-----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, TfjY108XZsObInjm8oDZvJriJZis7079CwoAYmneheMr8Zdkhhc/+4pezW8Z9oU7 429URF41iASSwhrJQxlJ0A== 0000950124-00-002887.txt : 20000511 0000950124-00-002887.hdr.sgml : 20000511 ACCESSION NUMBER: 0000950124-00-002887 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20000510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT CENTRAL INDEX KEY: 0000742277 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 390509570 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: SEC FILE NUMBER: 033-89188 FILM NUMBER: 623803 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 497 1 PROSPECTUS 1 APRIL 28, 2000 NORTHWESTERN MUTUAL VARIABLE COMPLIFE(R) Variable Whole Life Policy with Additional Protection (PHOTO) CompLife(R) is a registered service mark of Northwestern Mutual Life Insurance Company NORTHWESTERN MUTUAL The Northwestern Mutual Life SERIES FUND, INC. AND Insurance Company RUSSELL INSURANCE FUNDS 720 East Wisconsin Avenue Milwaukee, Wisconsin 53202 (414) 271-1444
PROSPECTUSES NORTHWESTERN MUTUAL(TM) 2 C ONTENTS FOR THIS PROSPECTUS
PAGE ---- Prospectus......................................... 1 Summary............................................ 2 Variable Life Insurance....................... 2 The Account and its Divisions................. 2 The Policy.................................... 2 Premiums.................................... 2 Death Benefit............................... 2 Cash Value.................................. 2 Deductions and Charges...................... 2 From Premiums............................ 2 From Policy Value........................ 3 From the Assets of the Account........... 3 Transaction Charges...................... 3 Surrender Charges........................ 3 From the Mutual Funds.................... 3 The Northwestern Mutual Life Insurance Company, Northwestern Mutual Variable Life Account, Northwestern Mutual Series Fund, Inc. and Russell Insurance Funds....................... 5 Northwestern Mutual.............................. 5 The Account...................................... 5 The Funds........................................ 5 Northwestern Mutual Series Fund, Inc............. 5 Small Cap Growth Stock Portfolio.............. 5 Aggressive Growth Stock Portfolio............. 5 International Equity Portfolio................ 5 Index 400 Stock Portfolio..................... 6 Growth Stock Portfolio........................ 6 Growth and Income Stock Portfolio............. 6 Index 500 Stock Portfolio..................... 6 Balanced Portfolio............................ 6 High Yield Bond Portfolio..................... 6 Select Bond Portfolio......................... 6 Money Market Portfolio........................ 6 Russell Insurance Funds.......................... 6 Multi-Style Equity Fund....................... 6 Aggressive Equity Fund........................ 6 Non-U.S. Fund................................. 6 Real Estate Securities Fund................... 7 Core Bond Fund................................ 7 Detailed Information About the Policy.............. 7 The Policy Design................................ 7 Requirements for Insurance....................... 7 Premiums......................................... 8 Death Benefit.................................... 9 Policy Value and Paid-Up Additional Insurance..................................... 10 Allocations to the Account....................... 10 Deductions and Charges........................ 11
PAGE ---- Deductions from Premiums.................... 11 Charges Against the Policy Value............ 11 Charges Against the Account Assets.......... 11 Transaction Charges......................... 12 Surrender Charges........................... 12 Guarantee of Premiums, Deductions and Charges.... 12 Cash Value.................................... 12 Annual Dividends.............................. 13 Loans and Withdrawals......................... 13 Excess Amount................................. 14 Paid-Up Insurance............................. 14 Reinstatement................................. 14 Right to Return Policy........................ 15 Right to Exchange for a Fixed Benefit Policy...................................... 15 Other Policy Provisions....................... 15 Owner....................................... 15 Beneficiary................................. 15 Incontestability............................ 15 Suicide..................................... 15 Misstatement of Age or Sex.................. 15 Collateral Assignment....................... 15 Payment Plans............................... 15 Deferral of Determination and Payment....... 15 Voting Rights................................. 15 Substitution of Fund Shares and Other Changes..................................... 16 Reports....................................... 16 Special Policy for Employers.................. 16 Distribution of the Policies.................. 16 Tax Treatment of Policy Benefits.............. 17 Other Information................................ 17 Management.................................... 17 Regulation.................................... 19 Legal Proceedings............................. 19 Registration Statement........................ 19 Experts....................................... 19 Financial Statements............................. 20 Report of Independent Accountants (for the two years ended December 31, 1999).............. 20 Financial Statements of the Account (for the two years ended December 31, 1999).......... 21 Financial Statements of Northwestern Mutual (for the three years ended December 31, 1999)....................................... 32 Report of Independent Accountants (for the three years ended December 31, 1999)........ 43 Appendix......................................... 44
Prospectus 3 PROSPECTUS NORTHWESTERN MUTUAL VARIABLE COMPLIFE(R) VARIABLE WHOLE LIFE POLICY WITH ADDITIONAL PROTECTION This prospectus describes the Variable CompLife(R) Policy (the "Policy") offered by The Northwestern Mutual Life Insurance Company. We have designed the Policy to provide lifetime insurance coverage on the insured named in the Policy. We use Northwestern Mutual Variable Life Account (the "Account") to keep the money you invest separate from our general assets. Both the death benefit and the cash value provided by the Policy will vary daily to reflect the investment experience of the Account. You may allocate the net premiums to one or more of the sixteen divisions of the Account. The assets of each division will be invested in a corresponding Portfolio of Northwestern Mutual Series Fund, Inc. or one of the Russell Insurance Funds. The prospectuses for these mutual funds, attached to this prospectus, describe the investment objectives for all of the Portfolios and Funds. The Policy provides for a scheduled premium payable at least annually, but you may pay more than the scheduled amount. In some situations you may pay less than the scheduled amount. We guarantee that the death benefit will never be less than the Policy's initial amount of whole life insurance, regardless of the Account's investment experience, so long as you pay scheduled premiums when they are due and no Policy debt is outstanding. The Policy may include insurance which we guarantee for only a specified number of years. There is no guaranteed minimum cash value. In the early years of a Policy it is likely that the cash value will be less than the premium amounts accumulated at interest. This is because of the sales and insurance costs for a new Policy. We make deductions for sales costs and administrative expenses from the cash values of Policies surrendered during the early Policy years. Therefore you should purchase a Policy only if you intend to keep it in force for a reasonably long period. You may return a Policy for a full refund for a limited period of time. See "Right to Return Policy", p. 15. IT MAY NOT BE ADVANTAGEOUS TO REPLACE EXISTING INSURANCE WITH A VARIABLE LIFE INSURANCE POLICY. SEE DEDUCTIONS AND CHARGES AND CASH VALUE. THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR NORTHWESTERN MUTUAL SERIES FUND, INC. AND THE RUSSELL INSURANCE FUNDS WHICH ARE ATTACHED HERETO, AND SHOULD BE RETAINED FOR FUTURE REFERENCE. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 1 Prospectus 4 SUMMARY The following summary provides a brief overview of the Account and the Policy. It omits details which are included elsewhere in this prospectus, in the attached mutual fund prospectuses and in the terms of the Policy. VARIABLE LIFE INSURANCE Variable life insurance is cash value life insurance and is similar in many ways to traditional fixed benefit life insurance. Variable life insurance allows the policyowner to direct the premiums, after certain deductions, among a range of investment options. The variable life insurance death benefit and cash value vary daily to reflect the performance of the selected investments. Since a substantial part of the premium pays for the insurance risk of death you should not consider variable life insurance unless your primary need is life insurance protection. THE ACCOUNT AND ITS DIVISIONS Northwestern Mutual Variable Life Account is the investment vehicle for the Policies. The Account has sixteen divisions. You determine how net premiums are to be apportioned. You may select up to ten divisions at any one point in time. We invest the assets of each division in a corresponding Portfolio of Northwestern Mutual Series Fund, Inc. or one of the Russell Insurance Funds. The eleven Portfolios of Northwestern Mutual Series Fund, Inc. are the Small Cap Growth Stock Portfolio, Aggressive Growth Stock Portfolio, International Equity Portfolio, Index 400 Stock Portfolio, Growth Stock Portfolio, Growth and Income Stock Portfolio, Index 500 Stock Portfolio, Balanced Portfolio, High Yield Bond Portfolio, Select Bond Portfolio and Money Market Portfolio. The five Russell Insurance Funds are the Multi-Style Equity Fund, Aggressive Equity Fund, Non-U.S. Fund, Real Estate Securities Fund, and Core Bond Fund. For additional information about the funds see the attached prospectuses. THE POLICY PREMIUMS The Policy provides for a scheduled premium for the Minimum Guaranteed Death Benefit and any Additional Protection you purchase as part of the Policy. The Minimum Guaranteed Death Benefit is the initial amount of whole life insurance provided by the Policy. Additional Protection is insurance which does not have a lifetime guarantee, but we guarantee this insurance for a specified period. The scheduled premium may include additional amounts to purchase variable paid-up additional insurance or to increase Policy Value. The scheduled premium also includes the amount required for any additional benefits that you purchase with the Policy. You may pay optional unscheduled additional premiums, within limits, to purchase variable paid-up additional insurance or to increase Policy Value. You may suspend payment of premiums if we determine under a certain set of assumptions that the Policy Value is already sufficient to cover future insurance costs. You may have to resume payment of premiums in the future if the Policy Value becomes insufficient. The Policy Value reflects investment experience as well as premiums paid and the cost of insurance and other charges. After a Policy is issued you may increase or decrease the amount of scheduled premiums within limits. Premiums are payable at least annually. DEATH BENEFIT We guarantee that the Minimum Guaranteed Death Benefit provided by a Policy will be paid upon the death of the insured, regardless of investment experience, if you have paid scheduled premiums when they are due and no Policy debt is outstanding. The death benefit will be increased by the amount of any Additional Protection in force. We guarantee Additional Protection for a period which depends on the sex and risk classification and age of the insured when the Policy is issued and on the proportions of Minimum Guaranteed Death Benefit and Additional Protection. The death benefit will also be increased by the amount of any variable paid-up additional insurance, any excess Policy Value and any amount needed to meet federal income tax requirements for life insurance. CASH VALUE The cash value of a Policy is not guaranteed and varies daily to reflect investment experience. You may surrender a Policy for its cash value. A surrender charge applies during the first 15 policy years. We permit partial surrenders by administrative practice if the remaining Policy meets our minimum size requirements. DEDUCTIONS AND CHARGES FROM PREMIUMS - - Deduction of 3.5% for state and federal taxes attributable to premiums - - Sales load of 4.5% - - Annual charge of $84, currently expected to be reduced to $60 after ten years - - Annual charge of $0.12 per $1,000 of Minimum Guaranteed Death Benefit - - Annual expense charge of $0.12 per $1,000 of Minimum Guaranteed Death Benefit and Additional Protection (currently expected to be charged for ten years only) - - Any extra premium charged for insureds who do not qualify as select, standard plus or standard risks - - Any extra premium for additional benefits purchased with the Policy Prospectus 2 5 FROM POLICY VALUE - - An annual charge, based on the amount at risk and the attained age and risk classification of the insured, with rates based on the 1980 CSO Mortality Tables. This charge also applies for the values which support any paid-up additional insurance. - - Any surrender charges, administrative charges or decrease in Policy debt that may result from a partial withdrawal, a decrease in the face amount of insurance or a transfer of Policy Value to paid-up insurance FROM THE ASSETS OF THE ACCOUNT - - A daily charge at the annual rate of .60% of the Account assets for mortality and expense risks TRANSACTION CHARGES - - Fee of up to $25 (currently waived) for transfers among the Account Divisions - - Fee of up to $25 (currently waived) for withdrawals of Excess Amount - - Charge for administrative costs to process a partial surrender, currently expected to be $250 SURRENDER CHARGES - - Surrender charges for sales and issuance expenses we deduct from Policy proceeds if you surrender the Policy during the first 15 years. See "Surrender Charges", p. 12. FROM THE MUTUAL FUNDS - - A daily charge for investment advisory and other services provided to the mutual funds. The total expenses vary by Portfolio or Fund and currently fall in an approximate range of .20% to 1.50% of assets on an annual basis. The following table shows the annual expenses for each of the Portfolios and Funds, as a percentage of their average net assets of the Portfolio, based on 1999 operations. NORTHWESTERN MUTUAL SERIES FUND, INC.
INVESTMENT ADVISORY OTHER TOTAL PORTFOLIO FEE EXPENSES EXPENSES --------- ---------- -------- -------- Small Cap Growth Stock *... .79% .24% 1.03% Aggressive Growth Stock.... .51% .00% .51% International Equity....... .67% .07% .74% Index 400 Stock*........... .25% .21% .46% Growth Stock............... .43% .00% .43% Growth and Income Stock.... .57% .00% .57% Index 500 Stock............ .20% .00% .20% Balanced................... .30% .00% .30% High Yield Bond............ .49% .01% .50% Select Bond................ .30% .00% .30% Money Market............... .30% .00% .30%
* Small Cap Growth Stock and Index 400 Stock Portfolios Northwestern Mutual Investment Services, LLC (NMIS), investment adviser to Northwestern Mutual Series Fund, Inc., has contractually agreed to waive, at least until December 31, 2000, a portion of its advisory fee, up to the full amount of that fee, equal to the amount by which total operating expenses exceed (1) 1.00% of the Small Cap Growth Stock Portfolio's average daily net assets on an annual basis, and (2) 0.35% of the Index 400 Stock Portfolio's average daily net assets. In addition, NMIS has voluntarily agreed to reimburse each of these portfolios for all remaining expenses after fee waivers which exceed (1) 1.00% in the case of the Small Cap Growth Stock Portfolio, and (2) 0.35% in the case of the Index 400 Stock Portfolio, of the average daily net assets on an annual basis. This waiver and reimbursement, in each case, may be revised or eliminated at any time without notice to shareholders. RUSSELL INSURANCE FUNDS
INVESTMENT ADVISORY OTHER TOTAL FUND FEE * EXPENSES* EXPENSES ---- ---------- --------- -------- Multi-Style Equity Fund... 0.78% 0.15% 0.93% Aggressive Equity Fund.... 0.95% 0.39% 1.34% Non-U.S. Fund............. 0.95% 0.55% 1.50% Real Estate Securities Fund.................... 0.85% 0.30% 1.15% Core Bond Fund............ 0.60% 0.26% 0.86%
* Multi-Style Equity Fund Frank Russell Investment Company's (FRIC's) advisor, Frank Russell Investment Management Company (FRIMCo) has contractually agreed to waive, at least until April 30, 2001, a portion of its 0.78% management fee, up to the full amount of that fee, equal to the amount by which the Fund's total operating expenses exceed 0.92% of the Fund's average daily net assets on an annual basis and to reimburse the Fund for all remaining expenses after fee waivers which exceed 0.92% of the average daily net assets on an annual basis. Taking the fee waivers into account, the actual annual total operating expenses were 0.92% of the average net assets of the Multi-Style Fund. Aggressive Equity Fund FRIMCo has contractually agreed to waive, at least until April 30, 2001, a portion of its 0.95% management fee, up to the full amount of that fee, equal to the amount by which the Fund's total operating expenses exceed 1.25% of the Fund's average daily net assets on an annual basis and to reimburse the Fund for all remaining expenses after fee waivers which exceed 1.25% of the average daily net assets on an annual basis. Taking the fee waivers into account, the actual annual total operating expenses were 1.25% of the average net assets of the Aggressive Equity Fund. 3 Prospectus 6 Non-U.S. Fund FRIMCo has contractually agreed to waive, at least until April 30, 2001, a portion of its 0.95% management fee, up to the full amount of that fee, equal to the amount by which the Fund's total operating expenses exceed 1.30% of the Fund's average daily net assets on an annual basis and to reimburse the Fund for all remaining expenses after fee waivers which exceed 1.30% of the average daily net assets on an annual basis. Taking the fee waivers into account, the actual annual total operating expenses were 1.30% of the average net assets of the Non-U.S. Fund. Real Estate Securities Fund FRIMCo has contractually agreed to waive, at least until April 30, 2001, a portion of its .85% management fee, up to the full amount of that fee, equal to the amount by which the Fund's total operating expenses exceed 1.15% of the Fund's average daily net assets on an annual basis and to reimburse the Fund for all remaining expenses after fee waivers which exceed 1.15% of the average daily net assets on an annual basis. Core Bond Fund FRIMCo has contractually agreed to waive, at least until April 30, 2001, a portion of its 0.60% management fee, up to the full amount of that fee, equal to the amount by which the Fund's total operating expenses exceed .80% of the Fund's average daily net assets on an annual basis and to reimburse the Fund for all remaining expenses after fee waivers which exceed .80% of the average daily net assets on an annual basis. Taking the fee waivers into account, the actual annual total operating expenses were .80% of the average net assets of the Core Bond Fund. Prospectus 4 7 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT, NORTHWESTERN MUTUAL SERIES FUND, INC. AND RUSSELL INSURANCE FUNDS NORTHWESTERN MUTUAL The Northwestern Mutual Life Insurance Company is a mutual life insurance company organized by a special act of the Wisconsin Legislature in 1857. It is the nation's fifth largest life insurance company, based on total assets in excess of $85 billion on December 31, 1999 and is licensed to conduct a conventional life insurance business in the District of Columbia and in all states of the United States. Northwestern Mutual sells life and disability insurance policies and annuity contracts through its own field force of approximately 6,000 full time producing agents. The Internal Revenue Service Employer Identification Number of Northwestern Mutual is 39-0509570. "We" in this prospectus means Northwestern Mutual. THE ACCOUNT We established Northwestern Mutual Variable Life Account by action of our Trustees on November 23, 1983, in accordance with the provisions of Wisconsin insurance law. Under Wisconsin law the income, gains and losses, realized or unrealized, of the Account are credited to or charged against the assets of the Account without regard to our other income, gains or losses. We use the Account only for variable life insurance policies. However, the policies issued prior to the introduction of Variable CompLife(R) (October 11, 1995 in most states) are different from the Variable CompLife(R) Policies described in this prospectus. The older policies are described in a separate prospectus and are no longer offered. We also use the Account for other variable life insurance policies which are described in other prospectuses. The Account is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940. This registration does not involve supervision of management or investment practices or policies. The Account has sixteen divisions. All of the assets of each division are invested in shares of the corresponding Portfolio or Fund described below. THE FUNDS NORTHWESTERN MUTUAL SERIES FUND, INC. Northwestern Mutual Series Fund, Inc. is a mutual fund of the series type registered under the Investment Company Act of 1940 as an open-end diversified management investment company. The Account buys shares of each Portfolio at their net asset value without any sales charge. The investment adviser for the Fund is Northwestern Mutual Investment Services, LLC ("NMIS"), our wholly-owned subsidiary. The investment advisory agreements for the respective Portfolios provide that NMIS will provide services and bear certain expenses of the Fund. For providing investment advisory and other services and bearing Fund expenses, the Fund pays NMIS a fee at an annual rate which ranges from .20% of the aggregate average daily net assets of the Index 500 Stock Portfolio to a maximum of .79% for the Small Cap Growth Stock Portfolio, based on 1999 asset size. Other expenses borne by the Portfolios range from 0% for the Select Bond, Money Market and Balanced Portfolios to .21% for the Small Cap Growth Stock Portfolio. We provide the people and facilities NMIS uses in performing its investment advisory functions and we are a party to the investment advisory agreement. NMIS has retained J.P. Morgan Investment Management, Inc. and Templeton Investment Counsel, Inc. under investment sub-advisory agreements to provide investment advice to the Growth and Income Stock Portfolio and the International Equity Portfolio. The investment objectives and types of investments for each of the eleven Portfolios of the Fund are set forth below. There can be no assurance that the Portfolios will realize their objectives. For more information about the investment objectives and policies, the attendant risk factors and expenses see the attached prospectus for Northwestern Mutual Series Fund, Inc. SMALL CAP GROWTH STOCK PORTFOLIO The investment objective of the Small Cap Growth Stock Portfolio is long-term growth of capital. The Portfolio will seek to achieve this objective primarily by investing in the common stocks of companies which can reasonably be expected to increase sales and earnings at a pace which will exceed the growth rate of the U.S. economy over an extended period. AGGRESSIVE GROWTH STOCK PORTFOLIO. The investment objective of the Aggressive Growth Stock Portfolio is to achieve long-term appreciation of capital primarily by investing in the common stocks of companies which can reasonably be expected to increase their sales and earnings at a pace which will exceed the growth rate of the nation's economy over an extended period. INTERNATIONAL EQUITY PORTFOLIO. The investment objective of the International Equity Portfolio is long-term capital growth. It pursues its objective through a flexible policy of investing in stocks and debt securities of companies and governments outside the United States. 5 Prospectus 8 INDEX 400 STOCK PORTFOLIO The investment objective of the Index 400 Stock Portfolio is to achieve investment results that approximate the performance of the Standard & Poor's MidCap 400 Index ("S&P 400 Index"). The Portfolio will attempt to meet this objective by investing in stocks included in the S&P 400 Index. GROWTH STOCK PORTFOLIO. The investment objective of the Growth Stock Portfolio is long-term growth of capital; current income is secondary. The Portfolio will seek to achieve this objective by selecting investments in companies which have above average earnings growth potential. GROWTH AND INCOME STOCK PORTFOLIO. The investment objective of the Growth and Income Stock Portfolio is long-term growth of capital and income. Ordinarily the Portfolio pursues its investment objectives by investing primarily in dividend-paying common stock. INDEX 500 STOCK PORTFOLIO. The investment objective of the Index 500 Stock Portfolio is to achieve investment results that approximate the performance of the Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index"). The Portfolio will attempt to meet this objective by investing in stocks included in the S&P 500 Index. Stocks are generally more volatile than debt securities and involve greater investment risks. BALANCED PORTFOLIO. The investment objective of the Balanced Portfolio is to realize as high a level of long-term total rate of return as is consistent with prudent investment risk. The Balanced Portfolio will invest in common stocks and other equity securities, bonds and money market instruments. Investment in the Balanced Portfolio necessarily involves the risks inherent in stocks and debt securities of varying maturities, including the risk that the Portfolio may invest too much or too little of its assets in each type of security at any particular time. HIGH YIELD BOND PORTFOLIO. The investment objective of the High Yield Bond Portfolio is to achieve high current income and capital appreciation by investing primarily in fixed income securities that are rated below investment grade by the major rating agencies. SELECT BOND PORTFOLIO. The primary investment objective of the Select Bond Portfolio is to provide as high a level of long-term total rate of return as is consistent with prudent investment risk. A secondary objective is to seek preservation of shareholders' capital. The Select Bond Portfolio will invest primarily in debt securities. The value of debt securities will tend to rise and fall inversely with the rise and fall of interest rates. MONEY MARKET PORTFOLIO. The investment objective of the Money Market Portfolio is to realize maximum current income consistent with liquidity and stability of capital. The Money Market Portfolio will invest in money market instruments and other debt securities with maturities generally not exceeding one year. The return produced by these securities will reflect fluctuations in short-term interest rates. RUSSELL INSURANCE FUNDS The Russell Insurance Funds also comprise a mutual fund of the series type registered under the Investment Company Act of 1940 as an open-end diversified management investment company. The Account buys shares of each of the Russell Insurance Funds at their net asset value without any sales charge. The assets of each of the Russell Insurance Funds are invested by one or more investment management organizations researched and recommended by Frank Russell Company ("Russell"), and an affiliate of Russell, Frank Russell Investment Management Company ("FRIMCo"). FRIMCo also advises, operates and administers the Russell Insurance Funds. Russell is our majority-owned subsidiary. The investment objectives and types of investments for each of the five Russell Insurance Funds are set forth below. There can be no assurance that the Funds will realize their objectives. A table showing the expense ratios for each of the Russell Insurance Funds is included in the Summary above, at page 3. For more information about the investment objectives and policies, the attendant risk factors and expenses see the attached prospectus for the Russell Insurance Funds. MULTI-STYLE EQUITY FUND. The investment objective of the Multi-Style Equity Fund is to provide income and capital growth by investing principally in equity securities. The Multi-Style Equity Fund invests primarily in common stocks of medium and large capitalization companies. These companies are predominately US-based, although the Fund may invest a limited portion of its assets in non-US firms from time to time. AGGRESSIVE EQUITY FUND. The investment objective of the Aggressive Equity Fund is to provide capital appreciation by assuming a higher level of volatility than is ordinarily expected from Multi-Style Equity Fund by investing in equity securities. The Aggressive Equity Fund invests primarily in common stocks of small and medium capitalization companies. These companies are predominately US-based, although the Fund may invest in non-US firms from time to time. NON-U.S. FUND. The investment objective of the Non-U.S. Fund is to provide favorable total return and additional diversification for US investors by investing primarily in equity and fixed-income securities of non-US companies, and securities issued by non-US governments. The Non-U.S. Fund invests primarily in equity securities issued by companies domiciled outside the United States and in Prospectus 6 9 depository receipts, which represent ownership of securities of non-US companies. REAL ESTATE SECURITIES FUND. The investment objective of the Real Estate Securities Fund is to generate a high level of total return through above average current income, while maintaining the potential for capital appreciation. The Fund seeks to achieve its objective by concentrating its investments in equity securities of issuers whose value is derived primarily from development, management and market pricing of underlying real estate properties. CORE BOND FUND. The investment objective of the Core Bond Fund is to maximize total return, through capital appreciation and income, by assuming a level of volatility consistent with the broad fixed-income market, by investing in fixed-income securities. The Core Bond Fund invests primarily in fixed-income securities. In particular, the Fund holds debt securities issued or guaranteed by the US government, or to a lesser extent by non-US governments, or by their respective agencies and instrumentalities. It also holds mortgage-backed securities, including collateralized mortgage obligations. The Fund also invests in corporate debt securities and dollar-denominated obligations issued in the US by non-US banks and corporations (Yankee Bonds). A majority of the Fund's holdings are US dollar-denominated. From time to time the Fund may invest in municipal debt obligations. - -------------------------------------------------------------------------------- DETAILED INFORMATION ABOUT THE POLICY THE POLICY DESIGN We have included this simplified description of the Variable CompLife(R) Policy design in this section to help you understand how the Policy is constructed. It omits details and important qualifications which are discussed in the following sections. The Policy combines a Minimum Guaranteed Death Benefit with Additional Protection in an integrated policy design. The Minimum Guaranteed Death Benefit represents permanent life insurance guaranteed for the lifetime of the insured if premiums are paid when due and no Policy debt is outstanding. The Additional Protection is guaranteed for a period of years which depends on the sex and risk classification and age of the insured when the Policy is issued and the relative proportions of Minimum Guaranteed Death Benefit and Additional Protection. For an insured aged less than 43 the guaranteed period is not less than ten years. It is generally longer for younger insureds and shorter for insureds who are older, but will not be less than six years. We place net premiums in the Account divisions you select. The net premiums increase the Policy Value. The Policy Value is the cumulative amount invested, adjusted for investment results, reduced by the cost of insurance. The cost of insurance is based on the net amount at risk. This is the amount of insurance in force less the Policy Value. The cost of insurance also reflects the attained age of the insured each year. If you pay premiums when they are due, and investment experience is favorable, the Policy Value will increase year by year. We have designed the Policy so that the increase in Policy Value over time should reduce the net amount at risk. The reduction in the net amount at risk offsets the rising cost of the mortality risk as the age of the insured increases, reducing the total cost of insurance which we subtract from the Policy Value each year. This scenario depends, however, on the investment experience which is a principal factor in determining Policy Value. Investment experience is not guaranteed. If investment experience does not produce a sufficient rate of return, the amount of Additional Protection will be reduced in later Policy years, or you will need to pay additional premium to keep the Additional Protection from falling. For a typical Policy the average annual net investment rate of return required to maintain the initial amount of Additional Protection, without additional premium, should be between 4% and 6%, based on the current charges and dividend scale. Any excess Policy Value (we call it the "Excess Amount") is simply added to the death benefit and the cash value, dollar for dollar, unless a greater increase in the death benefit is required to meet tax requirements for life insurance. See "Excess Amount", p. 14. The Policy also allows you to pay additional premiums to purchase variable paid-up additional insurance. We calculate the values for the additional insurance separately from those which support the initial amount of insurance. The values for the variable paid-up additional insurance do not affect the Policy Value. We allow unscheduled additional premiums to purchase variable paid-up additional insurance, subject to insurability of the insured when we accept the premiums. REQUIREMENTS FOR INSURANCE The minimum amount we require for the Minimum Guaranteed Death Benefit is $100,000, reduced to $50,000 if the insured is below age 15 or over age 59. If the initial premium is at least $10,000 ($5,000 for ages below 15) the required minimum for the Minimum Guaranteed Death Benefit is $1,000. A lower minimum may apply in some circumstances and will apply if the Policy is purchased for an employer-sponsored benefit plan. See "Special Policy for Employers", 7 Prospectus 10 p. 16. The Minimum Guaranteed Death Benefit must always be at least $1,000. Before issuing a Policy, we will require satisfactory evidence of insurability. Non-smokers who meet preferred underwriting requirements are considered select risks. Nonsmokers in the second best classification are considered standard plus risks. The best class of smokers are considered standard risks. The premium is different for each risk classification. We charge a higher premium for insureds who do not qualify as select, standard plus or standard risks. The amount of extra premium depends on the risk classification in which we place the insured. PREMIUMS The Policy provides for a level scheduled premium to be paid annually at the beginning of each Policy year. Premiums are payable at our Home Office or to an authorized Agent of Northwestern Mutual. By administrative practice, we accept premiums on a monthly, quarterly or semi-annual schedule. If you pay premiums more frequently than annually, we place the scheduled net annual premium in the Account on each Policy anniversary. We advance this amount on this date and we are reimbursed as we receive your premium payments. You have no obligation to repay the amount that we have advanced, but failure to pay the premiums when due will cause (a) premium payments to be suspended (subject to the conditions described later in this section), (b) the Policy to continue in force as a reduced amount of paid-up insurance, or (c) the Policy to terminate. If you do not pay premiums when they are due, we will reduce the Account assets supporting the Policy to reflect the premiums due later in the Policy year. Premiums you pay other than on an annual basis are increased to (1) reflect the time value of money, based on an 8% interest rate, and (2) cover the administrative costs to process the additional premium payments. A monthly premium is currently equal to the annual premium times .0863 plus 50 cents. Thus, the total of monthly premiums for a year is currently 3.56% plus $6.00 higher than a premium paid annually. You may pay monthly premiums only through an automatic payment plan arranged with your bank. A quarterly premium is currently equal to the annual premium times .2573 plus $2.00. A semiannual premium is equal to the annual premium times .5096 plus $1.35. The scheduled premium includes the premium for the Minimum Guaranteed Death Benefit and the premium for any Additional Protection. The amount of the premium depends on the amount of the Minimum Guaranteed Death Benefit and the amount of Additional Protection, as well as the insured's age and risk classification. The amount of the premium also reflects the sex of the insured except where state or federal law requires that premiums and other charges and values be determined without regard to sex. We send a notice to you not less than two weeks before each premium is due. You may select the proportions of Minimum Guaranteed Death Benefit and Additional Protection, subject to the required minimum amount for the Minimum Guaranteed Death Benefit. See "Requirements for Insurance", above. Policies that include Additional Protection are subject to a minimum premium that is equal to 70% of the premium for a Policy that consists solely of Minimum Guaranteed Death Benefit. The premium for the Additional Protection consists of two times the cost of term insurance (for the insured's age when the Policy was issued) as long as this amount in combination with the premium for the Minimum Guaranteed Death Benefit meets the 70% requirement. If this combination does not meet the 70% requirement the premium for Additional Protection is increased to bring the total up to the 70% level. We apply the amount by which the premium is increased, after deductions, to increase the Policy Value. In most cases we will also guarantee the Additional Protection for a longer period. In addition to the premium required for the Minimum Guaranteed Death Benefit and any Additional Protection, the scheduled premium may include additional premium to purchase paid-up additional insurance or to increase the Policy Value. The scheduled premium will also include the premium required for any additional benefit included as part of the Policy. After the Policy is issued we will reduce the additional premium included in the scheduled premium at any time upon your request. You may increase the additional premium included in the scheduled premium, or you may pay optional unscheduled additional premiums, at any time before the Policy anniversary nearest to the insured's 85th birthday, subject to our insurability requirements and issue limits. If the Policy includes Additional Protection, we may require an increased premium after the guaranteed period to prevent a reduction of the amount of Additional Protection. We determine the increased premium, if required, each year as of the date 25 days before the Policy anniversary. You are entitled to pay the increased premium required to keep the Additional Protection from falling until the insured reaches age 80 but this right terminates as of the first Policy anniversary on which you do not pay the increased premium when it is due. You may suspend payment of scheduled premiums, at your option, if as of 25 days prior to the Policy anniversary on or before the due date of the premium, (1) the Excess Amount exceeds one year's minimum premium, and (2) the Policy Value exceeds the sum of the net single premium for the amount of insurance then in force, plus the present value of future charges for expenses, additional benefits, and any extra Prospectus 8 11 mortality. See "Excess Amount", p. 14. The minimum premium is the sum of the premiums for the Minimum Guaranteed Death Benefit, the Additional Protection and any additional benefit included in the Policy. We will calculate the net single premium and the present value of future charges using the mortality basis for the cost of insurance charges with 6% interest. See "Charges Against the Policy Value", p. 11. While payment of premiums is suspended, certain charges ordinarily deducted from premiums will reduce the Policy Value instead. You may resume payment of scheduled premiums as of any Policy anniversary. You must resume payment of scheduled premiums as of the next Policy anniversary if the Excess Amount, as of 25 days prior to the Policy anniversary, is determined to be less than one year's minimum premium. You may pay unscheduled additional premiums while suspension of scheduled premiums is in effect, subject to our insurability requirements and issue limits. The Policy provides for a grace period of 31 days for any premium that is not paid when due. The Policy remains in force during this period. If you pay a premium during the grace period, the values for the Policy will be the same as if you had paid the premium when it was due. If you do not pay the premium within the grace period, and the Policy does not qualify for premium suspension, the Policy will terminate as of the date when the premium was due and will no longer be in force, unless it is continued as paid-up insurance. See "Paid-Up Insurance", p. 14. If you surrender a Policy, its cash value will be paid. See "Cash Value", p. 12. The following table shows representative annual premiums for a Policy with an initial amount of $400,000, divided equally between Minimum Guaranteed Death Benefit and Additional Protection, for male select, standard plus and standard risks, at three ages.
PREMIUM FOR MINIMUM MINIMUM GUARANTEED GUARANTEED PREMIUM FOR AGE AT DEATH DEATH ADDITIONAL ADDITIONAL TOTAL ISSUE BENEFIT BENEFIT PROTECTION PROTECTION PREMIUM - ------ ---------- ----------- ------------- ----------- ------- SELECT 15................................ $200,000 $1,292 $200,000 $ 588 $ 1,880 35................................ 200,000 2,610 200,000 1,010 3,620 55................................ 200,000 6,618 200,000 3,320 9,938 STANDARD PLUS 15................................ $200,000 $1,406 $200,000 $ 608 $ 2,014 35................................ 200,000 2,874 200,000 1,118 3,992 55................................ 200,000 7,196 200,000 4,428 11,624 STANDARD 15................................ $200,000 $1,612 $200,000 $ 740 $ 2,352 35................................ 200,000 3,362 200,000 1,310 4,672 55................................ 200,000 8,650 200,000 6,380 15,030
DEATH BENEFIT The death benefit for a Policy includes the Minimum Guaranteed Death Benefit, any Additional Protection in effect, any Excess Amount and any paid-up additional insurance. It is reduced by the amount of any Policy debt outstanding and by an adjustment for any unpaid premiums which have been applied to purchase paid-up additional insurance. The Minimum Guaranteed Death Benefit you select when the Policy is issued will neither increase nor decrease, regardless of the investment experience of the Account divisions where assets for the Policy are held, so long as you pay scheduled premiums when they are due and no Policy debt is outstanding. In setting the premium rates for the Minimum Guaranteed Death Benefit we have assumed that the Account assets will grow at a net annual rate of 4%. We bear the risk that the rate of growth will be less. A higher rate of growth results in an increase in the Policy Value. The Additional Protection included in a Policy when it is issued will not increase by reason of investment experience more favorable than the assumed 4% net annual rate of growth. It will not decrease, regardless of investment experience, until expiration of the guaranteed period, so long as you pay scheduled premiums when they are due and no Policy debt is outstanding. A condition for this guarantee is that you must use any dividends paid on the Policy to increase Policy Value until the end of the guaranteed period unless the Policy has an Excess Amount. See "Excess Amount" p. 14. After the guaranteed period, the Additional Protection may be reduced unless the Policy Value exceeds the amount defined by the formula in the Policy. We calculate 9 Prospectus 12 the amount of Policy Value, and the amount of increased premium required to prevent a reduction in the Additional Protection, 25 days before each Policy anniversary. You may pay any increased premium required to prevent a reduction in the Additional Protection each year until the Policy anniversary nearest the insured's 80th birthday, but this right terminates the first time you do not pay any required increased premium when it is due. The Policy Value represents the total cumulative net premiums for the Minimum Guaranteed Death Benefit and the Additional Protection, including any additional net premiums or Policy dividends which have been used to increase the Policy Value, adjusted for investment experience, less the cost of insurance which we deduct from the Policy Value on each Policy anniversary. The Policy Value may exceed the amount required to support the Minimum Guaranteed Death Benefit and the Additional Protection. This may result from favorable investment experience or from additional premium or Policy dividends used to increase the Policy Value. The amount by which the Policy Value exceeds the amount needed to support the Minimum Guaranteed Death Benefit and the Additional Protection under a specified set of assumptions is called the Excess Amount. See "Excess Amount", p. 14. Any Excess Amount will increase the death benefit for the Policy, dollar-for-dollar, except as described in the next paragraph. The Policy Value and any Excess Amount change daily. We have designed the Policy to meet the definitional requirements for life insurance in Section 7702 of the Internal Revenue Code. See "Tax Treatment of Policy Benefits", p. 17. These rules require that the death benefit will never be less than the Policy Value divided by the net single premium per dollar of death benefit. The required difference between the death benefit and the Policy Value is higher at younger ages than at older ages. The Policy provides for an increase in the death benefit to the extent required to meet this test. After the death benefit has been increased to meet this requirement an increase in the Policy Value will cause a greater than dollar-for-dollar increase in the death benefit, and a decrease in the Policy Value will cause a greater than dollar-for-dollar decrease in the death benefit. The death benefit is increased by the amount of any paid-up additional insurance purchased with additional premium or Policy dividends. The amount and value of the paid-up additional insurance vary daily to reflect investment experience and are not guaranteed. The amount of any paid-up additional insurance is its value used as a net single premium at the attained age of the insured. POLICY VALUE AND PAID-UP ADDITIONAL INSURANCE We determine the Policy Value and the value of any paid-up additional insurance daily by separate calculations. An increase or decrease in the Policy Value has no effect on the value of any paid-up additional insurance, and an increase or decrease in the value of any paid-up additional insurance has no effect on the Policy Value. You may increase or decrease the amount of scheduled additional premium which you are paying to increase the Policy Value or to increase the amount of paid-up additional insurance, and you may change the allocation for applying this additional premium. You must make changes in the scheduled additional premium and its allocation by written request. We may require evidence of insurability. We do not permit increases in the scheduled additional premium after the Policy anniversary nearest the insured's 85th birthday. You may transfer the value of paid-up additional insurance to increase the Policy Value by written request. This will generally result in a decrease in the total death benefit. You may not transfer Policy Value to the value of paid-up additional insurance. ALLOCATIONS TO THE ACCOUNT We place the first net annual premium for the Policy, including any net scheduled additional premium, in the Account on the Policy date. We place the net scheduled annual premium in the Account on each Policy anniversary thereafter even if you are paying premiums on an other-than-annual frequency. We will place net unscheduled premiums in the Account on the date they are received at our Home Office. Net premiums are premiums less the deductions from premiums. See "Deductions from Premiums", below. We invest premiums placed in the Account prior to the initial allocation date in the Money Market Division of the Account. The initial allocation date is identified in the Policy and is the latest of the Policy date, 45 days after the date of the completed application or 32 days after we approve the application. On the initial allocation date we invest the amount in the Money Market Division in the Account divisions as you have directed in the application for the Policy. You may change the allocation for future net premiums at any time by written request and the change will be effective for premiums placed in the Account thereafter. If you allocate any portion of a premium to a division, the division must receive at least 1% of that premium. You may apportion the Account assets supporting your Policy among as many as ten divisions of the Account at any one time. You may transfer accumulated amounts from one division of the Account to another as often as twelve times in a Policy year. Transfers are effective on the date we receive a written request at our Home Office. We reserve the right to charge a Prospectus 10 13 fee of up to $25 to cover administrative costs of transfers. No fee is presently charged. DEDUCTIONS AND CHARGES DEDUCTIONS FROM PREMIUMS We deduct a charge for taxes attributable to premiums from each premium. The total amount of this deduction is 3.5% of the premium. Of this amount 2.25% is for state premium taxes. Premium taxes vary from state to state and currently range from .5% to 3.5% of life insurance premiums. The 2.25% rate is an average. The tax rate for a particular state may be lower, higher, or equal to the 2.25% deduction. We do not expect to profit from this charge. The remainder of the deduction, 1.25% of each premium, is for federal income taxes measured by premiums. We believe that this charge does not exceed a reasonable estimate of an increase in our federal income taxes resulting from a change in the Internal Revenue Code relating to deferred acquisition costs. We deduct a charge of 4.5% for sales costs from each premium. We expect to recover our sales expenses from this amount, over the period while the Policies are in force, and from the surrender charges described below. The amounts we deduct for sales costs in a Policy year are not specifically related to sales costs incurred that year. To the extent that sales expenses exceed the amounts deducted, we will pay the expenses from our other assets. These assets may include, among other things, any gain realized from the charge against the assets of the Account for the mortality and expense risks we have assumed. See "Charges Against the Account Assets", p. 11. To the extent that the amounts deducted for sales costs exceed the amounts needed, we will realize a gain. We deduct an annual charge of $60 from premiums each year for administrative costs to maintain the Policy. These expenses include costs of premium billing and collection, processing claims, keeping records and communicating with Policyowners. We retain the right to increase this charge after 10 years, but it is guaranteed not to exceed $84 plus 12 cents per $1,000 of both the Minimum Guaranteed Death Benefit and the Additional Protection. We do not expect to profit from this charge. We deduct an annual charge from premiums each of the first 10 years to compensate us for expenses, other than sales expenses, incurred in conjunction with issuance of the Policy. These expenses include the costs of processing applications, medical examinations, determining insurability and establishing records. The annual amount of this charge is $24 plus 12 cents per $1,000 of Minimum Guaranteed Death Benefit and Additional Protection. If you surrender the Policy before these charges have been deducted for 10 years, the remaining charges will be reflected in the administrative surrender charge. See "Surrender Charges", p. 12. We deduct an annual charge of 12 cents per $1,000 of Minimum Guaranteed Death Benefit from premiums each year to compensate us for the risk we have assumed by guaranteeing the Minimum Guaranteed Death Benefit, as long as you pay all premiums when they are due, no matter how unfavorable investment performance may be. We will also deduct any extra amounts we charge for insureds who do not qualify as select, standard plus or standard risks, plus the cost of any additional benefits purchased with the Policy, to determine the net annual premium. CHARGES AGAINST THE POLICY VALUE We deduct a cost of insurance charge from the Policy Value on each Policy Anniversary. We determine the amount by multiplying the net amount at risk by the cost of insurance rate. The net amount at risk is the projected insurance amount, discounted at 4%, less the Policy Value. The projected insurance amount is the amount of insurance at the end of the Policy year, assuming that the Policy Value increases by the 4% annual growth rate assumed in constructing the Policy. The cost of insurance rate reflects the attained age of the insured. For select and standard risks, the cost of insurance rate is based on the Commissioners 1980 Standard Ordinary Smoker and Non-Smoker Mortality Tables. For other risks, the cost of insurance rate is based on the Commissioners 1980 Standard Ordinary Mortality Tables. The cost of insurance rates are included in the Policy. We also deduct a cost of insurance charge from the cash value of any paid-up additional insurance on each Policy anniversary. If we receive an unscheduled premium on a day other than a Policy anniversary and the net amount at risk increases as a result, we will deduct a cost of insurance charge on that day, reflecting the increase in the net amount at risk and the portion of the Policy year remaining. While payment of premiums is suspended, a portion of the annual charges which we would ordinarily deduct from premiums will be deducted from the Policy Value instead. We will also make this deduction on the Policy anniversary each year. We will also reduce the Policy Value by any surrender charges, administrative charges or decrease in Policy debt that may result from a withdrawal, a decrease in the face amount of insurance or a change to variable benefit paid-up insurance. CHARGES AGAINST THE ACCOUNT ASSETS There is a daily charge to the Account for the mortality and expense risks that we have assumed. The charge is at the annual rate of .60% of the assets of the Account. The mortality risk is that insureds may not live as long as we estimated. The expense risk is that expenses of issuing and administering the Policies may exceed the estimated costs. We will realize a gain from this charge to the extent it is not needed to provide benefits and pay expenses under the Policies. The actual mortality and 11 Prospectus 14 expense experience under the Policies will be the basis for determining dividends. See "Annual Dividends", p. 13. The Policies provide that a charge for taxes may be made against the assets of the Account. We are not currently making a daily charge for federal income taxes we have incurred. In no event will the charge for taxes exceed that portion of our actual tax expenses which is fairly allocable to the Policies. TRANSACTION CHARGES The Policy provides for a fee of up to $25 for a transfer of assets among the Account divisions and for a fee of up to $25 for a withdrawal of Excess Amount. We are currently waiving these charges. SURRENDER CHARGES If you surrender the Policy before you have paid the premium that is due at the beginning of the fifteenth year, we will deduct surrender charges from the Policy Value. A table of surrender charges is in the Policy. The surrender charges consist of an administrative surrender charge and a premium surrender charge. The administrative surrender charge is equal to the sum of the issue expense charges which we have not deducted. The administrative surrender charge in the first Policy year is $216, plus $1.08 per $1,000 of Minimum Guaranteed Death Benefit and Additional Protection. This charge grades down linearly each year as you pay the premium (or payment of premiums is suspended) and is zero after you have paid the premium that is due at the beginning of the tenth Policy year (or it is suspended). The premium surrender charge is a percentage (shown in the table below) of the surrender charge base. If payment of the premium for a Policy year has been suspended, the premium surrender charge percentage will be as if you had paid the annual premium. During the first five policy years, if you pay premiums more frequently than annually we will adjust the premium surrender charge percentages to reflect the actual period for which you have paid premiums. If none of the premium payments during the first five Policy years have been suspended, the surrender charge base equals the sum of an annual premium for the Minimum Guaranteed Death Benefit (exclusive of the Policy fee and exclusive of any charge for extra mortality) plus a term insurance premium for the initial amount of Additional Protection. If any of the premium payments during the first five Policy years have been suspended, the surrender charge base equals the lesser of (1) the sum of an annual premium for the Minimum Guaranteed Death Benefit (exclusive of the Policy fee and exclusive of any charge for extra mortality) plus a term insurance premium for the initial amount of Additional Protection, and (2) the sum of the total premiums paid (exclusive of any premiums for additional benefits purchased with the Policy, and premiums for extra mortality, and any extra amount for premiums paid more often than annually) divided by the number of years (including fractions), but not more than five, for which premiums have been paid or suspended.
PREMIUM SURRENDER FOR POLICIES CHARGE PERCENTAGE SURRENDERED AFTER --------------------------- PAYMENT OF THE ISSUE AGE BEGINNING OF YEAR 65 AND UNDER ISSUE AGE 75 - ----------------- ------------ ------------ 1 24% 24% 2 28% 25.5% 3 32% 27% 4 36% 28.5% 5 through 10 40% 30% 11 32% 24% 12 24% 18% 13 16% 12% 14 8% 6% 15 and later 0% 0%
For issue ages 66 through 74, the percentages are determined by linear interpolation between the percentages shown. For a Policy that has a Minimum Guaranteed Death Benefit of $50,000 or more, the surrender charges will not exceed $41.16 per $1,000 of Minimum Guaranteed Death Benefit. For a Policy that has a Minimum Guaranteed Death Benefit of $100,000 or more, issued for an insured ages 15-59, the surrender charges will not exceed $22.86 per $1,000 of Minimum Guaranteed Death Benefit. The surrender charges could equal or exceed the Policy Value but we will not apply the surrender charges to the value of any paid-up additional insurance. GUARANTEE OF PREMIUMS, DEDUCTIONS AND CHARGES We guarantee and may not increase the premiums for the Minimum Guaranteed Death Benefit and the charge for mortality and expense risks. These amounts will not increase regardless of future changes in longevity or increases in expenses. CASH VALUE The cash value for the Policy will change daily in response to investment results. No minimum cash value is guaranteed. The cash value is equal to the Policy Value plus the value of any paid-up additional insurance, reduced by any Policy debt outstanding and the surrender charges. If you are not paying premiums on an annual basis we reduce the cash value for any premiums due later in the Policy year. We determine the cash value for a Policy at the end of each valuation period. Each business day, together with any non-business days before it, is a valuation period. A business day is any day on which the New York Stock Exchange is open for trading. In accordance with the requirements of the Investment Company Act of 1940, we may also determine the cash value for a Policy on any other day on which there is Prospectus 12 15 sufficient trading in securities to materially affect the value of the securities held by the Portfolios or Funds. You may surrender your Policy for the cash value at any time during the lifetime of the insured. Alternatively, you may request that we apply the cash value to provide a reduced amount of fixed or variable paid-up insurance. See "Paid-Up Insurance", p. 14. We will permit partial surrenders of the Policies so long as the Policy that remains meets the regular minimum size requirements. A partial surrender will cause the Policy to be split into two Policies. One Policy will be surrendered; the other will continue in force on the same terms as the original Policy except that the premiums will be based on the reduced amount of insurance. You will receive a new Policy document. The cash value and the death benefit will be proportionately reduced. We will make a deduction from the Policy proceeds for a proportionate part of the surrender charges if a partial surrender takes place before you have paid the premium that is due at the beginning of the fifteenth Policy year. We will make a transaction charge when a partial surrender is effected. The amount of the transaction charge will not exceed the actual administrative costs for the transaction. We currently expect this charge to be $250. ANNUAL DIVIDENDS The Policies share in divisible surplus to the extent we determine annually. We will distribute a Policy's share annually as a dividend payable on each Policy anniversary. Dividends under participating policies may be described as refunds of premiums which adjust the cost of a policy to the actual level of cost emerging over time after the policy's issue. Thus participating policies generally have gross premiums which are higher than those for comparable non- participating policies. Both federal and state tax law recognize that a dividend is considered to be a refund of a portion of the premium paid. Dividend illustrations published at the time a life insurance policy is issued reflect the actual recent experience of the issuing company with respect to investment earnings, mortality and expenses. State law generally prohibits a company from projecting or estimating future results. State law also requires that dividends be paid out of surplus, after certain necessary amounts are set aside, and that such surplus be apportioned equitably among participating policies. In summary, dividends must be based on actual experience and cannot be guaranteed at issue of a policy. Our actuary annually examines current and recent experience and compares these results with those which were assumed in determining premium rates when each class of policies was issued. We determine classes by such factors as year of issue, age, plan of insurance and risk classification. The actuary then determines the amount of dividends to be equitably apportioned to each class of policies. Following the actuary's recommendations, our Trustees adopt a dividend scale each year, thereby authorizing the distribution of the dividend. We have no significant actual mortality experience with variable life insurance policies. For purposes of the current dividend scale used for the illustrations in this prospectus, we have assumed that mortality experience in connection with the Policies will be comparable to that actually experienced with fixed benefit life insurance. Dividends for variable life insurance are generally lower than those for participating fixed benefit life insurance, primarily because a variable life insurance policy provides a contractual mechanism for translation of investment experience into a variable death benefit and variable cash value. For participating fixed benefit life insurance the dividend includes amounts produced by favorable investment results. Dividends based on the Minimum Guaranteed Death Benefit for the Policies described in this prospectus are expected be relatively low during the first 15 Policy years. The prospectus illustrations show dividends being used to increase the Policy Value. If the Policy has Additional Protection in force, the dividends will be used to increase the Policy Value unless the Policy has Excess Amount. See "Excess Amount", p. 14. If the Policy has Excess Amount, or if no Additional Protection is in force, you may use dividends to purchase variable benefit paid-up additional insurance, or to pay premiums, or we will pay the dividend in cash. If the Policy is in force as fixed benefit paid-up insurance, you may use dividends to purchase fixed benefit paid-up additional insurance or we will pay you the dividend in cash. If the Policy is in force as variable benefit paid-up insurance, you may use the dividends to purchase variable benefit paid-up additional insurance or we will pay you the dividend in cash. LOANS AND WITHDRAWALS You may borrow up to 90% of the Policy's cash value using the Policy as security. If a Policy loan is already outstanding, the maximum amount for any new loan is 90% of the amount of cash value the Policy would have if there were no loan, less the amount already borrowed. You may take loan proceeds in cash or you may apply them to pay premiums on the Policy. Interest on a Policy loan accrues and is payable on a daily basis. We add unpaid interest to the amount of the loan. If the amount of the loan equals or exceeds the Policy's cash value, the Policy will terminate. We will send you a notice at least 31 days before the termination date. The notice will show how much you must repay to keep the Policy in force. YOU SELECT THE POLICY LOAN INTEREST RATE. A specified annual effective rate of 5% is one choice. The other choice is a variable rate based on a corporate bond yield index. We will 13 Prospectus 16 adjust the variable rate annually, but it will not be less than 5%. We will take the amount of a Policy loan, including interest as it accrues, from the Account divisions in proportion to the amounts in the divisions. We will transfer the amounts withdrawn to our general account and will credit those amounts on a daily basis with an annual earnings rate equal to the Policy loan interest rate less a charge for the mortality and expense risks we have assumed and for expenses, including taxes. The aggregate charge is currently at the annual rate of .90% for the 5% specified Policy loan interest rate and .90% for the variable Policy loan interest rate. For example, the earnings rate corresponding to the specified 5% Policy loan interest rate is currently 4.10%. A Policy loan, even if it is repaid, will have a permanent effect on the Policy Value and cash value because the amounts borrowed will not participate in the Account's investment results while the loan is outstanding. The effect may be either favorable or unfavorable depending on whether the earnings rate credited to the loan amount is higher or lower than the rate credited to the unborrowed amount left in the Account. Except when the Policy is in force as fixed benefit paid-up insurance, we will allocate a Policy loan between Policy Value and variable paid-up additional insurance in proportion to the amount of cash value attributable to each. You may repay a Policy loan, and any accrued interest outstanding, in whole or in part, at any time. We will credit payments as of the date we receive them and transfer them from our general account to the Account divisions, in proportion to the amounts in the divisions, as of the same date. You may make a withdrawal if the Excess Amount is sufficient. See "Excess Amount", p. 14. A withdrawal may neither decrease the Excess Amount to less than the surrender charge which would apply if the Policy were surrendered nor reduce the loan value to less than any Policy debt outstanding. The minimum amount for withdrawals is $250. An administrative charge of up to $25 may apply, but we are currently waiving that charge. A withdrawal of Policy Value decreases the death benefit by the same amount. If the death benefit for a Policy has been increased to meet the federal tax requirements for life insurance, the decrease in the death benefit caused by a subsequent withdrawal may be larger than the amount of the withdrawal. If cumulative withdrawals exceed the cumulative additional premiums which have been used to increase the Policy Value, with both withdrawals and premiums increased by 4% annual interest, subsequent unfavorable investment experience may cause the Policy to lapse unless you pay an additional unscheduled premium to increase the Policy Value. The due date for this premium is the Policy anniversary following written notice to you. EXCESS AMOUNT The Excess Amount is the amount by which the Policy Value exceeds the Tabular Cash Value for the sum of the Minimum Guaranteed Death Benefit and any Additional Protection in effect. The Tabular Cash Value is an amount equal to a Policy Value calculated assuming (1) a whole life Policy with a face amount equal to the sum of the Minimum Guaranteed Death Benefit and the Additional Protection, (2) all premiums are paid when due, (3) no additional premiums or dividends used to increase Policy Value, (4) a 4% level annual rate of return, and (5) maximum Policy charges apply. If you are not paying premiums on an annual basis, the Excess Amount is reduced for any premiums due later in the Policy year. PAID-UP INSURANCE If you do not pay a premium within the 31-day grace period, and the Policy does not qualify for suspension of premium payments, the Policy will continue in force as a reduced amount of fixed benefit paid-up insurance. Alternatively you may select a reduced amount of variable benefit paid-up insurance. You must make this selection during the grace period or sooner. If the Policy is in force as a reduced amount of fixed benefit paid-up insurance, we will transfer the amount of the cash value from the Account to our general account. Thereafter the Policy will not participate in the Account's investment results unless the Policy is subsequently reinstated. See "Reinstatement", below. The minimum cash value for fixed benefit paid-up insurance is $1,000. If the cash value is less than $1,000 as of the last day of the grace period we will treat the Policy as surrendered. You may select variable benefit paid-up insurance only if the cash value of the Policy is at least $5,000. We determine the amount of paid-up insurance by applying the amount of cash value plus any Policy debt as a net single premium at the attained age. Paid-up insurance has cash and loan values. For fixed benefit paid-up insurance the amounts of these are guaranteed. For variable paid-up insurance neither the death benefit or the cash value is guaranteed. Paid-up insurance remains in force for the lifetime of the insured unless you surrender or terminate the Policy. While the Policy is in force as either fixed or variable benefit paid- up insurance the Minimum Guaranteed Death Benefit and any Additional Protection will not be in effect. Any Policy debt will continue. REINSTATEMENT If a premium is due and remains unpaid after the grace period expires, the Policy may be reinstated while the insured Prospectus 14 17 is alive within three years after the premium due date. The insured must provide satisfactory evidence of insurability unless reinstatement takes place within 31 days after the end of the grace period. We may require a substantial payment. Following reinstatement the Policy will have the same Minimum Guaranteed Death Benefit, Additional Protection, Policy Value and paid-up additional insurance as if minimum premiums had been paid when due. We will credit a 4% rate of investment earnings for the period from the due date of the overdue premium to the date of reinstatement. We will make an adjustment for any Policy debt or the debt may be reinstated. The Policy may not be reinstated if you have surrendered it for its cash value. RIGHT TO RETURN POLICY You may return a Policy for a full refund of the premium you paid within 45 days after you sign the application for insurance, or within 10 days after you received the Policy, or within 10 days after a Notice of Cancellation Right is mailed or delivered to you, whichever date is latest. You may mail or deliver the Policy to the agent who sold it or to our Home Office. If returned, we will consider the Policy void from the beginning. RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY You may exchange a Policy for a whole life insurance policy with benefits that do not vary with the investment experience of a separate account. You may elect the exchange at any time within twenty-four months after the issue date of the Policy provided premiums are duly paid. We do not require evidence of insurability. The new policy will be on the life of the same insured and will have the same initial guaranteed death benefit, policy date and issue age. The premiums and cash values will be the same as those for fixed benefit policies we issued on the issue date of the Policy. The exchange will be subject to an equitable cash adjustment. The amount will recognize the difference in premiums and investment performance of the two policies. An exchange will be effective when we receive a proper written request, as well as the Policy and any amount due on the exchange. You may also exchange a Policy for a fixed benefit policy if either of the mutual funds changes its investment adviser or if there is a material change in the investment policies of a Portfolio or Fund. You will be given notice of any such change and will have 60 days to make the exchange. OTHER POLICY PROVISIONS OWNER. The owner is identified in the Policy. The owner may exercise all rights under the Policy while the insured is living. Ownership may be transferred to another. Written proof of the transfer must be received by Northwestern Mutual at its Home Office. In this prospectus "you" means the owner or prospective purchaser of a Policy. BENEFICIARY. The beneficiary is the person to whom the death benefit is payable. The beneficiary is named in the application. After the Policy is issued you may change the beneficiary in accordance with the Policy provisions. INCONTESTABILITY. We will not contest a Policy after it has been in force during the lifetime of the insured for two years from the date of issue. SUICIDE. If the insured dies by suicide within one year from the date of issue, the amount payable under the Policy will be limited to the premiums paid, less the amount of any Policy debt and withdrawals and less the cash value of any variable paid-up insurance surrendered. MISSTATEMENT OF AGE OR SEX. If the age or sex of the insured has been misstated, we will adjust benefits under a Policy to reflect the correct age and sex. COLLATERAL ASSIGNMENT. You may assign a Policy as collateral security. We are not responsible for the validity or effect of a collateral assignment and will not be deemed to know of an assignment before receipt of the assignment in writing at our Home Office. PAYMENT PLANS. The Policy provides a variety of payment plans for Policy benefits. Any Northwestern Mutual agent authorized to sell the Policies can explain these provisions on request. DEFERRAL OF DETERMINATION AND PAYMENT. So long as premiums have been paid when due, we will ordinarily pay Policy benefits within seven days after we receive all required documents at our Home Office. However, we may defer determination and payment of benefits during any period when it is not reasonably practicable to value securities because the New York Stock Exchange is closed or an emergency exists or the Securities and Exchange Commission, by order, permits deferral for the protection of Policyowners. If a Policy is in force as fixed benefit paid-up insurance, we have the right to defer payment of the cash value for up to six months from the date of a Policy loan or surrender. If payment is deferred for 30 days or more we will pay interest at an annual effective rate of 4%. VOTING RIGHTS We are the owner of the mutual fund shares in which all assets of the Account are invested. As the owner of the shares we will exercise our right to vote the shares to elect directors of the funds, to vote on matters required to be approved or ratified by mutual fund shareholders under the Investment Company Act of 1940 and to vote on any other matters that 15 Prospectus 18 may be presented to any shareholders' meeting of the funds. However, we will vote the mutual fund shares held in the Account in accordance with instructions from owners of the Policies. We will vote any shares held in our general account in the same proportions as the shares for which voting instructions are received. If the applicable laws or regulations change so as to permit us to vote the shares in our own discretion, we may elect to do so. The number of mutual fund shares for each division of the Account for which the owner of a Policy may give instructions is determined by dividing the amount of the Policy's cash value apportioned to that division, if any, by the per share value for the corresponding Portfolio or Fund. The number will be determined as of a date we choose, but not more than 90 days before the shareholders' meeting. Fractional votes are counted. We will solicit voting instructions with written materials at least 14 days before the meeting. We will vote shares as to which we receive no instructions in the same proportion as the shares as to which we receive instructions. We may, if required by state insurance officials, disregard voting instructions which would require mutual fund shares to be voted for a change in the sub-classification or investment objectives of a Portfolio or Fund, or to approve or disapprove an investment advisory agreement for either of the mutual funds. We may also disregard voting instructions that would require changes in the investment policy or investment adviser for either a Portfolio or a Fund, provided that we reasonably determine to take this action in accordance with applicable federal law. If we disregard voting instructions we will include a summary of the action and reasons therefor in the next semiannual report to the owners of the Policies. SUBSTITUTION OF FUND SHARES AND OTHER CHANGES If, in our judgment, a Portfolio or Fund becomes unsuitable for continued use with the Policies because of a change in investment objectives or restrictions, we may substitute shares of another Portfolio or Fund or another mutual fund. Any substitution of shares will be subject to any required approval of the Securities and Exchange Commission, the Wisconsin Commissioner of Insurance or other regulatory authority. We have also reserved the right, subject to applicable federal and state law, to operate the Account or any of its divisions as a management company under the Investment Company Act of 1940, or in any other form permitted, or to terminate registration of the Account if registration is no longer required, and to change the provisions of the Policies to comply with any applicable laws. REPORTS For each Policy year (unless a Policy is in force as fixed benefit paid-up insurance) you will receive a statement showing the death benefit, cash value and any Policy loan (including interest charged) as of the anniversary date. This report will show the apportionment of invested assets among the Account divisions. You will also receive annual and semiannual reports for the Account and both of the mutual funds, including financial statements. SPECIAL POLICY FOR EMPLOYERS A reduced minimum amount applies for Policies where the insurance involves an employer sponsored benefit plan or arrangement. The sum of the Minimum Guaranteed Death Benefit and the Additional Protection must be at least $10,000, of which the Minimum Guaranteed Death Benefit must be at least $1,000. The premium for the Additional Protection is two times the cost of term insurance for the insured's age when the Policy is issued. These Policies for employers may include a provision to permit the amount of Additional Protection to increase after issue. Any such increase amount must be based on the terms of the benefit plan or arrangement and may not be subject to the discretion of the insured or the insured's beneficiary. A description of the method of determining the amount of any increase is included in the Policy. Changes to the amount of Additional Protection will be effective on Policy anniversaries. The surrender charge and all charges for issue and administrative expenses will be based on the initial amount of Additional Protection. For certain situations where the insurance involves an employer sponsored benefit plan or arrangement, federal law and the laws of certain states may require that premiums and annuity rates be determined without regard to sex. Special Policies are available for this purpose. You are urged to review any questions in this area with qualified counsel. DISTRIBUTION OF THE POLICIES We sell the Policies through individuals who are licensed life insurance agents appointed by Northwestern Mutual and are registered representatives of Northwestern Mutual Investment Services, LLC ("NMIS"), our wholly-owned subsidiary. NMIS is a registered broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers. NMIS was organized in 1968 and is a Wisconsin limited liability company. Its address is 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202. The Internal Revenue Service Employer Identification Number of NMIS is 39-0509570. Commissions paid to the agents will not exceed 40% of the premium for the first year, 6% of the premium for the second through tenth years, and 2 3/4% of the premium thereafter. Agents who meet certain productivity and persistency standards receive additional compensation. We may pay new agents differently during a training period. General agents Prospectus 16 19 and district agents who are registered representatives of NMIS and have supervisory responsibility for sales of the Policies receive commission overrides and other compensation. TAX TREATMENT OF POLICY BENEFITS The Policies are "life insurance contracts" as that term is defined in Sections 7702 and 817(h) of the Internal Revenue Code. Increases in cash value under a Policy are not taxable until actual surrender of the Policy. Upon surrender, the amount received is taxable at ordinary income rates under Section 72(e) of the Code to the extent it exceeds the amount of the premiums paid under the Policy less any dividends or other amounts previously received tax-free (basis of the Policy). Death benefits are excludable from the beneficiary's gross income under Section 101(a) of the Code. Under certain limited circumstances, all or part of a partial surrender or a withdrawal during the first 15 years may be taxable on a "gain first basis" to the extent that the cash value of the Policy exceeds the basis of the Policy. This means the amount surrendered or withdrawn may be taxable even if that amount is less than the basis of the Policy. Loans received under the Policies (except modified endowment contracts as described below) will not constitute income to the owner until the loan is extinguished by surrender or lapse. Policies will be classified as modified endowment contracts under Section 7702A of the Internal Revenue Code if the aggregate premium paid during the first 7 years exceeds a defined "7-pay limit". Generally, this can occur if significant additional premiums are paid or the death benefit is reduced within the first 7 years or if additional benefits are added to the Policy. For Policies that are modified endowment contracts, withdrawals, partial surrenders, Policy loans and dividends paid in cash are taxable as income on a gain first basis. The taxable portion of these distributions would also be subject to a 10% penalty if received prior to age 59 1/2, disability or annuitization. For purposes of determining taxable income, all Policies that are modified endowment contracts (including any fixed dollar policies that are modified endowment contracts) issued by Northwestern Mutual to the Policyowner during the same calendar year are aggregated. Federal estate and state and local estate, inheritance and other tax consequences of ownership or receipt of Policy proceeds depend upon the circumstances of each Policy owner or beneficiary. The foregoing summary does not purport to be complete or to cover all situations. You should consult counsel and other competent advisers for more complete information. - -------------------------------------------------------------------------------- OTHER INFORMATION MANAGEMENT Northwestern Mutual is managed by a Board of Trustees. The Trustees and senior officers of Northwestern Mutual and their positions including Board committee memberships, and their principal occupations, are as follows: TRUSTEES
NAME PRINCIPAL OCCUPATION DURING LAST FIVE YEARS - ------------------------------------------ ------------------------------------------------------------ R. Quintus Anderson (A)................... Chairman, Aarque Capital Corporation since 1997, prior thereto; Chairman, The Aarque Companies, Jamestown, NY (diversified metal products manufacturing) Edward E. Barr (HR)....................... Chairman, Sun Chemical Corporation, Fort Lee, New Jersey (graphic arts) since 1998; prior thereto, President and Chief Executive Officer. President and Chief Executive Officer, DIC Americas, Inc., Fort Lee, NJ Gordon T. Beaham, III (OT)................ Chairman of the Board and President, Faultless Starch/Bon Ami Company, Kansas City, MO (consumer products manufacturer) Robert C. Buchanan (A, E, F).............. President and Chief Executive Officer, Fox Valley Corporation, Appleton, WI (manufacturer of gift wrap and writing paper)
17 Prospectus 20
NAME PRINCIPAL OCCUPATION DURING LAST FIVE YEARS - ------------------------------------------ ------------------------------------------------------------ George A. Dickerman (AM).................. Chairman Emeritus, Spalding Sports Worldwide, Chicopee, MA (manufacturer of sporting equipment) since 1999; Chairman of the Board from 1998 to 1999; prior thereto, President Pierre S. du Pont (AM).................... Attorney, Richards, Layton and Finger, Wilmington, DE James D. Ericson (AM, E, F. HR, OT)....... Chairman and Chief Executive Officer of Northwestern Mutual since 2000; prior thereto, President and Chief Executive Officer J. E. Gallegos (A)........................ Attorney at Law; President, Gallegos Law Firm, Santa Fe, NM Stephen N. Graff (A, E, F)................ Retired Partner, Arthur Andersen LLP (public accountants), Milwaukee, WI Patricia Albjerg Graham (HR).............. Professor, Graduate School of Education, Harvard University, Cambridge, MA, and President, The Spencer Foundation (social and behavioral sciences) Stephen F. Keller (HR).................... Attorney. Former Chairman, Santa Anita Realty Enterprises, Los Angeles, CA, since 1997; prior thereto, Chairman Barbara A. King (AM)...................... President, Landscape Structures, Inc., Delano, MN (manufacturer of playground equipment) J. Thomas Lewis (HR)...................... Attorney (retired), New Orleans, LA since 1998; prior thereto, Attorney with Monroe & Lemann, New Orleans, LA Daniel F. McKeithan, Jr. (E, F, HR)....... President, Tamarack Petroleum Company, Inc., Milwaukee, WI (operator of oil and gas wells); President, Active Investor Management, Inc., Milwaukee, WI Guy A. Osborn (E, F, OT).................. Retired Chairman of Universal Foods Corporation, Milwaukee, WI since 1997; prior thereto, Chairman and Chief Executive Officer Timothy D. Proctor (A).................... Group General Counsel, Diageo plc since 2000 (multinational branded food and drink company); Director, Worldwide Human Resources of Glaxo Wellcome plc from 1998 to 1999 (pharmaceuticals); prior thereto, Senior Vice President Human Resources, General Counsel & Secretary H. Mason Sizemore, Jr. (AM)............... President and Chief Operating Officer, The Seattle Times, Seattle, WA (publishing) Harold B. Smith (OT)...................... Chairman, Executive Committee, Illinois Tool Works, Inc., Chicago, IL (engineered components and industrial systems and consumables) Sherwood H. Smith, Jr. (AM)............... Chairman Emeritus of Carolina Power & Light since 1999; Chairman of the Board from 1997 to 1999; prior thereto, Chairman of the Board and Chief Executive Officer Peter M. Sommerhauser (E, F, OT).......... Partner, Godfrey & Kahn, S.C., Milwaukee, WI (attorneys) John E. Steuri (OT)....................... Chairman, Advanced Thermal Technologies, Little Rock, AR since 1997 (heating, air-conditioning and humidity control). Retired since 1996 as Chairman and Chief Executive Officer of ALLTEL Information Services, Inc., Little Rock, AR (application software) John J. Stollenwerk (AM, E, F)............ President and Chief Executive Officer, Allen-Edmonds Shoe Corporation, Port Washington, WI Barry L. Williams (HR).................... President and Chief Executive Officer of Williams Pacific Ventures, Inc., San Francisco, CA (venture capital consulting) Kathryn D. Wriston (A).................... Director of various corporations, New York, NY Edward J. Zore............................ President of Northwestern Mutual since 2000; prior thereto, Executive Vice President
A -- Member, Audit Committee AM -- Member, Agency and Marketing Committee E -- Member, Executive Committee F -- Member, Finance Committee HR -- Member, Human Resources and Public Policy Committee OT -- Member, Operations and Technology Committee Prospectus 18 21 SENIOR OFFICERS (OTHER THAN TRUSTEES)
POSITION WITH NAME NORTHWESTERN MUTUAL - -------------------------------------------- -------------------------------------------- John M. Bremer Senior Executive Vice President and Secretary Peter W. Bruce Senior Executive Vice President Deborah A. Beck Executive Vice President William H. Beckley Executive Vice President Mark G. Doll Senior Vice President Richard L. Hall Senior Vice President William C. Koenig Senior Vice President and Chief Actuary Donald L. Mellish Senior Vice President Bruce L. Miller Executive Vice President Mason G. Ross Senior Vice President John E. Schlifske Senior Vice President Leonard F. Stecklein Senior Vice President Frederic H. Sweet Senior Vice President Walter J. Wojcik Senior Vice President Gary E. Long Vice President and Controller
REGULATION We are subject to the laws of Wisconsin governing insurance companies and to regulation by the Wisconsin Commissioner of Insurance. We file an annual statement in a prescribed form with the Department of Insurance on or before March 1 in each year covering operations for the preceding year and including financial statements. Regulation by the Wisconsin Insurance Department includes periodic examination to determine solvency and compliance with insurance laws. We are also subject to the insurance laws and regulations of the other jurisdictions in which we are licensed to operate. LEGAL PROCEEDINGS We are engaged in litigation of various kinds which in our judgment is not of material importance in relation to our total assets. There are no legal proceedings pending to which the Account is a party. REGISTRATION STATEMENT We have filed a registration statement with the Securities and Exchange Commission, Washington, D.C. under the Securities Act of 1933, as amended, with respect to the Policies. This prospectus does not contain all the information set forth in the registration statement. A copy of the omitted material is available from the main office of the SEC in Washington, D.C. upon payment of the prescribed fee. Further information about the Policies is also available from the Home Office of Northwestern Mutual. The address and telephone number are on the cover of this prospectus. EXPERTS The financial statements of Northwestern Mutual as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999 and of the Account as of December 31, 1999 and for each of the two years in the period ended December 31, 1999 included in this prospectus have been so included in reliance on the reports of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. Actuarial matters included in this prospectus have been examined by William C. Koenig, F.S.A., Senior Vice President and Chief Actuary of Northwestern Mutual. His opinion is filed as an exhibit to the registration statement. 19 Prospectus 22 [PRICEWATERHOUSECOOPERS LLC - LETTERHEAD] Report of Independent Accountants To the Northwestern Mutual Life Insurance Company and Contract Owners of Northwestern Mutual Variable Life Account In our opinion, the accompanying combined statement of assets and liabilities and the related combined and separate statements of operations and of changes in equity present fairly, in all material respects, the financial position of Northwestern Mutual Variable Life Account and the Small Cap Growth Stock Division, Aggressive Growth Stock Division, International Equity Division, Index 400 Stock Division, Growth Stock Division, Growth & Income Stock Division, Index 500 Stock Division, Balanced Division, High Yield Bond Division, Select Bond Division, Money Market Division, Russell Multi-Style Equity Division, Russell Aggressive Equity Division, Russell Non-U.S. Division, Russell Real Estate Securities Division and Russell Core Bond Division thereof at December 31, 1999, the results of each of their operations for each of the two years or the period then ended and the changes in each of their equity for the two years or the period then ended in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of The Northwestern Mutual Life Insurance Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included direct confirmation of the number of shares owned at December 31, 1999 with Northwestern Mutual Series Fund, Inc. and the Russell Insurance Funds, provide a reasonable basis for the opinion expressed above. [PRICEWATERHOUSECOOPERS LLC] Milwaukee, Wisconsin January 27, 2000 Accountants' Report 20 23 NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT Statement of Assets and Liabilities December 31, 1999 (in thousands)
ASSETS Investments at Market Value: Northwestern Mutual Series Fund, Inc. Small Cap Growth Stock 4,228 shares (cost $6,122)......................... $ 7,561 Aggressive Growth Stock 42,894 shares (cost $135,037)...................... 206,058 International Equity 68,837 shares (cost $110,160)...................... 122,508 Index 400 Stock 3,839 shares (cost $3,940)......................... 4,260 Growth Stock 47,373 shares (cost $92,844)....................... 125,759 Growth and Income Stock 66,188 shares (cost $96,173)....................... 103,251 Index 500 Stock 84,461 shares (cost $220,153)...................... 328,044 Balanced 84,819 shares (cost $140,282)...................... 188,428 High Yield Bond 21,865 shares (cost $22,132)....................... 17,965 Select Bond 13,558 shares (cost $16,226)....................... 15,328 Money Market 67,006 shares (cost $67,006)....................... 67,400 Russell Insurance Funds Multi-Style Equity 819 shares (cost $13,258).......................... 13,738 Aggressive Equity 401 shares (cost $4,918)........................... 5,356 Non-U.S. 395 shares (cost $5,025)........................... 5,609 Real Estate Securities 131 shares (cost $1,160)........................... 1,151 Core Bond 159 shares (cost $1,580)........................... 1,536 $1,213,952 -------- Due from Sale of Fund Shares.............................. 1,180 Due from Northwestern Mutual Life Insurance Company....... 1,736 ---------- Total Assets..................................... $1,216,868 ========== LIABILITIES Due to Northwestern Mutual Life Insurance Company......... $ 1,180 Due on Purchase of Fund Shares............................ 1,736 ---------- Total Liabilities................................ 2,916 ---------- EQUITY (NOTE 8) Variable Life Policies Issued Before October 11, 1995..... 479,924 Variable Complife Policies Issued On or After October 11, 1995.................................................... 717,227 Variable Executive Life Policies Issued On or After March 2, 1998................................................. 7,901 Variable Joint Life Policies Issued On or After December 10, 1998................................................ 8,900 ---------- Total Equity..................................... 1,213,952 ---------- Total Liabilities and Equity..................... $1,216,868 ==========
The Accompanying Notes are an Integral Part of the Financial Statements 21 Variable Life Financial Statements 24 NML VARIABLE LIFE ACCOUNT
Statement of Operations SMALL CAP (in thousands) GROWTH STOCK AGGRESSIVE GROWTH COMBINED DIVISION# STOCK DIVISION ---------------------------- ------------ ---------------------------- SIX MONTHS YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1999 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividend Income............................ $ 60,160 $24,922 $ 239 $ 4,628 $3,287 Mortality and Expense Risks................ 4,044 2,755 5 605 424 Taxes...................................... 1,737 1,178 3 259 181 -------- ------- ------ ------- ------ Net Investment Income...................... 54,379 20,989 231 3,764 2,682 -------- ------- ------ ------- ------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized Gain (Loss) on Investments........ 7,370 4,332 -- 1,888 523 Unrealized Appreciation (Depreciation) of Investments During the Period............ 115,169 68,780 1,440 54,225 4,928 -------- ------- ------ ------- ------ Net Gain (Loss) on Investments............. 122,539 73,112 1,440 56,113 5,451 -------- ------- ------ ------- ------ Increase (Decrease) in Equity Derived from Investment Activity...................... $176,918 $94,101 $1,671 $59,877 $8,133 ======== ======= ====== ======= ======
# The initial investment in this Division was made on June 30, 1999. The Accompanying Notes are an Integral Part of the Financial Statements Variable Life Financial Statements 22 25
INDEX 400 STOCK GROWTH & INCOME DIVISION# INTERNATIONAL EQUITY DIVISION GROWTH STOCK DIVISION STOCK DIVISION - ----------------- ----------------------------- --------------------------- --------------------------- SIX MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1999 1998 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------- $ 58 $13,164 $ 3,591 $ 3,284 $ 956 $ 9,123 $ 537 4 420 308 395 211 372 234 2 180 132 170 91 159 100 ---- ------- ------- ------- ------- ------- ------- 52 12,564 3,151 2,719 654 8,592 203 ---- ------- ------- ------- ------- ------- ------- 4 504 284 595 143 514 220 321 7,108 (1,424) 16,158 10,533 (3,359) 10,574 ---- ------- ------- ------- ------- ------- ------- 325 7,612 (1,140) 16,753 10,676 (2,845) 10,794 ---- ------- ------- ------- ------- ------- ------- $377 $20,176 $ 2,011 $19,472 $11,330 $ 5,747 $10,997 ==== ======= ======= ======= ======= ======= ======= INDEX 500 STOCK DIVISION --------------------------- YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1999 1998 --------------------------- $ 5,542 $ 4,530 1,104 671 473 287 ------- ------- 3,965 3,572 ------- ------- 1,529 1,125 42,832 31,738 ------- ------- 44,361 32,863 ------- ------- $48,326 $36,435 ======= =======
23 Variable Life Financial Statements 26 NML VARIABLE LIFE ACCOUNT
Statement of Operations BALANCED DIVISION HIGH YIELD BOND DIVISION SELECT BOND DIVISION (in thousands) ---------------------------- ---------------------------- ---------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, (CONTINUED) 1999 1998 1999 1998 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividend Income.................. $ 17,659 $ 8,344 $ 2,112 $ 1,489 $ 1,211 $ 743 Mortality and Expense Risks...... 769 681 70 53 62 51 Taxes............................ 330 292 30 22 27 22 -------- -------- ------- ------- ------- ------- Net Investment Income............ 16,560 7,371 2,012 1,414 1,122 670 -------- -------- ------- ------- ------- ------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized Gain (Loss) on Investments.................... 2,596 1,893 (288) 47 33 97 Unrealized Appreciation (Depreciation) of Investments During the Period.............. (1,744) 14,317 (1,879) (1,828) (1,386) (58) -------- -------- ------- ------- ------- ------- Net Gain (Loss) on Investments... 852 16,210 (2,167) (1,781) (1,353) 39 -------- -------- ------- ------- ------- ------- Increase (Decrease) in Equity Derived from Investment Activity....................... $ 17,412 $ 23,581 $ (155) $ (367) $ (231) $ 709 ======== ======== ======= ======= ======= =======
# The initial investment in this Division was made on June 30, 1999. The Accompanying Notes are an Integral Part of the Financial Statements Variable Life Financial Statements 24 27
RUSSELL RUSSELL RUSSELL RUSSELL MONEY MARKET DIVISION MULTI-STYLE EQUITY# AGGRESSIVE EQUITY# NON-U.S.# REAL ESTATE SECURITIES# - ------------------------------- ------------------- ------------------ ---------------- ----------------------- SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS YEAR ENDED YEAR ENDED ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1999 1999 1999 1999 - ----------------------------------------------------------------------------------------------------------------------- $2,507 $1,445 $381 $ 19 $145 $ 35 212 122 14 4 5 1 92 51 5 3 2 1 ------ ------ ---- ---- ---- ---- 2,203 1,272 362 12 138 33 ------ ------ ---- ---- ---- ---- -- -- (1) (4) -- -- -- -- 484 438 585 (9) ------ ------ ---- ---- ---- ---- -- -- 483 434 585 (9) ------ ------ ---- ---- ---- ---- $2,203 $1,272 $845 $446 $723 $ 24 ====== ====== ==== ==== ==== ==== RUSSELL CORE BOND# ---------------- SIX MONTHS ENDED DECEMBER 31, 1999 ---------------- $ 53 2 1 ---- 50 ---- -- (45) ---- (45) ---- $ 5 ====
25 Variable Life Financial Statements 28 NML VARIABLE LIFE ACCOUNT
Statement of Changes in Equity SMALL CAP (in thousands) GROWTH STOCK AGGRESSIVE GROWTH COMBINED DIVISION# STOCK DIVISION ---------------------------- ------------ ---------------------------- SIX MONTHS YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1999 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- OPERATIONS Net Investment Income...................... $ 54,379 $ 20,989 $ 231 $ 3,764 $ 2,682 Net Realized Gain (Loss)................... 7,370 4,332 -- 1,888 523 Net Change in Unrealized Appreciation (Depreciation)........................... 115,169 68,780 1,440 54,225 4,928 ---------- -------- ------ -------- -------- Increase (Decrease) in Equity................ 176,918 94,101 1,671 59,877 8,133 ---------- -------- ------ -------- -------- EQUITY TRANSACTIONS Policyowners' Net Payments................. 403,531 258,672 319 37,031 30,145 Policy Loans, Surrenders, and Death Benefits................................. (54,502) (37,427) (74) (9,017) (6,454) Mortality and Other (net).................. (61,013) (39,611) (25) (7,239) (5,193) Transfers from Other Divisions............. 243,273 133,775 5,878 23,525 20,371 Transfers to Other Divisions............... (244,190) (133,773) (207) (17,347) (6,419) ---------- -------- ------ -------- -------- Increase in Equity Derived from Equity Transactions............................... 287,099 181,636 5,891 26,953 32,450 ---------- -------- ------ -------- -------- Net Increase in Equity....................... 464,017 275,737 7,562 86,830 40,583 EQUITY Beginning of Period........................ 749,935 474,198 -- 119,230 78,647 ---------- -------- ------ -------- -------- End of Period.............................. $1,213,952 $749,935 $7,562 $206,060 $119,230 ========== ======== ====== ======== ========
# The initial investment in this Division was made on June 30, 1999. The Accompanying Notes are an Integral Part of the Financial Statements Variable Life Financial Statements 26 29
INDEX 400 STOCK GROWTH & INCOME DIVISION# INTERNATIONAL EQUITY DIVISION GROWTH STOCK DIVISION STOCK DIVISION - ---------------- ----------------------------- --------------------------- --------------------------- SIX MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1999 1998 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------ $ 52 $ 12,564 $ 3,151 $ 2,719 $ 654 $ 8,592 $ 203 4 504 284 595 143 514 220 321 7,108 (1,424) 16,158 10,533 (3,359) 10,574 ------ -------- ------- -------- ------- -------- ------- 377 20,176 2,011 19,472 11,330 5,747 10,997 ------ -------- ------- -------- ------- -------- ------- 165 25,923 20,672 22,738 12,991 23,731 14,771 (43) (5,642) (4,327) (5,004) (2,859) (5,239) (2,902) (27) (4,876) (3,785) (4,452) (2,494) (4,489) (2,847) 4,152 19,043 15,743 33,353 16,839 22,159 17,225 (364) (10,533) (5,013) (6,373) (2,015) (9,185) (3,106) ------ -------- ------- -------- ------- -------- ------- 3,883 23,915 23,290 40,262 22,462 26,977 23,141 ------ -------- ------- -------- ------- -------- ------- 4,260 44,091 25,301 59,734 33,792 32,724 34,138 -- 78,417 53,116 66,025 32,233 70,527 36,389 ------ -------- ------- -------- ------- -------- ------- $4,260 $122,508 $78,417 $125,759 $66,025 $103,251 $70,527 ====== ======== ======= ======== ======= ======== ======= INDEX 500 STOCK DIVISION --------------------------- YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1999 1998 --------------------------- $ 3,965 $ 3,572 1,529 1,125 42,832 31,738 -------- -------- 48,326 36,435 -------- -------- 56,388 29,665 (14,992) (8,924) (10,807) (5,367) 72,157 37,076 (14,168) (5,443) -------- -------- 88,578 47,007 -------- -------- 136,904 83,442 191,141 107,699 -------- -------- $328,045 $191,141 ======== ========
27 Variable Life Financial Statements 30 NML VARIABLE LIFE ACCOUNT
Statement of Changes in Equity BALANCED DIVISION HIGH YIELD BOND DIVISION SELECT BOND DIVISION (in thousands) ---------------------------- ---------------------------- ---------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, (CONTINUED) 1999 1998 1999 1998 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- OPERATIONS Net Investment Income............ $ 16,560 $ 7,371 $ 2,012 $ 1,414 $ 1,122 $ 670 Net Realized Gain (Loss)......... 2,596 1,893 (288) 47 33 97 Net Change in unrealized Appreciation (Depreciation).... (1,744) 14,317 (1,879) (1,828) (1,386) (58) -------- -------- ------- ------- ------- ------- Increase (Decrease) in Equity...... 17,412 23,581 (155) (367) (231) 709 -------- -------- ------- ------- ------- ------- EQUITY TRANSACTIONS Policyowners' Net Payments....... 20,488 17,811 5,513 3,490 3,020 2,004 Policy Loans, Surrenders, and Death Benefits................. (9,916) (8,879) (933) (690) (985) (620) Mortality and Other (net)........ (4,412) (3,232) (928) (641) (557) (250) Transfers from Other Divisions... 16,340 7,905 3,662 5,399 3,874 3,951 Transfers to Other Divisions..... (9,591) (5,398) (3,710) (1,476) (2,463) (2,217) -------- -------- ------- ------- ------- ------- Increase in Equity Derived from Equity Transactions.............. 12,909 8,207 3,604 6,082 2,889 2,868 -------- -------- ------- ------- ------- ------- Net Increase in Equity............. 30,321 31,788 3,449 5,715 2,658 3,577 EQUITY Beginning of Period.............. 158,110 126,322 14,516 8,801 12,669 9,092 -------- -------- ------- ------- ------- ------- End of Period.................... $188,431 $158,110 $17,965 $14,516 $15,327 $12,669 ======== ======== ======= ======= ======= =======
# The initial investments in this Division was made on June 30, 1999. The Accompanying Notes are an Integral Part of the Financial Statements Variable Life Financial Statements 28 31
RUSSELL RUSSELL RUSSELL RUSSELL MONEY MARKET DIVISION MULTI-STYLE EQUITY# AGGRESSIVE EQUITY# NON-U.S.# REAL ESTATE SECURITIES# - ------------------------------- ------------------- ------------------ ---------------- ----------------------- SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS YEAR ENDED YEAR ENDED ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1999 1999 1999 1999 - ----------------------------------------------------------------------------------------------------------------------- $ 2,203 $ 1,272 $ 362 $ 12 $ 138 $ 33 -- -- (1) (4) -- -- -- -- 484 438 585 (9) --------- --------- ------- ------ ------ ------ 2,203 1,272 845 446 723 24 --------- --------- ------- ------ ------ ------ 207,164 127,123 669 28 254 49 (2,420) (1,772) (109) (34) (48) (8) (23,000) (15,802) (114) (37) (34) (8) 13,433 9,266 13,008 5,080 4,917 1,097 (169,279) (102,686) (561) (127) (205) (6) --------- --------- ------- ------ ------ ------ 25,898 16,129 12,893 4,910 4,884 1,124 --------- --------- ------- ------ ------ ------ 28,101 17,401 13,738 5,356 5,607 1,148 39,300 21,899 -- -- -- -- --------- --------- ------- ------ ------ ------ $ 67,401 $ 39,300 $13,738 $5,356 $5,607 $1,148 ========= ========= ======= ====== ====== ====== RUSSELL CORE BOND# ---------------- SIX MONTHS ENDED DECEMBER 31, 1999 ---------------- $ 50 -- (45) ------ 5 ------ 51 (38) (8) 1,595 (71) ------ 1,529 ------ 1,534 -- ------ $1,534 ======
29 Variable Life Financial Statements 32 NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT Notes to Financial Statements December 31, 1999 NOTE 1 -- Northwestern Mutual Variable Life Account (the "Account") is registered as a unit investment trust under the Investment Company Act of 1940 and is a segregated asset account of The Northwestern Mutual Life Insurance Company ("Northwestern Mutual") used to fund variable life insurance policies. NOTE 2 -- The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principal accounting policies are summarized below. NOTE 3 -- All assets of each Division of the Account are invested in shares of the corresponding Portfolio of Northwestern Mutual Series Fund, Inc and the Russell Insurance Funds (collectively known as "the Funds"). The shares are valued at the Funds' offering and redemption prices per share. The Funds are diversified open-end investment companies registered under the Investment Company Act of 1940. NOTE 4 -- Dividend income from the Funds is recorded on the record date of the dividends. Transactions in the Funds shares are accounted for on the trade date. The basis for determining cost on sale of Funds shares is identified cost. Purchases and sales of the Funds shares for the period ended December 31, 1999 by each Division are shown below:
DIVISIONS PURCHASES SALES --------- --------- ----- Small Cap Growth Stock.... $ 6,123,393 $ 1,068 Aggressive Growth Stock... 35,131,629 4,386,856 International Equity...... 38,347,289 1,854,037 Index 400 Stock........... 4,056,200 119,396 Growth Stock.............. 44,024,329 1,042,030 Growth & Income Stock..... 37,069,503 1,491,279 Index 500 Stock........... 95,056,887 2,520,734 Balanced.................. 35,493,036 6,023,989 High Yield Bond........... 7,296,571 1,680,853 Select Bond............... 6,205,815 2,193,634 Money Market.............. 73,757,754 45,658,376 Russell Multi-Style Equity Fund.................... 13,280,682 21,745 Russell Aggressive Equity Fund.................... 5,000,413 77,631 Russell Non-U.S. Fund..... 5,030,954 6,175 Russell Real Estate Securities Fund......... 1,160,771 619 Russell Core Bond Fund.... 1,664,332 84,103
NOTE 5 -- A deduction for mortality and expense risks is determined daily and paid to Northwestern Mutual. Generally, for Variable Life policies issued before October 11, 1995, and Variable Complife policies issued on or after October 11, 1995 the deduction is at an annual rate of .50% and .60%, respectively, of the net assets of the Account. A deduction for the mortality and expense risks for the Variable Executive Life policies issued on or after March 3, 1998 is determined monthly at an annual rate of .75% of the amount invested in the Account for the Policy for the first ten Policy years, and .30% thereafter. The mortality risk is that insureds may not live as long as estimated. The expense risk is that expenses of issuing and administering the policies may exceed the estimated costs. Certain deductions are also made from the annual, single or other premiums before amounts are allocated to the Account. These deductions are for (1) sales load, (2) administrative expenses, (3) taxes and (4) a risk charge for the guaranteed minimum death benefit. Additional mortality costs are deducted from the policy annually and are paid to Northwestern Mutual to cover the cost of providing insurance protection. This cost is actuarially calculated based upon the insured's age, the 1980 Commissioners Standard Ordinary Mortality Table and the amount of insurance provided under the policy. NOTE 6 -- Northwestern Mutual is taxed as a "life insurance company" under the Internal Revenue Code. The variable life insurance policies which are funded in the Account are taxed as part of the operations of Northwestern Mutual. Policies provide that a charge for taxes may be made against the assets of the Account. Generally, for Variable Life policies issued before October 11, 1995, Northwestern Mutual charges the Account at an annual rate of .20% of the Account's net assets and reserves the right to increase, decrease or eliminate the charge for taxes in the future. Generally, for Variable Complife policies issued on or after October 11, 1995, and for Variable Executive Life policies issued on or after March 3, 1998, there is no charge being made against the assets of the Account for federal income taxes, but Northwestern Mutual reserves the right to charge for taxes in the future. NOTE 7 -- The Account is credited for the policyowners' net annual premiums at the respective policy anniversary dates regardless of when policyowners actually pay their premiums. Northwestern Mutual's equity represents any unpaid portion of net annual premiums. This applies to Variable Life and Variable Complife policies only. Notes to Financial Statements 30 33 NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT Notes to Financial Statements December 31, 1999 (in thousands) NOTE 8 -- Equity Values by Division are shown below:
VARIABLE LIFE VARIABLE COMPLIFE POLICIES ISSUED POLICIES ISSUED BEFORE OCTOBER 11, 1995 ON OR AFTER OCTOBER 11, 1995 EQUITY OF: EQUITY OF: ------------------------- TOTAL ----------------------------- TOTAL POLICYOWNERS NML EQUITY POLICYOWNERS NML EQUITY ---------------------------------------------------------------------------------------- Small Cap Growth Stock................. $ 2,395 $ 90 $ 2,485 $ 3,094 $ 1,599 $ 4,693 Aggressive Growth Stock................ 60,387 3,459 63,846 115,775 25,627 141,402 International Equity................... 40,534 2,738 43,272 62,788 15,362 78,150 Index 400 Stock........................ 920 49 969 1,710 1,334 3,044 Growth Stock........................... 31,720 1,600 33,320 70,935 19,665 90,600 Growth and Income Stock................ 28,633 1,702 30,335 56,046 16,098 72,144 Index 500 Stock........................ 124,843 5,072 129,915 149,358 44,339 193,697 Balanced............................... 145,265 4,576 149,841 28,647 8,243 36,890 High Yield Bond........................ 4,049 332 4,381 10,475 2,941 13,416 Select Bond............................ 7,403 386 7,789 5,475 1,478 6,953 Money Market........................... 8,133 372 8,505 23,834 32,439 56,273 Russell Multi-Style Equity............. 2,095 91 2,186 6,289 3,973 10,262 Russell Aggressive Equity.............. 1,248 54 1,302 2,141 1,591 3,732 Russell Non-U.S. ...................... 1,029 42 1,071 2,659 1,460 4,119 Russell Real Estate Securities......... 302 12 314 469 324 793 Russell Core Bond...................... 368 25 393 761 298 1,059 -------- ------- -------- -------- -------- -------- $459,324 $20,600 $479,924 $540,456 $176,771 $717,227 ======== ======= ======== ======== ======== ========
VARIABLE EXECUTIVE LIFE VARIABLE JOINT LIFE POLICIES ISSUED POLICIES ISSUED ON OR AFTER MARCH 2, 1998 ON OR AFTER DECEMBER 10, 1998 -------------------------- ----------------------------- TOTAL TOTAL EQUITY EQUITY -------------------------------------------------------------- Small Cap Growth Stock.................................... $ 1 $ 374 Aggressive Growth Stock................................... 441 420 International Equity...................................... 687 393 Index 400 Stock........................................... 193 52 Growth Stock.............................................. 934 897 Growth and Income Stock................................... 122 648 Index 500 Stock........................................... 1,965 2,453 Balanced.................................................. 1,429 266 High Yield Bond........................................... 127 41 Select Bond............................................... 503 85 Money Market.............................................. 1,024 1,598 Russell Multi-Style Equity................................ 190 1,095 Russell Aggressive Equity................................. 164 155 Russell Non-U.S. ......................................... 113 304 Russell Real Estate Securities............................ 2 42 Russell Core Bond......................................... 6 77 ------ ------ $7,901 $8,900 ====== ======
31 Notes to Financial Statements 34 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY Consolidated Statement of Financial Position (in millions) The following financial statements of Northwestern Mutual should be considered only as bearing upon the ability of Northwestern Mutual to meet its obligations under the Policies.
DECEMBER 31, --------------------- 1999 1998 - ------------------------------------------------------------------------------------- ASSETS Bonds..................................................... $36,792 $34,888 Common and preferred stocks............................... 7,108 6,062 Mortgage loans............................................ 13,416 12,250 Real estate............................................... 1,666 1,481 Policy loans.............................................. 7,938 7,580 Other investments......................................... 3,443 2,353 Cash and temporary investments............................ 1,159 1,275 ------- ------- TOTAL INVESTMENTS....................................... 71,522 65,889 Due and accrued investment income......................... 893 827 Other assets.............................................. 1,409 1,313 Separate account assets................................... 12,161 9,966 ------- ------- TOTAL ASSETS............................................ $85,985 $77,995 ======= ======= LIABILITIES AND SURPLUS Reserves for policy benefits.............................. $56,246 $51,815 Policy benefit and premium deposits....................... 1,746 1,709 Policyowner dividends payable............................. 3,100 2,870 Interest maintenance reserve.............................. 491 606 Asset valuation reserve................................... 2,371 1,994 Income taxes payable...................................... 1,192 1,161 Other liabilities......................................... 3,609 3,133 Separate account liabilities.............................. 12,161 9,966 ------- ------- TOTAL LIABILITIES....................................... 80,916 73,254 Surplus................................................... 5,069 4,741 ------- ------- TOTAL LIABILITIES AND SURPLUS........................... $85,985 $77,995 ======= =======
The Accompanying Notes are an Integral Part of these Financial Statements Consolidated Statement of Financial Position 32 35 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY Consolidated Statement of Operations (in millions)
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 1999 1998 1997 - --------------------------------------------------------------------------------------------- REVENUE Premiums and deposits..................................... $ 8,344 $ 8,021 $ 7,294 Net investment income..................................... 4,766 4,536 4,171 Other income.............................................. 970 922 861 ------- ------- ------- TOTAL REVENUE......................................... 14,080 13,479 12,326 ------- ------- ------- BENEFITS AND EXPENSES Benefit payments to policyowners and beneficiaries........ 4,023 3,602 3,329 Net additions to policy benefit reserves.................. 4,469 4,521 4,026 Net transfers to separate accounts........................ 516 564 566 ------- ------- ------- TOTAL BENEFITS........................................ 9,008 8,687 7,921 Operating expenses........................................ 1,287 1,297 1,138 ------- ------- ------- TOTAL BENEFITS AND EXPENSES........................... 10,295 9,984 9,059 ------- ------- ------- GAIN FROM OPERATIONS BEFORE DIVIDENDS AND TAXES....... 3,785 3,495 3,267 Policyowner dividends....................................... 3,091 2,869 2,636 ------- ------- ------- GAIN FROM OPERATIONS BEFORE TAXES..................... 694 626 631 Income tax expense.......................................... 203 301 356 ------- ------- ------- NET GAIN FROM OPERATIONS.............................. 491 325 275 Net realized capital gains.................................. 846 484 414 ------- ------- ------- NET INCOME............................................ $ 1,337 $ 809 $ 689 ======= ======= =======
The Accompanying Notes are an Integral Part of these Financial Statements 33 Consolidated Statement of Operations 36 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY Consolidated Statement of Changes in Surplus (in millions)
FOR THE YEAR ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 - ------------------------------------------------------------------------------------------------ BEGINNING OF YEAR........................................... $4,741 $4,101 $3,515 Net income................................................ 1,337 809 689 Increase (decrease) in net unrealized gains............... 213 (147) 576 Increase in investment reserves........................... (377) (20) (526) Charge-off of goodwill (Note 7)........................... (842) -- -- Other, net................................................ (3) (2) (153) ------ ------ ------ NET INCREASE IN SURPLUS................................... 328 640 586 ------ ------ ------ END OF YEAR BALANCE......................................... $5,069 $4,741 $4,101 ====== ====== ======
The Accompanying Notes are an Integral Part of these Financial Statements Consolidated Statement of Changes in Surplus 34 37 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY Consolidated Statement of Cash Flows (in millions)
FOR THE YEAR ENDED DECEMBER 31, ----------------------------------- 1999 1998 1997 - --------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Insurance and annuity premiums............................ $ 9,260 $ 8,876 $ 8,093 Investment income received................................ 4,476 4,216 3,928 Disbursement of policy loans, net of repayments........... (358) (416) (360) Benefits paid to policyowners and beneficiaries........... (4,012) (3,572) (3,316) Net transfers to separate accounts........................ (516) (564) (565) Policyowner dividends paid................................ (2,862) (2,639) (2,347) Operating expenses and taxes.............................. (1,699) (1,749) (1,722) Other, net................................................ (56) (83) 124 ------- ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES............ 4,233 4,069 3,835 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES PROCEEDS FROM INVESTMENTS SOLD OR MATURED Bonds.................................................. 20,788 28,720 38,284 Common and preferred stocks............................ 13,331 10,359 9,057 Mortgage loans......................................... 1,356 1,737 1,012 Real estate............................................ 216 159 302 Other investments...................................... 830 768 398 ------- ------- ------- 36,521 41,743 49,053 ------- ------- ------- COST OF INVESTMENTS ACQUIRED Bonds.................................................. 22,849 30,873 41,169 Common and preferred stocks............................ 13,794 9,642 9,848 Mortgage loans......................................... 2,500 3,135 2,309 Real estate............................................ 362 268 202 Other investments...................................... 1,864 567 359 ------- ------- ------- 41,369 44,485 53,887 ------- ------- ------- Net increase (decrease) in securities lending and other... 499 (624) 440 ------- ------- ------- NET CASH USED IN INVESTING ACTIVITIES................ (4,349) (3,366) (4,394) ------- ------- ------- NET (DECREASE) INCREASE IN CASH AND TEMPORARY INVESTMENTS......................................... (116) 703 (559) Cash and temporary investments, beginning of year........... 1,275 572 1,131 ------- ------- ------- Cash and temporary investments, end of year................. $ 1,159 $ 1,275 $ 572 ======= ======= =======
The Accompanying Notes are an Integral Part of these Financial Statements 35 Consolidated Statement of Cash Flows 38 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY Notes to Consolidated Statutory Financial Statements December 31, 1999, 1998 and 1997 NOTE 1 -- BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated statutory financial statements include the accounts of The Northwestern Mutual Life Insurance Company ("Company") and its wholly-owned subsidiary, Northwestern Long Term Care Insurance Company ("Subsidiary"). The Company and its Subsidiary offer life, annuity, disability income and long-term care products to the personal, business, estate and tax-qualified markets. The consolidated financial statements have been prepared using accounting policies prescribed or permitted by the Office of the Commissioner of Insurance of the State of Wisconsin ("statutory basis of accounting"). In 1998, the National Association of Insurance Commissioners ("NAIC") adopted the Codification of Statutory Accounting Principles ("Codification") guidance, which will replace the current Accounting Practices and Procedures manual as the NAIC's primary guidance on statutory accounting. The NAIC is now considering amendments to Codification that would also be effective upon implementation. Codification provides guidance for areas where statutory accounting has been silent and changes current statutory accounting in some areas (e.g., deferred income taxes are recorded). The Office of the Commissioner of Insurance of the State of Wisconsin ("OCI") intends to adopt Codification effective January 1, 2001. The Company has not determined the potential effect of Codification, and the eventual effect of adoption could differ if changes are made prior to the effective date of January 1, 2001. Financial statements prepared on the statutory basis of accounting vary from financial statements prepared on the basis of generally accepted accounting principles ("GAAP") primarily because on a GAAP basis: (1) policy acquisition costs are deferred and amortized, (2) investment valuations and insurance reserves are based on different assumptions, (3) funds received under deposit-type contracts are not reported as premium revenue, and (4) deferred taxes are provided for temporary differences between book and tax basis of certain assets and liabilities. The effects on the financial statements of the differences between the statutory basis of accounting and GAAP are material to the Company. The preparation of financial statements in conformity with the statutory basis of accounting requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual future results could differ from these estimates. INVESTMENTS The Company's investments are valued on the following bases: Bonds -- Amortized cost using the interest method; loan-backed and structured securities are amortized using estimated prepayment rates and, generally, the prospective adjustment method Common and preferred stocks -- Common stocks are carried at fair value, preferred stocks are generally carried at cost, and unconsolidated subsidiaries are recorded using the equity method Mortgage loans -- Amortized cost Real estate -- Lower of cost, less depreciation and encumbrances, or estimated net realizable value Policy loans -- Unpaid principal balance, which approximates fair value Other investments -- Consists primarily of joint venture investments which are valued at equity in ventures' net assets Cash and temporary investments -- Amortized cost, which approximates fair value TEMPORARY INVESTMENTS Temporary investments consist of debt securities that have maturities of one year or less at acquisition. NET INVESTMENT INCOME AND CAPITAL GAINS Net investment income includes interest and dividends received or due and accrued on investments, equity in unconsolidated subsidiaries' earnings and the Company's share of joint venture income. Net investment income is reduced by investment management expenses, real estate depreciation, depletion related to energy assets and costs associated with securities lending. Notes to Consolidated Statutory Financial Statements 36 39 Realized investment gains and losses are reported in income based upon specific identification of securities sold. Unrealized investment gains and losses include changes in the fair value of common stocks and changes in valuation allowances made for bonds, preferred stocks, mortgage loans and other investments considered by management to be impaired. INTEREST MAINTENANCE RESERVE The Company is required to maintain an interest maintenance reserve ("IMR"). The IMR is used to defer realized gains and losses, net of tax, on fixed income investments resulting from changes in interest rates. Net realized gains and losses deferred to the IMR are amortized into investment income over the approximate remaining term to maturity of the investment sold. INVESTMENT RESERVES The Company is required to maintain an asset valuation reserve ("AVR"). The AVR establishes a general reserve for invested asset valuation using a formula prescribed by state regulations. The AVR is designed to stabilize surplus against potential declines in the value of investments. In addition, the Company maintained a $200 million voluntary investment reserve at each of December 31, 1999 and 1998 to absorb potential investment losses exceeding those considered by the AVR formula. Increases or decreases in these investment reserves are recorded directly to surplus. SEPARATE ACCOUNTS Separate account assets and related policy liabilities represent the segregation of funds deposited by "variable" life insurance and annuity policyowners. Policyowners bear the investment performance risk associated with variable products. Separate account assets are invested at the direction of the policyowner in a variety of Company-managed mutual funds. Variable product policyowners also have the option to invest in a fixed interest rate annuity in the general account of the Company. Separate account assets are reported at fair value. PREMIUM REVENUE AND OPERATING EXPENSES Life insurance premiums are recognized as revenue at the beginning of each policy year. Annuity and disability income premiums are recognized when received by the Company. Operating expenses, including costs of acquiring new policies, are charged to operations as incurred. OTHER INCOME Other income includes considerations on supplementary contracts, ceded reinsurance expense allowances and miscellaneous policy charges. BENEFIT PAYMENTS TO POLICYOWNERS AND BENEFICIARIES Benefit payments to policyowners and beneficiaries include death, surrender and disability benefits, matured endowments and supplementary contract payments. RESERVES FOR POLICY BENEFITS Reserves for policy benefits are determined using actuarial estimates based on mortality and morbidity experience tables and valuation interest rates prescribed by the OCI. (See Note 3.) POLICYOWNER DIVIDENDS Almost all life insurance policies, and certain annuity and disability income policies issued by the Company are participating. Annually, the Company's Board of Trustees approves dividends payable on participating policies in the following fiscal year, which are accrued and charged to operations when approved. RECLASSIFICATION Certain financial statement balances for 1998 and 1997 have been reclassified to conform to the current year presentation. Notes to Consolidated Statutory Financial Statements 37 40 NOTE 2 -- INVESTMENTS DEBT SECURITIES Debt securities consist of all bonds and fixed-maturity preferred stocks. The estimated fair values of debt securities are based upon quoted market prices, if available. For securities not actively traded, fair values are estimated using independent pricing services or internally developed pricing models. Statement value, which principally represents amortized cost, and estimated fair value of the Company's debt securities at December 31, 1999 and 1998 were as follows:
RECONCILIATION TO ESTIMATED FAIR VALUE ----------------------------------------------- GROSS GROSS ESTIMATED STATEMENT UNREALIZED UNREALIZED FAIR DECEMBER 31, 1999 VALUE GAINS LOSSES VALUE ----------------- --------- ---------- ---------- --------- (IN MILLIONS) U.S. Government and political obligations........ $ 3,855 $ 72 $ (167) $ 3,760 Mortgage-backed securities......... 7,736 65 (256) 7,545 Corporate and other debt securities.... 25,201 249 (1,088) 24,362 ------- ------ ------- ------- 36,792 386 (1,511) 35,667 Preferred stocks..... 85 2 -- 87 ------- ------ ------- ------- Total........... $36,877 $ 388 $(1,511) $35,754 ======= ====== ======= =======
RECONCILIATION TO ESTIMATED FAIR VALUE ----------------------------------------------- GROSS GROSS ESTIMATED STATEMENT UNREALIZED UNREALIZED FAIR DECEMBER 31, 1998 VALUE GAINS LOSSES VALUE ----------------- --------- ---------- ---------- --------- (IN MILLIONS) U.S. Government and political obligations........ $ 3,904 $ 461 $ (11) $ 4,354 Mortgage-backed securities......... 7,357 280 (15) 7,622 Corporate and other debt securities.... 23,627 1,240 (382) 24,485 ------- ------ ------- ------- 34,888 1,981 (408) 36,461 Preferred stocks..... 189 4 (1) 192 ------- ------ ------- ------- Total........... $35,077 $1,985 $ (409) $36,653 ======= ====== ======= =======
The statement value and estimated fair value of debt securities by contractual maturity at December 31, 1999 is shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
STATEMENT ESTIMATED VALUE FAIR VALUE --------- ---------- (IN MILLIONS) Due in one year or less.......... $ 931 $ 942 Due after one year through five years.......................... 5,420 5,412 Due after five years through ten years.......................... 11,168 10,796 Due after ten years.............. 11,622 11,059 ------- ------- 29,141 28,209 Mortgage-backed securities....... 7,736 7,545 ------- ------- $36,877 $35,754 ======= =======
STOCKS The estimated fair values of common and perpetual preferred stocks are based upon quoted market prices, if available. For securities not actively traded, fair values are estimated using independent pricing services or internally developed pricing models. The adjusted cost of common and preferred stock held by the Company at December 31, 1999 and 1998 was $4.9 billion and $4.3 billion, respectively. MORTGAGE LOANS AND REAL ESTATE Mortgage loans are collateralized by properties located throughout the United States and Canada. The Company attempts to minimize mortgage loan investment risk by diversification of geographic locations and types of collateral properties. The fair value of mortgage loans as of December 31, 1999 and 1998 was $13.2 billion and $12.9 billion, respectively. The fair value of the mortgage loan portfolio is estimated by discounting the future estimated cash flows using current interest rates of debt securities with similar credit risk and maturities, or utilizing net realizable values. At December 31, 1999 and 1998, real estate includes $39 million and $61 million, respectively, acquired through foreclosure and $114 million and $120 million, respectively, of home office real estate. Notes to Consolidated Statutory Financial Statements 38 41 REALIZED AND UNREALIZED GAINS AND LOSSES Realized investment gains and losses for the years ended December 31, 1999, 1998 and 1997 were as follows:
FOR THE YEAR ENDED DECEMBER 31, 1999 -------------------------------- NET REALIZED REALIZED REALIZED GAINS GAINS LOSSES (LOSSES) -------- -------- -------- (IN MILLIONS) Bonds..................... $ 219 $(404) $ (185) Common and preferred stocks.................. 1,270 (255) 1,015 Mortgage loans............ 22 (12) 10 Real estate............... 92 -- 92 Other invested assets..... 308 (189) 119 ------ ----- ------ $1,911 $(860) 1,051 ====== ===== ------ Less: Capital gains taxes................... 244 Less: IMR (losses) gains................... (39) ------ Net realized capital gains................... $ 846 ======
FOR THE YEAR ENDED DECEMBER 31, 1998 -------------------------------- NET REALIZED REALIZED REALIZED GAINS GAINS LOSSES (LOSSES) -------- -------- -------- (IN MILLIONS) Bonds..................... $ 514 $(231) $ 283 Common and preferred stocks.................. 885 (240) 645 Mortgage loans............ 18 (11) 7 Real estate............... 41 -- 41 Other invested assets..... 330 (267) 63 ------ ----- ------ $1,788 $(749) 1,039 ====== ===== ------ Less: Capital gains taxes................... 358 Less: IMR (losses) gains................... 197 ------ Net realized capital gains................... $ 484 ======
FOR THE YEAR ENDED DECEMBER 31, 1997 -------------------------------- NET REALIZED REALIZED REALIZED GAINS GAINS LOSSES (LOSSES) -------- -------- -------- (IN MILLIONS) Bonds..................... $ 518 $(269) $249 Common and preferred stocks.................. 533 (150) 383 Mortgage loans............ 14 (14) -- Real estate............... 100 (2) 98 Other invested assets..... 338 (105) 233 ------ ----- ---- $1,503 $(540) 963 ====== ===== ---- Less: Capital gains taxes................... 340 Less: IMR (losses) gains................... 209 ---- Net realized capital gains................... $414 ====
Changes in unrealized net investment gains and losses for the years ended December 31, 1999, 1998 and 1997 were as follows:
FOR THE YEAR ENDED DECEMBER 31, ---------------------- 1999 1998 1997 ---- ---- ---- (IN MILLIONS) Bonds......................... $(178) $ (97) $ 43 Common and preferred stocks... 415 29 528 Mortgage loans................ (10) (16) (7) Real estate................... (2) -- -- Other......................... (12) (63) 12 ----- ----- ---- $ 213 $(147) $576 ===== ===== ====
SECURITIES LENDING The Company has entered into securities lending agreements whereby certain securities are loaned to third parties, primarily major brokerage firms. The Company's policy requires a minimum of 102% of the fair value of the loaned securities as collateral, calculated on a daily basis in the form of either cash or securities. Collateral assets received and related liability due to counterparties of $2.1 billion and $1.5 billion, respectively, are included in the consolidated statements of financial position at December 31, 1999 and 1998, and approximate the statement value of securities loaned at those dates. INVESTMENT IN MGIC The Company owns 11.3% (11.9 million shares) of the outstanding common stock of MGIC Investment Corporation ("MGIC"). This investment is accounted for using the equity method. At December 31, 1999 and 1998, the fair value of the Company's investment in MGIC exceeded the statement value of $201 million and $180 million, respectively, by $518 million and $296 million, respectively. In August 1998, the Company delivered 8.9 million shares of MGIC to a brokerage firm to settle a forward contract. In conjunction with the settlement, the Company recorded a $114 million realized gain. DERIVATIVE FINANCIAL INSTRUMENTS In the normal course of business, the Company enters into transactions to reduce its exposure to fluctuations in interest rates, foreign currency exchange rates and market volatility. These hedging strategies include the use of forwards, futures, options and swaps. Notes to Consolidated Statutory Financial Statements 39 42 The Company held the following positions for hedging purposes at December 31, 1999 and 1998:
NOTIONAL AMOUNTS --------------------------- DECEMBER 31, DECEMBER 31, DERIVATIVE FINANCIAL INSTRUMENT 1999 1998 RISKS REDUCED ------------------------------- ------------ ------------ ------------- (IN MILLIONS) Foreign Currency Forward Contracts...................... $967 $601 Currency exposure on foreign-denominated investments Common Stock Futures..................... 620 657 Stock market price fluctuation. Bond Futures............................. 50 379 Bond market price fluctuation. Options to acquire Interest Rate Swaps... 419 419 Interest rates payable on certain annuity and insurance contracts. Foreign Currency and Interest Rate Swaps.................... 203 94 Interest rates on variable rate notes and currency exposure on foreign-denominated bonds. Default Swaps............................ 52 -- Default exposure on certain bond investments.
The notional or contractual amounts of derivative financial instruments are used to denominate these types of transactions and do not represent the amounts exchanged between the parties. In addition to the use of derivatives for hedging purposes, equity swaps were held for investment purposes during 1999 and 1998. The notional amount of equity swaps outstanding at December 31, 1999 and 1998 was $136 million and $138 million, respectively. Foreign currency forwards, foreign currency swaps, stock futures and equity swaps are reported at fair value. Resulting gains and losses on these contracts are unrealized until expiration of the contract. There is no statement value reported for interest rate swaps, bond futures and options to acquire interest rate swaps prior to the settlement of the contract, at which time realized gains and losses are deferred to IMR. Changes in the value of derivative instruments are expected to offset gains and losses on the hedged investments. During 1999 and 1998, net realized and unrealized gains on investments were partially offset by net realized losses of $55 million and $104 million, respectively, and net unrealized gains (losses) of $17 million and $(58) million, respectively, on derivative instruments. The effect of derivative instruments in 1997 was not material to the Company's results of operations. NOTE 3 -- RESERVES FOR POLICY BENEFITS Life insurance reserves on substantially all policies issued since 1978 are based on the Commissioner's Reserve Valuation Method with interest rates ranging from 3 1/2% to 5 1/2%. Other life policy reserves are primarily based on the net level premium method employing various mortality tables at interest rates ranging from 2% to 4 1/2%. Deferred annuity reserves on contracts issued since 1985 are valued primarily using the Commissioner's Annuity Reserve Valuation Method with interest rates ranging from 3 1/2% to 6 1/4%. Other deferred annuity reserves are based on contract value. Immediate annuity reserves are based on present values of expected benefit payments at interest rates ranging from 3 1/2% to 7 1/2%. Active life reserves for disability income ("DI") policies issued since 1987 are primarily based on the two-year preliminary term method using a 4% interest rate and the 1985 Commissioner's Individual Disability Table A ("CIDA") for morbidity. Active life reserves for prior DI policies are based on the net level premium method, a 3% to 4% interest rate and the 1964 Commissioner's Disability Table for morbidity. Disabled life reserves for DI policies are based on the present values of expected benefit payments primarily using the 1985 CIDA (modified for Company experience in the first four years of disability) with interest rates ranging from 3% to 5 1/2%. Use of these actuarial tables and methods involves estimation of future mortality and morbidity. Actual future experience could differ from these estimates. NOTE 4 -- EMPLOYEE AND AGENT BENEFIT PLANS The Company sponsors noncontributory defined benefit retirement plans for all eligible employees and agents. The Notes to Consolidated Statutory Financial Statements 40 43 expense associated with these plans is generally recorded by the Company in the period contributions are funded. As of January 1, 1999, the most recent actuarial valuation date available, the qualified defined benefit plans were fully funded. The Company recorded a liability of $109 million and $98 million for nonqualified defined benefit plans at December 31, 1999 and 1998, respectively. In addition, the Company has a contributory 401(k) plan for eligible employees and a noncontributory defined contribution plan for all full-time agents. The Company's contributions are expensed in the period contributions are made to the plans. The Company recorded $31 million, $29 million and $27 million of total expense related to its defined benefit and defined contribution plans for the years ended December 31, 1999, 1998 and 1997, respectively. The defined benefit and defined contribution plans' assets of $2.2 billion and $1.9 billion at December 31, 1999 and 1998, respectively, were primarily invested in the separate accounts of the Company. In addition to pension and retirement benefits, the Company provides certain health care and life insurance benefits ("postretirement benefits") for retired employees. Substantially all employees may become eligible for these benefits if they reach retirement age while working for the Company. Postretirement benefit costs for the years ended December 31, 1999, 1998 and 1997 were a net expense (benefit) of $5.0 million, $1.8 million and ($1.3) million, respectively.
DECEMBER 31, DECEMBER 31, 1999 1998 ------------------ ------------------ Unfunded postretirement benefit obligation for retirees and other fully eligible employees (Accrued in statement of financial position)............ $40 million $35 million Estimated postretirement benefit obligation for active non-vested employees (Not accrued until employee vests)...... $68 million $56 million Discount rate.......... 7% 7% Health care cost trend 10% to an ultimate 10% to an ultimate rate................. 5%, declining 1% 5%, declining 1% for 5 years for 5 years
If the health care cost trend rate assumptions were increased by 1%, the accrued postretirement benefit obligation as of December 31, 1999 and 1998 would have been increased by $6 million and $5 million, respectively. At December 31, 1999 and 1998, the recorded postretirement benefit obligation was reduced by $28 million and $23 million, respectively, for health care benefit plan assets. These assets were primarily invested in the separate accounts of the Company. NOTE 5 -- REINSURANCE In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding to reinsurers under excess coverage and coinsurance contracts. The Company retains a maximum of $25 million of coverage per individual life and $35 million maximum of coverage per joint life. The Company has an excess reinsurance contract for disability income policies with retention limits varying based upon coverage type. The amounts shown in the accompanying consolidated financial statements are net of reinsurance. Reserves for policy benefits at December 31, 1999 and 1998 were reported net of ceded reserves of $584 million and $518 million, respectively. The effect of reinsurance on premiums and benefits for the years ended December 31, 1999, 1998 and 1997 was as follows:
1999 1998 1997 ------ ------ ------ (IN MILLIONS) Direct premiums and deposits................... $8,785 $8,426 $7,647 Premiums ceded............... (441) (405) (353) ------ ------ ------ Net premium and deposits..... $8,344 $8,021 $7,294 ====== ====== ====== Benefits to policyowners and beneficiaries.............. 9,205 $8,869 $8,057 Benefits ceded............... (197) (182) (136) ------ ------ ------ Net benefits to policyowners and beneficiaries.......... $9,008 $8,687 $7,921 ====== ====== ======
In addition, the Company received $133 million, $121 million and $115 million for the years ended December 31, 1999, 1998 and 1997, respectively, from reinsurers representing allowances for reimbursement of commissions and other expenses. These amounts are included in other income in the consolidated statement of operations. Notes to Consolidated Statutory Financial Statements 41 44 Reinsurance contracts do not relieve the Company from its obligations to policyowners. Failure of reinsurers to honor their obligations could result in losses to the Company; consequently, allowances are established for amounts deemed uncollectible. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. NOTE 6 -- INCOME TAXES Provisions for income taxes are based on current income tax payable without recognition of deferred taxes. The Company files a consolidated life-nonlife federal income tax return. Federal income tax returns for years through 1995 are closed as to further assessment of tax. Adequate provision has been made in the financial statements for any additional taxes, which may become due with respect to the open years. The Company's taxable income can vary significantly from gain from operations before taxes due to differences between book and tax valuation of assets and liabilities (e.g., investments and policy benefit reserves). The Company pays a tax that is assessed only on the surplus of mutual life insurance companies ("equity tax"), and also, the Company must capitalize and amortize, as opposed to immediately deducting, an amount deemed to represent the cost of acquiring new business ("DAC tax"). The Company's effective tax rate on gains from operations before taxes for the years ended December 31, 1999, 1998 and 1997 was 29%, 48%, and 56% respectively. In 1999, the effective rate was less than the federal corporate rate of 35% due primarily to differences between book and tax investment income. In 1998 and 1997, the effective rate was greater than 35% due primarily to the equity tax and DAC tax. NOTE 7 -- RELATED PARTY TRANSACTIONS The Company acquired Frank Russell Company ("Frank Russell") effective January 1, 1999 for a purchase price of approximately $950 million. Frank Russell is a leading investment management and consulting firm, providing investment advice, analytical tools and investment vehicles to institutional and individual investors in more than 30 countries. This investment is accounted for using the equity method and is included in common stocks in the consolidated statement of financial position. In 1999, the Company charged-off directly from surplus approximately $842 million, representing the total goodwill associated with the acquisition. The Company has received permission from the OCI for this charge-off. The Company has unconditionally guaranteed certain debt obligations of Frank Russell, including $350 million of senior notes and up to $150 million of other credit facilities. During 1999, the Company transferred appreciated equity investments to a wholly-owned subsidiary as a capital contribution to the subsidiary. A realized capital gain of $287 million was recorded on this transaction based on the fair value of the assets upon transfer. NOTE 8 -- CONTINGENCIES The Company has guaranteed certain obligations of its other affiliates. These guarantees totaled approximately $101 million at December 31, 1999 and are generally supported by the underlying net asset values of the affiliates. In addition, the Company routinely makes commitments to fund mortgage loans or other investments in the normal course of business. These commitments aggregated to $1.9 billion at December 31, 1999 and were extended at market interest rates and terms. The Company is engaged in various legal actions in the normal course of its investment and insurance operations. In the opinion of management, any losses resulting from such actions would not have a material effect on the Company's financial position. Notes to Consolidated Statutory Financial Statements 42 45 [PRICEWATERHOUSECOOPERS LLP - LETTERHEAD] R EPORT OF INDEPENDENT ACCOUNTANTS To the Board of Trustees and Policyowners of The Northwestern Mutual Life Insurance Company We have audited the accompanying consolidated statement of financial position of The Northwestern Mutual Life Insurance Company and its subsidiary as of December 31, 1999 and 1998, and the related consolidated statements of operations, of changes in surplus and of cash flows for each of the three years in the period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note 1 to the financial statements, the Company prepared these consolidated financial statements using accounting practices prescribed or permitted by the Office of the Commissioner of Insurance of the State of Wisconsin (statutory basis of accounting), which practices differ from accounting principles generally accepted in the United States. Accordingly, the consolidated financial statements are not intended to represent a presentation in accordance with generally accepted accounting principles. The effects on the consolidated financial statements of the variances between the statutory basis of accounting and generally accepted accounting principles, although not reasonably determinable, are presumed to be material. In our opinion, the consolidated financial statements audited by us (1) do not present fairly in conformity with generally accepted accounting principles, the financial position of The Northwestern Mutual Life Insurance Company and its subsidiary as of December 31, 1999 and 1998, or the results of their operations or their cash flows for each of the three years in the period ended December 31, 1999 because of the effects of the variances between the statutory basis of accounting and generally accepted accounting principles referred to in the preceding paragraph and (2) do present fairly, in all material respects, the financial position of The Northwestern Mutual Life Insurance Company and its subsidiary as of December 31, 1999 and 1998 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, on the basis of accounting described in Note 1. /s/ PriceWaterhousecoopers LLP January 24, 2000 Accountants' Report 43 46 APPENDIX ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES AND ACCUMULATED PREMIUMS. The tables on the following pages illustrate how the death benefit and cash value for a Policy would vary over time based on hypothetical investment results. The tables assume gross (after tax) investment return rates of 0%, 6% and 12% on assets of the Account. The Policies illustrated are for male insureds, select risks, age 35. The first two illustrations, on pages 45-46, are for a policy with a Minimum Guaranteed Death Benefit of $200,000 and no Additional Protection, based (1) on current charges and the current dividend scale and (2) on maximum charges and zero dividends. The other two illustrations are for a Policy with a Minimum Guaranteed Death Benefit of $200,000 and Additional Protection of $200,000. The death benefits and cash values would be different from those shown if the gross investment return rate averaged 0%, 6% or 12%, but fluctuated over and under the average rate at various points in time. The values would also be different, depending on the Account divisions selected by the owner of the Policy, if the Portfolios or Funds return rate averaged 0%, 6% or 12%, but the rates for each individual Portfolio or Fund varied over and under the average. The amounts shown as the death benefits and cash values reflect the deductions from premiums, deductions from Policy Value and the charge at the annual rate of .60% of the Account's assets for mortality and expense risks. The amounts shown as the cash values reflect the deduction of the surrender charge during the first fifteen Policy years. The amounts shown also reflect the average of the investment advisory fees and other expenses applicable to each of the Portfolios and Funds at the annual rate of .66% of their net assets. See "The Funds", p. 5. Thus the 0%, 6% and 12% gross hypothetical return rates on the Fund's assets are equivalent to the net rates of -1.26%, 4.74% and 10.74% on the assets of the Account. The second column of each table shows the amount which would accumulate if an amount equal to the annual premium were invested to earn interest, after taxes, at a 5% interest rate compounded annually. The death benefits and corresponding cash values shown on pages 45 and 47 illustrate benefits which we would pay if investment returns of 0%, 6% and 12% are realized, if mortality and expense experience in the future is as currently experienced and if the current dividend scale remains unchanged. See "Annual Dividends," p. 13. HOWEVER, THERE IS NO GUARANTEE AS TO THE AMOUNT OF DIVIDENDS, IF ANY, THAT WE WILL PAY UNDER A POLICY. Although the tables are based on the assumption that dividends will be used to increase the Policy Value, other dividend options are available. The use of dividends for other purposes during the guaranteed period for Additional Protection may cause the guaranteed period to terminate. See "Death Benefit", p. 9. We will prepare a comparable illustration based on a proposed insured's age, sex and risk classification and proposed face amount or premium upon request. Appendix 44 47 VARIABLE WHOLE LIFE WITH ADDITIONAL PROTECTION INSURANCE POLICY MALE ISSUE AGE 35 -- SELECT UNDERWRITING RISK $200,000 VARIABLE WHOLE LIFE, $0 ADDITIONAL PROTECTION $2,610 ANNUAL PREMIUM(1) CURRENT CHARGES AND DIVIDEND SCALE(2) DIVIDENDS USED TO INCREASE POLICY VALUE
DEATH BENEFIT(3) CASH SURRENDER VALUE(3) ------------------------------ ---------------------------- PREMIUM ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS ACCUMULATED ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF END OF AT 5% INTEREST ------------------------------ ---------------------------- POLICY YEAR PER YEAR 0% 6% 12% 0% 6% 12% - ----------- -------------- -------- ------- --------- ------ ------- --------- 1 $ 2,741 $200,000 200,021 200,139 901 1,019 1,136 2 5,618 200,000 200,060 200,431 2,752 3,109 3,480 3 8,639 200,000 200,118 200,899 4,561 5,284 6,064 4 11,812 200,000 200,195 201,564 6,329 7,547 8,917 5 15,143 200,000 200,294 202,456 8,051 9,899 12,062 6 18,641 200,000 200,411 203,598 9,824 12,442 15,630 7 22,313 200,000 200,556 205,033 11,549 15,080 19,556 8 26,169 200,000 200,734 206,799 13,228 17,820 23,884 9 30,218 200,000 200,951 208,943 14,862 20,669 28,661 10 34,470 200,000 201,211 211,515 16,457 23,637 33,940 15 59,136 200,000 204,524 234,256 25,567 42,344 72,076 20 90,617 200,000 211,868 311,403 33,818 65,864 136,024 25 130,796 200,000 223,245 478,073 40,168 94,823 241,250 30 (age 65) 182,076 200,000 240,400 715,956 43,890 130,508 412,469 35 247,523 200,000 269,334 1,062,685 43,553 174,483 688,439 40 331,052 200,000 316,374 1,569,971 34,736 226,644 1,124,696 45 437,658 200,000 368,476 2,317,209 7,349 286,166 1,799,591
(1) If premiums are paid more frequently than annually the payments would be $1,331.41 semiannually, $673.55 quarterly, or $225.74 monthly. (2) Dividends illustrated are based on current scale and experience and are not guaranteed. (3) Assumes no policy loan has been made. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF RETURN OF THE FUND PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME. 45 Appendix 48 VARIABLE WHOLE LIFE WITH ADDITIONAL PROTECTION INSURANCE POLICY MALE ISSUE AGE 35 -- SELECT UNDERWRITING RISK $200,000 VARIABLE WHOLE LIFE, $0 ADDITIONAL PROTECTION $2,610 ANNUAL PREMIUM(1) MAXIMUM CHARGES AND ZERO DIVIDENDS
DEATH BENEFIT(2) CASH SURRENDER VALUE(2) ----------------------------- ---------------------------- PREMIUM ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS ACCUMULATED ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF END OF AT 5% INTEREST ----------------------------- ---------------------------- POLICY YEAR PER YEAR 0% 6% 12% 0% 6% 12% - ----------- -------------- ------- ------- --------- ------ ------- --------- 1 2,741 200,000 200,014 200,132 895 1,012 1,130 2 5,618 200,000 200,046 200,416 2,739 3,095 3,465 3 8,639 200,000 200,096 200,872 4,542 5,262 6,038 4 11,812 200,000 200,162 201,521 6,304 7,514 8,873 5 15,143 200,000 200,249 202,390 8,021 9,854 11,996 6 18,641 200,000 200,354 203,504 9,794 12,386 15,536 7 22,313 200,000 200,484 204,897 11,516 15,007 19,421 8 26,169 200,000 200,638 206,605 13,190 17,724 23,691 9 30,218 200,000 200,819 208,663 14,812 20,536 28,381 10 34,470 200,000 201,024 211,112 16,381 23,450 33,538 15 59,136 200,000 202,537 231,095 24,092 40,357 68,915 20 90,617 200,000 205,046 285,062 28,878 59,042 124,518 25 130,796 200,000 208,876 420,175 30,617 80,454 212,033 30 (age 65) 182,076 200,000 214,415 601,198 27,427 104,523 346,356 35 247,523 200,000 222,125 845,898 15,135 130,829 547,998 40 331,052 200,000 232,559 1,178,418 0 159,033 844,195 45 437,658 200,000 246,356 1,631,754 0 188,446 1,267,253
(1) If premiums are paid more frequently than annually the payments would be $1,331.41 semiannually, $673.55 quarterly, or $225.74 monthly. (2) Assumes no policy loan has been made. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF RETURN OF THE FUND PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME. Appendix 46 49 VARIABLE WHOLE LIFE WITH ADDITIONAL PROTECTION INSURANCE POLICY MALE ISSUE AGE 35 -- SELECT UNDERWRITING RISK $200,000 VARIABLE WHOLE LIFE PLUS $200,000 ADDITIONAL PROTECTION(1) $3,620 ANNUAL PREMIUM(2) CURRENT CHARGES AND DIVIDEND SCALE(3) DIVIDENDS USED TO INCREASE POLICY VALUE
DEATH BENEFIT(4) CASH SURRENDER VALUE(4) ----------------------------- ---------------------------- PREMIUM ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS ACCUMULATED ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF END OF AT 5% INTEREST ----------------------------- ---------------------------- POLICY YEAR PER YEAR 0% 6% 12% 0% 6% 12% - ----------- -------------- ------- ------- --------- ------ ------- --------- 1 3,801 400,000 400,000 400,000 1,343 1,495 1,648 2 7,792 400,000 400,000 400,000 3,944 4,417 4,908 3 11,983 400,000 400,000 400,000 6,491 7,458 8,503 4 16,383 400,000 400,000 400,000 8,985 10,626 12,469 5 21,003 400,000 400,000 400,000 11,415 13,916 16,839 6 25,854 400,000 400,000 400,000 13,891 17,443 21,767 7 30,948 400,000 400,000 400,000 16,297 21,099 27,187 8 36,296 400,000 400,000 400,000 18,639 24,893 33,160 9 41,912 400,000 400,000 400,000 20,919 28,838 39,752 10 47,809 400,000 400,000 401,333 23,147 32,950 47,043 15 82,020 400,000 400,000 423,375 35,180 58,140 99,015 20 125,684 400,000 400,000 477,445 45,132 88,871 185,437 25 181,411 400,000 400,000 651,812 51,120 125,398 328,924 30 (age 65) 252,534 395,465 400,000 977,145 51,379 168,832 562,943 35 343,307 364,419 403,552 1,451,214 43,843 220,960 940,140 40 459,160 330,617 429,362 2,144,716 22,153 282,310 1,536,432 45 607,020 211,272 468,606 3,166,179 0 352,786 2,458,917
(1) Additional Protection is guaranteed to be $100,000 for at least 15 years, so long as all premiums are paid when due and all dividends are used to increase Policy Value. (2) If premiums are paid more frequently than annually the payments would be $1,846.10 semiannually, $933.43 quarterly, or $312.91 monthly. (3) Dividends illustrated are based on current scale and experience and are not guaranteed. (4) Assumes no policy loan has been made. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF RETURN OF THE FUND PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME. 47 Appendix 50 VARIABLE WHOLE LIFE WITH ADDITIONAL PROTECTION INSURANCE POLICY MALE ISSUE AGE 35 -- SELECT UNDERWRITING RISK $200,000 VARIABLE WHOLE LIFE PLUS $200,000 ADDITIONAL PROTECTION(1) $3,620 ANNUAL PREMIUM(2) MAXIMUM CHARGES AND ZERO DIVIDENDS
DEATH BENEFIT(3) CASH SURRENDER VALUE(3) ----------------------------- ---------------------------- PREMIUM ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS ACCUMULATED ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF END OF AT 5% INTEREST ----------------------------- ---------------------------- POLICY YEAR PER YEAR 0% 6% 12% 0% 6% 12% - ----------- -------------- ------- ------- --------- ------ ------- --------- 1 3,801 400,000 400,000 400,000 1,164 1,316 1,469 2 7,792 400,000 400,000 400,000 3,571 4,033 4,512 3 11,983 400,000 400,000 400,000 5,911 6,842 7,848 4 16,383 400,000 400,000 400,000 8,181 9,744 11,504 5 21,003 400,000 400,000 400,000 10,375 12,739 15,508 6 25,854 400,000 400,000 400,000 12,606 15,942 20,012 7 30,948 400,000 400,000 400,000 14,749 19,232 24,931 8 36,296 400,000 400,000 400,000 16,806 22,615 30,313 9 41,912 400,000 400,000 400,000 18,768 26,084 36,199 10 47,809 400,000 400,000 400,000 20,636 29,647 42,648 15 82,020 400,000 400,000 410,613 29,066 49,499 86,253 20 125,684 333,952 400,000 445,801 33,673 69,731 153,793 25 181,411 283,402 400,000 518,053 35,287 89,532 261,209 30 (age 65) 252,534 250,500 400,000 744,954 32,093 105,438 429,175 35 343,307 230,680 400,000 1,051,808 20,040 109,608 681,392 40 459,160 218,221 227,808 1,468,440 0 131,534 1,051,961 45 607,020 211,257 227,808 2,036,184 0 150,474 1,581,341
(1) Additional Protection is guaranteed to be $100,000 for at least 15 years, so long as all premiums are paid when due and all dividends are used to increase Policy Value. (2) If premiums are paid more frequently than annually the payments would be $1,846.10 semiannually, $933.43 quarterly, or $312.91 monthly. (3) Assumes no policy loan has been made. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF RETURN OF THE FUND PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME. Appendix 48 51 More information about Northwestern Mutual Series Fund, Inc. is included in the Fund's Statement of Additional Information (SAI), incorporated by reference in this prospectus, which is available free of charge. More information about the Fund's investments is included in the Fund's annual and semi-annual reports, which discuss the market conditions and investment strategies that significantly affected each Portfolio's performance during the previous fiscal period. To request a free copy of the Fund's SAI, or current annual or semi-annual report, call us at 1-888-455-2232. Information about the Fund (including the SAI) can be reviewed and copied at the Public Reference Room of the Securities and Exchange Commission (SEC) in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Reports and other information about the Fund are available on the SEC's Internet site at http://www.sec.gov. Copies of this information may be obtained, upon payment of a duplicating fee, by writing the Public Reference Section of the SEC, Washington, DC 20549-6009. - -------------------------------------------------------------------------------- NORTHWESTERN MUTUAL NORTHWESTERN MUTUAL VARIABLE COMPLIFE(R) NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT NORTHWESTERN MUTUAL SERIES FUND, INC. RUSSELL INSURANCE FUNDS 90-1944 (4/2000) PROSPECTUSES Investment Company Act File Nos. 811-3990 and 811-5371 NORTHWESTERN MUTUAL(TM) PO Box 3095 Milwaukee WI 53201-3095 Change Service Requested -----END PRIVACY-ENHANCED MESSAGE-----