to 1.25% 2.62% to 3.92% Russell Multi-Style Equity Year Ended 12/31/02...................... $0.594202 to $ 6.221208 0.62% 0.00% to 1.25% (24.14%) to (23.19%) Year Ended 12/31/01...................... $0.783335 to $ 8.099453 2.58% 0.00% to 1.25% (15.28%) to (14.21%) Russell Aggressive Equity Year Ended 12/31/02...................... $0.831686 to $ 8.707578 0.00% 0.00% to 1.25% (20.06%) to (19.06%) Year Ended 12/31/01...................... $1.040412 to $ 10.757522 0.11% 0.00% to 1.25% (3.58%) to (2.36%) Russell Non-U.S Year Ended 12/31/02...................... $0.677755 to $ 7.095865 1.62% 0.00% to 1.25% (16.20%) to (15.15%) Year Ended 12/31/01...................... $0.808779 to $ 8.362558 0.59% 0.00% to 1.25% (23.00%) to (22.03%)
51 FINANCIAL HIGHLIGHTS NML VARIABLE ANNUITY ACCOUNT C CONTINUED (FOR A UNIT OUTSTANDING DURING THE PERIOD) Russell Core Bond Year Ended 12/31/02......... $1.217720 to $ 12.748590 2.91% 0.00% to 1.25% 7.49% to 8.84% Year Ended 12/31/01......... $1.132872 to $ 11.713217 6.24% 0.00% to 1.25% 6.07% to 7.41% Russell Real Estate Securities Year Ended 12/31/02......... $1.261665 to $ 13.208871 5.22% 0.00% to 1.25% 2.51% to 3.80% Year Ended 12/31/01......... $1.230726 to $ 12.725061 5.28% 0.00% to 1.25% 6.49% to 7.84%
- ----------- (1) Portfolio commenced operations on July 31, 2001. (2) Total Return includes deductions for management and other expenses; excludes deductions for sales loads and other charges. Returns are not annualized for periods less than one year. The Accompanying Notes are an Integral Part of the Financial Statements. 52 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") 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. Currently, 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 accounting principles generally accepted in the United States of America 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 a adjusted with assumed interest rates of 3-1/2% or 5%. NOTE 5 -- Dividend income from the Funds is recorded on the ex-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 2002 2001 2000 - --------- ----------- ----------- ----------- Small Cap Growth Stock ...................... $ 4,101,427 $ 6,233,394 $21,822,710 T. Rowe Price Small Cap Value# ............. 439,368 159,645 N/A Aggressive Growth Stock ..................... 13,446,357 36,767,770 47,835,326 International Growth Stock#.................. 81,631 39,524 N/A Franklin Templeton International Equity ..... 37,675,272 31,683,628 31,939,632 Index 400 Stock ............................. 4,794,956 8,666,766 12,366,486 Growth Stock ............................... 4,614,934 6,414,454 12,950,757 J.P. Morgan Select Growth and Income Stock... 3,214,603 4,403,338 5,847,806 Capital Guardian Domestic Equity#............ 507,375 204,575 N/A Index 500 Stock ............................. 17,825,221 17,138,782 21,135,615 Asset Allocation#............................ 1,602,656 45,385 N/A Balanced .................................... 13,689,364 15,734,227 19,926,273 High Yield Bond ............................ 1,019,296 4,182,589 2,046,585 Select Bond ................................. 6,546,498 7,322,244 5,061,775 Money Market ............................... 10,578,873 14,787,625 14,029,450 Russell Multi-Style ......................... 326,188 401,949 851,426 Russell Aggressive Equity .................. 123,680 183,388 646,095 Russell Non-U.S. ............................ 107,319 134,575 646,150 Russell Core Bond .......................... 145,550 752,848 179,473 Russell Real Estate Securities............... 5,919,307 5,224,573 3,116,036
53 NML VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS CONTINUED
SALES 2002 2001 2000 - ----- ------------ ------------ ------------ Small Cap Growth Stock ...................... $ 4,073,616 $ 4,295,263 $ 1,131,840 T. Rowe Price Small Cap Value# .............. 78,233 176 N/A Aggressive Growth Stock ..................... 29,800,357 24,003,411 18,536,546 International Growth Stock# ................. 11,232 123 N/A Franklin Templeton International Equity ..... 42,699,052 33,668,396 25,522,098 Index 400 Stock ............................. 4,139,828 2,918,757 615,601 Growth Stock ................................ 8,441,163 8,466,155 6,871,377 J.P. Morgan Select Growth and Income Stock .. 7,984,459 5,467,056 12,730,171 Capital Guardian Domestic Equity# ........... 57,966 145 N/A Index 500 Stock ............................. 40,484,151 32,662,751 42,005,726 Asset Allocation# ........................... 13,114 83 N/A Balanced .................................... 35,212,020 21,870,333 38,332,517 High Yield Bond ............................. 1,162,441 3,549,767 3,398,369 Select Bond ................................. 5,400,203 4,580,899 9,000,392 Money Market ................................ 14,793,674 11,701,602 21,273,753 Russell Multi-Style ......................... 678,182 485,832 510,026 Russell Aggressive Equity ................... 178,946 114,505 276,105 Russell Non-U.S ............................. 158,091 89,282 208,804 Russell Core Bond ........................... 150,115 441,607 736,889 Russell Real Estate Securities .............. 2,586,225 1,382,753 97,425
- ----------- # Initial Investment in this division was made on July 31, 2001. 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 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. 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. 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. 54 NML VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS CONTINUED NOTE 8 -- Equity Values by Division for the year ended December 31, 2002 are shown below: (in thousands, except accumulation unit values)
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 ACCUMULATION UNIT UNITS UNIT UNITS DIVISION VALUE OUTSTANDING EQUITY VALUE OUTSTANDING EQUITY - -------- ------------ ----------- -------- ------------ ----------- -------- Small Cap Growth Stock ............ $ 15.591407 992 $ 15,467 $ 15.307344 -- $ -- T. Rowe Price Small Cap Value ..... 9.607906 5 48 9.539874 -- -- Aggressive Growth Stock ........... 38.441232 1,538 59,123 36.213065 2 72 International Growth Stock ........ 7.942434 2 16 7.886164 -- -- Franklin Templeton International Equity ....................... 1.759773 17,431 30,675 1.676652 26 44 Index 400 Stock ................... 11.227976 1,163 13,058 11.023428 -- -- Growth Stock ...................... 21.414901 821 17,582 20.506308 -- -- J.P. Morgan Select Growth and Income Stock ................. 16.717038 552 9,228 16.007652 2 32 Capital Guardian Domestic Equity .. 7.703469 9 69 7.648889 -- -- Index 500 Stock ................... 35.246385 1,782 62,809 33.200274 3 100 Asset Allocation .................. 8.785751 20 176 8.723560 -- -- Balanced .......................... 84.486469 664 56,099 76.084739 27 2,054 High Yield Bond ................... 15.870922 176 2,793 15.197603 1 15 Select Bond ....................... 121.279762 92 11,158 109.16634 -- -- Money Market ...................... 34.132616 9 307 30.774871 -- -- Russell Multi-Style Equity ........ 6.221208 8 50 6.107844 -- -- Russell Aggressive Equity ......... 8.707578 1 9 8.548899 -- -- Russell Non-U.S ................... 7.095865 3 21 6.966578 -- -- Russell Real Estate Securities .... 13.208871 641 8,467 12.968435 -- Russell Core Bond ................. 12.748590 -- -- 12.516564 -- -- -------- -------- Equity ....................... 287,155 2,317 Annuity Reserves ............. -- 630 -------- -------- Total Equity ................. $287,155 $ 2,947 ======== ========
CONTRACTS ISSUED: CONTRACTS ISSUED: AFTER DECEMBER 31, 1991 AFTER DECEMBER 31, 1991 FRONT LOAD VERSION SIMPLIFIED LOAD VERSION ----------------------------------- ----------------------------------- ACCUMULATION ACCUMULATION UNIT UNITS UNIT UNITS DIVISION VALUE OUTSTANDING EQUITY VALUE OUTSTANDING EQUITY - -------- ------------ ----------- -------- ------------ ----------- -------- Small Cap Growth Stock ............. $ 1.522337 197 $ 300 $ 1.489185 753 $ 1,121 T. Rowe Price Small Cap Value ...... 0.951956 107 102 0.943905 319 301 Aggressive Growth Stock ............ 2.360410 972 2,294 3.506913 2,895 10,153 International Growth Stock ......... 0.786940 7 6 0.780276 51 40 Franklin Templeton International Equity ........................ 1.652585 533 881 1.559571 2,178 3,397 Index 400 Stock .................... 1.096297 337 369 1.072428 994 1,066 Growth Stock ....................... 2.024216 414 838 1.921805 1,982 3,809 J.P. Morgan Select Growth and Income Stock .................. 1.580140 572 904 1.500218 2,469 3,704 Capital Guardian Domestic Equity ... 0.763266 153 117 0.756787 532 403 Index 500 Stock .................... 2.420098 1,590 3,848 2.968449 3,722 11,049 Asset Allocation ................... 0.870499 49 43 0.863125 1,295 1,118 Balanced ........................... 2.209502 2,482 5,484 6.435011 2,852 18,353 High Yield Bond .................... 1.500210 129 194 1.424293 626 892 Select Bond ........................ 2.084184 519 1,082 9.187656 787 7,231 Money Market ....................... 1.504462 2,092 3,147 2.734853 2,738 7,488 Russell Multi-Style Equity ......... 0.607438 415 252 0.594202 753 447 Russell Aggressive Equity .......... 0.850202 135 115 0.831686 487 405 Russell Non-U.S .................... 0.692822 171 118 0.677755 573 388 Russell Real Estate Securities ..... 1.289736 193 249 1.261665 664 838 Russell Core Bond .................. 1.244772 336 418 1.217720 317 386 -------- -------- Equity ........................ 20,761 72,589 Annuity Reserves .............. -- -- -------- -------- Total Equity .................. $ 20,761 $ 72,589 ======== ========
55 NML VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS CONTINUED Equity Values by Division for the year ended December 31, 2001 are shown below: (in thousands, except accumulation unit values)
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 ACCUMULATION UNIT UNITS UNIT UNITS DIVISION VALUE OUTSTANDING EQUITY VALUE OUTSTANDING EQUITY - -------- ------------- ----------- -------- ------------ ----------- -------- Small Cap Growth Stock ............ $ 19.112629 974 $ 18,614 $ 18.858687 1 $ 10 T. Rowe Price Small Cap Value ..... 10.175772 1 15 10.154423 -- -- Aggressive Growth Stock ........... 48.753408 1,744 85,024 46.158193 2 95 International Growth Stock ........ 9.060000 2 15 9.040958 -- -- Franklin Templeton International Equity ....................... 2.130553 18,588 39,603 2.040110 34 70 Index 400 Stock ................... 13.138452 1,137 14,937 12.963870 -- 4 Growth Stock ...................... 27.049526 903 24,420 26.031963 -- 3 J.P. Morgan Select Growth and Income Stock ................. 23.281928 660 15,365 22.405970 2 55 Capital Guardian Domestic Equity .. 9.781208 3 31 9.760679 -- -- Index 500 Stock ................... 45.228886 2,199 99,439 42.817258 9 390 Asset Allocation .................. 9.789803 3 31 9.769272 -- -- Balanced .......................... 91.372736 814 74,381 82.699005 27 2,234 High Yield Bond ................... 16.343831 177 2,893 15.728914 1 8 Select Bond ....................... 108.200259 81 8,810 97.881219 -- 23 Money Market ...................... 33.577318 14 466 30.425952 -- -- Russell Multi-Style Equity ........ 8.099453 24 197 7.991800 -- -- Russell Aggressive Equity ......... 10.757522 1 10 10.614527 -- -- Russell Non-U.S ................... 8.362558 3 24 8.251395 -- -- Russell Real Estate Securities .... 12.725061 460 5,853 12.556055 -- -- Russell Core Bond ................. 11.713217 -- -- 11.557668 -- -- -------- -------- Equity ....................... 390,128 2,892 Annuity Reserves ............. -- 744 -------- -------- Total Equity ................. $390,128 $ 3,636 ======== ========
CONTRACTS ISSUED: CONTRACTS ISSUED: AFTER DECEMBER 31, 1991 AFTER DECEMBER 31, 1991 FRONT LOAD VERSION SIMPLIFIED LOAD VERSION ----------------------------------- ------------------------------------ ACCUMULATION ACCUMULATION UNIT UNITS UNIT UNITS DIVISION VALUE OUTSTANDING EQUITY VALUE OUTSTANDING EQUITY - -------- ------------ ----------- -------- ------------ ----------- --------- Small Cap Growth Stock ............. $ 1.878336 267 $ 502 $ 1.848493 1,067 $ 1,972 T. Rowe Price Small Cap Value ...... 1.014805 7 7 1.012260 141 142 Aggressive Growth Stock ............ 3.013165 1,501 4,522 4.503663 5,015 22,584 International Growth Stock ......... 0.903525 -- -- 0.901258 25 22 Franklin Templeton International Equity ........................ 2.013838 1,090 2,194 1.911919 3,670 7,017 Index 400 Stock .................... 1.291211 301 389 1.270690 1,182 1,503 Growth Stock ....................... 2.573522 558 1,435 2.458020 2,897 7,120 J.P. Morgan Select Growth and Income Stock .................. 2.215050 1,013 2,244 2.115675 3,691 7,810 Capital Guardian Domestic Equity ... 0.975455 66 64 0.973004 119 116 Index 500 Stock .................... 3.125796 1,895 5,922 3.857114 6,662 25,694 Asset Allocation ................... 0.976312 5 5 0.973862 11 10 Balanced ........................... 2.405185 3,594 8,644 7.047000 4,314 30,398 High Yield Bond .................... 1.554978 148 230 1.485164 967 1,437 Select Bond ........................ 1.871532 573 1,072 8.299723 892 7,404 Money Market ....................... 1.489628 927 1,380 2.724154 4,816 13,120 Russell Multi-Style Equity ......... 0.795993 476 379 0.783335 1,056 827 Russell Aggressive Equity .......... 1.057215 173 183 1.040412 497 517 Russell Non-U.S .................... 0.821829 205 168 0.808779 592 479 Russell Real Estate Securities ..... 1.250590 180 225 1.230726 424 522 Russell Core Bond .................. 1.151142 337 388 1.132872 358 405 -------- --------- Equity ........................ 29,953 129,099 Annuity Reserves .............. -- -- -------- --------- Total Equity .................. $ 29,953 $ 129,099 ======== =========
56 REPORT OF INDEPENDENT ACCOUNTANTS To The Northwestern Mutual Life Insurance Company and Contract Owners of NML Variable Annuity Account C In our opinion, the accompanying statements of assets and liabilities and the related statements of operations and of changes in equity and the financial highlights present fairly, in all material respects, the financial position of NML Variable Annuity Account C and its Small Cap Growth Stock Division, T. Rowe Price Small Cap Value Division, Aggressive Growth Stock Division, International Growth Stock Division, Franklin Templeton International Equity Division, Index 400 Stock Division, Growth Stock Division, J.P. Morgan Select Growth & Income Stock Division, Capital Guardian Domestic Equity Division, Index 500 Stock Division, Asset Allocation Division, Balanced Division, High Yield Bond Division, Select Bond Division, Money Market Division, Russell Multi-Style Equity Division, Russell Aggressive Equity Division, Russell Non-U.S. Division, Russell Real Estate Securities Division and Russell Core Bond Division at December 31, 2002 and 2001, and the results of each of their operations, the changes in each of their equity and their financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "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 securities owned at December 31, 2002 and 2001 with Northwestern Mutual Series Fund, Inc. and the Russell Insurance Funds, provide a reasonable basis for our opinion. /s/ PRICEWATERHOUSECOOPERS LLP - ---------------------------------- Milwaukee, Wisconsin January 30, 2003 57 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 58 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, 2003, 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 ELECTED/ OF TERM OTHER POSITIONS PRESENTLY TRUSTEE AGE APPT'D OF OFFICE HELD WITH REGISTRANT - ------- --- -------- ---------- -------------------- Edward E. Barr................. 66 1991 May 2003(1) Member, Human Resources and Public Policy Committee John M. Bremer................. 55 2001 May 2006 Chief Operating Officer (Chief Compliance Officer); Member, Executive Committee Peter W. Bruce ................ 57 2001 May 2004 Chief Insurance Officer; Member, Executive Committee Robert C. Buchanan ............ 62 1991 May 2003(1) Member, Audit, Executive and Finance Committees George A. Dickerman ........... 64 1994 May 2004 Member, Agency and Marketing Committee Pierre S. du Pont ............. 68 1985 May 2006 Member, Human Resources and Public Policy Committee James D. Ericson .............. 67 1989 May 2004 Member, Agency and Marketing, Executive and Finance Committees David A. Erne ................. 59 2002 May 2005 Member, Audit, Executive and Finance Committees J. E. Gallegos ................ 67 1985 May 2004 Member, Operations and Technology Committee Stephen N. Graff .............. 68 1996 May 2004 Member, Audit, Executive, and Finance Committees Patricia Albjerg Graham ....... 68 1980 May 2004 Member, Human Resources and Public Policy Committee James P. Hackett .............. 47 2000 May 2006 Member, Operations and Technology Committee Stephen F. Keller ............. 64 1984 May 2003(1) Member, Human Resources and Public Policy Committee Barbara A. King. .............. 56 1996 May 2006 Member, Agency and Marketing Committee J. Thomas Lewis. .............. 66 1978 May 2006 Member, Agency and Marketing Committee Daniel F. McKeithan, Jr ....... 67 1988 May 2003(1) Member, Executive, Finance, and Human Resources and Public Policy Committees H. Mason Sizemore, Jr ......... 61 1993 May 2003(1) Member, Operations and Technology Committee Harold B. Smith. .............. 69 1973 May 2004(2) Member, Operations and Technology Committee Sherwood H. Smith, Jr ......... 68 1992 May 2006 Chair, Agency and Marketing Committee Peter M. Sommerhauser ......... 60 1999 May 2006 Chair, Human Resources and Public Policy Committee; Member, Executive and Finance Committees John E. Steuri ................ 63 1994 May 2003(1) Chair, Operations and Technology Committee John J. Stollenwerk ........... 63 1993 May 2005 Member, Agency and Marketing, Executive and Finance Committees Barry L. Williams ............. 58 1987 May 2005 Member, Audit Committee Kathryn D. Wriston ............ 64 1986 May 2005 Chair, Audit Committee Edward J. Zore ................ 57 2000 May 2005 President and CEO; Chair, Executive and Finance Committees; Member, Agency and Marketing, Operations and Technology Committees
- ---------- (1) Candidate proposed for re-election by the Board of Trustees for the election to be held at the May 2003 Annual meeting of Policyowners. If re-elected, these Trustees' terms will expire in May 2007. (2) Mr. Harold B. Smith is retiring from the Board of Trustees effective May 28, 2003. 59 The business experience and directorships of Northwestern Mutual's Trustees as of March 1, 2002 are as follows:
PRINCIPAL OCCUPATION TRUSTEE DURING PAST FIVE YEARS DIRECTORSHIPS ------- ---------------------- ------------- Edward E. Barr Retired Chairman, Sun Chemical Group, B.V. (graphic arts), Fort Lee, New Jersey, since 2003. Prior thereto, Chairman from 1998-2002; Chairman and CEO, 1997-1998; President and Chief Executive Officer, 1987-1997. John M. Bremer Chief Operating Officer (Chief Compliance Officer) of Northwestern Mutual since 2002. Prior thereto, Senior Executive Vice President and Chief Operating Officer (Chief Compliance Officer) from 2001-2002; Senior Executive Vice President and Secretary from 2000-2001; Executive Vice President, General Counsel and Secretary from 1998-2000; Senior Vice President, General Counsel and Secretary from 1995-1998. Peter W. Bruce Chief Insurance Officer of Northwestern Mutual since October 1, 2002. Prior thereto, Senior Executive Vice President (Insurance) from 2000-2002; Executive Vice President (Accumulation Products and Long Term Care) from 1998-2000; Executive Vice President (Operations and Administration) from 1995- 1998. Robert C. Buchanan President and Chief Executive Officer, Fox Brady Corporation Valley Corporation (manufacturer of gift wrap and writing paper), Appleton, Wisconsin, since 1980. George A. Dickerman Retired Chairman, Spalding Sports Worldwide (manufacturer of sporting equipment), Chicopee, Massachusetts, since 1999. Prior thereto, Chairman, 1997-1998; President, 1981-1997. Pierre S. du Pont Attorney, Richards, Layton & Finger PepsiAmericas, Inc (law firm), Wilmington, Delaware, since 1985. James D. Ericson Retired Chairman of Northwestern Mutual since Kohl's Corporation 2001; Chairman, 2001; Chairman and Chief The Marcus Corporation Executive Officer from 2000 to 2001. Prior thereto, President and Chief Executive Officer from 1993-2000. David A. Erne Attorney, Reinhart Boerner Van Deuren s.c. (law Artisan Funds, Inc. firm), Milwaukee, Wisconsin, since 1968. 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
60
PRINCIPAL OCCUPATION TRUSTEE DURING PAST FIVE YEARS DIRECTORSHIPS ------- ---------------------- ------------- Patricia Albjerg Professor of the History of American Apache Corporation 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 Fifth Third Bancorp Steelcase Inc. (office furniture manufacturer) Steelcase Inc. Grand Rapids, Michigan, since 1994. 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, 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. The Marcus Corporation (operator of oil and gas wells), U.S. Bancorp Milwaukee, Wisconsin, since 1982. H. Mason Sizemore, Jr. Retired President and Chief Operating Officer, The Seattle Times, Seattle, Washington, since 2001. Prior thereto, President and Chief Operating Officer 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 Nortel Networks Corporation Company, Raleigh, North Carolina, since 1999. Prior thereto, Chairman, 1996-1999. Peter M. Sommerhauser Attorney, Godfrey & Kahn, S.C. (law firm), Kohl's Corporation Milwaukee, Wisconsin, since 1969. John E. Steuri Retired Chairman, Advanced Thermal Superior Financial Corporation and Technologies (heating, air conditioning humidity control), Little Rock, Arkansas, since 2001; Chairman, 1997-2001. John J. Stollenwerk President and Chief Executive Officer, Badger Meter, Inc. Allen-Edmonds Shoe Corporation, Port Koss Corporation Washington, Wisconsin, since 1998. Prior U.S. Bancorp thereto, President and Owner, 1980-1998.
61
PRINCIPAL OCCUPATION TRUSTEE DURING PAST FIVE YEARS DIRECTORSHIPS ------- ---------------------- ------------- Barry L. Williams President and Chief Executive Officer, CH2M Hill Companies Ltd. Williams Pacific Ventures, Inc. (venture R. H. Donnelly Corporation capital), San Francisco, California, since Pacific Gas & Electric Company 1993. PG&E Corporation Simpson Manufacturing Co., Inc. Synavant Inc. The Newhall Land and Farming Company USA Education Inc. Kathryn D. Wriston Director of various corporations. The Goodyear Tire & Rubber Company The Stanley Works Edward J. Zore President and Chief Executive Officer of Manpower, Inc. Northwestern Mutual since 2001. Prior Mason Street Funds, Inc. thereto, President, 2000-2001; Northwestern Mutual Series Executive Vice President (Life and Disability Fund, Inc. Income Insurance), 1998-2000; Executive Vice President (Finance and Investments), 1995-1998.
62 The following information as of March 1, 2003, 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, 2003.
NAME AGE CURRENT POSITION AND YEAR ASSUMED - ---- --- --------------------------------- Edward J. Zore......... 57 President and Chief Executive Officer (2001) John M. Bremer......... 55 Chief Operating Officer (Chief Compliance Officer) (2001) Peter W. Bruce......... 57 Chief Insurance Officer (2002) Deborah A. Beck........ 55 Executive Vice President (Planning and Technology) (2000) William H. Beckley..... 55 Executive Vice President (Agencies) (2000) Bruce L. Miller........ 60 Executive Vice President (Marketing) (2000) Mason G. Ross.......... 59 Executive Vice President and Chief Investment Officer (2001) Mark G. Doll........... 53 Senior Vice President (Public Markets) (1996) Richard L. Hall........ 57 Senior Vice President (Life Insurance) (2000) William C. Koenig...... 55 Senior Vice President and Chief Actuary (1995) Barbara F. Piehler..... 52 Senior Vice President and Chief Information Officer (2002) Gary A. Poliner........ 49 Senior Vice President and Chief Financial Officer (2001) Charles D. Robinson.... 58 Senior Vice President (Investment Products and Services) (2001) John E. Schlifske...... 43 Senior Vice President (Securities and Real Estate) (1999) Leonard F. Stecklein... 56 Senior Vice President (Annuity and Accumulation Products) (2000) Frederic H. Sweet...... 59 Senior Vice President (Corporate and Government Relations) (1998) Robert J. Berdan....... 56 Vice President, General Counsel and Secretary (2001) Steven T. Catlett...... 53 Vice President and Controller (2001) Thomas E. Dyer......... 57 Vice President (Corporate Services) (1998) Christina H. Fiasca.... 48 Vice President (Field System Administration) (2002) Susan A. Lueger........ 49 Vice President (Human Resources) (1994) Jean M. Maier.......... 48 Vice President (Field Services and Support) (2001) Meridee J. Maynard..... 47 Vice President (Disability Income) (2001) Gregory C. Oberland.... 45 Vice President (New Business) (2001) Marcia Rimai........... 47 Vice President (Policyowner Services) (2000) Lora A. Rosenbaum...... 46 Vice President (Compliance/Best Practices) (2000) J. Edward Tippetts..... 58 Vice President (Field Development) (2002) Martha M. Valerio...... 56 Vice President (Technology Research and Web Resources) (2001) David B. Wescoe........ 48 Vice President (Northwestern Mutual Investment Services) (2000) W. Ward White.......... 63 Vice President (Communications) (1990) Michael L. Youngman.... 51 Vice President (Government Relations) (2001)
All of the Executive Officers, except David B. Wescoe and Charles D. Robinson, have been employed by Northwestern Mutual in an executive or management position for more than five years. Mr. Wescoe joined Northwestern Mutual in 1999. From 1994 to 1999, Mr. Wescoe was employed by Manpower, Inc. as Vice President and General Counsel. Mr. Robinson joined Northwestern Mutual in 2001. 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. 63 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, such persons receive no compensation tied specifically to any services provided 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. No Contract owner is the beneficial owner of more than 5% of Account A, Account C or Northwestern Mutual's voting securities. Neither Accounts A or C, nor Northwestern Mutual, maintain equity compensation plans under which equity securities are authorized for issuance. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Effective January 1, 2002, Northwestern Mutual's subsidiary, Mason Street Advisors, LLC ("MSA"), commenced serving as the investment advisor to the Series Fund. The Board of the Series Fund approved the assignment of the investment advisory agreement to MSA in 2001, the renewal of which was approved in 2002. Various Trustees and Executive Officers of Northwestern Mutual serve as directors and officers of the Series Fund and/or MSA and may be deemed to have a direct or indirect material interest in the existence of the investment advisory agreement. Northwestern Mutual's subsidiary, Frank Russell Company, provides the Russell Funds and its investment adviser, Frank Russell Investment Management Company ("FRIMCo"), a subsidiary of Frank Russell Company, with asset management consulting services that it provides to its other consulting clients. The Russell Funds do not compensate Russell for these services. FRIMCo is party to an investment advisory agreement with the Russell Funds, the renewal of which was approved in 2002. Certain Trustees and Executive Officers of Northwestern Mutual serve as directors of Frank Russell Company 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 (and their family members and associates) may have securities accounts with Baird and/or NMIS and may have effected transactions through such accounts during 2002 and through the date hereof, including transactions in mutual funds sponsored by Northwestern Mutual and 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, in accordance with applicable law and are administered solely pursuant to the terms of such policies. In the ordinary course of its business, Northwestern Mutual makes loans to its field force Managing Partners 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 Managing Partner who has received such a loan may assume an Executive Officer position at Northwestern Mutual. In such circumstances, historically the outstanding loans have remained in place and are satisfied in accordance with the terms of the underlying loan documentation. At December 31, 2002, Peter M. Sommerhauser, a Northwestern Mutual Trustee since May 1999, was the beneficial owner of approximately 9.6% 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 64 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 $13,333,333 during 2002, which remains outstanding at March 1, 2003. Mr. David A. Erne, a Northwestern Mutual Trustee since July 2002, is a shareholder of Reinhart Boerner Van Deuren s.c. Reinhart Boerner Van Deuren s.c. provided legal services to Northwestern Mutual and certain related entities during 2002 and year-to-date 2003. The aggregate amount of such legal services billed to Northwestern Mutual or related entities is less than 1% of the law firm's gross revenues for its last fiscal year. ITEM 14. CONTROLS AND PROCEDURES Based on their evaluation of the registrant's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as conducted within 90 days of the filing date of this Annual Report, the registrant's Chief Executive Officer and Chief Financial Officer have concluded that those disclosure controls and procedures provide reasonable assurance that the information required to be disclosed by the registrant in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms. There were no significant changes in the registrant's internal controls or in other factors that could significantly affect such controls subsequent to the date of evaluation referenced above. ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements and Exhibits PAGE ---- (1) NML Variable Annuity Account A (in Part II, Item 8)................................................. 19 Statements of Assets and Liabilities at December 31, 2002 and 2001 Statements of Operations for years ended December 31, 2002, 2001 and 2000 Statements of Changes in Equity for years ended December 31, 2002, 2001 and 2000 Financial Highlights Notes to Financial Statements Report of Independent Accountants (2) NML Variable Annuity Account C (in Part II, Item 8)................................................. 39 Statements of Assets and Liabilities at December 31, 2002 and 2001 Statements of Operations for years ended December 31, 2002, 2001 and 2000 Statements of Changes in Equity for years ended December 31, 2002, 2001 and 2000 Financial Highlights Notes to Financial Statements Report of Independent Accountants (3) The Northwestern Mutual Life Insurance Company.................................................... 66 Immediately following this page are: Report of Independent Accountants Consolidated Statement of Financial Position at December 31, 2002 and 2001 Consolidated Statement of Operations for years ended December 31, 2002, 2001 and 2000 Consolidated Statement of Changes in Surplus for years ended December 31, 2002, 2001 and 2000 Consolidated Statement of Cash Flows for years ended December 31, 2002, 2001 and 2000 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, 2002. (c) See Index to Exhibits which is incorporated herein by reference ......................................... 98 65 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 ("the Company") as of December 31, 2002 and 2001, 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, 2002. 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 accounting principles generally accepted in the United States. The effects on the consolidated financial statements of the variances between the statutory basis of accounting and accounting principles generally accepted in the United States, 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, 2002 and 2001, or the results of their operations or their cash flows for each of the three years in the period ended December 31, 2002 because of the effects of the variances between the statutory basis of accounting and accounting principles generally accepted in the United States of America 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, 2002 and 2001 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, on the basis of accounting described in Note 1. As discussed in Note 1 to the financial statements, the Company adopted the accounting policies in the revised National Association of Insurance Commissioners "Accounting Practices and Procedures Manual" - Effective January 1, 2001, as required by the Office of the Commissioner of Insurance of the State of Wisconsin. The effect of adoption is recorded as an adjustment to surplus as of January 1, 2001. /s/ PRICEWATERHOUSECOOPERS LLP - --------------------------------- Milwaukee, Wisconsin January 21, 2003 66 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF FINANCIAL POSITION (IN MILLIONS)
DECEMBER 31 -------------------------- 2002 2001 ------------ ------------ ASSETS: Bonds ................................ $ 50,597 $ 44,306 Common and preferred stocks .......... 4,902 5,369 Mortgage loans ....................... 15,692 15,164 Real estate .......................... 1,503 1,671 Policy loans ......................... 9,292 9,028 Other investments .................... 4,242 4,817 Cash and temporary investments ....... 1,814 2,018 ------------ ------------ Total investments ............... 88,042 82,373 Due and accrued investment income .... 1,100 1,048 Net deferred tax assets .............. 1,887 1,602 Deferred premium and other assets .... 1,660 1,583 Separate account assets .............. 10,246 11,786 ------------ ------------ Total assets .................... $ 102,935 $ 98,392 ============ ============ LIABILITIES AND SURPLUS: Reserves for policy benefits ......... $ 74,880 $ 68,432 Policyowner dividends payable ........ 3,765 3,650 Interest maintenance reserve 521 375 Asset valuation reserve .............. 1,268 2,034 Income taxes payable 777 1,329 Other liabilities .................... 4,261 3,894 Separate account liabilities ......... 10,246 11,786 ------------ ------------ Total liabilities ............... 95,718 91,500 Surplus .............................. 7,217 6,892 ------------ ------------ Total liabilities and surplus ... $ 102,935 $ 98,392 ============ ============
The accompanying notes are an integral part of these financial statements. 67 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF OPERATIONS (IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------- 2002 2001 2000 ------------ ------------ ------------ REVENUE: Premiums $ 10,108 $ 9,447 $ 8,966 Net investment income 5,477 5,431 5,229 Other income 439 467 1,187 ------------ ------------ ------------ Total revenue 16,024 15,345 15,382 ------------ ------------ ------------ BENEFITS AND EXPENSES: Benefit payments to policyowners and beneficiaries 3,902 3,808 4,541 Net additions to policy benefit reserves 6,186 5,367 4,815 Net transfers to separate accounts 242 502 469 ------------ ------------ ------------ Total benefits 10,330 9,677 9,825 Commissions and operating expenses 1,580 1,453 1,416 ------------ ------------ ------------ Total benefits and expenses 11,910 11,130 11,241 ------------ ------------ ------------ Gain from operations before dividends and taxes 4,114 4,215 4,141 Policyowner dividends 3,792 3,651 3,334 ------------ ------------ ------------ Gain from operations before taxes 322 564 807 Income tax expense (benefit) (442) 173 125 ------------ ------------ ------------ Net gain from operations 764 391 682 Net realized capital gains (losses) (606) 259 1,147 ------------ ------------ ------------ Net income $ 158 $ 650 $ 1,829 ============ ============ ============
The accompanying notes are an integral part of these financial statements. 68 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF CHANGES IN SURPLUS (IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, ------------------------------ 2002 2001 2000 -------- -------- -------- Beginning of year balance ........................... $ 6,892 $ 5,896 $ 5,069 Net income ....................................... 158 650 1,829 Change in net unrealized capital gains (losses) .. (517) (555) (1,043) Increase in net deferred tax assets .............. 44 73 -- Increase in nonadmitted assets and other ......... (126) (124) (32) Change in reserve valuation bases (Note 5) ....... -- (61) -- Change in asset valuation reserve ................ 766 264 73 Cumulative effect of changes in accounting principles (Note 1) ............................. -- 749 -- -------- -------- -------- Net increase in surplus ..................... 325 996 827 -------- -------- -------- End of year balance ......................... $ 7,217 $ 6,892 $ 5,896 ======== ======== ========
The accompanying notes are an integral part of these financial statements. 69 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------ 2002 2001 2000 ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Premiums and other income received ................................. $ 6,947 $ 6,607 $ 6,149 Investment income received ......................................... 5,224 5,328 5,000 Disbursement of policy loans, net of repayments .................... (264) (524) (566) Payments to policyowners and beneficiaries ......................... (4,130) (3,996) (3,967) Net transfers to separate accounts ................................. (257) (534) (469) Commissions, expenses and taxes paid ............................... (1,855) (1,698) (1,845) ---------- ---------- ---------- Net cash provided by operating activities ....................... 5,665 5,183 4,302 ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from investments sold or matured: Bonds ............................................................. 60,865 35,318 29,539 Common and preferred stocks ....................................... 1,766 15,465 9,437 Mortgage loans .................................................... 1,532 1,174 1,198 Real estate ....................................................... 468 244 302 Other investments ................................................. 1,646 494 659 ---------- ---------- ---------- 66,277 52,695 41,135 ---------- ---------- ---------- Cost of investments acquired: Bonds ............................................................. 67,398 38,915 33,378 Common and preferred stocks ....................................... 2,003 15,014 8,177 Mortgage loans .................................................... 2,005 2,003 2,261 Real estate ....................................................... 191 353 224 Other investments ................................................. 748 1,106 1,535 ---------- ---------- ---------- 72,345 57,391 45,575 ---------- ---------- ---------- Net cash applied in investing activities ........................ (6,068) (4,696) (4,440) ---------- ---------- ---------- CASH FLOWS FROM FINANCING AND MISCELLANEOUS SOURCES: Proceeds from deposit-type contract funds and other liabilities without life or disability contingencies ........ 990 996 907 Withdrawals from deposit-type contract funds and other liabilities without life or disability contingencies ........ (741) (793) (777) Other cash provided (applied) ...................................... (50) 111 66 ---------- ---------- ---------- Net cash provided by financing and other activities: ............ 199 314 196 ---------- ---------- ---------- Net increase(decrease) in cash and temporary investments ...... (204) 801 58 Cash and temporary investments, beginning of year ..................... 2,018 1,217 1,159 ---------- ---------- ---------- Cash and temporary investments, end of year ................... $ 1,814 $ 2,018 $ 1,217 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. 70 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2002, 2001 AND 2000 1. BASIS OF PRESENTATION AND CHANGES IN ACCOUNTING PRINCIPLES The accompanying consolidated statutory financial statements include the accounts of The Northwestern Mutual Life Insurance Company and its wholly-owned subsidiary, Northwestern Long Term Care Insurance Company (together, "the Company"). All intercompany balances and transactions were eliminated. The Company offers life, annuity, disability income and long-term care insurance products to the personal, business, and estate markets. The consolidated financial statements were prepared in conformity with accounting practices prescribed or permitted by the Office of the Commissioner of Insurance of the State of Wisconsin ("statutory basis of accounting"). Beginning January 1, 2001, insurance companies domiciled in Wisconsin were required to prepare statutory basis financial statements in accordance with the new National Association of Insurance Commissioners ("NAIC") "Accounting Practices and Procedures Manual", subject to any variations prescribed or permitted by the Office of the Commissioner of Insurance of the State of Wisconsin ("OCI"). These new requirements differed from those used prior to January 1, 2001, primarily because under the new statutory accounting principles: (1) deferred tax balances were established for temporary differences between book and tax bases of certain assets and liabilities, (2) investment valuation adjustments on impaired assets were measured differently and were reported as realized losses, (3) pension and other employee benefit obligations were accounted for based on the funded status of the related plans, (4) recognition of earnings from unconsolidated subsidiaries and affiliates as net investment income was limited to dividends received, (5) certain software costs were capitalized and amortized to expense over a maximum of five years, and (6) premiums, benefits and reserve changes for policies without significant mortality or morbidity risks ("deposit-type contracts") were not included in revenue or benefits as reported in the consolidated statement of operations. The cumulative effect of adoption of these new accounting principles was reported as an adjustment to surplus as of January 1, 2001, with no restatement of prior periods permitted. This cumulative effect was the difference in the amount of surplus that would have been reported at that date if the new accounting principles had been retroactively applied to all prior periods. The cumulative effect of these accounting changes increased surplus by $749 million at that date, and included the following (in millions): Deferred tax accounting ................ $ 850 Pension plan liabilities ............... (74) Investment valuation changes, net ...... (27) -------- $ 749 ========
Financial statements prepared on the statutory basis of accounting differ from financial statements prepared in accordance with generally accepted accounting principles ("GAAP"), primarily because on a GAAP basis: (1) certain policy acquisition costs are deferred and amortized, (2) investment valuations and policy benefit reserves use different methods and assumptions, (3) deposit-type contracts, for which premiums, benefits and reserve changes are not included in revenue or benefits as reported in the statement of operations, are defined differently, (4) majority-owned, non-insurance subsidiaries are consolidated, (5) changes in deferred taxes are reported as a component of net income, and (6) no deferral of realized gains 71 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED) and losses is permitted. The effects on the financial statements of the Company from the differences between the statutory basis of accounting and GAAP are material. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in conformity with the statutory basis of accounting required management to use assumptions or make estimates that affected 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 assumptions and estimates. INVESTMENTS See Note 3 regarding the reported statement value and estimated fair value of the Company's investments in bonds, common and preferred stocks, mortgage loans and real estate. POLICY LOANS Policy loans primarily represent amounts borrowed from the Company by life insurance policyowners, secured by the cash value of the related policies. They are reported in the financial statements at unpaid principal balance. OTHER INVESTMENTS Other investments consist primarily of real estate joint ventures, partnership investments, including real estate, venture capital and leveraged buyout fund limited partnerships, leveraged leases and subsidiaries, controlled and affiliated entities. These investments are valued based on the equity method of accounting, which approximated fair value. Other investments also include derivative financial instruments. See Note 4 regarding the Company's use of derivatives. TEMPORARY INVESTMENTS Temporary investments represent securities that have maturities of one year or less at purchase, and are reported at amortized cost, which approximated fair value. NET INVESTMENT INCOME Net investment income primarily represents interest and dividends received or accrued on bonds, mortgage loans, policy loans and other investments. It also includes amortization of any purchase premium or discount using the interest method, adjusted prospectively for any change in estimated yield-to-maturity. Accrued investment income more than 90 days past due is nonadmitted and reported as a direct reduction of surplus. Accrued investment income that is ultimately deemed uncollectible is reported as a reduction of net investment income in the period that such determination is made. Beginning January 1, 2001, net investment income also includes dividends paid to the Company from accumulated earnings of unconsolidated subsidiaries, affiliates, partnerships and joint ventures. Prior to 2001, the Company's share of undistributed earnings in these entities was recognized as net investment income using the equity method. Net investment income is reduced by investment management expenses, real estate depreciation, depletion related to energy assets and interest costs associated with securities lending. 72 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED) 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 income tax, on fixed income investments that result from changes in interest rates. Net realized gains and losses deferred to the IMR are amortized into investment income over the estimated remaining life of the investment sold. INVESTMENT CAPITAL GAINS AND LOSSES Realized capital gains and losses are recognized based upon specific identification of securities sold. Beginning January 1, 2001, realized capital losses also include valuation adjustments for impairment of bonds, stocks, mortgage loans, real estate and other investments with a decline in fair value that management considers to be other-than-temporary. Factors considered in evaluating whether a decline in value is other-than-temporary include: (1) whether the decline is substantial, (2) the Company's ability and intent to retain the investment for a period of time sufficient to allow for an anticipated recovery in value, (3) the duration and extent to which the market value has been less than cost, and (4) the financial condition and near-term prospects of the issuer. Prior to 2001, these valuation adjustments were classified as unrealized capital losses and only reported as realized upon disposition. Realized capital gains and losses as reported in the consolidated statement of operations are net of any IMR deferrals and current income tax expense. See Note 3 regarding details of realized capital gains and losses. Unrealized capital gains and losses primarily represent changes in the reported fair value of common stocks. Beginning January 1, 2001, changes in the Company's share of undistributed earnings in unconsolidated subsidiaries, affiliates, partnerships and joint ventures are classified as changes in unrealized capital gains and losses. Prior to 2001, the Company's share of undistributed earnings in these entities was recognized as net investment income using the equity method. See Note 3 regarding details of changes in unrealized capital gains and losses. ASSET VALUATION RESERVE The Company is required to maintain an asset valuation reserve ("AVR"). The AVR represents a general reserve for invested asset valuation using a formula prescribed by the NAIC. The AVR is designed to protect surplus against potential declines in the value of the Company's investments. Increases or decreases in AVR are reported as direct adjustments to surplus. SEPARATE ACCOUNTS See Note 7 regarding separate account assets and liabilities reported by the Company. PREMIUM REVENUE Life insurance premiums are recognized as revenue at the beginning of each policy year. Annuity, disability income and long-term care insurance premiums are recognized as revenue when received by the Company. Premium revenue is reported net of ceded reinsurance, see Note 9. 73 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED) OTHER INCOME Other income includes ceded reinsurance expense allowances and various insurance policy charges. Beginning January 1, 2001, considerations received on supplementary contracts without life contingencies are classified as deposit-type transactions and thereby excluded from revenue. Prior to 2001, these considerations were reported as revenue and included in other income. BENEFIT PAYMENTS TO POLICYOWNERS AND BENEFICIARIES Benefit payments to policyowners and beneficiaries include death, surrender and disability benefits, as well as matured endowments and supplementary contract payments. Beginning January 1, 2001, benefit payments on supplementary contracts without life contingencies are classified as deposit-type transactions and thereby excluded from expense. Prior to 2001, these payments were reported as benefit expense. Benefit payments are reported net of ceded reinsurance recoveries, see Note 9. RESERVES FOR POLICY BENEFITS See Note 5 regarding the methods and assumptions used to establish the Company's reserves for future insurance policy benefits. COMMISSIONS AND OPERATING EXPENSES Commissions and other operating costs, including costs of acquiring new insurance policies, are generally charged to expense as incurred. ELECTRONIC DATA PROCESSING EQUIPMENT AND SOFTWARE Electronic data processing ("EDP") equipment and software used in the Company's business are reported at cost less accumulated depreciation. Beginning January 1, 2001, certain software costs are capitalized and depreciated over a maximum of five years, while EDP equipment is capitalized and depreciated over three years. Most unamortized software costs are nonadmitted assets and thereby excluded from surplus. Prior to 2001, the Company expensed all software costs, while EDP equipment was capitalized and amortized over its useful life. EDP equipment and software assets of $20 million and $18 million at December 31, 2002 and 2001, respectively, were net of accumulated depreciation of $48 million and $44 million, respectively, and included in other assets in the consolidated statement of financial position. Depreciation expense is recorded using the straight-line method and totaled $27 million, $14 million and $8 million for the years ended December 31, 2002, 2001 and 2000, respectively. POLICYOWNER DIVIDENDS Almost all life insurance and disability income policies and certain annuity contracts and long-term care 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 policyowners 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. A majority of dividends are used by policyowners to purchase additional insurance and are reported as premiums in the consolidated statement of operations, but are not included in premiums received or policy benefits paid in the consolidated statement of cash flows. 74 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED) NONADMITTED ASSETS Certain assets are designated as nonadmitted and thereby not permitted as a component of surplus on the statutory basis of accounting. Such assets, principally assets related to pension funding, amounts advanced to or due from the Company's financial representatives and fixed assets, EDP equipment and software net of accumulated depreciation, are excluded from the consolidated statement of financial position. Changes in nonadmitted assets are reported as a direct adjustment to surplus. RECLASSIFICATIONS Certain financial statement balances for 2001 and 2000 have been reclassified to conform to the current year presentation. 3. INVESTMENTS BONDS Investments in bonds are reported in the financial statements at amortized cost, less any valuation adjustment. The interest method is used to amortize any purchase premium or discount. Use of the interest method for loan-backed bonds and structured securities includes anticipated prepayments obtained from independent sources. Prepayment assumptions are updated at least annually, with the prospective adjustment method used to recognize related changes in the yield-to-maturity of such securities. Estimated fair value is based upon values published by the Securities Valuation Office ("SVO") of the NAIC. In the absence of SVO-published values, estimated fair value is based upon quoted market prices, if available. For bonds without quoted market prices, fair value is estimated using independent pricing services or internally developed pricing models. Valuation adjustments are made for bonds in or near default, which are reported at the lower of amortized cost or fair value, or for bonds with a decline in fair value that management considers to be other-than-temporary. Statement value and estimated fair value of bonds at December 31, 2002 and 2001 were as follows:
December 31, 2002 Reconciliation to Estimated Fair Value - ----------------- ------------------------------------------------------- Gross Gross Estimated Statement Unrealized Unrealized Fair Value Gains Losses Value ------------ ------------ ------------ ------------ (in millions) U.S. Government $ 8,932 $ 531 $ (21) $ 9,442 States, territories and possessions 396 61 -- 457 Special revenue and assessments 7,576 400 (1) 7,975 Public utilities 2,501 251 (25) 2,727 Banks, trust and insurance companies 1,355 71 (15) 1,411 Industrial and miscellaneous 29,836 2,150 (688) 31,298 Parent, subsidiaries and affiliates 1 -- -- 1 ------------ ------------ ------------ ------------ Total $ 50,597 $ 3,464 $ (750) $ 53,311 ============ ============ ============ ============
75 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)
December 31, 2001 Reconciliation to Estimated Fair Value - ----------------- ------------------------------------------------------- Gross Gross Estimated Statement Unrealized Unrealized Fair Value Gains Losses Value ------------ ------------ ------------ ------------ (in millions) U.S. Government $ 4,271 $ 221 $ (84) $ 4,408 States, territories and possessions 262 29 -- 291 Special revenue and assessments 6,032 185 (23) 6,194 Public utilities 2,748 86 (19) 2,815 Banks, trust and insurance companies 1,306 46 (18) 1,334 Industrial and miscellaneous 29,685 1,026 (555) 30,156 Parent, subsidiaries and affiliates 2 -- -- 2 ------------ ------------ ------------ ------------ Total $ 44,306 $ 1,593 $ (699) $ 45,200 ============ ============ ============ ============
Statement value and estimated fair value of bonds by contractual maturity at December 31, 2002 are 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 $ 1,165 $ 1,193 Due after one year through five years 9,858 10,202 Due after five years through ten years 13,362 14,235 Due after ten years 11,877 12,747 ------------ ------------ 36,262 38,377 Structured securities 14,335 14,934 ------------ ------------ Total $ 50,597 $ 53,311 ============ ============
COMMON AND PREFERRED STOCKS Common stocks are reported in the financial statements at fair value, which is based upon quoted market prices, if available. For common stocks without quoted market prices, fair value is estimated using independent pricing services or internally developed pricing models. Investments in common stock of unconsolidated subsidiaries and affiliates are included in the consolidated statement of financial position using the equity method. Preferred stocks rated "1" (highest quality), "2" (high quality), or "3" (medium quality) by the SVO are reported in the financial statements at amortized cost. All other preferred stock is reported at the lower of cost or fair value. Estimated fair value is based upon quoted market prices, if available. For preferred stock without quoted market prices, fair value is estimated using independent pricing services or internally developed pricing models. 76 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED) MORTGAGE LOANS Mortgage loans are reported in the financial statements at unpaid principal balance, less any valuation allowance or unamortized commitment or origination fee. These fees are generally deferred and amortized into investment income using the interest method. 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 borrowers, geographic locations and types of collateral properties. The maximum and minimum interest rates for mortgage loans originated during 2002 were 8.2% and 5.0%, respectively, while these rates during 2001 were 9.8% and 6.4%, respectively. The aggregate average ratio of amounts loaned to the value of collateral for mortgage loans originated during 2002 and 2001 were 65% and 68%, respectively, with a maximum of 100% for any single loan during each of 2002 and 2001. Mortgage loans are considered impaired when, based on current information, management considers it probable that the Company will be unable to collect all principal and interest due according to the contractual terms of the loan. If necessary, a valuation adjustment is made to reduce the carrying value of an impaired loan to the lower of unpaid principal balance or estimated net realizable value based on appraisal of the collateral property. If the impairment is considered to be temporary, the valuation adjustment is classified as an unrealized loss. Beginning January 1, 2001 valuation adjustments for impairments considered to be other-than-temporary were reported as realized losses. Prior to 2001, all changes in valuation adjustments were reported as unrealized gains or losses. At December 31, 2002 and 2001, the reported value of mortgage loans was reduced by $44 million and $99 million, respectively, in valuation adjustments. REAL ESTATE Real estate investments are reported in the financial statements at cost, less any valuation adjustment, encumbrances and accumulated depreciation of buildings and other improvements using a straight line method over the estimated useful life of the improvements. An investment in real estate is considered impaired when the projected undiscounted net cash flow from the investment is less than depreciated cost. When the Company determines that an investment in real estate is impaired, a valuation adjustment is made to reduce the carrying value to estimated fair value, after encumbrances, based on appraisal of the property. The valuation adjustment is included in realized losses. At December 31, 2002 and 2001, the reported value of real estate investments was reduced by $0 and $52 million, respectively, in valuation adjustments. LEVERAGED LEASES Leveraged leases are reported in the financial statements at the present value of minimum lease payments, plus the residual value of the leased asset. At December 31, 2002 and 2001, the reported value of leveraged leases was $532 million and $669 million, respectively. The reported value of leveraged leases was reduced by $108 million at December 31, 2002 to reflect a decline in value of certain aircraft leases that management considers to be other-than-temporary. The decline in value was charged against an existing valuation allowance and is not included as a component of net realized capital losses for 2002. Leveraged leases are included in other investments and primarily represent investments in commercial aircraft or real estate property that are leased to third parties and serve as collateral for non-recourse borrowings. 77 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED) CAPITAL GAINS AND LOSSES Realized investment gains and losses for the years ended December 31, 2002, 2001 and 2000 were as follows:
For the year ended For the year ended For the year ended December 31, 2002 December 31, 2001 December 31, 2000 ------------------------------ ------------------------------ ------------------------------ 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 $ 950 $ (1,237) $ (287) $ 537 $ (674) $ (137) $ 369 $ (416) $ (47) Common and preferred stocks 356 (619) (263) 863 (569) 294 1,534 (333) 1,201 Mortgage loans -- (4) (4) -- (10) (10) -- (25) (25) Real estate 121 (3) 118 85 (11) 74 101 -- 101 Other invested assets 158 (258) (100) 296 (149) 147 395 (177) 218 -------- -------- -------- -------- -------- -------- -------- -------- -------- $ 1,585 $ (2,121) (536) $ 1,781 $ (1,413) 368 $ 2,399 $ (951) 1,448 ======== ======== ======== ======== ======== ======== Less: Capital gains taxes (194) 98 353 Less: IMR gains (losses) 264 11 (52) -------- -------- -------- Net realized capital gains (losses) $ (606) $ 259 $ 1,147 ======== ======== ========
Proceeds on the sale of bond investments totaled $53 billion, $30 billion and $25 billion for the years ended December 31, 2002, 2001 and 2000, respectively. Realized losses included $588 million and $457 million for the years ended December 31, 2002 and 2001, respectively, of pretax valuation adjustments for declines in fair value of investments that were considered to be other-than-temporary. Other-than-temporary declines in fair value of $508 million for the year ended December 31, 2000 are included in net unrealized losses. Changes in net unrealized investment gains and losses for the years ended December 31, 2002, 2001 and 2000 were as follows:
For the year ended December 31, ------------------------------------------ 2002 2001 2000 ------------ ------------ ------------ (in millions) Bonds $ (150) $ (15) $ (208) Common and preferred stocks (436) (699) (851) Mortgage loans -- -- (2) Real estate -- -- (4) Other investments (172) (193) 22 ------------ ------------ ------------ (758) (907) $ (1,043) ============ Change in deferred taxes 241 352 ------------ ------------ $ (517) $ (555) ============ ============
See Note 10 regarding the accounting change in 2001 for deferred taxes as regards to unrealized gains and losses. 78 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED) SECURITIES LENDING The Company has entered into securities lending agreements whereby certain investment 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, calculated on a daily basis, as collateral in the form of either cash or securities held by the Company or a trustee. At December 31, 2002 and 2001, unrestricted cash collateral held by the Company of $1.6 billion and $1.3 billion, respectively, is included in cash and invested assets and the offsetting collateral liability of $1.6 billion and $1.3 billion, respectively, is included in other liabilities. Additional non-cash collateral of $389 million and $823 million is held on the Company's behalf by a trustee at December 31, 2002 and 2001, respectively, and is not included in the Consolidated Statement of Financial Position. MORTGAGE DOLLAR ROLLS The Company has also entered into reverse repurchase agreements whereby the Company agrees to sell and repurchase various mortgage-backed securities. At December 31, 2002 and 2001, the book value of securities subject to these agreements and included in bonds were $1,042 million and $964 million, respectively, while fair values were $1,057 million and $966 million, respectively. The repurchase obligation liability of $1,042 million and $964 million were included in the other liabilities at December 31, 2002 and 2001, respectively. Securities subject to these agreements had contractual maturities of 30 years at each of December 31, 2002 and 2001 and weighted average interest rates of 5.8% and 6.8%, respectively. 4. DERIVATIVE FINANCIAL INSTRUMENTS In the normal course of business, the Company enters into derivative transactions, generally to mitigate the risk to Company assets and liabilities of fluctuations in interest rates, foreign currency exchange rates and other market risks. Derivative investments are reported as other investments in the consolidated statement of financial position. Derivatives that hedge specific assets and liabilities are reported in a manner consistent with the hedged item (e.g., at amortized cost or fair value), while derivative financial instruments that hedge a portfolio of assets or liabilities are reported at fair value. Fair value is estimated as the amount that the Company would expect to receive or pay upon termination of the contract at the reporting date. Changes in the carrying value of derivatives that hedge a portfolio of assets or liabilities are reported as realized capital gains and losses. 79 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED) The Company held the following positions for hedging purposes at December 31, 2002 and 2001:
December 31, 2002 December 31, 2001 ----------------------------------- ----------------------------------- Carrying Notional Fair Carrying Notional Fair Derivative Instrument Value Amount Value Value Amount Value --------------------- ---------- ---------- ---------- ---------- ---------- ---------- (in millions) Specific Hedges: Foreign currency swaps $ -- $ 68 $ 7 $ 1 $ 70 $ 11 Forward purchase agreements -- -- -- -- 200 3 Interest rate swaps (3) 442 (8) 1 88 6 Swaptions 12 358 12 8 304 13 Interest rate floors 8 625 41 6 525 19 Credit default swaps -- 67 -- -- 57 -- Commodity swaps -- 5 (1) -- -- -- Portfolio Hedges: Equity futures and swaps -- -- -- 9 221 9 Fixed income futures -- 365 -- (2) 203 (2) Foreign currency forward contracts (19) 567 (17) -- 502 --
The notional or contractual amounts of derivative financial instruments are used to denominate the transactions and do not represent the amounts exchanged between the parties. Foreign currency swaps are used to hedge exposure to variable U.S. dollar cash flows from certain bonds denominated in foreign currencies. A foreign currency swap is a contractual agreement to exchange the currencies of two different countries at a specified rate of exchange in the future. Forward purchase agreements are used to fix the price of a security purchase or sale to be settled on a future date, reducing or eliminating the risk of price fluctuation prior to settlement. Forward purchase agreements fix the price, quantity and settlement date for a future purchase or sale. Interest rate swaps are used to hedge exposure to variable interest payments on certain floating rate bonds. An interest rate swap is a contractual agreement to pay a floating rate of interest, based upon a reference index, in exchange for a fixed rate of interest established at the origination of the contract. Swaptions are used to hedge the asset/liability risks of a significant and sustained increase or decrease in interest rates for certain of the Company's insurance products. Swaptions are a contractual agreement whereby one party holds an option to enter into an interest rate swap with another party on predefined terms. 80 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED) Interest rate floors are used to hedge the asset/liability risks of a significant and sustained decrease in interest rates. Floors entitle the Company to receive settlement payments from the counterparties if interest rates decline below a specified level. Credit default swaps are used to hedge against a drop in bond prices due to credit concerns for certain bond issuers. A credit default swap allows the Company to put the bond to a counterparty at par upon a "credit event" sustained by the bond issuer. A credit event is defined as bankruptcy, failure to pay, or obligation acceleration. Commodity swaps are used to hedge the forward sale of crude oil and natural gas production. Commodity swaps are agreements whereby one party pays a floating commodity price in exchange for a specified fixed commodity price. Equity index futures contracts and equity total return swaps are used to mitigate exposure to market fluctuations for the Company's portfolio of common stocks. Futures contracts obligate the Company to buy or sell a financial instrument at a specified future date for a specified price. Swaps are contracts to exchange, for a period of time, the investment performance of one underlying instrument for the investment performance of another underlying instrument, typically without exchanging the instruments themselves. Fixed income futures contracts are used to hedge interest rate risks for a portion of its fixed maturity investment portfolio. These futures contracts obligate the Company to buy or sell a financial instrument at a specified future date for a specified price. Foreign currency forward contracts are used to hedge the foreign exchange risk for portfolios of investments denominated in foreign currencies. Foreign currency forward contracts obligate the Company to deliver a specified amount of foreign currency at a future date at a specified exchange rate. In addition to derivatives used for hedging purposes, the Company entered into replication transactions during 2002. A replication transaction means a derivative transaction is entered into in conjunction with other investment transactions in order to "replicate" the investment characteristics of otherwise permissible investments. During 2002, the Company entered into two replication transactions; a $15 million par equivalent fixed income replication comprised of a credit default swap, an interest rate swap and an asset-backed security purchase; and a $25 million par equivalent fixed income replication comprised of a credit default swap and an asset-backed security purchase. These replication transactions, including their derivative components, are carried at amortized cost. The Company also entered into long equity and fixed income futures replication transactions during 2002. The average fair value of replications during 2002 was $72 million, with an ending fair value of $8 million at December 31, 2002. 5. RESERVES FOR POLICY BENEFITS Reserves for policy benefits represent the net present value of future policy benefits, less future policy premiums, estimated using actuarial methods based on mortality and morbidity experience tables and valuation interest rates prescribed or permitted by the OCI. 81 NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED) Use of these actuarial tables and methods involved assumptions regarding future mortality and morbidity. Actual future experience could differ from the assumptions used to make these estimates. Life insurance reserves on substantially all policies issued since 1978 are based on the Commissioner's Reserve Valuation Method ("CRVM") with interest rates ranging from 3-1/2% to 5-1/2% and the 1958 or 1980 CSO mortality tables. Other life policy reserves are primarily based on the net level premium method, using various mortality tables at interest rates ranging from 2% to 4-1/2%. As of December 31, 2002, the Company has $750 billion of total life insurance in-force, including $8 billion of life insurance in-force for which gross premiums are less than net premiums according to the standard valuation methods and assumptions prescribed by the OCI. As of January 1, 2001, the Company changed the valuation basis for reserves on certain term life insurance policies. The impact of this change increased policy benefit reserves by $61 million, and was reported as a direct reduction of surplus for the year ended December 31, 2001. Tabular cost has been determined from the basic data for the calculation of policy reserves. Tabular cost less actual reserves released has been determined from the basic data for the calculation of reserves and reserves released. Tabular interest has been determined from the basic data for the calculation of policy reserves. Tabular interest on funds not involving life contingencies is calculated as the product of the valuation rate of interest times the mean of the amount of funds subject to such rate held at the beginning and end of the year of valuation. Additional premiums are charged for substandard lives for policies issued after January 1, 1956. Net level premium or CRVM mean reserves are based on multiple mortality tables or one-half the net flat or other extra mortality charge. The Company waives deduction of fractional premiums upon death of an insured and returns any portion of the final premium beyond the date of death. Surrender values are not promised in excess of the legally computed reserves. Deferred annuity reserves on contracts issued since 1985 are primarily based on 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 value of expected benefit payments at interest rates ranging from 3-1/2% to 7-1/2%. Beginning January 1, 2001 changes in future policy benefits on supplementary contracts without life contingencies are classified as deposit-type transactions and thereby excluded from net additions to policy benefit reserves in the consolidated statement of operations. Prior to 2001, these reserve changes were reported as a component of operations. 82 NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED) At December 31, 2002 and 2001, the withdrawal characteristics of the Company's annuity reserves and deposit liabilities were as follows:
December 31, 2002 December 31, 2001 ----------------------- ----------------------- Amount Percent Amount Percent ---------- ---------- ---------- ---------- (in millions) Subject to discretionary withdrawal - with market value adjustment $ 7,539 58.5% $ 8,936 63.5% Subject to discretionary withdrawal - without market value adjustment 2,620 20.3% 2,260 16.1% Not subject to discretionary withdrawal 2,738 21.2% 2,869 20.4% ---------- ---------- ---------- ---------- $ 12,897 100.0% $ 14,065 100.0% ========== ==========
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, with interest rates ranging from 3% to 4% and the 1964 Commissioner's Disability Table for morbidity. Disabled life reserves for DI policies are based on the present value of expected benefit payments, primarily using the 1985 CIDA (modified for Company experience in the first four years of disability) and interest rates ranging from 3% to 5-1/2%. Active life reserves for long-term care policies consist of mid-terminal reserves and unearned premium. Mid-terminal reserves are based on the one-year preliminary term method, industry-based experience morbidity, total terminations based on the 1983 Individual Annuity Mortality table with no lapse, and an interest rate of either 4% or the minimum rate allowable for tax purposes. When the tax interest rate is used, reserves are compared in the aggregate to the statutory minimum and the greater of the two is held. Disabled life reserves for long-term care policies are based on the present values of expected benefit payments using industry-based long-term care experience with a 4.5% interest rate. 6. PREMIUM AND ANNUITY CONSIDERATIONS DEFERRED AND UNCOLLECTED Gross deferred and uncollected insurance premiums represent life insurance premiums due to be received from policyowners through the next respective policy anniversary dates. Net deferred and uncollected premiums represent only the portion of gross premiums related to mortality charges and interest. 83 NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED) Deferred and uncollected premiums at December 31, 2002 and 2001 were as follows:
December 31, 2002 December 31, 2001 ---------------------- ---------------------- Type of Business Gross Net Gross Net - ---------------- ---------- ---------- ---------- ---------- (in millions) Ordinary new business $ 149 $ 69 $ 145 $ 77 Ordinary renewal 1,409 1,145 1,351 1,103 ---------- ---------- ---------- ---------- $ 1,558 $ 1,214 $ 1,496 $ 1,180 ========== ========== ========== ==========
7. SEPARATE ACCOUNTS Separate account assets and related policy liabilities represent the segregation of funds deposited by variable life insurance and variable 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 mutual fund options. Variable annuity policyowners also have the option to invest in a fixed interest rate annuity issued by the general account of the Company. Separate account assets are reported at fair value based primarily on quoted market prices. Following is a summary of separate account liabilities by withdrawal characteristic at December 31, 2002 and 2001:
December 31, ---------------------- 2002 2001 ---------- ---------- (in millions) At market value $ 8,442 $ 9,780 Not subject to discretionary withdrawal 1,550 1,762 Non-policy liabilities 254 244 ---------- ---------- Total $ 10,246 $ 11,786 ========== ==========
While separate account liability values are not guaranteed by the Company, the variable annuity and variable life insurance products represented in the separate accounts do include guaranteed minimum death benefits underwritten by the Company. At December 31, 2002 and 2001, general account reserves for policy benefits included $11 million and $6 million, respectively, in reserves for these benefits. Separate account premiums and other considerations received during the years ended December 31, 2002 and 2001 were $1,341 million and $1,419 million, respectively. Following is a summary reconciliation of amounts reported as transfers to and from separate accounts in the summary of operations of the Company's NAIC Separate Account Annual Statement and the amount reported as net transfers to separate accounts in the accompanying consolidated statement of operations for the years ended December 31, 2002 and 2001: 84 NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)
For the year ended December 31, ------------------------------- 2002 2001 ------------ ------------ (in millions) From Separate Account Annual Statement: Transfers to Separate Accounts $ 1,341 $ 1,419 Transfers from Separate Accounts (1,300) (1,128) ------------ ------------ 41 291 Reconciling adjustments: Investment management and administrative charges 65 72 Mortality, breakage and taxes 136 139 ------------ ------------ Net transfers to separate accounts $ 242 $ 502 ============ ============
8. EMPLOYEE AND REPRESENTATIVE BENEFIT PLANS The Company sponsors noncontributory defined benefit retirement plans for all eligible employees and field representatives. These include tax-qualified plans, as well as nonqualified plans that provide benefits to certain participants in excess of ERISA limits for qualified plans. The Company's policy is to fully fund the obligations of qualified plans in accordance with ERISA requirements. Beginning January 1, 2001 the costs associated with these retirement benefits are expensed over the annual periods during which the participant provides services to the Company, including recognition of pension assets and liabilities based on the funded status of the related plans. Prior to 2001, the Company recognized pension expense only in the periods in which contributions were made to plan assets. In addition to pension benefits, the Company provides certain health care and life insurance benefits ("postretirement benefits") to retired employees, field representatives and eligible dependents. Substantially all employees and field representatives will become eligible for these benefits if they reach retirement age while working for the Company. 85 NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED) Aggregated assets and projected benefit obligations of the defined benefit plans and for postretirement benefits at December 31, 2002 and 2001, and changes in assets and obligations for the years then ended, were as follows:
Defined Benefit Plans Postretirement Benefits --------------------------- --------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ (in millions) Fair value of plan assets at January 1 $ 1,612 $ 1,694 $ 20 $ 23 Changes in plan assets: Actual return on plan assets (161) (54) (2) (2) Actual plan benefits paid (31) (28) (1) (1) ------------ ------------ ------------ ------------ Fair value of plan assets at December 31 $ 1,420 $ 1,612 $ 17 $ 20 ============ ============ ============ ============ Projected benefit obligation at January 1 $ 1,367 $ 1,261 $ 96 $ 89 Changes in benefit obligation: Service cost of benefits earned 54 50 11 7 Interest cost on projected obligations 95 86 8 6 Projected plan benefits paid (34) (30) (8) (6) Experience (gains) losses 17 -- 24 -- ------------ ------------ ------------ ------------ Projected benefit obligation at December 31 $ 1,499 $ 1,367 $ 131 $ 96 ============ ============ ============ ============
Plan assets are invested primarily in common stocks and corporate debt securities through a separate account of the Company. Fair value of plan assets is based primarily on quoted market values. The projected benefit obligation represents the actuarial net present value of future benefit obligations, which is calculated annually by the Company. The following table summarizes assumptions used in estimating the projected benefit obligation at December 31, 2002 and 2001:
Defined Benefit Plans Postretirement Benefits --------------------------- --------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Discount rate 7.0% 7.0% 7.0% 7.0% Long-term rate of return on plan assets 8.5% 9.0% 8.5% 9.0% Annual increase in compensation 5.0% 5.0% 5.0% 5.0%
The projected benefit obligations at December 31, 2002 and 2001 also assumed an annual increase in future retiree medical costs of 10%, grading down to 5% over 5 years and remaining level thereafter. A further increase in the assumed healthcare cost trend of 1% in each year would increase the accumulated postretirement benefit obligation as of December 31, 2002 by $13 million and net periodic postretirement benefit expense during 2002 by $2 million. A decrease in the assumed healthcare cost trend of 1% in each year would decrease the accumulated postretirement benefit obligation as of December 31, 2002 by $13 million and net periodic postretirement benefit expense during 2002 by $2 million. Projected benefit obligations included $12 million and $11 million for non-vested employees at December 31, 2002 and 2001, respectively. 86 NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED) An aggregated reconciliation of the funded status of the plans to the net liability recorded by the Company at December 31, 2002 and 2001, as well as the components of net periodic benefit costs for the years then ended, were as follows:
Defined Benefit Plans Postretirement Benefits --------------------------- --------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ (in millions) Fair value of plan assets at December 31 $ 1,420 $ 1,612 $ 17 $ 20 Projected benefit obligation at December 31 1,499 1,367 131 96 ------------ ------------ ------------ ------------ Funded status (79) 245 (114) (76) Unrecognized net experience losses 516 207 29 4 Unrecognized initial net asset (644) (657) -- -- Nonadmitted asset (58) (38) -- -- ------------ ------------ ------------ ------------ Net pension liability $ (265) $ (243) $ (85) $ (72) ============ ============ ============ ============ Components of net periodic benefit cost: Service cost of benefits earned $ 54 $ 50 $ 11 $ 7 Interest cost on projected obligations 95 86 9 6 Amortization of experience gains and losses 5 -- 1 -- Amortization of initial net asset (13) -- -- -- Expected return on plan assets (136) (151) (2) (2) ------------ ------------ ------------ ------------ Net periodic expense (benefit) $ 5 $ (15) $ 19 $ 11 ============ ============ ============ ============
Unrecognized net experience gains or losses represent cumulative amounts by which plan experience for return on plan assets or benefit costs has been more or less favorable than assumed. These net differences accumulate without recording in the Company's financial statements unless they exceed ten percent of plan assets or projected benefit obligation, whichever is greater. If they exceed this limit, they are amortized into net periodic benefit costs over the remaining average years of service until retirement of the employee base, which is currently seventeen years. Unrecognized initial net assets represent the amount by which the fair value of plan assets exceeded the projected benefit obligation for funded pension plans upon the adoption of new statutory accounting principles at January 1, 2001. The Company has elected not to record an initial asset for this excess, rather it will establish the asset through amortization of this initial asset as a credit to net periodic benefit cost. Any net pension assets for funded plans are nonadmitted under statutory accounting and are thereby excluded from surplus. The Company also sponsors a contributory 401(k) plan for eligible employees and a noncontributory defined contribution plan for full-time representatives. For the years ended December 31, 2002, 2001 and 2000 the Company expensed total contributions to these plans of $22 million, $20 million and $19 million, respectively. 87 NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED) 9. REINSURANCE In the normal course of business, the Company limits its exposure to life insurance death benefits on any single insured by ceding insurance coverage to reinsurers under excess 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 also has an excess reinsurance contract for certain disability income policies issued prior to 1999 with retention limits varying based upon coverage type. Amounts shown in the consolidated financial statements are reported net of reinsurance. Reserves for policy benefits at December 31, 2002 and 2001 were net of ceded reserves of $877 million and $757 million, respectively. The effect of reinsurance on premium revenue and benefits expense for the years ended December 31, 2002, 2001 and 2000 was as follows:
For the year ended December 31, ------------------------------------------ 2002 2001 2000 ------------ ------------ ------------ (in millions) Direct premium revenue $ 10,706 $ 9,995 $ 9,460 Premiums ceded (598) (548) (494) ------------ ------------ ------------ Net premium revenue $ 10,108 $ 9,447 $ 8,966 ============ ============ ============ Direct benefit expense 10,749 10,109 10,140 Benefits ceded (419) (432) (315) ------------ ------------ ------------ Net benefit expense $ 10,330 $ 9,677 $ 9,825 ============ ============ ============
In addition, the Company received $172 million, $161 million and $146 million for the years ended December 31, 2002, 2001 and 2000, respectively, from reinsurers as allowances for reimbursement of commissions and other expenses on ceded business. 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. The Company attempts to minimize this risk by diversifying its reinsurance coverage among a number of reinsurers that meet its standards for strong financial condition. There were no reinsurance recoverables at December 31, 2002 and 2001, which were considered by management to be uncollectible. 88 NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED) 10. INCOME TAXES The Company files a consolidated federal income tax return including the following entities: Northwestern Mutual Investment Services, LLC Baird Holding Company Northwestern International Holdings, Inc. Frank Russell Company NML Real Estate Holdings, LLC and subsidiaries Bradford, Inc. NML Securities Holdings, LLC and subsidiaries Network Planning Advisors, LLC Northwestern Investment Management Company, LLC Mason Street Advisors, LLC Northwestern Securities Holdings, LLC NML - CBO, LLC Northwestern Mutual Trust Company JYD, LLC
The Company collects from or refunds to these subsidiaries their share of consolidated income taxes determined under written tax-sharing agreements. Federal income tax returns for years through 1999 are closed as to further assessment of tax. The liability for income taxes payable in the financial statements includes a provision for any additional taxes that may become due with respect to the open tax years. Beginning January 1, 2001 the Company accounts for deferred tax assets and liabilities, which reflect the financial statement impact of cumulative temporary differences between the tax and financial statement bases of assets and liabilities. Prior to 2001, no deferred tax balances were reported. The components of the net admitted deferred tax asset at December 31, 2002 and 2001 were as follows:
December 31, ---------------------- 2002 2001 Change ---------- ---------- ---------- (in millions) Deferred tax assets: Policy acquisition costs $ 673 $ 626 $ 47 Investment asset 664 360 304 Policy benefit liabilities 1,769 1,728 41 Benefit plan obligations 223 202 21 Guaranty fund assessment 14 14 -- Nonadmitted assets 67 54 13 Other 61 69 (8) ---------- ---------- ---------- Gross deferred tax assets $ 3,471 $ 3,053 $ 418 Deferred tax liabilities: Premium and other receivables $ 425 $ 416 $ 9 Investment asset 1,156 1,034 122 Other 3 1 2 ---------- ---------- ---------- Gross deferred tax liabilities $ 1,584 $ 1,451 $ 133 ---------- ---------- ---------- Net admitted deferred tax asset $ 1,887 $ 1,602 $ 285 ========== ========== ==========
89 NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED) Statutory accounting principles limit the amount of gross deferred tax assets that can be included in Company surplus. This limit is based on a formula that takes into consideration available loss carryback capacity, expected timing of reversal for existing temporary differences, gross deferred tax liabilities and the level of Company surplus. At December 31, 2002 and 2001, the Company's gross deferred tax assets did not exceeded this limitation. Changes in deferred tax assets and liabilities related to unrealized gains and losses on investments are reported as a component of changes in unrealized capital gains and losses in the consolidated statement of changes in surplus. Other net changes in deferred tax assets and liabilities are direct adjustments to surplus and separately reported in the consolidated statement of changes in surplus. The major components of current income tax expense (benefit) were as follows:
December 31, --------------------------- 2002 2001 ------------ ------------ (in millions) Current year income tax $ 26 $ 170 Tax credits (15) (11) Equity tax (credit) (453) 14 ------------ ------------ Total current tax expense (benefit) $ (442) $ 173 ============ ============
The Company's taxable income can vary significantly from gain from operations before taxes due to differences in revenue recognition and expense deduction between book and tax. The Company is subject to an "equity tax" that is assessed only on mutual life insurance companies. At December 31, 2001, the liability for income taxes payable included $453 million related to the Company's estimated liability for equity tax, primarily with respect to the 2001 tax year. In March 2002, Congress passed legislation that suspended assessments of equity tax for tax years 2001 through 2003. As a result, this liability was released as a credit to current tax expense during 2002. The Company's effective tax rates were 299% and 21% for the years ended December 31, 2002 and 2001. The effective rate is not the statutory rate applied to the Company's taxable income or loss by the Internal Revenue Service. It is a financial statement relationship that represents the relationship between the sum of total taxes, including those that affect net income and changes in deferred taxes not related to unrealized gains and losses on investments, to the sum of gain from operations before taxes and pretax net realized gains or losses. These financial statement effective rates were different than the applicable federal tax rate of 35% due primarily to differences between book and tax recognition of net investment income and realized capital gains and losses, prior year adjustments and the impact the of equity tax in 2002. The effective tax rate for the year ended December 31, 2000 was 16%, based only on tax expense attributed to net gain from operations and its relationship to gain from operations before taxes. The effective rate was less than the applicable federal rate of 35% due primarily to differences between book and tax recognition of investment income and realized capital gains and losses and prior year adjustments. 90 NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED) Income taxes incurred in the current and prior years of $1.7 billion are available at December 31, 2002 for recoupment in the event of future net losses. 11. FRANK RUSSELL COMPANY ACQUISITION AND GOODWILL The Company acquired Frank Russell Company ("Russell") effective January 1, 1999 for a purchase price of approximately $955 million plus contingent consideration. Russell, a global leader in multi-manger investment services, provides investment products and services in more than 35 countries. This investment is accounted for using the equity method, adjusted for the charge-off of acquisition goodwill, and is included in common stocks in the consolidated statement of financial position. Since the date of acquisition, the Company charged-off directly from surplus approximately $882 million, representing the goodwill associated with the acquisition. The Company has received permission from the OCI for this statutory accounting treatment, which is different than the NAIC "Accounting Practices and Procedures Manual". The Company has unconditionally guaranteed certain debt obligations of Russell, including $350 million of senior notes and up to $150 million of other credit facilities. 12. CONTINGENCIES The Company has also guaranteed certain obligations of other affiliates. These guarantees totaled approximately $112 million at December 31, 2002 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 $2.2 billion at December 31, 2002 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, losses that may result from such actions would not have a material effect on the Company's financial position at December 31, 2002. 13. RELATED PARTY TRANSACTIONS During 2001 and 2000, the Company transferred appreciated equity investments to wholly-owned subsidiaries as a capital contribution to the subsidiaries. Realized capital gains of $244 million and $220 million for 2001 and 2000, respectively, were reported based on the fair value of the assets at transfer. 91 NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED) 14. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of investment assets, including derivatives, and certain policy liabilities at December 31, 2002 and 2001 were as follows:
December 31, 2002 December 31, 2001 -------------------------- -------------------------- Statement Fair Statement Fair Value Value Value Value ------------ ------------ ------------ ------------ (in millions) Assets: Bonds $ 50,597 $ 53,311 $ 44,306 $ 45,200 Common and preferred stocks 4,902 6,373 5,369 7,072 Mortgage loans 15,692 17,485 15,164 15,875 Real estate 1,503 2,181 1,671 2,406 Policy loans 9,292 9,628 9,028 9,375 Other investments 4,242 4,802 4,817 5,244 Cash and short-term investments 1,814 1,814 2,018 2,018 Liabilities: Investment-type insurance reserves $ 3,737 $ 3,562 $ 3,417 $ 3,191
Fair value of bonds, common and preferred stocks and derivative financial instruments are based upon quoted market prices, when available. For those not actively traded, fair values are estimated using independent pricing services or internally developed pricing models. The fair value of mortgage loans is estimated by discounting estimated future cash flows using market interest rates for debt with comparable credit risk and maturities. Real estate fair value is determined by discounting estimated future cash flows using market interest rates. Policy loan fair value is estimated based on discounted projected cash flows using market interest rates and assumptions regarding future loan repayments based on Company experience. Other investments primarily represent joint ventures and partnerships, for which the equity method approximates fair value. The fair value of investment-type insurance reserves is estimated by discounting estimated future cash flows at market interest rates for similar instruments with comparable maturities. 92 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/ EDWARD J. ZORE ------------------------------------- Edward J. Zore President and Chief Executive Officer Date: March 25, 2003 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/ EDWARD J. ZORE Trustee, President and - ------------------------------ Chief Executive Officer Edward J. Zore /s/ GARY A. POLINER Senior Vice President and - ------------------------------ Chief Financial Officer Gary A. Poliner /s/ STEVEN T. CATLETT Vice President and - ------------------------------ Controller Steven T. Catlett /s/ EDWARD E. BARR* Trustee - ------------------------------ Edward E. Barr /s/ JOHN M. BREMER* Trustee - ------------------------------ John M. Bremer /s/ PETER W. BRUCE* Trustee - ------------------------------ Peter W. Bruce /s/ ROBERT C. BUCHANAN* Trustee - ------------------------------ Robert C. Buchanan /s/ GEORGE A. DICKERMAN* Trustee - ------------------------------ George A. Dickerman /s/ PIERRE S. DU PONT* Trustee - ------------------------------ Pierre S. du Pont /s/ JAMES D. ERICSON* Trustee - ------------------------------ James D. Ericson /s/ Trustee - ------------------------------ David A. Erne /s/ J. E. GALLEGOS* Trustee - ------------------------------ J. E. Gallegos
93
TITLE ----- /s/ STEPHEN N. GRAFF* Trustee - ----------------------------------- Stephen N. Graff /s/ PATRICIA ALBJERG GRAHAM* Trustee - ----------------------------------- Patricia Albjerg Graham /s/ JAMES P. HACKETT* Trustee - ----------------------------------- James P. Hackett /s/ STEPHEN F. KELLER* Trustee - ----------------------------------- Stephen F. Keller /s/ BARBARA A. KING* Trustee - ----------------------------------- Barbara A. King /s/ J. THOMAS LEWIS* Trustee - ----------------------------------- J. Thomas Lewis /s/ DANIEL F. MCKEITHAM, JR.* Trustee - ----------------------------------- Daniel F. McKeithan, Jr. /s/ H. MASON SIZEMORE, JR.* Trustee - ----------------------------------- H. Mason Sizemore, Jr. /s/ HAROLD B. SMITH* Trustee - ----------------------------------- Harold B. Smith /s/ SHERWOOD H. SMITH, JR. * Trustee - ----------------------------------- Sherwood H. Smith, Jr. /s/ PETER M. SOMMERHAUSER* Trustee - ----------------------------------- Peter M. Sommerhauser /s/ JOHN E. STEURI* Trustee - ----------------------------------- John E. Steuri /s/ JOHN J. STOLLENWERK* Trustee - ----------------------------------- John J. Stollenwerk /s/ BARRY L. WILLIAMS* Trustee - ----------------------------------- Barry L. Williams /s/ KATHRYN D. WRISTON* Trustee - ----------------------------------- Kathryn D. Wriston
Each of the above signatures is affixed as of March 25, 2003 *By /s/ EDWARD J. ZORE ----------------------------------------- Edward J. Zore, Attorney in Fact, pursuant to the Power of Attorney attached as exhibit 24.1 hereto. 94 CERTIFICATIONS I, Edward J. Zore, certify that: 1. I have reviewed this annual report on Form 10-K of The Northwestern Mutual Life Insurance Company in respect of NML Variable Annuity Account A and NML Variable Annuity Account C; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. By /s/ EDWARD J. ZORE -------------------------------------- Edward J. Zore President and Chief Executive Officer Date: March 25, 2003 95 I, Gary A. Poliner, certify that: 1. I have reviewed this annual report on Form 10-K of The Northwestern Mutual Life Insurance Company in respect of NML Variable Annuity Account A and NML Variable Annuity Account C; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. By /s/ GARY A. POLINER -------------------------------------- Gary A. Poliner Senior Vice President and Chief Financial Officer Date: March 25, 2003 96 SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED PURSUANT TO SECTION 12 OF THE ACT As supplemental information, the Commission is separately being furnished with four copies of each of the following documents: (1) 2002 Annual Report for NML Variable Annuity Account A; and (2) 2002 Annual Report for NML Variable Annuity Account C. No proxy material is prepared specifically for contract holders under NML Variable Annuity Account A or NML Variable Annuity Account C. The Northwestern Mutual Life Insurance Company, a mutual company with no shareholders, does prepare a proxy statement and proxy for each policyholder of a company-issued insurance policy or annuity contract. 97 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 By-Laws of The Northwestern Mutual Life Insurance 100 Company as amended December 4, 2002. 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 Post-Effective Amendment No. 4 on Form N-4 for NML Variable Annuity Account A, File No. 333-72913, CIK 0000790162, dated May 31, 2001, 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 Post-Effective Amendment No. 4 on Form N-4 for NML Variable Annuity Account A, File No. 333-72913, CIK 0000790162, dated May 31, 2001, 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).
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EXHIBIT DESCRIPTION PAGE - ------- ----------- ---- 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 Amended 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 Participation Agreement among Variable Insurance Products Funds, Fidelity Distributors Corporation and The Northwestern Mutual Life Insurance Company. (This exhibit was filed in electronic format with the Registration Statement on Form N-6 for Northwestern Mutual Variable Life Account, File No. 33-89188, CIK 0000742277, dated February 28, 2003, and is incorporated herein by reference.) 10.9 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.) 10.10 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.) 10.11 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. 22 on Form N-4 for NML Variable Annuity Account C, File No. 2-89905-01, CIK 0000790163, dated May 31, 2001, and is incorporated herein by reference.) 10.12 Amended Application Form for Group Combination Annuity Contract, included in Exhibit 10.10 above. 21.1 Subsidiaries of the Registrant 117 24.1 Power of Attorney 119 99.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 121
99 EX-3.2 3 c75562exv3w2.txt AMENDED BY-LAWS EXHIBIT 3.2 BY-LAWS OF THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY MILWAUKEE, WISCONSIN As amended DECEMBER 4, 2002 100 BY-LAWS OF THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY AS AMENDED DECEMBER 4, 2002 ARTICLE I MEETINGS OF MEMBERS; VOTING BY MEMBERS; NOMINATIONS OF BOARD CANDIDATES Section 1.1 ANNUAL MEETINGS. An annual meeting of the members of the Company shall be held at such time during normal business hours as may be fixed by the board of trustees (the "board") or executive committee for the purpose of electing trustees and for the transaction of such other business as may come before the meeting. The board or executive committee may postpone the date of the annual meeting for not more than 60 days, but such postponement shall not change the record date for such annual meeting. Section 1.2 SPECIAL MEETINGS. A special meeting of members may be called by the president, the board, the executive committee or members having 5% of the votes entitled to be cast at such meeting. Section 1.3 PLACE OF MEETINGS. The board may designate any place, either within or without the State of Wisconsin, as the place of any annual meeting or of any special meeting called by the board. If no designation is made or if a special meeting is otherwise called, the place of meeting shall be the principal office of the Company. Section 1.4 NOTICE OF MEETINGS. Notice of the time and place of an annual or special meeting shall be published once in each of 2 weeks, the first publication to be not more than 120 and the second publication to be not less than 10 days prior to the date of the meeting, in at least 2 newspapers of general circulation, one published in the City of Madison, Wisconsin, and one published in the City of Milwaukee, Wisconsin, and in such other newspapers, if any, as the board or executive committee may determine. Written notice of the time and place of an annual or special meeting shall also be given by mailing a copy thereof, not more than 120 nor less than 10 days prior to the date of the meeting, to the policyholders constituting substantially all of the members entitled to vote at the meeting. In the case of a special meeting or when required by law, the published and mailed notice of meeting shall include a statement of the purpose or purposes for which the meeting is to be held. In case the date of the annual meeting is postponed after published and mailed notices have begun, a published notice of the postponement shall be made as in the case of the initial published notice but no mailed notice of the postponement need be given. Section 1.5 QUORUM. Members having at least 5% of the votes entitled to be cast at any meeting, present in person or by proxy at such meeting, shall constitute a quorum at such 101 meeting. If a quorum is not present at any meeting, a majority of the members present may adjourn the meeting from time to time without further notice. Section 1.6 VOTING. (a) PROCEDURES. All voting by members at annual and special meetings shall be in person or by proxy executed in writing by the member or his duly authorized attorney-in-fact and delivered to the secretary of the Company on or before a day specified in the notice of meeting which shall be at least 5 days prior to the date of the meeting. A majority of the votes entitled to be cast by the members present in person or by proxy at a meeting at which a quorum is present shall be sufficient for the election of any trustee or for the adoption of any other matter voted on at such meeting unless a greater portion is required by law. Unless sooner revoked, proxies shall be valid for 11 months from the date of execution and for such additional period, if any, as may be provided therein. (b) FURNISHING PROXIES AND OTHER MATERIAL. The Company may include the notice of meeting pursuant to Section 1.4 with or as a part of its annual report for the preceding year or may send such notice separately. The Company may provide proxies to any or all of the members together with such information as the Company deems pertinent with respect to the candidates or matters being voted upon at the meeting. (c) EFFECT OF FURNISHING PROXIES. The fact that the Company, by mail or otherwise, furnishes a proxy to any person shall not constitute nor be construed as an admission of the validity of any policy or contract or that such person is a member entitled to vote at the meeting; and such fact shall not be competent evidence in any action or proceeding in which the validity of any policy or contract or any claim under it is at issue. (d) VOTING INSPECTORS. Prior to each meeting of members the board shall appoint, from among members who are not trustees, candidates for trustee, officers, employees or agents of the Company, 1 or more voting inspectors and shall fix their fees. If an inspector so appointed is unable or unwilling to act the chief executive officer may appoint a substitute from among members eligible as aforesaid. The Company shall provide such clerical and mechanical assistance to the inspectors as they may reasonably require and shall pay the fees and reasonable expenses of the inspectors. (e) TABULATION OF VOTING. All voting at a meeting of members, including voting by holders of proxies, shall be by written ballot. The votes shall be tabulated by the voting inspectors and shall be subject to such verification and ascertainment of the validity thereof and of the qualification of the voters as the inspectors deem appropriate. The inspectors may employ such mechanical equipment as they deem advisable to assist in the tabulation. In the absence of challenge the inspectors may assume that the signature appearing on a proxy or ballot is the valid signature of a member entitled to vote, that any person signing in a representative capacity is duly authorized so to do, and that the proxy, if not older than 102 permitted thereby, is valid. After the tabulation has been completed, all proxies and ballots shall be placed in sealed packages and preserved by the secretary of the Company for at least 4 months from the date of the meeting. (f) CERTIFICATE OF ELECTION. Promptly after each meeting of members the inspectors shall sign and file with the secretary of the Company and the Wisconsin Commissioner of Insurance a certificate of the results of the voting at such meeting. Section 1.7 VOTING RIGHTS. (a) RECORD DATE. Only those persons who are members of the Company at the close of business on the record date for a meeting of members shall be entitled to vote at such meeting. The record date for an annual or special meeting shall be such business day not more than 120 days prior to the date of the meeting as may be established by the board or executive committee. (b) NUMBER OF VOTES. Each member shall be entitled to one vote on each matter presented at a meeting for a vote by members, regardless of the number or amount of, or the number of lives insured by, policies or contracts owned by such member. (c) ELIGIBILITY. All questions concerning the eligibility of members to vote and the validity of the votes cast at any meeting shall be determined by the voting inspectors on the basis of the records of the Company. If a question concerning eligibility to vote arises as between a person identified as the owner of the policy or contract on the records of the Company and a person otherwise claiming to control such policy or contract, the person shown on the records of the Company as the owner at the close of business on the record date for the meeting shall be deemed to be the member entitled to vote at such meeting. Section 1.8 NOMINATIONS OF CANDIDATES FOR THE BOARD. (a) FILING OF BOARD'S PROPOSED NOMINEES. Before each annual meeting of members, the board shall propose for nomination at such meeting a member as candidate for every vacancy on the board to be filled at the ensuing annual meeting as provided in Section 2.2 and shall cause to be filed with the records of the Company and the Wisconsin Commissioner of Insurance a certificate of such proposed nomination signed by the secretary of the Company, giving the names, occupations and addresses of such proposed nominees and the terms for which they are to be nominated and stating that such proposed nominees meet the eligibility requirements then pertaining to trustees prescribed by Section 2.3(a) and will accept office if elected. (b) SUBSTITUTION. In the event any candidate proposed by the board for nomination pursuant to Section (a) above withdraws as a candidate prior to the annual meeting, the board may propose a member for nomination in substitution for the withdrawing candidate and shall make such filings 103 as are required pursuant to Section (a) above promptly after such substitution. (c) NOMINATION AT MEETING. Subject to Section 2.3(a), nominations of members as candidates for any vacancy on the board to be filled at an annual meeting of members, including nomination of the board's proposed nominees, shall be made at the meeting; and such nomination may be made by any member who is present in person or by proxy and is entitled to vote at such meeting. Section 1.9 INSPECTION OF RECORDS. The Company shall keep on file after the record date for each meeting and until the tabulation of voting at such meeting has been completed, a record for voting purposes of the names and addresses of the persons shown as the premium payers as of the close of business on such record date with respect to the policies and contracts of the members. Subject to provisions of the Wisconsin Statutes and with due regard to the Company's status as an insurance company and financial institution, a member, or his agent or attorney, may inspect such record at any reasonable time for the purpose of communicating with other members in regard to nomination or election of candidates for the board or any other matter being submitted for vote at a meeting of the members. No person may, directly or indirectly, use any information obtained from any such inspection for any other purpose, and the Company may impose reasonable rules to insure that such information is not used for any other purpose. ARTICLE II BOARD OF TRUSTEES AND COMMITTEES Section 2.1 GENERAL POWERS. The business and affairs of the Company shall be managed by the board. Section 2.2 COMPOSITION. (a) NUMBER AND TENURE. The number of trustees of the Company shall be not more than 30 or if permitted by law such other number, not less than 9, as the board may establish from time to time. The regular term of office of a trustee shall commence immediately after the annual meeting of members at which such trustee is elected and end on the date of the fourth succeeding annual meeting of members. The vacancies on the board to be filled at each annual meeting of members shall be the offices of those trustees whose regular terms are scheduled to expire on the date of such meeting and the offices of any other trustees that become vacant during the 12 months ending on the January 1 preceding such meeting. All elections shall be for the regular term except those to fill the offices of trustees that become vacant during the 12 months ending on the January 1 preceding such meeting which shall be for the unexpired regular term of such vacant offices. Except as provided in paragraph (c), each trustee elected at an annual meeting shall hold office for the term for which elected and until his successor has been elected or appointed and qualified. 104 (b) CLASSIFICATION. Trustees shall be divided into 4 classes, which may but need not be equal, according to the expiration date of the regular terms of offices. The regular term of office of one of the classes of trustees shall expire on the date of each annual meeting of members. On July 26, 1972, the 4 classes of trustees shall be those whose regular terms are scheduled to expire on the date of the annual meeting of members in 1973, 1974, 1975 and 1976, respectively. (c) RETIREMENT. The board may by resolution provide for mandatory retirement of trustees and members of the committees of the board. A trustee or member of a committee of the board shall be retired on the date provided in the resolution even though elected for a term extending beyond such date. (d) LIMITS ON TENURE. The board may by resolution provide for limitations on the tenure in office of trustees. Section 2.3 QUALIFICATIONS. (a) CITIZENSHIP, AGE, OTHER OFFICES. Only those members of the Company shall be eligible to be nominated or elected or to serve as a trustee who are citizens of the United States of America, are not less than 25 years of age nor more than the retirement age, if any, as then established by resolution of the board pursuant to Section 2.2(c), are not ineligible under paragraph (b) and have no relationship which would create a conflict of interest or impair independence of judgment in regard to the affairs of the Company in violation of the rules then prescribed by the board or executive committee. Except for the chairman of the board, the president and 2 other executive officers, no trustee shall be an executive officer, officer, other employee or agent of the Company. (b) NON-ATTENDANCE. The failure of a trustee to attend at least 1 meeting of the board within a period of 9 consecutive calendar months shall thereupon result in an automatic forfeiture of his office, unless such forfeiture is avoided as provided below; and such trustee shall not be eligible to be nominated or elected or to serve as a trustee until at least 6 months have elapsed following such forfeiture. Any such forfeiture shall result in a vacancy to be filled as in the case of other vacancies on the board. A trustee may avoid such forfeiture if during said 9 month period he attends a meeting of the executive committee even though not a member of that committee, but no trustee may so avoid forfeiture more than once during the term he is then serving without the express approval of the executive committee. Section 2.4 COMMITTEES OF THE BOARD. The standing committees of the board shall be an executive committee and a finance committee and such other standing committees as the board may establish and designate as such. The board may from time to time establish such other committees as it deems advisable; and the members of such other committees shall be appointed by or in the manner provided by the board. Any trustee may attend and participate in any meeting of a standing committee of the board, except that no trustee who is not a 105 member of or an alternate on a standing committee may vote upon any matter before such committee. Section 2.5 EXECUTIVE COMMITTEE. (a) COMPOSITION AND POWERS. The executive committee shall consist of such number of trustees as the board may determine, to be elected annually by the board, plus the chairman of the board, if any, and the president, if a trustee. When the board is not in session, the executive committee shall have and may exercise all of the powers of the board except (i) the powers granted to the finance committee by Section 2.6, (ii) the power to adopt, amend or repeal by-laws, (iii) the power to elect a chairman of the board, president or other executive officer, and (iv) the power to fill vacancies in the board or any of its standing committees or, except as provided in Section 4.4, in the office of chairman of the board, president or other executive officer. (b) RECORDS. The executive committee shall keep a record of its transactions which record shall be made available to each member of the board, and so much thereof shall be read at the next regular meeting of the board as it may order. Section 2.6 FINANCE COMMITTEE. (a) COMPOSITION AND POWERS. The finance committee shall consist of such number of trustees as the board may determine, to be elected annually by the board, plus the chairman of the board, if any, and the president, if a trustee. When the board is not in session, the finance committee shall have and may exercise all of the powers of the board in regard to the assets and investments of the Company (except assets used in the operation of the Company's principal office and agencies) including, without limitation, the power directly or by delegation to do all such acts and things as it may deem necessary and proper to (i) establish the Company's financial and investment policy, (ii) invest, reinvest, manage, select, sell and otherwise dispose of the Company's assets, (iii) designate depositories for the Company's funds and authorize persons to make deposits in and withdrawals from such depositories, (iv) appoint one or more managers of the Company's regional loan and real estate offices, (v) borrow money for the use and benefit of the Company in such amount and on such terms as it shall determine, and (vi) pledge the Company's assets as security for the payment of such loans or other proper purposes. (b) RECORDS. The finance committee shall keep a record of its transactions which record shall be made available to each member of the board and all standing committees of the board and so much thereof shall be read at the next regular meeting of the board as it may order. Section 2.7 VACANCIES. Vacancies in the board or any committee of the board may be filled by the board at any meeting. A person appointed to fill a vacancy in the board shall hold office until the next annual meeting of members and until his successor has been elected or 106 appointed and qualified, except that any person appointed to fill any such vacancy occurring after January 1 of any year but prior to the next following meeting of members shall hold office until the second annual meeting of members following his appointment and until his successor has been elected or appointed and qualified. A person appointed to fill a vacancy on a committee shall hold office until the next annual meeting of the board. Section 2.8 ALTERNATE MEMBERS ON STANDING COMMITTEES OF THE BOARD. (a) ELECTION. The board shall elect annually trustees to serve as alternate members on any standing committee of the board, when so designated by the committee or the chairman of the board or the president to take the place of absent members, or to fill vacancies on such committees until the next meeting of the board. (b) COMPENSATION. An alternate member on any committee shall receive, during his period of service, compensation as fixed by the board. The board may determine by a generally applicable resolution to what extent, if any, the compensation of absent members shall be withheld or reduced during the period of service of alternates. Section 2.9 COMPENSATION OF TRUSTEES. By resolution of the board, each trustee may be paid his reasonable expenses, if any, for attendance at each meeting of the board and its committees and, if not an executive officer, may be paid a stated compensation as trustee and committee member or a fixed sum for attendance at each meeting of the board or its committees or both. Such payment shall not prevent the payment of reasonable compensation to a trustee (other than an executive officer) for the authorized performance of professional, appraisal, or other technical or special service outside the scope of his regular duties as trustee or member of a committee. 107 ARTICLE III MEETINGS OF THE BOARD AND COMMITTEES OF THE BOARD Section 3.1 REGULAR MEETINGS. An annual meeting of the board for the election of standing committees and the officers specified in Section 4.6(a), and the transaction of such other business as may properly come before the meeting, shall be held annually at such time and place, either within or without the State of Wisconsin, as designated by resolution of the board and upon such notice as the board may determine. Additional regular meetings of the board and regular meetings of a committee may be held at such times and places and upon such notice as the board or committee may determine. Section 3.2 SPECIAL MEETINGS. Special meetings of the board or a committee may be called at any time by or at the request of the chairman of the board or the president, and in addition, special meetings of the board may be called at any time by or at the request of the executive committee or 9 or more trustees. Section 3.3 QUORUM. A quorum for the transaction of business at any meeting of the board or any committee shall consist of a majority of the board or of the committee, except that a quorum for a committee composed of an even number of persons shall consist of 50% of the committee. Less than a quorum may adjourn the meeting from time to time until a quorum is present. Section 3.4 MANNER OF ACTING. The act of a majority of the board or a committee present at a meeting at which a quorum is present shall be the act of the board or committee, unless the board or the committee determines a greater number is required. Section 3.5 NOTICE OF SPECIAL MEETINGS. Notice of special meetings of the board or a committee shall be given in writing or by telegram to each trustee or committee member at his last known address as it appears on the Company's records. Such notice shall be given at least 6 days prior to the meeting date except in the case of finance and executive committee meetings for which 2 days prior notice shall suffice. If mailed, such notice shall be deemed to be given when deposited in the United States mail, so addressed, with postage prepaid. If sent by telegram, such notice shall be deemed to be given when the telegram is delivered to the telegraph company. Neither the business to be transacted at, nor the purpose of, any special meeting of the board or a committee need be specified in the notice of such meeting except as provided in Section 11.1(b) in regard to amendment or repeal of the By-laws. Section 3.6 WAIVER OF NOTICE. Any notice of the time or place of any special meeting of the board or a committee may be dispensed with if every member of the board or committee attends such meeting or if at any time every absent member of the board or committee signs a written waiver of notice or waives notice by telegram. Neither the business to be 108 transacted at, nor the purpose of, any meeting of the board or committee need be specified in the waiver of such meeting. Section 3.7 ACTION WITHOUT A MEETING. Any action required or permitted to be taken at a meeting by the board or a committee may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by every member of the board or committee. ARTICLE IV EXECUTIVE AND OTHER OFFICERS Section 4.1 EXECUTIVE OFFICERS. The executive officers of the Company shall consist of a president and such other executive officers with such titles, powers and duties as may be prescribed from time to time by the board. The board may from time to time elect from among its members a chairman of the board, who shall be an executive officer of the Company with such powers and duties as may be prescribed by the board. Any 2 or more offices may be held by the same person except the offices of president and secretary and the offices of president and vice president. The executive officers shall hold office during the pleasure of the board. For the purposes of the Wisconsin Statutes the principal officers shall be the chairman of the board, if any, the president and the other executive officers. There shall be at all times at least 3 principal officers. Section 4.2 POWERS AND DUTIES OF EXECUTIVE OFFICERS. The chairman of the board, if any, shall be chairman of and preside at the meetings of the members and of the board and shall exercise such other powers and perform such other duties as may be required by the board. In the absence of action by the board vesting such powers in the chairman of the board, the president shall be the chief executive officer and have the general direction and management of the Company's affairs, and shall exercise such powers and perform such duties as are incident to his office or as may be required of him by the board or the executive or finance committees. The chief executive officer, if a member of the Board, shall be chairman of and preside at the meetings of the executive and finance committees. In the absence of, or if there is no chairman of the board, the president shall preside at the meetings of the members and, if a member of the board, at meetings of the board. All other executive officers of the Company shall exercise such powers and perform such duties as are usually incident to their office and such other duties, including presiding at meetings of the members in the absence of the chairman of the board and the president, as shall be assigned to or required of them, from time to time, by the board, the executive committee, the finance committee or the president or, if authorized by the board, the chairman of the board. 109 Section 4.3 OTHER OFFICERS. The other officers of the Company shall include a secretary, a treasurer and such assistants to the several executive officers and such other officers as the board or executive committee may from time to time designate as such, all of whom shall hold office during the pleasure of the board or executive committee. Any such officer may be designated an executive officer by the board or executive committee. Each officer of the Company shall perform such duties as may be assigned to or required of him from time to time, by the executive committee, the finance committee, the president, the head of his department or, if authorized by the board, the chairman of the board. Section 4.4 VACANCIES AND ABSENCES. Any vacancy in the office of chairman of the board, president or other executive officers may be filled at any meeting of the board, or until the next meeting of the board, by the executive committee. In the event of the death, prolonged absence or inability or refusal to act of a chairman of the board who has been designated by the board as the chief executive officer, the president shall be the chief executive officer of the Company. In the prolonged absence of the president or in the event of his death, inability or refusal to act, an individual designated by the board or the executive committee shall exercise the powers and perform the duties of the president. Such designation, if made by the executive committee, shall not extend beyond the next meeting of the board. Section 4.5 COMPENSATION. Compensation of executive officers, officers and other employees of the Company shall be fixed by or in the manner provided by the board. Section 4.6 ELECTION AND APPOINTMENT OF OFFICERS. Officers shall be elected or appointed from time to time, but at least annually, as follows: (a) The chairman of the board, if any, the president and other executive officers shall be elected by the board. (b) Other officers shall be appointed by the board or in a manner provided by resolution of the board. ARTICLE V EXAMINING COMMITTEE Section 5.1 SELECTION OF THE EXAMINING COMMITTEE. An examining committee, consisting of not more than 5 or less than 3 individuals who are either members of the Company or whose lives are insured by the Company, who are not trustees, agents, executive officers, officers or other employees of the Company, shall be elected annually by the board, and the board shall designate the chairman of such committee. Not more than 2 members of any examining committee shall have been members of the previous examining committee. A vacancy in the examining committee may be filled at any time by the board or one of its standing committees. 110 Section 5.2 FUNCTIONS OF THE EXAMINING COMMITTEE. The purpose of the examining committee shall be to make an investigation of and to inquire into the general policies, operations and management of the Company. The committee shall have such powers as may be determined from time to time by the board and shall make its reports to the board. ARTICLE VI OFFICIAL BONDS; CHECKS; OTHER INSTRUMENTS Section 6.1 OFFICIAL BONDS. The board, the executive committee or the finance committee may require a bond from any executive officer, officer, other employee or agent of the Company, in such sum and with such sureties as it may deem proper. Section 6.2 CHECKS. Disbursement of the funds of the Company shall be made upon the check of the Company signed by such persons and in such manner as may be determined by the finance committee. Such persons as may be designated by the finance committee shall each have authority to endorse checks and other instruments received by the Company or to execute powers of attorney authorizing other persons to make such endorsements. Section 6.3 INSURANCE POLICIES AND ANNUITY CONTRACTS. Insurance policies and annuity contracts issued by the Company and endorsements thereto shall be executed in the manner provided by the board or executive committee. Section 6.4 DERIVATIVE INVESTMENTS INSTRUMENTS. The chairman of the board, if any, the president and such other persons as the board or finance committee may designate shall each have authority to execute on the behalf of the Company all instruments regarding derivative investments which are executed in the name of the Company. Section 6.5 OTHER INVESTMENT INSTRUMENTS. The chairman of the board, if any, the president, all vice presidents in the investment departments, the vice president and investment counsel, the general counsel and such other persons as the board or the finance committee may designate shall each have authority (a) to execute on the behalf of the Company all instruments regarding investments (other than derivative investments which are to be executed as provided in Section 6.4) which are executed in the name of the Company and (b) to execute powers of attorney delegating authority to other persons to execute investment instruments for the purpose of expediting a specific transaction or to facilitate foreign investing. Section 6.6 OTHER INSTRUMENTS. The chairman of the board, if any, the president, and all vice presidents or other executive officers, and such other persons as the board or the executive committee may designate shall each have authority (a) to execute on behalf of the Company all other instruments (in addition to those described in Sections 6.2 through 6.5) executed 111 in the name of the Company; and (b) to execute powers of attorney delegating authority to other persons to execute on behalf of the Company other instruments executed in the name of the Company for specific purposes. Section 6.7 ATTESTATION. The secretary and assistant secretaries shall each have authority to attest, countersign and acknowledge all instruments described herein requiring attestation, countersignature or acknowledgment. ARTICLE VII INDEMNIFICATION Section 7.1 INDEMNIFICATION OF TRUSTEES, OFFICERS AND EMPLOYEES. (a) SUCCESSFUL DEFENSE. The Company shall indemnify a trustee, officer, employee or member of a committee, to the extent he or she has been successful on the merits or otherwise in the defense of a proceeding, for all reasonable expenses incurred in the proceeding if the trustee, officer, employee or member of a committee was a party because he or she is a trustee, officer, employee or member of a committee of the Company. (b) OTHER CASES. In cases not included under (a) above, the Company shall indemnify a trustee, officer, employee or member of a committee against liability incurred in a proceeding to which the trustee, officer, employee or member of a committee was a party because he or she is a trustee, officer, employee or member of a committee of the Company or was serving at the Company's request as a director, officer, employee, agent, partner, trustee, member of any governing or decision-making committee of another corporation, partnership, joint venture, trust or other enterprise, unless liability was incurred because the trustee, officer, employee or member of a committee breached or failed to perform a duty owed to the Company and the breach or failure to perform constitutes any of the following: (i) a wilful failure to deal fairly with the Company or its members in connection with a matter in which the trustee, officer, employee or member of a committee has a material conflict of interest, (ii) a violation of criminal law, unless the trustee, officer, employee or member of a committee had reasonable cause to believe his or her conduct was lawful or no reasonable cause to believe his or her conduct was unlawful; (iii) a transaction from which the trustee, officer, employee or member of a committee derived an improper personal profit; or (iv) wilful misconduct. The termination of a proceeding by judgment, order, settlement, conviction or upon a plea of no contest or its equivalent, does not, by itself, create a presumption that indemnification is not required pursuant to this section. A trustee, officer, employee or member of a committee who seeks indemnification under this section shall make a written request to the Company. Indemnification under this section is not required if the trustee, officer, employee or member of a committee previously received indemnification or allowance of expenses in connection with the same proceeding. 112 Section 7.2 DETERMINATION OF RIGHT TO INDEMNIFICATION. Any indemnification under Section 7.1, unless ordered by a court, shall be made by the Company only as authorized in the specific case upon a determination that indemnification of the trustee, officer, employee or member of a committee is proper in the circumstances because he or she has met the applicable standard of conduct. Such determination shall be made by one of the following means selected by the person seeking indemnification: (a) By majority vote of a quorum of the Board consisting of trustees not at the time parties to the same or related proceedings. If a quorum of disinterested trustees cannot be obtained, by majority vote of a committee duly appointed by the Board and consisting solely of two or more trustees not at the time parties to the same or related proceedings. Trustees who are parties to the same or related proceedings may participate in the designation of members of the committee. (b) By independent legal counsel selected by a quorum of the Board or its committee in the manner described in (a) or, if unable to obtain such a quorum or committee, by majority vote of the full Board, including trustees who are parties to the same or related proceedings. (c) By a panel of three arbitrators consisting of one arbitrator selected by those trustees entitled under (b) to select independent legal counsel, one arbitrator selected by the person seeking indemnification, and one arbitrator selected by the two arbitrators previously selected. Section 7.3 ALLOWANCE OF EXPENSES AS INCURRED. Upon written request by a trustee, officer, employee or member of a committee who is party to a proceeding, the Company may pay or reimburse his or her reasonable expenses as incurred, if such advance payment is authorized in a manner provided in Section 7.2, and if the person provides the Company with the following: (a) A written affirmation of his or her good faith belief that he or she has not breached or failed to perform his or her duties to the Company; and (b) A written undertaking, executed personally or on his or her behalf, to repay the allowance to the extent that it is ultimately determined under Section 7.2 that indemnification is not required and that indemnification is not ordered by a court. The undertaking under this section shall be an unlimited, general obligation of the person involved, may be secured or unsecured, and may be accepted without reference to his or her ability to repay. Section 7.4 ADDITIONAL RIGHTS TO INDEMNIFICATION AND ALLOWANCE OF EXPENSES. Except as limited by law, the indemnification and allowance of expenses provided by this article do not preclude any additional right to indemnification or allowance of expenses that a trustee, officer, employee, member of a committee, or other person serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise may have under any written agreement between such person and the Company, resolution of the Board, or resolution adopted by the members. 113 Section 7.5 INSURANCE. The Company may purchase and maintain insurance on behalf of any person who is or was a trustee, officer, employee or member of a committee of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, or a partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the Company would have the power to indemnify him against such liability under this article. Section 7.6 GENERAL. For purposes of this article, the definitions contained in Section 181.041 of the Wisconsin Statutes are incorporated herein by this reference except that "trustee" shall be used wherever the term "director" appears in the statute. The term "employee" shall mean a natural person who is or was an employee of the Company or who, while an employee of the Company, is or was serving at the Company's request as a director, officer, partner, trustee, member of any decision-making committee, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, and, unless the context requires otherwise, the estate or personal representative of the employee. "Member of a committee" shall mean a member of the examining committee described in Article V. The provisions of this article shall apply from the date of adoption of this By-Law, regardless of the date of the occurrence for which indemnification is sought. Any right to indemnification under any prior By-Law of the Company is terminated as of the date of adoption of this By-Law. 114 ARTICLE VIII EMERGENCY PROVISIONS Section 8.1 CONTINUITY OF MANAGEMENT. To insure continuity of management in the event of a national emergency caused by military attack or by a nuclear, atomic or other disaster, the following delegation of executive authority and responsibility is provided on a temporary basis pursuant to the Wisconsin Statutes until the executive committee or a board of trustees can act: (a) ACTING PRESIDENT. In the event such emergency results in the disability or absence of the chairman of the board and the president, then an executive officer in the order specified in the latest resolution of the board relating to powers and duties of executive officers shall be and is hereby designated as acting president and chief executive officer, but if no executive officer is then available, the trustee senior in point of service on the board of trustees, who is able and willing to act, shall be and is hereby designated the acting president and chief executive officer. (b) POWERS OF ACTING PRESIDENT. The acting president shall exercise the powers and perform the duties of the president, except as otherwise provided in the By-laws, and shall have authority to relocate the principal office within the United States, to take charge of all Company property and records, including copies of such records as may be deposited outside the principal office, and to sign all instruments relating to the business of the Company, including checks. (c) EXECUTIVE COMMITTEE. The acting president shall immediately call a meeting of the executive committee, and such committee shall have authority to designate substitutes for absent or disabled executive officers to act until the next meeting of the board, and shall have authority to determine a suitable location within the United States for the Company's principal office. (d) COMMITTEE QUORUM. If by reason of such emergency a quorum of either the executive committee or finance committee cannot be obtained, then the acting president shall have authority to designate such number of trustees as may be required for a quorum, to serve as substitutes on such committee. If sufficient substitutes are not available, the acting president may reduce the number constituting a quorum or any committee to not less than 3. (e) BOARD QUORUM. If by reason of such emergency a quorum of the board cannot be obtained, 3 trustees shall constitute a quorum for the transaction of business at all meetings of the board. Any vacancy in the board may be filled by a majority of the remaining trustees, though less than a quorum, or by a sole remaining trustee. If there are no surviving trustees but at least 3 executive officers of the Company survive, then the president if he survives and 2 (or 3 if the president does not survive) other executive officers in the order listed in the latest resolution of the board relating to powers and duties of executive officers shall be the trustees 115 and shall possess all of the powers of the previous board and such powers as are granted herein. By majority vote such emergency board of trustees may elect other trustees. If there are not at least 3 surviving executive officers, the Wisconsin Commissioner of Insurance or duly designated person exercising the powers of the Commissioner of Insurance shall appoint 3 persons as trustees who shall possess all of the powers of the previous board and such powers as are granted herein, and these persons by majority vote may elect other trustees. ARTICLE IX OFFICES Section 9.1 OFFICES. The location of the principal office of the Company shall be determined by the board. The Company may have other offices at such locations as may be necessary or convenient for the conduct of its business. ARTICLE X CORPORATE SEAL Section 10.1 CORPORATE SEAL. The board may prescribe a corporate seal for the Company, which shall contain the name of the Company, the words "Corporate Seal" and such other devices, if any, as the board may determine. ARTICLE XI AMENDMENTS Section 11.1 AMENDMENT OR REPEAL OF THE BY-LAWS. (a) BY MEMBERS. The members may, at any regular or special meeting of the members at which a quorum is present, amend or repeal these By-laws or adopt new By-laws by the affirmative vote of at least two-thirds of the votes entitled to be cast by the members present in person or by proxy at such meeting. (b) BY BOARD. The board may, at any regular or special meeting of the board, amend or repeal these By-laws or adopt new By-laws, except that no by-law adopted by the members shall be subject to amendment or repeal by the board. Written notice setting forth the substance of the proposed action shall be given in the manner provided in Section 3.5 to every member of the board at least 6 days prior to the meeting date. 116 EX-21.1 4 c75562exv21w1.txt SUBSIDIARIES EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT (AS OF DECEMBER 31, 2002) Account A and Account C have no subsidiaries. The following sets forth the name and jurisdiction of incorporation of the subsidiaries of The Northwestern Mutual Life Insurance Company.
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION - ------------------ ----------------------------- Alexandra International Sales, Inc. U.S. Virgin Islands Amber, Inc. Delaware Baird Financial Corporation Wisconsin Baird Holding Company Wisconsin Baraboo, Inc. Delaware Bayridge, Inc. Delaware Bradford, Inc. Delaware Brendan International Sales, Inc. U.S. Virgin Islands Brian International Sales, Inc. U.S. Virgin Islands Burgundy, Inc. Delaware Carlisle Ventures, Inc. Delaware Cass Corporation Delaware Chateau, Inc. Delaware Coral, Inc. Delaware Diversey, Inc. Delaware Elderwood International Sales, Inc. U.S. Virgin Islands Elizabeth International Sales, Inc. U.S. Virgin Islands Elizabeth Lakes Associates Michigan Frank Russell Company Washington Frank Russell Investment Management Company Washington Green Room Properties, LLC Delaware Hazel, Inc. Delaware Higgins, Inc. Delaware Highbrook International Sales, Inc. U.S. Virgin Islands Hobby, Inc. Delaware INV Corp. Delaware Jack International Sales, Inc. U.S. Virgin Islands Justin International FSC, Inc. U.S. Virgin Islands JYD, LLC Delaware KerryAnne International Sales, Inc. U.S. Virgin Islands Klode, Inc. Delaware Kristiana International Sales, Inc. U.S. Virgin Islands Lake Bluff, Inc. Delaware Larkin, Inc. Delaware Logan, Inc. Delaware Lydell, Inc. Delaware Mallon International Sales, Inc. U.S. Virgin Islands Maroon, Inc. Delaware Mason & Marshall, Inc. Delaware Mason Street Advisors, LLC Delaware Mason Street Funds, Inc. Maryland Mitchell, Inc. Delaware NMIS Alabama Agency, LLC Alabama NMIS Massachusetts Insurance Agency, LLC Massachusetts NMIS Georgia Agency, LLC Georgia NML Buffalo Agency, Inc. New York NML-CBO, LLC Delaware NML Development Corporation Delaware
117
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION - ------------------ ----------------------------- NML/Mid-Atlantic, Inc. New Jersey NML Real Estate Holdings, LLC Wisconsin NML Securities Holdings, LLC Wisconsin NML/Tallahassee, Inc. Florida NW Pipeline, Inc. Texas Network Planning Advisors, LLC Wisconsin New Arcade, LLC Wisconsin New Arcade Parking, LLC Wisconsin Nicolet, Inc. Delaware North Van Buren, Inc. Delaware Northwestern Foreign Holdings B.V. Netherlands Northwestern International Holdings, Inc. Delaware Northwestern Investment Management Company, LLC Delaware Northwestern Long Term Care Insurance Company Illinois Northwestern Mutual Investment Services, LLC Wisconsin Northwestern Mutual Las Vegas, Inc. Nevada Northwestern Mutual Life International, Inc. Delaware Northwestern Mutual Series Fund, Inc. Maryland Northwestern Mutual Trust Company Federal Savings Bank (subject to jurisdiction of the Office of Thrift Supervision) Northwestern Real Estate Partnership Holdings, LLC Delaware Northwestern Reinsurance Holdings N.V. Netherlands Northwestern Securities Holdings, LLC Delaware Northwestern Securities Partnership Holdings, LLC Delaware Olive, Inc. Delaware PBClub, Inc. Delaware Painted Rock Development Corporation Arizona Park Forest Northeast, Inc. Delaware Pembrook, Inc. Delaware RE Corporation Delaware Regina International Sales, Inc. U.S. Virgin Islands Robert W. Baird & Co. Incorporated Wisconsin Rocket Sports, Inc. Texas Russet, Inc. Delaware Ryan, Inc. Delaware Saskatoon Centre, Limited Ontario, Canada Sean International Sales, Inc. U.S. Virgin Islands Solar Resources, Inc. Wisconsin St. James Apartments, LLC Delaware Stadium and Arena Management, Inc. Delaware Summerhill Management, LLC Delaware Summerhill Property, LLC Delaware Summit Mall, LLC Delaware The Grand Avenue Corporation Wisconsin Travers International Sales, Inc. U.S. Virgin Islands Tupelo, Inc. Delaware White Oaks, Inc. Delaware
Certain non-insurance subsidiaries are omitted on the basis that, considered in the aggregate, they did not constitute a significant subsidiary as defined by Regulation S-X at December 31, 2002. 118 EX-24.1 5 c75562exv24w1.txt POWER OF ATTORNEY EXHIBIT 24.1 POWER OF ATTORNEY The undersigned Trustees of THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY hereby constitute and appoint Edward J. Zore and John M. Bremer, or either of them, their true and lawful attorneys and agents to sign the names of the undersigned Trustees to (1) the registration statement or statements to be filed under the Securities Act of 1933 and to any instrument or document filed as part thereof or in connection therewith or in any way related thereto, and any and all amendments thereto in connection with variable contracts issued or sold by The Northwestern Mutual Life Insurance Company or any separate account credited therein and (2) the Form 10-K Annual Report or Reports of The Northwestern Mutual Life Insurance Company and/or its separate accounts for its or their fiscal year ended December 31, 2002 to be filed under the Securities Exchange Act of 1934 and to any instrument or document filed as part thereof or in connection therewith or in any way related thereto, and any and all amendments thereto. "Variable contracts" as used herein means any contracts providing for benefits or values which may vary according to the investment experience of any separate account maintained by The Northwestern Mutual Life Insurance Company, including variable annuity contracts and variable life insurance policies. Each of the undersigned hereby ratifies and confirms all that said attorneys and agents shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has subscribed these presents this 24th day of July, 2002. /s/ EDWARD E. BARR Trustee ----------------------------------- Edward E. Barr /s/ JOHN M. BREMER Trustee ----------------------------------- John. M. Bremer /s/ PETER W. BRUCE Trustee ----------------------------------- Peter W. Bruce /s/ ROBERT C. BUCHANAN Trustee ----------------------------------- Robert C. Buchanan /s/ GEORGE A. DICKERMAN Trustee ----------------------------------- George A. Dickerman /s/ PIERRE S. DU PONT Trustee ----------------------------------- Pierre S. du Pont /s/ JAMES D. ERICSON Trustee ----------------------------------- James D. Ericson /s/ J. E. GALLEGOS Trustee ----------------------------------- J. E. Gallegos /s/ STEPHEN N. GRAFF Trustee ----------------------------------- Stephen N. Graff /s/ PATRICIA ALBJERG GRAHAM Trustee ----------------------------------- Patricia Albjerg Graham /s/ JAMES P. HACKETT Trustee ----------------------------------- James P. Hackett /s/ STEPHEN F. KELLER Trustee ----------------------------------- Stephen F. Keller 119 /s/ BARBARA A. KING Trustee ----------------------------------- Barbara A. King /s/ J. THOMAS LEWIS Trustee ----------------------------------- J. Thomas Lewis /s/ DANIEL F. MCKEITHAN, JR. Trustee ----------------------------------- Daniel F. McKeithan, Jr. /s/ H. MASON SIZEMORE, JR. Trustee ----------------------------------- H. Mason Sizemore, Jr. /s/ HAROLD B. SMITH Trustee ----------------------------------- Harold B. Smith /s/ SHERWOOD H. SMITH, JR. Trustee ----------------------------------- Sherwood H. Smith, Jr. /s/ PETER M. SOMMERHAUSER Trustee ----------------------------------- Peter M. Sommerhauser /s/ JOHN E. STEURI Trustee ----------------------------------- John E. Steuri /s/ JOHN J. STOLLENWERK Trustee ----------------------------------- John J. Stollenwerk /s/ BARRY L. WILLIAMS Trustee ----------------------------------- Barry L. Williams /s/ KATHRYN D. WRISTON Trustee ----------------------------------- Kathryn D. Wriston /s/ EDWARD J. ZORE Trustee ----------------------------------- Edward J. Zore 120 EX-99.1 6 c75562exv99w1.txt CERTIFICATION PURSUANT TO SECTION 906 EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of The Northwestern Mutual Life Insurance Company in respect of NML Variable Annuity Account A and NML Variable Annuity Account C (the "Registrant") for the period ended December 31, 2002 (the "Report"), Edward J. Zore, as Chief Executive Officer of the Registrant, and Gary A. Poliner, as Chief Financial Officer of the Registrant, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. /s/ EDWARD J. ZORE Date: March 25, 2003 - -------------------------------------------- Edward J. Zore President and Chief Executive Officer /s/ GARY A. POLINER Date: March 25, 2003 - -------------------------------------------- Gary A. Poliner Senior Vice President and Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to The Northwestern Mutual Life Insurance Company in respect of NML Variable Annuity Account A and NML Variable Annuity Account C (the "Registrant") and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request. 121 -----END PRIVACY-ENHANCED MESSAGE-----