-----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, PqWSYmsqg+AoQKR7nthKtdstsq7FR39kzuabZI4WtrsYeyC6DxW5+1VwMBPrGtPZ nw40DpWFJ4tTgBQ+1/EXtw== 0000950124-95-003121.txt : 19951003 0000950124-95-003121.hdr.sgml : 19951003 ACCESSION NUMBER: 0000950124-95-003121 CONFORMED SUBMISSION TYPE: S-6EL24/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19950929 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT CENTRAL INDEX KEY: 0000742277 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-6EL24/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-89188 FILM NUMBER: 95577447 BUSINESS ADDRESS: STREET 1: 720 E WISCONSIN AVE CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4142711444 MAIL ADDRESS: STREET 1: 720 EAST WISCONSIN AVENUE CITY: MILWAUKEE STATE: WI ZIP: 53202 S-6EL24/A 1 S-6 1 Registration No. 33-89188 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- PRE-EFFECTIVE AMENDMENT NO. 1 TO FORM S-6 FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 ---------------- NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT (EXACT NAME OF TRUST) THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY (NAME OF DEPOSITOR) 720 EAST WISCONSIN AVENUE MILWAUKEE, WISCONSIN 53202 (COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) JOHN M. BREMER, SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY 720 EAST WISCONSIN AVENUE MILWAUKEE, WISCONSIN 53202 (NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE) VARIABLE COMPLIFE INSURANCE POLICIES - REGISTRATION OF INDEFINITE AMOUNT OF SECURITIES PURSUANT TO RULE 24f-2 UNDER THE INVESTMENT COMPANY ACT OF 1940 APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: October 11, 1995 ---------------- 2 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT CROSS-REFERENCE SHEET Cross reference sheet showing location in Prospectus of information required by Form N-8B-2.
Item Number Heading in Prospectus ----------- --------------------- 1 . . . . . . . . . . . . Cover Page 2 . . . . . . . . . . . . Cover Page; Northwestern Mutual Life 3 . . . . . . . . . . . . Not Applicable 4 . . . . . . . . . . . . Distribution of the Policies 5 . . . . . . . . . . . . The Account and its Divisions 6 . . . . . . . . . . . . The Account and its Divisions 7 . . . . . . . . . . . . Not Applicable 8 . . . . . . . . . . . . Not Applicable 9 . . . . . . . . . . . . Legal Proceedings 10(a). . . . . . . . . . . Other Policy Provisions: Owner 10(b). . . . . . . . . . . Annual Dividends 10(c) and (d). . . . . . . Death Benefit, Cash Value, Loans and Withdrawals, Right to Return Policy, Right to Exchange for a Fixed Benefit Policy, Payment Plans 10(e). . . . . . . . . . . Premiums, Paid-Up Insurance, Reinstatement 10(f). . . . . . . . . . . Voting Rights 10(g). . . . . . . . . . . Voting Rights, Substitution of Fund Shares and Other Changes 10(h). . . . . . . . . . . Voting Rights, Substitution of Fund Shares and Other Changes 10(i). . . . . . . . . . . Premiums, Death Benefit, Annual Dividends, Other Policy Provisions: Payment Plans 11 . . . . . . . . . . . . The Account, The Fund, Index 500 Stock Portfolio, Select Bond Portfolio, Money Market Portfolio, Balanced Portfolio, Growth and Income Stock Portfolio, Growth Stock Portfolio, Aggressive Growth Stock Portfolio, High Yield Bond Portfolio and International Equity Portfolio 12 . . . . . . . . . . . . The Fund 13 . . . . . . . . . . . . Summary, The Fund, Deductions and Charges, Distribution of the Policies 14 . . . . . . . . . . . . Requirements for Insurance 15 . . . . . . . . . . . . Premiums, Allocations to the Account 16 . . . . . . . . . . . . The Account, The Fund, Allocations to the Account 17 . . . . . . . . . . . . Same Captions as Items 10(a), (c), and (d) 18 . . . . . . . . . . . . The Account, Annual Dividends 19 . . . . . . . . . . . . Reports 20 . . . . . . . . . . . . Not Applicable
-ii- 3 21 . . . . . . . . . . . . Loans and Withdrawals 22 . . . . . . . . . . . . Not Applicable 23 . . . . . . . . . . . . Not Applicable 24 . . . . . . . . . . . . Not Applicable 25 . . . . . . . . . . . . Northwestern Mutual Life 26 . . . . . . . . . . . . The Fund, Deductions and Charges 27 . . . . . . . . . . . . Northwestern Mutual Life 28 . . . . . . . . . . . . Management 29 . . . . . . . . . . . . Not Applicable 30 . . . . . . . . . . . . Not Applicable 31 . . . . . . . . . . . . Not Applicable 32 . . . . . . . . . . . . Not Applicable 33 . . . . . . . . . . . . Not Applicable 34 . . . . . . . . . . . . Not Applicable 35 . . . . . . . . . . . . Northwestern Mutual Life 36 . . . . . . . . . . . . Not Applicable 37 . . . . . . . . . . . . Not Applicable 38 . . . . . . . . . . . . Distribution of the Policies 39 . . . . . . . . . . . . Distribution of the Policies 40 . . . . . . . . . . . . The Fund 41 . . . . . . . . . . . . The Fund, Distribution of the Policies 42 . . . . . . . . . . . . Not Applicable 43 . . . . . . . . . . . . Not Applicable 44 . . . . . . . . . . . . The Fund, Requirements for Insurance, Premiums, Death Benefit, Cash Value 45 . . . . . . . . . . . . Not Applicable 46 . . . . . . . . . . . . Same Captions as Items 10(c) and (d) 47 . . . . . . . . . . . . Not Applicable 48 . . . . . . . . . . . . Not Applicable 49 . . . . . . . . . . . . Not Applicable 50 . . . . . . . . . . . . The Account 51 . . . . . . . . . . . . Numerous Captions 52 . . . . . . . . . . . . Substitution of Fund Shares and Other Changes 53 . . . . . . . . . . . . Not Applicable 54 . . . . . . . . . . . . Not Applicable 55 . . . . . . . . . . . . Not Applicable 56 . . . . . . . . . . . . Not Applicable 57 . . . . . . . . . . . . Not Applicable 58 . . . . . . . . . . . . Not Applicable 59 . . . . . . . . . . . . Financial Statements
-iii- 4 October 11, 1995 P R O S P E C T U S Northwestern Mutual Variable CompLife(R) This prospectus describes the Variable CompLife(R) Policy (the "Policy") offered by The Northwestern Mutual Life Insurance Company. The Policy is designed to provide lifetime insurance coverage on the insured named in the Policy. Both the death benefit and the cash value provided by the Policy will vary daily to reflect the investment experience of Northwestern Mutual Variable Life Account (the "Account"). The owner of a Policy may allocate the net premiums to one or more of the nine divisions of the Account. The assets of each division will be invested in a corresponding Portfolio of Northwestern Mutual Series Fund, Inc. (the "Fund"). The prospectus for the Fund, attached to this prospectus, describes the investment objectives of the nine portfolios: the Index 500 Stock Portfolio, the Select Bond Portfolio, the Money Market Portfolio, the Balanced Portfolio, the Growth and Income Stock Portfolio, the Growth Stock Portfolio, the Aggressive Growth Stock Portfolio, the High Yield Bond Portfolio and the International Equity Portfolio. Variable Whole Life Policy with Additional Protection The Policy provides for a scheduled premium payable at least annually, but the owner of a Policy may pay more than the scheduled amount. In some situations the owner may pay less than the scheduled amount. Northwestern Mutual Life guarantees 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 scheduled premiums are paid when due and no Policy debt is outstanding. The Policy may include insurance which is guaranteed 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. Deductions for sales costs and administrative expenses are made from the cash values of Policies surrendered during the early Policy years. Therefore a Policy should be purchased only if the purchaser intends to keep it in force for a reasonably long period. A Policy may be returned for a full refund for a limited period of time. See "Right to Return Policy", p.15. COMPLIFE(R) IS A REGISTERED SERVICE MARK OF THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY. The assets of the High Yield Bond Division of the Account are invested in shares of the High Yield Bond Portfolio of the Fund, which invests primarily in fixed income securities that are rated below investment grade by the major rating agencies. Such securities are sometimes known as "junk bonds" and are considered speculative. Investors should carefully consider the risks associated with such investments, as described in the Fund's prospectus attached hereto, and should understand that high yield fixed income securities are not appropriate for short-term investment purposes. 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 PROSPECTUS FOR NORTHWESTERN MUTUAL SERIES FUND, INC. WHICH IS 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. [NORTHWESTERN MUTUAL LIFE LOGO] 720 East Wisconsin Avenue Milwaukee, Wisconsin 53202 (414) 271-1444 5 CONTENTS
PAGE Summary .................................................................. 3 Variable Life Insurance ................................................ 3 The Account and its Divisions .......................................... 3 The Policy ............................................................. 3 Premiums ............................................................. 3 Death Benefit ........................................................ 3 Cash Value ........................................................... 3 Deductions and Charges ............................................... 4 From Premiums ...................................................... 4 From Policy Value .................................................. 4 From the Assets of the Account and the Fund ........................ 4 Transaction Charges ................................................ 4 Surrender Charges .................................................. 4 The Northwestern Mutual Life Insurance Company, Northwestern Mutual Variable Life Account and Northwestern Mutual Series Fund, Inc. ................................ 5 Northwestern Mutual Life .............................................. 5 The Account ........................................................... 5 The Fund .............................................................. 5 Index 500 Stock Portfolio .......................................... 5 Select Bond Portfolio .............................................. 5 Money Market Portfolio ............................................. 6 Balanced Portfolio ................................................. 6 Growth and Income Stock Portfolio .................................. 6 Growth Stock Portfolio ............................................. 6 Aggressive Growth Stock Portfolio .................................. 6 High Yield Bond Portfolio .......................................... 6 International Equity Portfolio ..................................... 6 Detailed Information About the Policy .................................... 6 The Policy Design ..................................................... 6 Requirements for Insurance ............................................ 7 Premiums .............................................................. 7 Death Benefit ......................................................... 9 Policy Value and Paid-Up Additional Insurance ......................... 10 Allocations to the Account ............................................ 10 Deductions and Charges ................................................ 10 Deductions from Premiums ........................................... 10 Charges Against the Policy Value ................................... 11 Charges Against the Account Assets ................................. 11 Transaction Charges ................................................ 12 Surrender Charges .................................................. 12 Guarantee of Premiums, Deductions and Charges .......................................................... 13 Cash Value ............................................................ 13 Annual Dividends ...................................................... 13 Loans and Withdrawals ................................................. 14 Excess Amount ......................................................... 15 Paid-Up Insurance ..................................................... 15 Reinstatement ......................................................... 15 Right to Return Policy ................................................ 15 Right to Exchange for a Fixed Benefit Policy .......................... 16 Other Policy Provisions ............................................... 16 Owner .............................................................. 16 Beneficiary ........................................................ 16 Incontestability ................................................... 16 Suicide ............................................................ 16 Misstatement of Age or Sex ......................................... 16 Collateral Assignment .............................................. 16 Payment Plans ...................................................... 16 Deferral of Determination and Payment .............................. 16 Voting Rights ......................................................... 16 Substitution of Fund Shares and Other Changes .................................................... 17 Reports ............................................................... 17 Special Policy for Employers .......................................... 17 Distribution of the Policies .......................................... 18 Tax Treatment of Policy Benefits ...................................... 18 Other Information ........................................................ 18 Management ............................................................ 18 Regulation ............................................................ 21 Legal Proceedings ..................................................... 21 Registration Statement ................................................ 21 Experts ............................................................... 21 Financial Statements ..................................................... 22 Financial Statements of the Account (for the six months ended June 30, 1995 -- unaudited) ........................................................ 22 Report of Independent Accountants (for year ending December 31, 1994) .................................. 27 Financial Statements of the Account (for year ending December 31, 1994) .................................. 28 Financial Statements of Northwestern Mutual Life (for the three years ending December 31, 1994) ................................................... 32 Report of Independent Accountants (for the three years ending December 31, 1994) ................................................... 44 Appendix ................................................................. 45
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. 6 SUMMARY The following summary provides a brief overview of the Account and the Policy. It omits details which are included elsewhere in this prospectus and the attached Fund prospectus 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 a variable life insurance policy should not be considered unless the 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 nine divisions. The owner of the Policy determines how net premiums are to be apportioned. Up to six divisions may be selected at any one point in time. The assets of each division are invested in a corresponding Portfolio of Northwestern Mutual Series Fund, Inc. The nine Portfolios are the Index 500 Stock Portfolio, the Select Bond Portfolio, the Money Market Portfolio, the Balanced Portfolio, the Growth and Income Stock Portfolio, the Growth Stock Portfolio, the Aggressive Growth Stock Portfolio, the High Yield Bond Portfolio and the International Equity Portfolio. The investment objectives of the Portfolios are briefly described herein. See "The Fund", p. 5. For additional information see the attached prospectus for the Fund. THE POLICY PREMIUMS The Policy provides for a scheduled premium for the Minimum Guaranteed Death Benefit and any Additional Protection purchased 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 is guaranteed 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 are purchased with the Policy. The Policy permits payment of optional unscheduled additional premiums, within limits, to purchase variable paid-up additional insurance or to increase Policy Value. Payment of premiums may be suspended if it is determined under a certain set of assumptions that the Policy Value is already sufficient to cover future insurance costs. Resumption of premiums may be required 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 the amount of scheduled premiums may be increased, or decreased, within limits, at the option of the policyowner. Premiums are payable at least annually. DEATH BENEFIT Northwestern Mutual Life guarantees that the Minimum Guaranteed Death Benefit provided by a Policy will be paid upon the death of the insured, regardless of investment experience, if scheduled premiums are paid when due and no Policy debt is outstanding. The death benefit will be increased by the amount of any Additional Protection in force. The Additional Protection is guaranteed 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. A Policy may be surrendered for its cash value. A surrender charge applies during the first 15 policy years. Partial surrenders are permitted by administrative practice if the remaining Policy meets minimum size requirements. 3 7 DEDUCTIONS AND CHARGES FROM PREMIUMS - Deduction of 3.5% for state and federal taxes attributable to premiums - Sales load of 4.5% - Annual Policy fee 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 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 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 AND THE FUND - A daily charge at the annual rate of .60% of the account assets for mortality and expense risks - A daily charge for investment advisory and other services provided to the Fund. The total Fund expenses vary by Portfolio and currently fall in an approximate range of .22% to .87% of assets on an annual basis. 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 deducted from Policy proceeds upon surrender of the Policy during the first 15 years 4 8 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT AND NORTHWESTERN MUTUAL SERIES FUND, INC. NORTHWESTERN MUTUAL LIFE 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 seventh largest life insurance company, based on total assets in excess of $48 billion on December 31, 1994 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 Life sells life and disability insurance policies and annuity contracts through its own field force of approximately 6,000 full time producing agents. THE ACCOUNT Northwestern Mutual Variable Life Account was established by the Trustees of Northwestern Mutual Life 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 other income, gains or losses of Northwestern Mutual Life. The Account is used only for variable life insurance policies. However, the policies issued prior to the date of this prospectus are different from the Variable CompLife(R) Policies described herein. The older policies are described in a separate prospectus and are offered only in states where the Variable CompLife Policies are not yet available. The Account is registered as a unit investment trust under the Investment Company Act of 1940. Such registration does not involve supervision of management or investment practices or policies. The Account has nine divisions. All of the assets of each division are invested in shares of the corresponding Portfolio of the Fund described below. THE FUND 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. Shares of each Portfolio of the Fund are purchased by the corresponding division of the Account at their net asset value without any sales charge. The investment adviser for the Fund is Northwestern Mutual Investment Services, Inc. ("NMIS"), a wholly-owned subsidiary of Northwestern Mutual Life. 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 .69% for the International Equity Portfolio, based on 1994 asset size. Other expenses borne by the Portfolios range from 0% for the Select Bond, Money Market and Balanced Portfolios to .18% for the International Equity Portfolio. Northwestern Mutual Life provides certain personnel and facilities used by NMIS in performing its investment advisory functions and is a party to the investment advisory agreement. J.P. Morgan Investment Management, Inc. and Templeton Investment Counsel, Inc. have been retained under investment sub-advisory agreements to provide investment advice to the Growth and Income Stock Portfolio and the International Equity Portfolio, respectively. The investment objectives and types of investments for each of the nine Portfolios of the Fund are set forth below. There can be no assurance that the objectives of the Portfolios will be realized. For more information about the investment objectives and policies, the attendant risk factors and expenses see the Fund prospectus. 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 generally are more volatile than debt securities and involve greater investment risks. 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. 5 9 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. 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. 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. 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. 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. 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. 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. DETAILED INFORMATION ABOUT THE POLICY THE POLICY DESIGN The simplified description of the Variable CompLife(R) Policy design in this section is intended to help the reader 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. Net premiums are invested in the Account divisions selected by the Policyowner and 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 premiums are paid when due and investment experience is favorable, the Policy Value will increase year by year. The Policy is designed 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 is subtracted 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 the Policyowner will need to pay additional premium to keep the 6 10 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 (called 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.15. The Policy also allows the payment of additional premiums to purchase variable paid up additional insurance. The values for the additional insurance are calculated separately from those which support the initial amount of insurance and do not affect the Policy Value. Unscheduled additional premiums to purchase variable paid-up additional insurance are allowed, subject to insurability of the insured when the premiums are accepted. REQUIREMENTS FOR INSURANCE The minimum amount required 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", p. 17. The Minimum Guaranteed Death Benefit must always be at least $1,000. Before issuing a Policy, Northwestern Mutual Life 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. A higher premium is charged 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 the insured is placed. PREMIUMS The Policy provides for a level scheduled premium to be paid annually at the beginning of each Policy year. By administrative practice, Northwestern Mutual Life accepts premiums on a monthly, quarterly or semi-annual schedule. The owner of the Policy may change the premium frequency. The change will be effective when the premium on the new frequency is accepted. Premiums paid more often than annually include an extra amount to compensate Northwestern Mutual Life for the extra processing costs and loss of interest because the money is received later. For example, the total of monthly premiums for a year is currently 3.56% plus $6.00 higher than a premium paid annually. This reflects an annual interest rate of 8% plus fifty cents for processing each of twelve monthly premium payments. Premiums are payable at the Home Office or to an authorized agent of Northwestern Mutual Life. Monthly premiums may be paid only through an automatic payment plan arranged with the Policyowner's bank. 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. A notice is sent to the Policyowner not less than two weeks before each premium is due. The purchaser of the Policy 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. The premium for the Additional Protection is described below the table on the following page. The following table shows representative annual premiums for a Policy with an initial amount of $200,000, divided equally between Minimum Guaranteed Death Benefit and Additional Protection, for male select, standard plus and standard risks, at three ages. 7 11
MINIMUM PREMIUM GUARANTEED FOR MINIMUM PREMIUM FOR AGE AT DEATH GUARANTEED ADDITIONAL ADDITIONAL TOTAL ISSUE BENEFIT DEATH BENEFIT PROTECTION PROTECTION PREMIUM ------------------------------------------------------------------------------------------ SELECT 15 $100,000 $ 688 $100,000 $ 294 $ 982 35 100,000 1,347 100,000 505 1,852 55 100,000 3,351 100,000 1,660 5,011 STANDARD PLUS 15 $100,000 $ 745 $100,000 $ 304 $1,049 35 100,000 1,479 100,000 558 2,037 55 100,000 3,640 100,000 2,420 6,060 STANDARD 15 $100,000 $ 848 $100,000 $ 370 $1,218 35 100,000 1,723 100,000 656 2,379 55 100,000 4,367 100,000 3,190 7,557
The premium for the Additional Protection is the greater of two times the cost of term insurance for the insured's age when the Policy is issued, or an amount such that the premium for the Policy (excluding the Policy fee) will be 70% of the combined premium which would be required if the Additional Protection were Minimum Guaranteed Death Benefit instead. For example, the annual premium for $100,000 of Additional Protection for a male select risk, at age 35, is $505, as shown in the table above. Two times a term insurance premium for the $100,000 of Additional Protection at age 35 equals $378. If the Additional Protection had been Minimum Guaranteed Death Benefit, then 70% of the premium for the Policy (excluding the Policy fee) would be 70% of $2,526, or $1,768. The premium for the $100,000 of actual Minimum Guaranteed Death Benefit (excluding the Policy fee) is $1,263. In order to have the premium for the Policy (excluding the Policy fee) equal $1,768, the premium for Additional Protection would be $1,768 minus $1,263, or $505. The premium for Additional Protection is the greater of $378 and $505, that is, $505. 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 the additional premium included in the scheduled premium may be decreased at any time upon the request of the Policyowner. The additional premium included in the scheduled premium may be increased, or optional unscheduled additional premiums may be paid, at any time before the Policy anniversary nearest to the insured's 85th birthday, subject to the insurability requirements and issue limits of Northwestern Mutual Life. If the Policy includes Additional Protection, an increased premium may be required after the guaranteed period to prevent a reduction of the amount of Additional Protection. The increased premium, if required, is determined each year as of the date 25 days before the Policy anniversary. The Policyowner is 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 the required increased premium is not paid when due. Payment of scheduled premiums may be suspended, at the option of the Policyowner, 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 mortality. See "Excess Amount", p. 15. 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. The net single premium and the present value of future charges will be calculated 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. Payment of scheduled premiums may be resumed as of any Policy anniversary. Payment of scheduled premiums must be resumed as of the next Policy anniversary if the 8 12 Excess Amount, as of 25 days prior to the Policy anniversary, is determined to be less than one year's minimum premium. Unscheduled additional premiums may be paid while suspension of scheduled premiums is in effect, subject to the insurability requirements and issue limits of Northwestern Mutual Life. 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 a premium is paid during the grace period, the values for the Policy will be the same as if the premium had been paid when due. If the premium is not paid 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. 15. If a Policy is surrendered, its cash value will be paid. See "Cash Value", p. 13. 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 selected by the Policyowner 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 scheduled premiums are paid when due and no Policy debt is outstanding. In setting the premium rates for the Minimum Guaranteed Death Benefit it has been assumed that the Account assets will grow at a net annual rate of 4%. Northwestern Mutual Life bears 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 scheduled premiums are paid when due and no Policy debt is outstanding. A condition for this guarantee is that any dividends paid on the Policy must be used to increase Policy Value until the end of the guaranteed period unless the Policy has an Excess Amount. See "Excess Amount" p. 15. After the guaranteed period, the Additional Protection may be reduced unless the Policy Value exceeds the amount defined by the formula in the Policy. The amount of Policy Value, and the amount of increased premium required to prevent a reduction in the Additional Protection, are calculated 25 days before each Policy anniversary. The Policyowner 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 any required increased premium is not paid 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 is deducted 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. 15. 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. The Policy is designed to meet the definitional requirements for life insurance in Section 7702 of the Internal Revenue Code. See "Tax Treatment of Policy Benefits," p. 18. 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 9 13 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 The Policy Value and the value of any paid-up additional insurance are each determined 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. The Policyowner may increase or decrease the amount of scheduled additional premium which is being paid to increase the Policy Value or to increase the amount of paid-up additional insurance, and may change the allocation for applying this additional premium. Changes in the scheduled additional premium and its allocation must be made by written request. Evidence of insurability may be required. Increases in the scheduled additional premium are not permitted after the Policy anniversary nearest the insured's 85th birthday. The value of paid-up additional insurance may be transferred to increase the Policy Value by written request. This will generally result in a decrease in the total death benefit. Policy Value may not be transferred to the value of paid-up additional insurance. ALLOCATIONS TO THE ACCOUNT The first net annual premium for the Policy, including any net scheduled additional premium, is placed in the Account on the Policy date. The net scheduled annual premium is placed in the Account on each Policy anniversary thereafter even if premiums are being paid on an other-than-annual frequency. Net unscheduled premiums will be placed in the Account on the date received at the Home Office of Northwestern Mutual Life. Net premiums are premiums less the deductions from premiums. See "Deductions from Premiums", below. Premiums placed in the Account prior to the initial allocation date are invested 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 the application is approved by Northwestern Mutual Life. On the initial allocation date the amount in the Money Market Division is invested in the Account divisions as directed in the application for the Policy. The Policyowner 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 any portion of a premium is allocated to a division, the division must receive at least 10% of that premium. The Account assets supporting a Policy may be apportioned among as many as six divisions of the Account at any one time. The Policyowner 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 a written request is received at the Home Office of Northwestern Mutual Life. Northwestern Mutual Life reserves the right to charge a fee of up to $25 to cover administrative costs of transfers. No fee is presently charged. DEDUCTIONS AND CHARGES DEDUCTIONS FROM PREMIUMS A charge for taxes attributable to premiums is deducted 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 .75% 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. Northwestern Mutual Life does 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. Northwestern Mutual Life believes that this charge does not exceed a reasonable estimate of an increase in its federal income taxes resulting from a recent change in the Internal Revenue Code. A charge of 4.5% for sales costs is deducted from each premium. Northwestern Mutual Life expects to recover its sales expenses from this amount, over the period while the Policies are in force, and from the surrender charges described below. The amounts deducted 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, Northwestern Mutual Life will pay the expenses from its 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 assumed by Northwestern Mutual Life. 10 14 See "Charges Against the Account Assets", page 11. To the extent that the amounts deducted for sales costs exceed the amounts needed, Northwestern Mutual Life will realize a gain. An annual fee of $60 is deducted 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. Northwestern Mutual Life retains 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. Northwestern Mutual Life does not expect to profit from this charge. An annual charge is deducted from premiums each of the first 10 years to compensate Northwestern Mutual Life 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 the Policy is surrendered 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. An annual charge of 12 cents per $1,000 of Minimum Guaranteed Death Benefit is deducted from premiums each year to compensate Northwestern Mutual Life for the risk assumed by guaranteeing the Minimum Guaranteed Death Benefit, as long as all premiums are paid when due, no matter how unfavorable investment performance may be. Any extra amounts charged for insureds who do not qualify as select, standard plus or standard risks, plus the cost of any additional benefits purchased with the Policy, are also deducted to determine the net annual premium. CHARGES AGAINST THE POLICY VALUE A cost of insurance charge is deducted from the Policy Value on each Policy Anniversary. The amount is determined 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. A cost of insurance charge is also deducted from the cash value of any paid-up additional insurance on each Policy anniversary. If an unscheduled premium is received on a day other than a Policy anniversary and the net amount at risk increases as a result, a cost of insurance charge will be deducted 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 would ordinarily be deducted from premiums will be deducted from the Policy Value instead. This deduction will also be made on the Policy anniversary each year. The Policy Value will also be reduced 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 assumed by Northwestern Mutual Life. 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 Northwestern Mutual Life estimated. The expense risk is that expenses of issuing and administering the Policies may exceed the estimated costs. Northwestern Mutual Life 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 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. Currently, a daily charge for federal income taxes incurred by Northwestern Mutual Life is not being made. In no event will the charge for taxes exceed that portion of the actual tax expenses of Northwestern Mutual Life which is fairly allocable to the Policies. 11 15 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. These charges are currently being waived. SURRENDER CHARGES If the Policy is surrendered before the premium due at the beginning of the fifteenth year has been paid, surrender charges will be deducted 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 have not been 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 the premium is paid (or payment of premiums is suspended) and is zero after the premium due at the beginning of the tenth Policy year has been paid (or 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 the annual premium had been paid. During the first five policy years, if premiums are paid more frequently than annually the premium surrender charge percentages will be adjusted to reflect the actual period for which premiums have been paid. 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.
For Policies surrendered after payment of Premium Surrender Charge Percentage ----------------------------------- the premium due at the beginning of year: Issue age 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. 12 16 GUARANTEE OF PREMIUMS, DEDUCTIONS AND CHARGES Northwestern Mutual Life guarantees 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 premiums are not being paid on an annual basis the cash value is reduced for any premiums due later in the Policy year. The cash value for a Policy is determined 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 l940, the cash value for a Policy may also be determined on any other day on which there is sufficient trading in securities to materially affect the value of the securities held by the Portfolios of the Fund. The owner of a Policy may surrender it for the cash value at any time during the lifetime of the insured. Alternatively, the cash value may be applied to provide a reduced amount of fixed or variable paid-up insurance. See "Paid-Up Insurance", p.15. Northwestern Mutual Life 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. The owner will receive a new Policy document. The cash value and the death benefit will be proportionately reduced. A deduction from the Policy proceeds for a proportionate part of the surrender charges will be made if a partial surrender takes place before the premium due at the beginning of the fifteenth Policy year has been paid. A transaction charge will be made when a partial surrender is effected. The amount of the transaction charge will not exceed the actual administrative costs for the transaction. Northwestern Mutual Life currently expects this charge to be $250. ANNUAL DIVIDENDS The Policies share in divisible surplus to the extent determined annually by Northwestern Mutual Life. A Policy's share will be distributed 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. Northwestern Mutual Life's 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. Classes are determined 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, the Trustees of Northwestern Mutual Life adopt a dividend scale each year, thereby authorizing the distribution of the dividend. Northwestern Mutual Life has no significant actual mortality experience with variable life insurance policies. For purposes of the current dividend scale used for the illustrations in this prospectus, it has been assumed that mortality experience in connection with the Policies will be comparable to that actually experienced with fixed benefit life insurance. 13 17 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.15. If the Policy has Excess Amount, or if no Additional Protection is in force, dividends may be used to purchase variable benefit paid-up additional insurance, used to pay premiums or paid in cash. If the Policy is in force as fixed benefit paid-up insurance, dividends may be paid in cash or used to purchase fixed benefit paid-up additional insurance. If the Policy is in force as variable benefit paid-up insurance, dividends may be paid in cash or used to purchase variable benefit paid-up additional insurance. LOANS AND WITHDRAWALS The owner of a Policy 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. Loan proceeds may be taken in cash or may be applied to pay premiums on the Policy. Interest on a Policy loan accrues and is payable on a daily basis. Unpaid interest is added to the amount of the loan. If the amount of the loan equals or exceeds the Policy's cash value, the Policy will terminate. The owner will be given a notice at least 31 days before the termination date. The notice will show how much must be repaid to keep the Policy in force. The Policy loan interest rate is selected by the owner. A specified annual effective rate of 5% is one choice. The other choice is a variable rate based on a corporate bond yield index. The variable rate will be adjusted annually, but will not be less than 5%. The amount of a Policy loan, including interest as it accrues, will be taken from the Account divisions in proportion to the amounts in the divisions. The amounts withdrawn will be transferred to Northwestern Mutual Life's general account and will be credited 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 assumed by Northwestern Mutual Life 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, a Policy loan will be allocated between Policy Value and variable paid-up additional insurance in proportion to the amount of cash value attributable to each. A Policy loan, and any accrued interest outstanding, may be repaid, in whole or in part, at any time. Payments will be credited as of the date received and will be transferred from the general account of Northwestern Mutual Life to the Account divisions, in proportion to the amounts in the divisions, as of the same date. The Policyowner may make a withdrawal if the Excess Amount is sufficient. See "Excess Amount", p. 15. 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 and no more than four withdrawals may be made in a Policy year. An administrative charge of up to $25 may apply, but is currently being waived. 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. 14 18 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 an additional unscheduled premium is paid to increase the Policy Value. The due date for this premium is the Policy anniversary following written notice to the Policyowner. 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 premiums are not being paid on an annual basis, the Excess Amount is reduced for any premiums due later in the Policy year. PAID-UP INSURANCE If a premium is not paid 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 the Policyowner may select a reduced amount of variable benefit paid-up insurance. This selection must be made during the grace period or sooner. If the Policy is in force as a reduced amount of fixed benefit paid-up insurance the amount of the cash value will be transferred from the Account to Northwestern Mutual Life's 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 the Policy will be treated as surrendered. Variable benefit paid-up insurance may be selected only if the cash value of the Policy is at least $5,000. The amount of paid-up insurance is determined by the applying 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 the Policy is surrendered or terminated. 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 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. A substantial payment may be required. 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. A 4% rate of investment earnings will be credited for the period from the due date of the overdue premium to the date of reinstatement. An adjustment will be made for any Policy debt or the debt may be reinstated. The Policy may not be reinstated if it has been surrendered for its cash value. RIGHT TO RETURN POLICY A Policy may be returned for a full refund of the premium paid within 45 days after the application for insurance is signed, or within 10 days after the Policy is received, or within 10 days after a Notice of Cancellation Right is mailed or delivered to the owner, whichever date is latest. The Policy may be mailed or delivered to the agent who sold it or to the Home Office of Northwestern Mutual Life. If returned, the Policy will be considered void from the beginning. 15 19 RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY The owner may exchange a Policy for a whole life insurance policy with benefits that do not vary with the investment experience of a separate account. The exchange may be elected at any time within twenty-four months after the issue date of the Policy provided premiums are duly paid. Evidence of insurability is not required. 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 issued by Northwestern Mutual Life 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 Northwestern Mutual Life receives a proper written request, as well as the Policy and any amount due on the exchange. The owner of a Policy may also exchange it for a fixed benefit policy if the Fund changes its investment adviser or if there is a material change in the investment policies of a Fund portfolio. The owner 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 Life at its Home Office. 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 the owner may change the beneficiary in accordance with the Policy provisions. INCONTESTABILITY. Northwestern Mutual Life 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, benefits under a Policy will be adjusted to reflect the correct age and sex. COLLATERAL ASSIGNMENT. The owner may assign a Policy as collateral security. Northwestern Mutual Life is 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 the Home Office. PAYMENT PLANS. The Policy provides a variety of payment plans for Policy benefits. Any Northwestern Mutual Life 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, Northwestern Mutual Life will ordinarily pay Policy benefits within seven days after receipt of all required documents at its Home Office. However, determination and payment of benefits may be deferred 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, Northwestern Mutual Life has 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 interest will be paid at an annual effective rate of 4%. VOTING RIGHTS Northwestern Mutual Life is the owner of the Fund shares in which all assets of the Account are invested. As the owner of the shares Northwestern Mutual Life will exercise its right to vote the shares to elect directors of the Fund, 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 may be presented to any Fund shareholders' meeting. However, Northwestern Mutual Life will vote the Fund shares held in the Account in accordance with instructions from owners 16 20 of the Policies. Northwestern Mutual Life will vote the Fund shares held in its 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 Northwestern Mutual Life to vote the Fund shares in its own discretion, it may elect to do so. The number of 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 Fund Portfolio. The number will be determined as of a date chosen by Northwestern Mutual Life, but not more than 90 days before the Fund shareholders' meeting. Fractional votes are counted. Voting instructions will be solicited with written materials at least 14 days before the meeting. Shares as to which no instructions have been received will be voted in the same proportion as the shares as to which instructions have been received. Northwestern Mutual Life may, if required by state insurance officials, disregard voting instructions which would require Fund shares to be voted for a change in the sub-classification or investment objectives of a Fund Portfolio, or to approve or disapprove an investment advisory agreement for the Fund. Northwestern Mutual Life may also disregard voting instructions that would require changes in the investment policy or investment adviser for the Fund or a Fund Portfolio, provided that Northwestern Mutual Life reasonably determines to take this action in accordance with applicable federal law. If Northwestern Mutual Life disregards voting instructions a summary of the action and reasons therefor will be included in the next semiannual report to the owners of the Policies. SUBSTITUTION OF FUND SHARES AND OTHER CHANGES If, in the judgment of Northwestern Mutual Life, a Fund Portfolio becomes unsuitable for continued use with the Policies because of a change in investment objectives or restrictions, shares of another Portfolio or another mutual fund may be substituted. 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. Northwestern Mutual Life has 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) the owner of a Policy 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. Owners will also receive annual and semiannual reports for the Account and the Fund, 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. Prospective purchasers of the Policies are urged to review any questions in this area with qualified counsel. 17 21 DISTRIBUTION OF THE POLICIES The Policies will be sold through individuals who, in addition to being licensed life insurance agents of Northwestern Mutual Life, are registered representatives of Northwestern Mutual Investment Services, Inc. ("NMIS"), a wholly-owned subsidiary of Northwestern Mutual Life. NMIS is a registered broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers. 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. New agents may be paid differently during a training period. General agents 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 l0l(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. Northwestern Mutual Life believes that loans received under the Policies (except modified endowment contracts as described below) will be construed as indebtedness of an owner in the same manner as loans under a fixed benefit life insurance policy and that no part of any loan under a Policy will constitute income to the owner. 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 Life 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. Counsel and other competent advisers should be consulted for more complete information. OTHER INFORMATION MANAGEMENT Northwestern Mutual Life is managed by a Board of Trustees. The Trustees and senior officers of Northwestern Mutual Life and their positions including Board committee memberships, and their principal occupations, are as follows: 18 22 TRUSTEES
NAME PRINCIPAL OCCUPATION DURING LAST FIVE YEARS - ---- ------------------------------------------- R. Quintus Anderson (A, IF) . . . . . . . . . . . Chairman, The Aarque Companies, Jamestown, NY (diversified metal products manufacturing) Edward E. Barr (HR) . . . . . . . . . . . . . . . President and Chief Executive Officer, Sun Chemical Corporation, Fort Lee, New Jersey (graphic arts); and President and Chief Executive Officer, DIC Americas, Inc., Fort Lee, NJ Gordon T. Beaham, III (A, IF) . . . . . . . . . . Chairman of the Board and President, Faultless Starch/Bon Ami Company, Kansas City, MO (consumer products manufacturer) Frank H. Bertsch (IP) . . . . . . . . . . . . . . Chairman of the Executive Committee, Flexsteel Industries, Inc., Dubuque, IA (upholstered furniture) Robert C. Buchanan (E, F, IF) . . . . . . . . . . President and Chief Executive Officer, Fox Valley Corporation, Appleton, WI (manufacturer of gift wrap and writing paper) Robert E. Carlson (E) . . . . . . . . . . . . . . Executive Vice President of Northwestern Mutual Life George A. Dickerman (IP) . . . . . . . . . . . . President, Spalding Sports Worldwide, Chicopee, MA (manufacturer of sporting equipment) Thomas I. Dolan (HR) . . . . . . . . . . . . . . Retired since 1992; prior thereto, Chairman, A. O. Smith Corporation, Milwaukee, WI Pierre S. du Pont IV (IP) . . . . . . . . . . . . y, Richards, Layton aRceand Finger, Wilmington, DE James D. Ericson (E, F, HR, IF, IP) . . . . . . . President and Chief Executive Officer of Northwestern Mutual Life since 1993; President and Chief Operating Officer, 1991-1993; President, 1990-1991; prior thereto, Executive Vice President J. E. Gallegos (A, IF) . . . . . . . . . . . . . Attorney at Law; President, Gallegos Law Firm, Santa Fe, New Mexico Patricia Albjerg Graham (IP) . . . . . . . . . . Professor, Graduate School of Education, Harvard University, Cambridge, MA, and President, The Spencer Foundation (social and behavioral sciences) since 1991 Richard H. Holton (IP) . . . . . . . . . . . . . Professor Emeritus, Haas School of Business Administration, University of California, Berkeley, CA Stephen F. Keller (A, IF) . . . . . . . . . . . . Chairman, Santa Anita Realty Enterprises since 1992; President, Santa Anita Operating Company, Arcadia, CA (thoroughbred racing and real estate investments) since 1991; Attorney at Law, Fulbright & Jaworski, Los Angeles, CA, January, 1991 to June, 1991; prior thereto, Vice Chairman, Seidler Amdec Securities, Inc., Los Angeles J. Thomas Lewis (HR) . . . . . . . . . . . . . . Attorney, Monroe & Lemann, New Orleans, LA Fred G. Luber (E, F, IF) . . . . . . . . . . . . Chairman and Chief Executive Officer, Super Steel Products Corp., Milwaukee, WI
19 23 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, IF) . . . . . . . . . . . . Chairman and Chief Executive Officer of Universal Foods Corporation, Milwaukee, WI since 1991; prior thereto, President and CEO Donald J. Schuenke (E, F, HR, IF, IP) . . . . . . Retired since 1994; Chairman of Northwestern Mutual Life, 1993-1994; Chairman and Chief Executive Officer, 1990-1993; prior thereto, President and Chief Executive Officer H. Mason Sizemore, Jr. (IP) . . . . . . . . . . . President and Chief Operating Officer, The Seattle Times, Seattle, WA (publishing) Harold B. Smith (IP) . . . . . . . . . . . . . . Chairman, Executive Committee, Illinois Tool Works, Inc., Chicago, IL (engineered components and industrial systems and consumables) Sherwood H. Smith, Jr. (IP) . . . . . . . . . . . Chairman of the Board and Chief Executive Officer of Carolina Power & Light since 1992; prior thereto, Chairman, President and Chief Executive Officer John E. Steuri (HR) . . . . . . . . . . . . . . . Chairman and Chief Executive Officer of ALLTEL Information Services, Inc., Little Rock, AR (application software) since 1991; prior thereto, Chairman of the Board, President and Chief Executive Officer John J. Stollenwerk (E, F, IF) . . . . . . . . . President and Owner, Allen-Edmonds Shoe Corporation, Port Washington, WI Barry L. Williams (HR) . . . . . . . . . . . . . President and Chief Executive Officer, C.N. Flagg Power, Inc., Meriden, CT (construction services for electric power plants) and President, Williams Pacific Ventures, Inc., Redwood City, CA (venture capital) Kathryn D. Wriston (A, IF) . . . . . . . . . . . Director of various corporations, New York, NY
A - Member, Audit Committee HR - Member, Human Resources and Public Policy Committee E - Member, Executive Committee IF - Member, Investment and Financial Policy Committee F - Member, Finance Committee IP - Member, Insurance Product and Marketing Committee
20 24 SENIOR OFFICERS (OTHER THAN TRUSTEES)
POSITION WITH NAME NORTHWESTERN MUTUAL LIFE ----------------------------------------------------------------- Deborah A. Beck Senior Vice President John M. Bremer Senior Vice President, General Counsel and Secretary Peter W. Bruce Executive Vice President Mark G. Doll Senior Vice President James W. Ehrenstrom Senior Vice President Richard L. Hall Senior Vice President William C. Koenig Senior Vice President and Chief Actuary Mason G. Ross Senior Vice President Frederic H. Sweet Senior Vice President Dennis Tamcsin Senior Vice President Walter J. Wojcik Senior Vice President Edward J. Zore Executive Vice President Gary E. Long Vice President and Controller
REGULATION Northwestern Mutual Life is subject to the laws of Wisconsin governing insurance companies and to regulation by the Wisconsin Commissioner of Insurance. An annual statement in a prescribed form is filed 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. Northwestern Mutual Life is also subject to the insurance laws and regulations of the other jurisdictions in which it is licensed to operate. LEGAL PROCEEDINGS Northwestern Mutual Life is engaged in litigation of various kinds which in its judgment is not of material importance in relation to its total assets. There are no legal proceedings pending to which the Account is a party. REGISTRATION STATEMENT A registration statement has been filed with the Securities and Exchange Commission, Washington, D.C. by Northwestern Mutual Life 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 Life. The address and telephone number are on the cover of this prospectus. EXPERTS The financial statements of Northwestern Mutual Life as of December 31, 1994 and 1993 and for each of the three years in the period ended December 31, 1994 and of the Account as of December 31, 1994 and for each of the two years in the period ended December 31, 1994 included in this prospectus have been so included in reliance on the reports of Price Waterhouse 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 Life. His opinion is filed as an exhibit to the registration statement. 21 25 NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1995 (IN THOUSANDS) ASSETS Investments at Market Value: Northwestern Mutual Series Fund, Inc. Index 500 Stock 19,246 shares (cost $25,562)........................................... $28,965 Growth Stock 3,681 shares (cost $3,789)............................................. 4,178 Growth and Income Stock 5,308 shares (cost $5,443)............................................. 6,073 Aggressive Growth Stock 4,902 shares (cost $9,710)............................................. 11,264 International Equity 8,388 shares (cost $10,306)............................................ 10,745 Select Bond 3,361 shares (cost $4,166)............................................. 4,188 High Yield Bond 1,444 shares (cost $1,464)............................................. 1,506 Money Market 4,330 shares (cost $4,330)............................................. 4,330 Balanced 54,467 shares (cost $71,960)........................................... 79,195 $150,444 ------- Due from Sale of Fund Shares............................................................. 224 Due from Northwestern Mutual Life Insurance Company...................................... 28 -------- Total Assets..................................................................... $150,696 ========= LIABILITIES Due to Northwestern Mutual Life Insurance Company........................................ $ 224 Due on Purchase of Fund Shares........................................................... 28 -------- Total Liabilities................................................................ 252 -------- EQUITY..................................................................................... 150,444 -------- Total Liabilities and Equity..................................................... $150,696 =========
Equity Represented By:
EQUITY OF ----------------------- POLICYOWNERS NML ------------ ------- Index 500 Stock Division.......................................... $ 24,063 $ 4,902 $ 28,965 Growth Stock Division............................................. 3,358 820 4,178 Growth and Income Stock Division.................................. 4,879 1,194 6,073 Aggressive Growth Stock Division.................................. 8,978 2,286 11,264 International Equity Division..................................... 8,387 2,358 10,745 Select Bond Division.............................................. 3,633 555 4,188 High Yield Bond Division.......................................... 1,223 283 1,506 Money Market Division............................................. 3,964 366 4,330 Balanced Division................................................. 72,267 6,928 79,195 ------------ ------- -------- $130,752 $19,692 $150,444 ============= ======== =========
The Accompanying Notes are an Integral Part of the Financial Statements (Prepared from Unaudited Figures) 22 26 NORTHWESTERN MUTUAL LIFE VARIABLE LIFE ACCOUNT STATEMENT OF OPERATIONS AND CHANGES IN EQUITY (IN THOUSANDS)
INDEX 500 COMBINED STOCK DIVISION GROWTH STOCK DIVISION# ------------------------ ------------------------ -------------------------- PERIOD PERIOD PERIOD EIGHT MONTHS ENDED YEAR ENDED ENDED YEAR ENDED ENDED ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, -------- ------------ -------- ------------ -------- -------------- 1995 1994 1995 1994 1995 1994 -------- ------------ -------- ------------ -------- -------------- INVESTMENT INCOME Dividend Income...................... $ 3,281 $ 2,062 $ 282 $ 611 $ 31 $ 34 Mortality and Expense Risks.......... 326 510 62 103 8 5 Taxes................................ 138 219 26 44 3 2 -------- ------------ -------- ------------ -------- ------- Net Investment Income (Loss)......... 2,817 1,333 194 464 20 27 -------- ------------ -------- ------------ -------- ------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized Gain (Loss) on Investments..................... 459 14 102 543 4 3 Unrealized Appreciation (Depreciation) of Investments During the Year.................... 15,198 (1,493) 4,527 (907) 413 (25) -------- ------------ -------- ------------ -------- ------- Net Gain (Loss) on Investments....... 15,657 (1,479) 4,629 (364) 417 (22) -------- ------------ -------- ------------ -------- ------- Increase (Decrease) in Equity Derived from Investment Activity... 18,474 (146) 4,823 100 437 5 -------- ------------ -------- ------------ -------- ------- EQUITY TRANSACTIONS Policyowners' Net Payments........... 22,859 38,517 5,582 12,089 1,020 696 Policy Loans, Surrenders, and Death Benefits..................... (4,586) (7,695) (912) (2,126) (87) (51) Mortality and Other (net)............ (4,197) (6,812) (989) (2,221) (178) (112) Transfers from Other Divisions....... 6,317 18,069 456 941 584 1,976 Transfers to Other Divisions......... (6,317) (18,069) (1,666) (6,161) (68) (44) -------- ------------ -------- ------------ -------- ------- Increase in Equity Derived from Equity Transactions......................... 14,076 24,010 2,471 2,522 1,271 2,465 -------- ------------ -------- ------------ -------- ------- Net Increase in Equity................. 32,254 23,864 6,998 2,622 1,708 2,470 Equity Beginning of Year.................... 118,190 94,326 21,967 19,345 2,470 0 -------- ------------ -------- ------------ -------- ------- End of Year.......................... $150,444 $118,190 $ 28,965 $ 21,967 $4,178 $2,470 ======== =========== ======= =========== ======= ===========
# The initial investments in the Growth Stock, Growth and Income Stock, Aggressive Growth Stock and International Equity Divisions were made on May 3, 1994. The Accompanying Notes are an Integral Part of the Financial Statements (Prepared from Unaudited Figures) 23 27 NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT STATEMENT OF OPERATIONS AND CHANGES IN EQUITY (IN THOUSANDS)
GROWTH & INCOME STOCK AGGRESSIVE GROWTH STOCK INTERNATIONAL EQUITY DIVISION# DIVISION# DIVISION# SELECT BOND DIVISION ------------------------- ------------------------- ------------------------- ------------------------- PERIOD EIGHT MONTHS PERIOD EIGHT MONTHS PERIOD EIGHT MONTHS PERIOD ENDED ENDED ENDED ENDED ENDED ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, -------- ------------ -------- ------------ -------- ------------ -------- ------------ 1995 1994 1995 1994 1995 1994 1995 1994 -------- ------------ -------- ------------ -------- ------------ -------- ------------ $ 45 $ 62 $ 54 $ 1 $ 67 $ 170 $ 110 $ 195 12 7 21 12 21 13 10 17 5 3 9 5 9 6 4 7 -------- ------------ -------- ------------ -------- ------------ -------- ------------ 28 52 24 (16) 37 151 96 171 -------- ------------ -------- ------------ -------- ------------ -------- ------------ 4 1 20 11 (6) 1 1 11 720 (90) 1,254 301 707 (267) 327 (288) -------- ------------ -------- ------------ -------- ------------ -------- ------------ 724 (89) 1,274 312 701 (266) 328 (277) -------- ------------ -------- ------------ -------- ------------ -------- ------------ 752 (37) 1,298 296 738 (115) 424 (106) -------- ------------ -------- ------------ -------- ------------ -------- ------------ 1,320 1,307 2,784 2,044 2,822 2,308 637 1,286 (159) (37) (287) (144) (177) (109) (123) (250) (259) (159) (489) (316) (508) (362) (107) (229) 810 2,731 1,862 4,412 1,173 5,376 149 322 (94) (102) (122) (74) (368) (33) (351) (896) -------- ------------ -------- ------------ -------- ------------ -------- ------------ 1,618 3,740 3,748 5,922 2,942 7,180 205 233 -------- ------------ -------- ------------ -------- ------------ -------- ------------ 2,370 3,703 5,046 6,218 3,680 7,065 629 127 3,703 0 6,218 0 7,065 0 3,559 3,432 -------- ------------ -------- ------------ -------- ------------ -------- ------------ $6,073 $3,703 $ 11,264 $6,218 $ 10,745 $7,065 $4,188 $3,559 ======= =========== ======= =========== ======= =========== ======= ===========
The Accompanying Notes are an Integral Part of the Financial Statements (Prepared from Unaudited Figures) 24 28 NORTHWESTERN MUTUAL LIFE VARIABLE LIFE ACCOUNT STATEMENT OF OPERATIONS AND CHANGES IN EQUITY (IN THOUSANDS)
HIGH YIELD BOND DIVISION# MONEY MARKET DIVISION BALANCED DIVISION ---------------------- ---------------------- ---------------------- PERIOD EIGHT MONTHS PERIOD PERIOD ENDED ENDED ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, -------- ------------ -------- ------------ -------- ------------ 1995 1994 1995 1994 1995 1994 -------- ------------ -------- ------------ -------- ------------ INVESTMENT INCOME Dividend Income.................... $ 55 $ 52 $ 116 $ 127 $ 2,521 $ 810 Mortality and Expense Risks........ 3 2 10 15 179 336 Taxes.............................. 1 1 4 7 77 144 -------- ------ -------- ------------ -------- ------------ Net Investment Income.............. 51 49 102 105 2,265 330 -------- ------ -------- ------------ -------- ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized Gain (Loss) on Investments...................... 2 2 -- -- 332 (558) Unrealized Appreciation (Depreciation) of Investments During the Year.................. 84 (41) -- -- 7,166 (176) -------- ------ -------- ------------ -------- ------------ Net Gain (Loss) on Investments..... 86 (39) 0 0 7,498 (734) -------- ------ -------- ------------ -------- ------------ Increase (Decrease) in Equity Derived from Investment Activity......................... 137 10 102 105 9,763 (404) -------- ------ -------- ------------ -------- ------------ EQUITY TRANSACTIONS Policyowners' Net Payments......... 303 327 374 847 8,017 17,613 Policy Loans, Surrenders, and Other (net)............................ (74) (33) (128) (102) (2,639) (4,843) Mortality and Other (net).......... (66) (43) (64) (101) (1,537) (3,269) Transfers from Other Divisions........................ 343 746 796 1,271 144 294 Transfers to Other Divisions....... (70) (74) (571) (856) (3,007) (9,829) -------- ------ -------- ------------ -------- ------------ Increase (Decrease) in Equity Derived from Equity Transactions........... 436 923 407 1,059 978 (34) -------- ------ -------- ------------ -------- ------------ Net Increase (Decrease) in Equity.... 573 933 509 1,164 10,741 (438) Equity Beginning of Year.................. 933 0 3,821 2,657 68,454 68,892 -------- ------ -------- ------------ -------- ------------ End of Year........................ $1,506 $933 $4,330 $3,821 $ 79,195 $ 68,454 ======= =========== ======= =========== ======= ===========
# The initial investment in the High Yield Bond Division was made on May 3, 1994. The Accompanying Notes are an Integral Part of the Financial Statements (Prepared from Unaudited Figures) 25 29 NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS JUNE 30, 1995 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 Life") used to fund variable life insurance policies. Principal accounting policies are summarized below. Note 2 -- All assets of each Division of the Account are invested in shares of the corresponding Portfolio of Northwestern Mutual Series Fund, Inc. (the "Fund"). The shares are valued at the Fund's offering and redemption price per share. The Northwestern Mutual Series Fund, Inc. (formerly Northwestern Mutual Variable Life Series Fund, Inc.) is a diversified open-end investment company registered under the Investment Company Act of 1940. Note 3 -- Dividend income from the Fund is recorded on the record date of the dividends. Transactions in Fund shares are accounted for on the trade date. The basis for determining cost on sale of Fund shares is identified cost. Purchases and sales of Fund shares for the period ended June 30, 1995 by each Division are shown below:
PURCHASES SALES ---------- ---------- Index 500 Stock Division... $3,463,515 $ 799,399 Growth Stock Division...... 1,357,892 66,221 Growth and Income Stock Division................. 1,723,262 78,056 Aggressive Growth Division................. 3,933,035 160,360 International Equity Division................. 3,191,612 212,002 Select Bond Division....... 573,812 273,619 High Yield Bond Division... 575,113 88,483 Money Market Division...... 1,121,963 614,260 Balanced Division.......... 5,403,390 2,160,837
Note 4 -- A deduction for mortality and expense risks is determined daily and paid to Northwestern Mutual Life. The deduction is at an annual rate of .50% of the net assets of the Account. 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 or single premiums before amounts are allocated to the Account. These deductions are for (1) sales load, (2) administrative expenses, (3) state premium taxes and (4) a risk charge for the guaranteed minimum death benefit. Additional mortality costs are deducted from the policy and are paid to Northwestern Mutual Life 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 5 -- Northwestern Mutual Life 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 Life. Policies provide that a charge for taxes may be made against the assets of the Account. Northwestern Mutual Life 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. Note 6 -- 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 Life's equity represents any unpaid portion of net annual premiums. 26 30 [PRICE WATERHOUSE LLP LETTERHEAD] REPORT OF INDEPENDENT ACCOUNTANTS To The Northwestern Mutual Life Insurance Company and Policyowners 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 changes in equity present fairly, in all material respects, the financial position of Northwestern Mutual Variable Life Account and the Index 500 Stock Division, Aggressive Growth Stock Division, International Equity Division, Select Bond Division, Money Market Division, Balanced Division, Growth Stock Division, Growth and Income Stock Division and High Yield Bond Division thereof at December 31, 1994, the results of their operations and the changes in their equity for each of the two years in the period then ended for Northwestern Mutual Variable Life Account and Index 500 Stock Division, Select Bond Division, Money Market Division and Balanced Division and for the period from May 3, 1994 (commencement of operations) through December 31, 1994 for the Aggressive Growth Stock Division, International Equity Division, Growth Stock Division, Growth and Income Stock Division, and High Yield Bond Division, all in conformity with generally accepted accounting principles. 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 generally accepted auditing standards 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, 1994 with Northwestern Mutual Series Fund, Inc. provide a reasonable basis for the opinion expressed above. [Price Waterhouse LLP] Milwaukee, Wisconsin January 25, 1995 27 31 NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1994 (IN THOUSANDS) ASSETS Investments at Market Value: Northwestern Mutual Series Fund, Inc. Index 500 Stock 17,338 shares (cost $22,796)........................................... $21,967 Aggressive Growth Stock 3,111 shares (cost $5,917)............................................. 6,218 International Equity 5,932 shares (cost $7,333)............................................. 7,065 Select Bond 3,361 shares (cost $3,865)............................................. 3,559 Money Market 3,821 shares (cost $3,821)............................................. 3,821 Balanced 52,136 shares (cost $68,385)........................................... 68,454 Growth Stock 2,472 shares (cost $2,494)............................................. 2,470 Growth and Income Stock 3,763 shares (cost $3,793)............................................. 3,703 High Yield Bond 961 shares (cost $974)................................................. 933 $118,190 ------- Due from Sale of Fund Shares............................................................. 233 Due from Northwestern Mutual Life Insurance Company...................................... 205 -------- Total Assets..................................................................... $118,628 ========= LIABILITIES Due to Northwestern Mutual Life Insurance Company........................................ $ 233 Due on Purchase of Fund Shares........................................................... 205 -------- Total Liabilities................................................................ 438 -------- EQUITY..................................................................................... 118,190 -------- Total Liabilities and Equity..................................................... $118,628 =========
Equity Represented By:
EQUITY OF ----------------------- POLICYOWNERS NML ------------ ------- Index 500 Stock Division.......................................... $ 17,726 $ 4,241 $ 21,967 Aggressive Growth Stock Division.................................. 4,944 1,274 6,218 International Equity Division..................................... 5,530 1,535 7,065 Select Bond Division.............................................. 3,102 457 3,559 Money Market Division............................................. 3,507 314 3,821 Balanced Division................................................. 62,083 6,371 68,454 Growth Stock Division............................................. 2,000 470 2,470 Growth and Income Stock Division.................................. 2,985 718 3,703 High Yield Bond Division.......................................... 742 191 933 ------------ ------- -------- $102,619 $15,571 $118,190 ============= ======== =========
The Accompanying Notes are an Integral Part of the Financial Statements 28 32 NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT STATEMENT OF OPERATIONS AND CHANGES IN EQUITY (IN THOUSANDS)
AGGRESSIVE INDEX 500 GROWTH INTERNATIONAL COMBINED STOCK DIVISION STOCK EQUITY -------------------- ------------------ DIVISION* DIVISION* ------------ ------------ YEAR ENDED YEAR ENDED EIGHT MONTHS EIGHT MONTHS DECEMBER 31, DECEMBER 31, ENDED ENDED -------------------- ------------------ DECEMBER 31, DECEMBER 31, 1994 1993 1994 1993 1994 1994 -------- -------- ------- ------- ------------ ------------ INVESTMENT INCOME Dividend Income.......................... $ 2,062 $ 11,953 $ 611 $ 2,243 $ 1 $ 170 Mortality and Expense Risks.............. 510 404 103 74 12 13 Taxes.................................... 219 173 44 32 5 6 -------- -------- ------- ------- ------------ ------------ Net Investment Income (Loss)............. 1,333 11,376 464 2,137 (16) 151 -------- -------- ------- ------- ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized Gain (Loss) on Investments......................... 14 246 543 124 11 1 Unrealized Appreciation (Depreciation) of Investments During the Year........................ (1,493) (4,599) (907) (970) 301 (267) -------- -------- ------- ------- ------------ ------------ Net Gain (Loss) on Investments........... (1,479) (4,353) (364) (846) 312 (266) -------- -------- ------- ------- ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity......... (146) 7,023 100 1,291 296 (115) -------- -------- ------- ------- ------------ ------------ EQUITY TRANSACTIONS Policyowners' Net Payments............... 38,517 23,693 12,089 7,673 2,044 2,308 Policy Loans, Surrenders, and Death Benefits......................... (7,695) (5,674) (2,126) (1,055) (144) (109) Mortality and Other (net)................ (6,812) (4,340) (2,221) (1,324) (316) (362) Transfers from Other Divisions........... 18,069 3,886 941 2,163 4,412 5,376 Transfers to Other Divisions............. (18,069) (3,886) (6,161) (369) (74) (33) -------- -------- ------- ------- ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions......... 24,010 13,679 2,522 7,088 5,922 7,180 -------- -------- ------- ------- ------------ ------------ Net Increase (Decrease) in Equity.......... 23,864 20,702 2,622 8,379 6,218 7,065 Equity Beginning of Year........................ 94,326 73,624 19,345 10,966 -- -- -------- -------- ------- ------- ------------ ------------ End of Year.............................. $118,190 $ 94,326 $21,967 $19,345 $6,218 $7,065 ======== ======== ======= ======= =========== ===========
* The initial investments in the Aggressive Growth Stock, International Equity, Growth Stock, Growth and Income Stock, and High Yield Bond Divisions were made on May 3, 1994. The Accompanying Notes are an Integral Part of the Financial Statements 29 33 NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT STATEMENT OF OPERATIONS AND CHANGES IN EQUITY (IN THOUSANDS)
GROWTH SELECT BOND MONEY MARKET GROWTH AND INCOME HIGH YIELD DIVISION DIVISION BALANCED DIVISION STOCK STOCK BOND ----------------- ----------------- ------------------- DIVISION* DIVISION* DIVISION* ------------ ------------ ------------ YEAR ENDED YEAR ENDED YEAR ENDED EIGHT MONTHS EIGHT MONTHS EIGHT MONTHS DECEMBER 31, DECEMBER 31, DECEMBER 31, ENDED ENDED ENDED ----------------- ----------------- ------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1993 1994 1993 1994 1993 1994 1994 1994 ------ ------ ------ ------ ------- ------- ------------ ------------ ------------ $ 195 $ 337 $ 127 $ 89 $ 810 $ 9,284 $ 34 $ 62 $ 52 17 17 15 15 336 298 5 7 2 7 7 7 6 144 128 2 3 1 ------ ------ ------ ------ ------- ------- ------------ ------------ ------ 171 313 105 68 330 8,858 27 52 49 ------ ------ ------ ------ ------- ------- ------------ ------------ ------ 11 44 -- -- (558) 78 3 1 2 (288) (34) -- -- (176) (3,595) (25) (90) (41) ------ ------ ------ ------ ------- ------- ------------ ------------ ------ (277) 10 -- -- (734) (3,517) (22) (89) (39) ------ ------ ------ ------ ------- ------- ------------ ------------ ------ (106) 323 105 68 (404) 5,341 5 (37) 10 ------ ------ ------ ------ ------- ------- ------------ ------------ ------ 1,286 793 847 251 17,613 14,976 696 1,307 327 (250) (222) (102) (169) (4,843) (4,228) (51) (37) (33) (229) (165) (101) (49) (3,269) (2,802) (112) (159) (43) 322 93 1,271 571 294 1,059 1,976 2,731 746 (896) (560) (856) (2,106) (9,829) (851) (44) (102) (74) ------ ------ ------ ------ ------- ------- ------------ ------------ ------ 233 (61) 1,059 (1,502) (34) 8,154 2,465 3,740 923 ------ ------ ------ ------ ------- ------- ------------ ------------ ------ 127 262 1,164 (1,434) (438) 13,495 2,470 3,703 933 3,432 3,170 2,657 4,091 68,892 55,397 -- -- -- ------ ------ ------ ------ ------- ------- ------------ ------------ ------ $3,559 $3,432 $3,821 $2,657 $68,454 $68,892 $2,470 $3,703 $933 ====== ====== ====== ====== ======= ======= =========== =========== ===========
The Accompanying Notes are an Integral Part of the Financial Statements 30 34 NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1994 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 Life") used to fund variable life insurance policies. Principal accounting policies are summarized below. Note 2 -- All assets of each Division of the Account are invested in shares of the corresponding Portfolio of Northwestern Mutual Series Fund, Inc. (the "Fund"). The shares are valued at the Fund's offering and redemption price per share. The Northwestern Mutual Series Fund, Inc. (formerly Northwestern Mutual Variable Life Series Fund, Inc.) is a diversified open-end investment company registered under the Investment Company Act of 1940. Note 3 -- Dividend income from the Fund is recorded on the record date of the dividends. Transactions in Fund shares are accounted for on the trade date. The basis for determining cost on sale of Fund shares is identified cost. Purchases and sales of Fund shares for the year ended December 31, 1994 by each Division are shown below:
PURCHASES SALES ---------- ---------- Index 500 Stock Division... $7,025,219 $4,039,211 Aggressive Growth Stock Division................. 6,116,273 210,189 International Equity Division................. 7,468,011 136,987 Select Bond Division....... 1,164,306 760,136 Money Market Division...... 1,940,911 776,314 Balanced Division.......... 7,740,345 7,444,499 Growth Stock Division...... 2,551,851 60,219 Growth and Income Stock Division................. 3,938,474 146,276 High Yield Bond Division... 1,071,912 99,074
Note 4 -- A deduction for mortality and expense risks is determined daily and paid to Northwestern Mutual Life. The deduction is at an annual rate of .50% of the net assets of the Account. 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 or single premiums before amounts are allocated to the Account. These deductions are for (1) sales load, (2) administrative expenses, (3) state premium taxes and (4) a risk charge for the guaranteed minimum death benefit. Additional mortality costs are deducted from the policy and are paid to Northwestern Mutual Life 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 5 -- Northwestern Mutual Life 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 Life. Policies provide that a charge for taxes may be made against the assets of the Account. Northwestern Mutual Life 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. Note 6 -- 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 Life's equity represents any unpaid portion of net annual premiums. Note 7 -- Certain prior period amounts have been reclassified to conform to current year presentation. 31 35 NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------- The following financial statements of Northwestern Mutual should be considered only as bearing upon the ability of Northwestern Mutual Life to meet its obligations under the Policies. NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF FINANCIAL POSITION
December 31, (In millions) 1994 1993 ---------------------- ASSETS BONDS United States Government $ 3,501 $ 2,372 Industrial and other 19,232 18,077 ---------------------- 22,733 20,449 ---------------------- STOCKS Common 2,192 2,091 Unconsolidated subsidiaries 504 416 Preferred 511 459 ---------------------- 3,207 2,966 ---------------------- MORTGAGE LOANS 7,099 6,505 REAL ESTATE Investment 1,072 1,068 Home office 141 148 ---------------------- 1,213 1,216 ---------------------- LOANS ON POLICIES 6,144 5,846 OTHER INVESTMENTS 1,301 1,257 CASH AND TEMPORARY INVESTMENTS 803 783 DUE AND ACCRUED INVESTMENT INCOME 650 690 ---------------------- Total invested assets 43,150 39,712 ---------------------- SEPARATE ACCOUNT BUSINESS 3,806 3,483 OTHER ASSETS 1,156 866 ---------------------- Total Assets $48,112 $ 44,061 ====================== LIABILITIES AND RESERVES LIABILITY FOR POLICY BENEFITS Insurance and annuity reserves $36,124 $ 32,861 Policy benefits left for future payments 866 829 Premium deposits 419 403 Policy benefits in process of payment 138 108 Policyowner dividends payable 1,950 1,785 ---------------------- 39,497 35,986 ---------------------- OTHER LIABILITIES Interest maintenance reserve 11 279 Income taxes 561 411 Miscellaneous 822 645 ---------------------- 1,394 1,335 ---------------------- SEPARATE ACCOUNT BUSINESS 3,806 3,483 ---------------------- ASSET VALUATION RESERVE 1,190 1,227 ---------------------- Total liabilities and asset valuation reserve 45,887 42,031 ---------------------- GENERAL CONTINGENCY RESERVE 2,225 2,030 ---------------------- Total Liabilities and Contingency Reserves $48,112 $ 44,061 ======================
The accompanying notes are an integral part of the financial statements. 32 36 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, (In millions) 1994 1993 1992 ---------------------------- INCOME PREMIUMS $ 5,743 $ 5,295 $ 4,889 NET INVESTMENT INCOME 3,106 2,913 2,753 POLICY BENEFITS LEFT WITH COMPANY AND OTHER INCOME 636 570 523 ---------------------------- Total income 9,485 8,778 8,165 ---------------------------- DISPOSITION OF INCOME COSTS Agents' compensation 492 487 443 Other insurance costs 334 361 303 Premium and other taxes or assessments 120 116 112 ---------------------------- 946 964 858 ---------------------------- BENEFITS TO POLICYOWNERS AND BENEFICIARIES Death benefits 609 526 459 Matured endowments 54 44 49 Annuity benefits 94 85 75 Disability benefits 151 126 111 Surrender benefits 904 837 762 Payments from policy benefits left with Company 568 498 482 Net transfers to separate accounts 344 302 258 Net additions to policy reserves 3,313 3,078 2,870 ---------------------------- 6,037 5,496 5,066 ---------------------------- Total disposition of income 6,983 6,460 5,924 ---------------------------- SAVINGS FROM OPERATIONS BEFORE INCOME TAXES AND DIVIDENDS 2,502 2,318 2,241 INCOME TAX EXPENSE 281 208 242 ---------------------------- SAVINGS FROM OPERATIONS BEFORE DIVIDENDS 2,221 2,110 1,999 POLICYOWNER DIVIDENDS 1,942 1,780 1,755 ---------------------------- NET SAVINGS FROM OPERATIONS 279 330 244 NET REALIZED CAPITAL GAINS, LESS TAX EXPENSE OF $85, $82, AND $64 RESPECTIVELY 119 180 105 ---------------------------- CONTRIBUTION TO GENERAL CONTINGENCY RESERVE FROM OPERATIONS $ 398 $ 510 $ 349 ============================
The accompanying notes are an integral part of the financial statements. 33 37 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF GENERAL CONTINGENCY RESERVE
For the year ended December 31, (In millions) 1994 1993 1992 ------------------------------------------ BEGINNING OF YEAR BALANCE $ 2,030 $ 1,850 $ 1,655 Contribution to general contingency reserve from operations 398 510 349 Net unrealized capital losses (242) (89) (110) Change in asset valuation reserve 37 (157) (119) Transfer from voluntary investment reserve - - 106 Other -- net 2 (84) (31) ----------------------------------------- END OF YEAR BALANCE $ 2,225 $ 2,030 $ 1,850 =========================================
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended December 31, (In millions) 1994 1993 1992 ----------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Insurance premiums, annuities and other considerations $ 6,299 $ 5,777 $ 5,342 Net investment income received 3,013 2,813 2,666 Net loans on policies (297) (143) (159) Benefits paid to policyholders and beneficiaries (2,357) (2,116) (1,927) Net transfers to separate accounts (344) (302) (258) Policyowner dividends paid (1,777) (1,759) (1,596) Expenses and taxes (1,033) (1,135) (1,071) Other -- net 89 (81) 45 ----------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 3,593 3,054 3,042 CASH FLOWS FROM INVESTING ACTIVITIES PROCEEDS FROM INVESTMENTS SOLD OR MATURED Bonds 27,096 20,221 13,884 Stocks 1,469 1,122 1,027 Mortgage loans 512 394 300 Real estate 164 43 71 Other invested assets 213 132 24 Capital gain (tax) benefit 28 (124) (82) ----------------------------------------- 29,482 21,788 15,224 COST OF INVESTMENTS ACQUIRED Bonds 29,674 22,393 16,446 Stocks 1,606 1,288 755 Mortgage loans 1,356 970 510 Real estate 6 46 63 Other invested assets 413 152 238 ----------------------------------------- 33,055 24,849 18,012 NET CASH USED IN INVESTING ACTIVITIES (3,573) (3,061) (2,788) ----------------------------------------- NET INCREASE (DECREASE) IN CASH AND TEMPORARY INVESTMENTS 20 (7) 254 CASH AND TEMPORARY INVESTMENTS, BEGINNING OF YEAR 783 790 536 ----------------------------------------- CASH AND TEMPORARY INVESTMENTS, END OF YEAR $ 803 $ 783 $ 790 =========================================
The accompanying notes are an integral part of the financial statements. 34 38 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1994, 1993, AND 1992 NOTE 1 - PRINCIPAL ACCOUNTING POLICIES The accompanying consolidated financial statements include the accounts of The Northwestern Mutual Life Insurance Company (the "Company") and its wholly-owned life insurance subsidiary. The consolidated financial statements have been prepared using accounting policies prescribed or permitted by the Insurance Departments of the states in which the Company and its subsidiary are domiciled. These policies are considered generally accepted accounting principles for mutual life insurance companies. In April 1993, the Financial Accounting Standards Board issued Interpretation No. 40, "Applicability of Generally Accepted Accounting Principles to Mutual Life Insurance and Other Enterprises", which establishes a different definition of generally accepted accounting principles for mutual life insurance companies. Under the Interpretation, financial statements of mutual life insurance companies for periods beginning after December 15, 1995 which are prepared on the basis of statutory accounting will no longer be characterized as in conformity with generally accepted accounting principles. Management of the Company has not yet determined the effect on its December 31, 1994 financial statements of applying the Interpretation. The Company is considering application of the accounting changes required to present its financial statements in conformity with generally accepted accounting principles. If the Company chooses to adopt the required accounting changes, the effect of the changes would be reported retroactively through restatement of all previously issued financial statements beginning with the earliest year presented. The cumulative effect of adopting these changes would be included in the earliest year presented. INVESTMENTS The Company's investments are valued on the following bases: Bonds -Amortized cost using the interest method, except for loan-backed and structured securities which are amortized to estimated prepayment dates using the prospective method Common Stocks -Market value Preferred Stocks -Cost Unconsolidated Subsidiaries -Equity in subsidiaries' net assets Mortgage Loans -Amortized cost Investment Real Estate -Lower of cost, less depreciation and encumbrances, or estimated net realizable value Home Office Real Estate -Cost, less depreciation Loans on Policies -Cost Other Investments- Joint Ventures -Equity in ventures' net assets 35 39 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT BUSINESS This business consists of annuities funded by specific assets held in separate accounts. The assets in these accounts are carried at market value. The policy values reflect the investment performance of the respective accounts. INSURANCE, ANNUITY AND DISABILITY INCOME RESERVES 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 policy reserves are based primarily on the net level premium method employing various mortality tables at interest rates ranging from 2% to 4-1/2%. Deferred annuity reserves on policies issued since 1985 are valued 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 the contract value. Immediate annuity reserves are present values of expected benefit payments at interest rates ranging from 3-1/2% to 8-1/4%. 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. Previous DI business used the net level premium method, using a 3% or 4% interest rate and the 1964 Commissioner's Disability Table for morbidity. Disabled life reserves for DI policies are based on the present values of expected benefit payments using primarily the 1985 CIDA (modified for Company experience in first two years of disability) with interest rates ranging from 3% to 5-1/2%. INTEREST MAINTENANCE RESERVE The Company is required to maintain an interest maintenance reserve ("IMR"). The IMR establishes a reserve for realized gains and losses, net of tax, resulting from changes in interest rates on short and long-term fixed income investments. Net realized gains and losses charged to the IMR are amortized into investment income over the approximate remaining life of the investment sold. ASSET VALUATION RESERVE The Company is also required to maintain an asset valuation reserve ("AVR"). The AVR establishes a reserve for certain invested assets held by the Company. In the aggregate, AVR was 84% and 91% of the allowable maximum at December 31, 1994 and 1993, respectively. PREMIUM INCOME Life insurance premiums are recognized as income at the beginning of each policy year. 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 reinsurance to other insurance enterprises or reinsurers under excess coverage and co-insurance contracts. 36 40 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY As of December 31, 1994 and 1993, total life insurance inforce approximated $347 billion and $313 billion, respectively, of which approximately $104 billion and $96 billion, respectively, comprised principally of term insurance, had been ceded to various reinsurers. The Company retains a maximum of $10 million of coverage per individual life. OPERATING COSTS Operating costs, including costs of acquiring new policies, are charged to operations as incurred. INCOME TAXES Provisions for income taxes are based on current income tax returns without recognition of deferred taxes due to timing differences. The portion of the federal income tax based on mutual life insurance company equity is reflected as a component of income tax expense, including related adjustments for prior years. The Company files a consolidated life-nonlife federal income tax return. Federal income tax returns for years through 1988 are closed as to further assessment of taxes. Adequate provision has been made in the financial statements for any additional taxes which may become due with respect to the open years. The Company's effective tax rate on savings from operations before income tax expense (after dividends) in 1994 was approximately 50.2%. Two significant factors cause the Company's effective rate to exceed the federal corporate rate of 35%. First, the Company pays "surplus tax", a tax that is assessed only on mutual life insurance companies, which is an amount that proports to equate a portion of policyholder dividends with nondeductible dividends paid to shareholders of stock companies. Second, the Company must capitalize and amortize (as opposed to immediately deducting) an amount deemed to represent the cost of acquiring new business ("DAC tax"). POLICYOWNER DIVIDENDS Dividends payable in the following year are charged to current operations. NOTE 2 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following summarizes the bases used by the Company in estimating its fair value disclosures for financial instruments: BONDS AND PREFERRED STOCKS - Fair values 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. MORTGAGE LOANS - Fair values are derived by discounting the future estimated cash flows using current interest rates for debt securities with similar credit risk and maturities, or utilizing net realizable values. LOANS ON POLICIES - The carrying amount reported in the statement of financial position approximates fair value since loans on policies reduce the amount payable at death or at surrender of the contract. 37 41 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY Cash and temporary investments and due and accrued investment income - The carrying amounts reported in the statement of financial position approximate fair value. Annuity reserves (without mortality/morbidity features) - Fair values are derived by discounting the future estimated cash flows using current interest rates with similar maturities. Other deposit liabilities - The carrying amounts reported in the statement of financial position approximate fair value. NOTE 3 - INVESTMENTS NET INVESTMENT INCOME The Company's net investment income for the years ended December 31, 1994, 1993 and 1992 consists of the following:
(In millions) 1994 1993 1992 ---------------------------- Interest, dividends, rents, equity in unconsolidated subsidiaries' earnings and joint venture income $ 3,395 $ 3,215 $ 3,039 Less: Investment expenses and depreciation (289) (302) (286) ---------------------------- Net Investment Income $ 3,106 $ 2,913 $ 2,753 ============================
REALIZED GAINS AND LOSSES During 1994, 1993 and 1992, the Company, in its normal course of business, sold certain invested assets realizing gains and losses before transfer to the IMR and capital gains tax from such sales as follows:
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED DECEMBER 31, 1994 DECEMBER 31, 1993 DECEMBER 31, 1992 ---------------------------------------------------------------------------------------------------- NET NET NET REALIZED REALIZED REALIZED REALIZED REALIZED GAINS REALIZED REALIZED GAINS REALIZED REALIZED GAINS GAINS LOSSES (LOSSES) GAINS LOSSES (LOSSES) GAINS LOSSES (LOSSES) ---------------------------------------------------------------------------------------------------- (IN MILLIONS) Bonds $171 $(535) $(364) $438 $(133) $305 $263 $ (90) $173 Stocks 499 (291) 208 297 (36) 261 266 (53) 213 Mortgage loans - (37) (37) 1 (12) (11) - (3) (3) Real estate 16 (7) 9 13 (2) 11 15 (11) 4 Other invested assets 110 (98) 12 100 (54) 46 87 (131) (44) ---------------------------------------------------------------------------------------------------- $796 $(968) $(172) $849 $(237) $612 $631 $(288) $343 ====================================================================================================
38 42 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY DEBT SECURITIES Debt securities consist of all bonds, fixed maturity preferred stocks and short term fixed income investments. The statement values, which principally represent amortized cost, and estimated market values of the Company's debt securities at December 31, 1994 and 1993 are as follows:
December 31, 1994 RECONCILIATION TO ESTIMATED MARKET VALUE - ------------------------------------------------------------------------------- GROSS GROSS ESTIMATED STATEMENT UNREALIZED UNREALIZED MARKET VALUE APPRECIATION DEPRECIATION VALUE - ------------------------------------------------------------------------------- (IN MILLIONS) US Government and political obligations $ 3,334 $ 61 $ (41) $ 3,354 Mortgage-backed securities 5,652 53 (321) 5,384 Corporate and other debt securities 14,488 203 (515) 14,176 ----------------------------------------------------- 23,474 317 (877) 22,914 Preferred stocks 71 1 (7) 65 ----------------------------------------------------- Total $23,545 $ 318 $ (884) $22,979 =====================================================
December 31, 1993 RECONCILIATION TO ESTIMATED MARKET VALUE - ------------------------------------------------------------------------------- GROSS GROSS ESTIMATED STATEMENT UNREALIZED UNREALIZED MARKET VALUE APPRECIATION DEPRECIATION VALUE - ------------------------------------------------------------------------------- (IN MILLIONS) US Government and political obligations $ 3,005 $ 230 $ (8) $ 3,227 Mortgage-backed securities 4,894 212 (22) 5,084 Corporate and other debt securities 13,260 1,076 (46) 14,290 ----------------------------------------------------- 21,159 1,518 (76) 22,601 Preferred stocks 91 3 (2) 92 ----------------------------------------------------- Total $21,250 $ 1,521 $ (78) $ 22,693 =====================================================
The amortized cost and estimated market value of debt securities at December 31, 1994 and 1993, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. 39 43 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
DECEMBER 31, 1994 DECEMBER 31, 1993 - -------------------------------------------------------------------------------- ESTIMATED ESTIMATED STATEMENT MARKET STATEMENT MARKET VALUE VALUE VALUE VALUE - -------------------------------------------------------------------------------- (IN MILLIONS) Due in one year or less $ 1,102 $ 1,100 $ 976 $ 981 Due after one year through five years 4,491 4,444 3,568 3,804 Due after five years through ten years 5,787 5,711 5,714 6,172 Due after ten years 6,513 6,340 6,098 6,652 ------------------------------------------------------ 17,893 17,595 16,356 17,609 Mortgage-backed securities 5,652 5,384 4,894 5,084 ------------------------------------------------------ $23,545 $22,979 $21,250 $22,693 ======================================================
The fair value of perpetual preferred stocks as of December 31, 1994 and 1993 approximates $440 million and $415 million, respectively, compared to the statement values of $440 million and $368 million, respectively. MORTGAGE LOANS As of December 31, 1994 and 1993, the mortgage loan portfolio was distributed as follows:
DECEMBER 31, 1994 DECEMBER 31, 1993 - -------------------------------------------------------------------------------- STATEMENT % OF STATEMENT % OF GEOGRAPHIC LOCATION VALUE TOTAL VALUE TOTAL - -------------------------------------------------------------------------------- (IN MILLIONS) (IN MILLIONS) Middle Atlantic $ 738 10.4% $ 518 8.0% South Atlantic 1,943 27.4 1,492 22.9 North Central 1,289 18.2 1,341 20.6 South Central 921 13.0 1,014 15.6 Pacific Northwest 355 5.0 289 4.4 Pacific 1,531 21.5 1,508 23.2 Canada 322 4.5 343 5.3 ------------------------------------------------------ $7,099 100.0% $6,505 100.0% ====================================================== PROPERTY TYPE - -------------------------------------------------------------------------------- Retail $2,475 34.9% $2,561 39.4% Office Building 2,176 30.6 2,079 32.0 Residential 1,526 21.5 1,013 15.5 Commercial 745 10.5 687 10.6 Other 177 2.5 165 2.5 ------------------------------------------------------ $7,099 100.0% $6,505 100.0% ======================================================
40 44 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY The fair value of mortgage loans as of December 31, 1994 and 1993 approximates $6,879 million and $6,900 million, respectively. Increases in current interest rates were a major reason for the decline in fair value relative to statement value in 1994. Loans with fair values that are less than statement values for reasons other than changes in interest rates are adequately covered by normal AVR reserves and by a $45 million special reserve established by the Company for mortgage loans. AFFILIATES Since 1991, the Company has periodically sold shares of MGIC Investment Corporation ("MGIC"), an affiliate. In 1992, the Company sold 6.6 million shares of MGIC for $175 million, generating a realized capital gain of $88 million. In 1993, the Company sold 0.9 million shares for $52 million, generating a realized capital gain of $38 million. In 1994, the Company sold 5.8 million shares for $51 million, generating a realized capital gain of $3 million. Of the shares sold in 1994, 5.7 million were sold to a subsidiary of the Company in accordance with an option agreement with the subsidiary; no gain or loss was realized on this sale. At December 31, 1994, the estimated market value of the Company's remaining 19.96% investment in MGIC exceeded the statement value by $214 million. REAL ESTATE For real estate and joint venture properties acquired subsequent to December 1990, the Company calculates depreciation using the straight-line method in accordance with guidelines established by the National Association of Insurance Commissioners. For properties acquired prior to December 1990, the Company calculates depreciation using either the straight-line method or the constant-yield method. Home office real estate is depreciated using the straight-line method. At December 31, 1994 and 1993, investment real estate includes $146 million and $126 million, respectively, of real estate acquired through foreclosure. DERIVATIVE FINANCIAL INSTRUMENTS The Company's current utilization of derivative financial instruments is limited. Most of the Company's derivative transactions are used to reduce or modify risks of volatility related to currency or interest rate movements. These hedging strategies use forwards, futures and swaps. At December 31, 1994, the Company held foreign currency forward contracts with a notional value of $605 million as a partial hedge against foreign currency exposure of foreign denominated investments. Changes in the market value of these contracts offset currency gains and losses on the hedged investments. The capital gains or losses are unrealized before contract settlement and realized on settlement. These currency hedges represent most of the Company's derivative positions. The effect of derivative transactions is not significant to the Company's results from operations or financial position. NOTE 4 - ANNUITIES AND OTHER DEPOSIT LIABILITIES The fair value of annuities and other deposit liabilities as of December 31, 1994 and 1993 are as follows:
DECEMBER 31, 1994 DECEMBER 31, 1993 - --------------------------------------------------------------------------- STATEMENT FAIR STATEMENT FAIR VALUE VALUE VALUE VALUE - --------------------------------------------------------------------------- (IN MILLIONS) Annuities $2,474 $2,203 $2,263 $ 2,079 Other deposit liabilities 727 727 707 707
41 45 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTE 5 - BENEFIT PLANS The Company maintains non-contributory defined benefit retirement plans for all eligible employees and agents as well as a non-contributory defined contribution plan for all full-time agents. These plans are funded currently and plan assets of $939 million at December 31, 1994 are primarily included in the separate accounts of the Company. As of January 1, 1994, the most recent actuarial valuation date available, the defined benefit plans were fully funded. In addition to pension benefits, the Company provides certain health care and life insurance benefits ("postretirement benefits") for retired employees. Substantially all employees may become eligible for these benefits if they reach retirement age while working for the Company. Postretirement benefit expenses, which includes the expected cost of postretirement benefits for newly eligible and vested employees and interest costs, was $7 million and $9 million for the years ended December 31, 1994 and 1993, respectively. At December 31, 1994 and 1993, the unfunded postretirement benefit obligation for retirees and other fully eligible or vested employees was $47 million and $50 million, respectively. The estimated postretirement benefit obligation for active non-vested employees was $44 million and $45 million at December 31, 1994 and 1993, respectively. The discount rate used to determine the postretirement benefit obligation was 8% and the health care cost trend rate was 12% in 1994, declining by 1% per year to an ultimate rate of 6% over 7 years. If the health care cost trend rate assumptions were increased by 1%, the postretirement benefit obligation as of December 31, 1994 would be increased by $6 million. At December 31, 1994 and 1993, plan assets attributable to postretirement health care benefits totalled $25 million. NOTE 6 - REINSURANCE The amounts shown in the accompanying consolidated financial statements are net of reinsurance activity. The effect of reinsurance on premiums and benefits for the years ended December 31, 1994 and 1993 are as follows (in millions):
1994 1993 ---------------------- DIRECT PREMIUMS $ 5,977 $ 5,508 REINSURANCE CEDED (234) (213) --------------------- NET PREMIUMS $ 5,743 $ 5,295 ===================== BENEFITS TO POLICYHOLDERS AND BENEFICIARIES $ 6,178 $ 5,600 REINSURANCE RECOVERIES (141) (104) --------------------- NET BENEFITS TO POLICYHOLDERS AND BENEFICIARIES $ 6,037 $ 5,496 =====================
In addition, during 1994 and 1993 the Company received credits of $63 million and $59 million, respectively from reinsurers representing reimbursements of commissions and other expenses. These credits are included in other income in the consolidated summary of operations. 42 46 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company; consequently, allowances are established for amounts deemed uncollectible. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. NOTE 7 - CONTINGENCIES In the normal course of business, the Company enters into transactions to reduce its exposure to fluctuations in interest rates and market volatility. These instruments may involve credit risk and may also be subject to risk of loss due to interest rate fluctuations. The Company has guaranteed certain obligations of its affiliates. These guarantees totalled approximately $83 million and $95 million at December 31, 1994 and 1993, respectively, and are generally supported by the underlying net asset values of the affiliates. The Company is engaged in various legal actions in the normal course of its investment and insurance operations. In the opinion of management, any losses resulting from such actions would not have a material effect on the Company's financial condition. 43 47 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY 100 East Wisconsin Avenue Telephone 414 276 9500 Suite 1500 Milwaukee, WI 53202 [Price Waterhouse LLP Letterhead] REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- To the Board of Trustees and Policyowners of The Northwestern Mutual Life Insurance Company In our opinion, the accompanying consolidated statement of financial position and the related consolidated statement of operations, statement of general contingency reserve and statement of cash flows present fairly, in all material respects, the financial position of The Northwestern Mutual Life Insurance Company and its subsidiary at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards 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 provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP January 25, 1995 44 48 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 46-47, are for a policy with a Minimum Guaranteed Death Benefit of $100,000 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 $100,000 and Additional Protection of $100,000. 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 return rate for the nine Fund Portfolios averaged 0%, 6% or 12%, but the rates for each individual Portfolio 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 Fund expenses applicable to each of the nine Portfolios of the Fund during 1994 at the annual rate of .53% of the Fund's net assets. See "The Fund", p. 5. Thus the 0%, 6% and 12% gross hypothetical return rates on the Fund's assets are equivalent to the net rates of -1.13%, 4.87% and 10.87% 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 46 and 48 illustrate benefits which would be paid 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 WILL BE PAID 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", page 9. A comparable illustration based on a proposed insured's age, sex and risk classification and proposed face amount or premium is available upon request. 45 49 VARIABLE WHOLE LIFE WITH ADDITIONAL PROTECTION INSURANCE POLICY MALE ISSUE AGE 35 -- SELECT UNDERWRITING RISK $100,000 VARIABLE WHOLE LIFE, $0 ADDITIONAL PROTECTION $1,347 ANNUAL PREMIUM (1) CURRENT CHARGES AND DIVIDEND SCALE (2) DIVIDENDS USED TO INCREASE POLICY VALUE
DEATH BENEFIT (3) CASH SURRENDER VALUE (3) ------------------------------------------- ------------------------------------------- ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF PREMIUMS ACCUMULATED END OF AT 5% INTEREST 0% 6% 12% 0% 6% 12% POLICY YEAR PER YEAR -------- -------- -------- -------- -------- -------- ----------- -------- 1 $ 1,414 $100,000 $100,008 $ 100,067 $ 340 $ 399 $ 458 2 2,899 100,000 100,027 100,212 1,277 1,455 1,640 3 4,459 100,000 100,056 100,445 2,194 2,555 2,944 4 6,096 100,000 100,094 100,776 3,092 3,699 4,380 5 7,815 100,000 100,146 101,222 3,969 4,888 5,964 6 9,620 100,000 100,208 101,797 4,874 6,176 7,765 7 11,516 100,000 100,288 102,524 5,755 7,514 9,750 8 13,506 100,000 100,387 103,420 6,614 8,906 11,939 9 15,595 100,000 100,504 104,506 7,447 10,351 14,353 10 17,790 100,000 100,637 105,802 8,255 11,850 17,015 15 30,520 100,000 102,334 117,310 12,791 21,244 36,220 20 46,767 100,000 106,009 156,746 16,795 33,007 68,468 25 67,503 100,000 111,605 240,586 19,652 47,394 121,406 30 (age 65) 93,968 100,000 120,205 360,614 21,181 65,259 207,753 35 127,745 100,000 135,005 536,267 20,622 87,460 347,410 40 170,853 100,000 158,570 791,906 14,957 113,597 567,305 45 225,872 100,000 183,680 1,162,373 0 142,649 902,722
(1) If premiums are paid more frequently than annually the payments would be $687.78 semiannually, $348.58 quarterly, or $116.75 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. 46 50 VARIABLE WHOLE LIFE WITH ADDITIONAL PROTECTION INSURANCE POLICY MALE ISSUE AGE 35 -- SELECT UNDERWRITING RISK $100,000 VARIABLE WHOLE LIFE, $0 ADDITIONAL PROTECTION $1,347 ANNUAL PREMIUM (1) MAXIMUM CHARGES AND ZERO DIVIDENDS
DEATH BENEFIT (2) CASH SURRENDER VALUE (2) ------------------------------------------- ------------------------------------------- ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF PREMIUMS ACCUMULATED END OF AT 5% INTEREST 0% 6% 12% 0% 6% 12% POLICY YEAR PER YEAR -------- -------- -------- -------- -------- -------- ----------- -------- 1 $ 1,414 $100,000 $100,008 $100,067 $ 340 $ 399 $ 458 2 2,899 100,000 100,027 100,212 1,277 1,455 1,640 3 4,459 100,000 100,056 100,445 2,194 2,555 2,944 4 6,096 100,000 100,094 100,776 3,092 3,699 4,380 5 7,815 100,000 100,146 101,220 3,969 4,888 5,963 6 9,620 100,000 100,208 101,789 4,874 6,176 7,757 7 11,516 100,000 100,284 102,502 5,755 7,510 9,728 8 13,506 100,000 100,375 103,376 6,614 8,894 11,895 9 15,595 100,000 100,481 104,431 7,446 10,328 14,278 10 17,790 100,000 100,603 105,687 8,254 11,816 16,899 15 30,520 100,000 101,498 115,957 12,177 20,408 34,867 20 46,767 100,000 102,989 144,899 14,655 29,987 63,293 25 67,503 100,000 105,273 214,552 15,622 41,062 108,269 30 (age 65) 93,968 100,000 108,589 308,486 14,131 53,643 177,722 35 127,745 100,000 113,224 436,273 8,090 67,576 282,631 40 170,853 100,000 119,524 611,000 0 82,761 437,708 45 225,872 100,000 127,896 850,660 0 98,941 660,640
(1) If premiums are paid more frequently than annually the payments would be $687.78 semiannually, $348.58 quarterly, or $116.75 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. 47 51 VARIABLE WHOLE LIFE WITH ADDITIONAL PROTECTION INSURANCE POLICY MALE ISSUE AGE 35 -- SELECT UNDERWRITING RISK $100,000 VARIABLE WHOLE LIFE PLUS $100,000 ADDITIONAL PROTECTION(1) $1,852 ANNUAL PREMIUM (2) CURRENT CHARGES AND DIVIDEND SCALE (3) DIVIDENDS USED TO INCREASE POLICY VALUE
DEATH BENEFIT (4) CASH SURRENDER VALUE (4) ------------------------------------------- ------------------------------------------- ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF PREMIUMS ACCUMULATED END OF AT 5% INTEREST 0% 6% 12% 0% 6% 12% POLICY YEAR PER YEAR -------- -------- -------- -------- -------- -------- ----------- -------- 1 $ 1,945 $200,000 $200,000 $ 200,000 $ 534 $ 610 $ 687 2 3,986 200,000 200,000 200,000 1,820 2,055 2,299 3 6,130 200,000 200,000 200,000 3,087 3,565 4,082 4 8,381 200,000 200,000 200,000 4,330 5,142 6,054 5 10,745 200,000 200,000 200,000 5,551 6,788 8,234 6 13,227 200,000 200,000 200,000 6,802 8,560 10,700 7 15,833 200,000 200,000 200,000 8,024 10,401 13,417 8 18,569 200,000 200,000 200,000 9,214 12,315 16,414 9 21,442 200,000 200,000 200,000 10,369 14,300 19,718 10 24,459 200,000 200,000 200,504 11,482 16,354 23,360 15 41,962 200,000 200,000 211,416 17,351 28,817 49,236 20 64,300 200,000 200,000 238,251 21,931 43,836 92,247 25 92,810 200,000 200,000 324,225 24,058 61,330 163,613 30 (age 65) 129,197 181,746 200,000 486,652 23,775 82,180 280,365 35 175,637 171,656 200,000 724,269 19,907 107,268 469,203 40 234,907 151,927 210,041 1,070,028 8,140 136,515 766,546 45 310,553 105,636 226,781 1,571,054 0 168,871 1,220,112
(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 $945.13 semiannually, $478.52 quarterly, or $160.33 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. 48 52 VARIABLE WHOLE LIFE WITH ADDITIONAL PROTECTION INSURANCE POLICY MALE ISSUE AGE 35 -- SELECT UNDERWRITING RISK $100,000 VARIABLE WHOLE LIFE PLUS $100,000 ADDITIONAL PROTECTION(1) $1,852 ANNUAL PREMIUM (2) MAXIMUM CHARGES AND ZERO DIVIDENDS
DEATH BENEFIT (3) CASH SURRENDER VALUE (3) ------------------------------------------- ------------------------------------------- ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF PREMIUMS ACCUMULATED END OF AT 5% INTEREST 0% 6% 12% 0% 6% 12% POLICY YEAR PER YEAR -------- -------- -------- -------- -------- -------- ----------- -------- 1 $ 1,945 $200,000 $200,000 $ 200,000 $ 475 $ 551 $ 628 2 3,986 200,000 200,000 200,000 1,694 1,925 2,165 3 6,130 200,000 200,000 200,000 2,881 3,347 3,851 4 8,381 200,000 200,000 200,000 4,034 4,818 5,700 5 10,745 200,000 200,000 200,000 5,151 6,337 7,726 6 13,227 200,000 200,000 200,000 6,287 7,963 10,007 7 15,833 200,000 200,000 200,000 7,381 9,635 12,499 8 18,569 200,000 200,000 200,000 8,434 11,356 15,228 9 21,442 200,000 200,000 200,000 9,439 13,123 18,216 10 24,459 200,000 200,000 200,000 10,399 14,940 21,492 15 41,962 200,000 200,000 205,833 14,696 25,044 43,653 20 64,300 166,976 200,000 224,225 17,100 35,462 78,221 25 92,810 141,701 200,000 264,725 18,019 45,844 133,588 30 (age 65) 129,197 125,250 200,000 382,769 16,544 54,551 220,517 35 175,637 115,340 200,000 543,135 10,644 57,853 351,859 40 234,907 109,111 112,380 762,235 0 66,857 546,050 45 310,553 105,629 112,380 1,062,627 0 78,591 825,257
(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 $945.13 semiannually, $478.52 quarterly, or $160.33 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. 49 53 NORTHWESTERN MUTUAL VARIABLE COMPLIFE(R) NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT NORTHWESTERN MUTUAL SERIES FUND, INC. P R O S P E C T U S 54 PART II UNDERTAKING TO FILE REPORTS Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that section. UNDERTAKING WITH RESPECT TO INDEMNIFICATION Reference is made to the indemnification provisions contained in Article VII of the By-laws of the Depositor, The Northwestern Mutual Life Insurance Company, filed as part of Exhibit 1-A-(6) to the Registration Statement. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. CONTENTS OF REGISTRATION STATEMENT This amendment to the registration statement comprises the following papers and documents: The facing sheet The cross-reference sheet The prospectus consisting of 50 pages The undertaking to file reports The undertaking with respect to indemnification The signatures Written consents of the following persons: Price Waterhouse LLP (filed herewith as Exhibit 99.C1) John M. Bremer, Esq. (filed herewith as Exhibit 99.2) William C. Koenig, F.S.A. (filed herewith as Exhibit 99.C6) II-1 55 The following exhibits: The following exhibits correspond to those required by Paragraph A of the instructions as to exhibits in Form N-8B-2: Distributing Contracts: 99.A3C Schedules of sales commissions. 99.C1 Consent of Independent Accountants. 99.2 Opinion and Consent of John M. Bremer, Esq. 99.C6 Opinion and consent of William C. Koenig, F.S.A. 27 Financial Data Schedule for period ending December 31, 1994. 27-a Financial Data Schedule for period ending June 30, 1995. II-2 56 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant, Northwestern Mutual Variable Life Account, has duly caused this amended Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Milwaukee, and State of Wisconsin, on the 28th day of September, 1995. NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT (Registrant) By THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY (Depositor) Attest: JOHN M. BREMER By: JAMES D. ERICSON --------------------------- ------------------------------- John M. Bremer, Senior Vice James D. Ericson, President and President, General Counsel Chief Executive Officer and Secretary By NORTHWESTERN MUTUAL INVESTMENT SERVICES, INC. (Depositor) Attest: MERRILL C. LUNDBERG By: MARK G. DOLL ---------------------------- ---------------------------------- Merrill C. Lundberg,Secretary Mark G. Doll, President Pursuant to the requirements of the Securities Act of 1933, the depositors have duly caused this amended Registration Statement to be signed on their behalf by the undersigned, thereunto duly authorized, and their seals to be hereunto affixed, all in the City of Milwaukee, and State of Wisconsin, on the 28th day of September, 1995. THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY (Depositor) Attest: JOHN M. BREMER By: JAMES D.ERICSON ---------------------------- ---------------------------------- John M. Bremer, Senior Vice James D. Ericson, President and President, General Counsel Chief Executive Officer and Secretary NORTHWESTERN MUTUAL INVESTMENT SERVICES, INC. (Depositor) Attest: MERRILL C. LUNDBERG By: MARK G. DOLL ---------------------------- ---------------------------------- Merrill C. Lundberg, Secretary Mark G. Doll, President Pursuant to the requirements of the Securities Act of 1933, this amended Registration Statement has been signed by the following persons in the capacities with the depositor and on the dates indicated: Signature Title JAMES D. ERICSON Trustee, President and Dated - ---------------------------- Principal Executive September 28, 1995 James D. Ericson and Financial Officer II-3 57 GARY E. LONG Vice President, Controller and - ---------------------------- Principal Accounting Officer Gary E. Long RICHARD H. HOLTON* Trustee - ---------------------------- Richard H. Holton HAROLD B. SMITH* Trustee - ---------------------------- Harold B. Smith J. THOMAS LEWIS* Trustee - ---------------------------- J. Thomas Lewis FRANK H. BERTSCH* Trustee Dated September 28, 1995 - ---------------------------- Frank H. Bertsch PATRICIA ALBJERG GRAHAM* Trustee - ---------------------------- Patricia Albjerg Graham DONALD J. SCHUENKE* Trustee - ---------------------------- Donald J. Schuenke FRED G. LUBER* Trustee - ---------------------------- Fred G. Luber R. QUINTUS ANDERSON* Trustee - ---------------------------- R. Quintus Anderson STEPHEN F. KELLER* Trustee - ---------------------------- Stephen F. Keller II-4 58 PIERRE S. du PONT IV* Trustee - ---------------------------- Pierre S. du Pont IV J. E. GALLEGOS* Trustee - ---------------------------- J. E. Gallegos THOMAS I. DOLAN* Trustee - ---------------------------- Thomas I. Dolan KATHRYN D. WRISTON* Trustee - ---------------------------- Kathryn D. Wriston BARRY L. WILLIAMS* Trustee - ---------------------------- Barry L. Williams GORDON T. BEAHAM III* Trustee - ---------------------------- Gordon T. Beaham III DANIEL F. McKEITHAN, JR.* Trustee Dated September 28, 1995 - ---------------------------- Daniel F. McKeithan, Jr. ROBERT E. CARLSON* Trustee - ---------------------------- Robert E. Carlson Trustee ____________________________ Edward E. Barr ROBERT C. BUCHANAN* Trustee - ---------------------------- Robert C. Buchanan SHERWOOD H. SMITH, JR.* Trustee - ---------------------------- Sherwood H. Smith, Jr. II-5 59 H. MASON SIZEMORE, JR.* Trustee - ---------------------------- H. Mason Sizemore, Jr. JOHN J. STOLLENWERK* Trustee - ---------------------------- John J. Stollenwerk GEORGE A. DICKERMAN* Trustee Dated September 28, 1995 - ---------------------------- George A. Dickerman GUY A. OSBORN* Trustee - ---------------------------- Guy A. Osborn JOHN E. STEURI* Trustee - ---------------------------- John E. Steuri *By: JAMES D. ERICSON ---------------------------- James D. Ericson, Attorney in fact, pursuant to the Power of Attorney attached hereto II-6 60 POWER OF ATTORNEY The undersigned Trustees of THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY hereby constitute and appoint James D. Ericson and Robert E. Carlson, or either of them, their true and lawful attorneys and agents to sign the names of the undersigned Trustees to (1) the registration statement or statements to be filed under the Securities Act of 1933 and to any instrument or document filed as part thereof or in connection therewith or in any way related thereto, and any and all amendments thereto in connection with variable contracts issued or sold by The Northwestern Mutual Life Insurance Company or any separate account credited therein and (2) the Form 10-K Annual Report or Reports of The Northwestern Mutual Life Insurance Company and/or its separate accounts for its or their fiscal year ended December 31, 1995 to be filed under the Securities Exchange Act of 1934 and to any instrument or document filed as part thereof or in connection therewith or in any way related thereto, and any and all amendments thereto. "Variable contracts" as used herein means any contracts providing for benefits or values which may vary according to the investment experience of any separate account maintained by The Northwestern Mutual Life Insurance Company, including variable annuity contracts and variable life insurance policies. Each of the undersigned hereby ratifies and confirms all that said attorneys and agents shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has subscribed these presents this 26th day of July, 1995. R. QUINTUS ANDERSON Trustee ------------------------------- R. Quintus Anderson Trustee _______________________________ Edward E. Barr GORDON T. BEAHAM III Trustee ------------------------------- Gordon T. Beaham III FRANK H. BERTSCH Trustee ------------------------------- Frank H. Bertsch ROBERT C. BUCHANAN Trustee ------------------------------- Robert C. Buchanan II-7 61 ROBERT E. CARLSON Trustee ------------------------------- Robert E. Carlson GEORGE A. DICKERMAN Trustee ------------------------------- George A. Dickerman THOMAS I. DOLAN Trustee ------------------------------- Thomas I. Dolan PIERRE S. du PONT IV Trustee ------------------------------- Pierre S. du Pont IV JAMES D. ERICSON Trustee ------------------------------- James D. Ericson J. E. GALLEGOS Trustee ------------------------------- J. E. Gallegos PATRICIA ALBJERG GRAHAM Trustee ------------------------------- Patricia Albjerg Graham RICHARD H. HOLTON Trustee ------------------------------- Richard H. Holton STEPHEN F. KELLER Trustee ------------------------------- Stephen F. Keller J. THOMAS LEWIS Trustee ------------------------------- J. Thomas Lewis FRED G. LUBER Trustee ------------------------------- Fred G. Luber II-8 62 DANIEL F. McKEITHAN, JR. Trustee ------------------------------- Daniel F. McKeithan, Jr. GUY A. OSBORN Trustee ------------------------------- Guy A. Osborn DONALD J. SCHUENKE Trustee ------------------------------- Donald J. Schuenke H. MASON SIZEMORE, JR. Trustee ------------------------------- H. Mason Sizemore, Jr. HAROLD B. SMITH Trustee ------------------------------- Harold B. Smith SHERWOOD H. SMITH, JR. Trustee ------------------------------- Sherwood H. Smith, Jr. JOHN E. STEURI Trustee ------------------------------- John E. Steuri JOHN J. STOLLENWERK Trustee ------------------------------- John J. Stollenwerk BARRY L. WILLIAMS Trustee ------------------------------- Barry L. Williams KATHRYN D. WRISTON Trustee ------------------------------- Kathryn D. Wriston II-9 63 EXHIBIT INDEX EXHIBITS FILED WITH FORM S-6 PRE-EFFECTIVE AMENDMENT NO.1 TO REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 FOR NORTHWESTERN MUTUAL VARIABLE COMPLIFE Exhibit Number Exhibit Name - -------------- ------------ EX-99.A3C Standard Full-Time Special and Soliciting Agents' Commission and Fee Schedule Section II - CompLife. EX-99.C1 Consent of Independent Accountants. EX-99.2 Opinion of John M. Bremer. EX-99.C6 Opinion of William C. Koenig, F.S.A. EX-27 Financial Data Schedule for period ending December 31, 1994. EX-27-a Financial Data Schedule for period ending June 30, 1995. EX-99.A3C 2 COMMISSION AND FEE SCHEDULE 1 EX-99.A3C STANDARD FULL-TIME SPECIAL AND SOLICITING AGENTS' COMMISSION AND FEE SCHEDULE SECTION II - COMPLIFE(R) L. VARIABLE COMPLIFE(R) 1. For purposes of this Subsection L: (a) "Writing Agent" means the Agent whose name appears on the application as Agent of Record. (b) "Servicing Agent" means the Writing Agent unless his contract has terminated or he is no longer servicing the business, or the Agent who has been appointed to service the business in the event the Writing Agent has terminated or is no longer able to service the business. (c) Variable Whole Life, Initial Term, Initial Additional Premiums The Writing Agent will receive the compensation unless he is terminated and not vested according to his contractual vesting schedule. (d) Term Increases Term increases, where available, may be scheduled only at issue. The current active Servicing Agent will receive the compensation listed in Subsection L.5. of this Section II. (e) Additional Premium Increases The current active Servicing Agent will receive the compensation listed in Subsection L.6. of this Section II. 2. Variable Whole Life and Initial Term (a) Commissions The Writing Agent shall be entitled to receive first year commissions equal to percentages (commission rates) of Variable Whole Life and Initial Term premiums collected on Variable CompLife(R) policies and contracts issued upon applications procured by him pursuant to his Agent's contract as set forth below: 2
Issue First Year Issue First Year Age Commission Age Commission --- ---------- --- ---------- 0-55 40.0% 66 34.5% 56 39.5 67 34.0 57 39.0 68 33.5 58 38.5 69 33.0 59 38.0 70 32.5 60 37.5 61 37.0 71 31.5 62 36.5 72 30.5 63 36.0 73 29.5 64 35.5 74 28.5 65 35.0 75 27.5
The Writing Agent shall be entitled to receive renewal commissions equal to 6% of the Variable Whole Life and Initial Term premium in policy years 2 through 10. (b) Quality Incentive Compensation The Writing Agent shall be entitled to receive Quality Incentive Compensation equal to a percentage of Variable Whole Life and Initial Term renewal commissions paid on Variable CompLife(R) policies issued upon applications procured by him in accordance with policies and procedures as from time to time amended by the Company and published in the Agents Benefits and Compensation Manual. The Company reserves the right to change such policies and procedures not only with respect to future business, but also to existing business. (c) Persistency Fees A persistency fee shall be paid in an amount equal to 2% of Variable Whole Life and Initial Term premiums collected by the Company which fall due in the eleventh and subsequent policy years on Variable CompLife(R) policies issued on applications on which the Writing Agent's name appears as Solicitor. No persistency fee shall be paid after he ceases to be under an agency contract providing for such fees. STANDARD FULL-TIME SPECIAL AND SOLICITING AGENTS' COMMISSION AND FEE SCHEDULE SECTION II - COMPLIFE(R) 3. Lump Sums Agent shall be entitled to receive a 2 3/4% fee on Lump Sum premiums collected on Variable CompLife(R) policies and contracts where Lump Sums are procured by him pursuant to his Agent's contract. 3 4. Initial Additional Premium Agent (as determined in Subsection 1.c. above) shall be entitled to receive fees in the amount of 2 3/4% of premiums collected under the terms of the Initial Additional Premium. 5. Term Increases Agent (as determined in Subsection 1.d. above) shall be entitled to receive compensation on Term Increase premiums as follows: (a) In the year of premium increase, Agent will receive a first year commission equal to 10% of the premium increase. (b) Subsequent to the year of increase, a 6% renewal fee will be paid on such premiums in the first 10 policy years, and a 2% renewal fee will be paid on such premiums in policy years 11 and later. Optional Term premiums may be required after issue to maintain the Term face amount. Agent will be entitled to a 6% renewal fee on such premiums in the first 10 policy years and a 2% renewal fee on such premiums in policy years 11 and later. 6. Additional Premium Increases Agent (as determined in Subsection 1.e. above) shall be entitled to receive fees in the amount of 2 3/4% of premiums collected under the terms of the Additional Premium. 7. Classified Policies (a) The commission rates applicable to extra premiums payable for the Variable Whole Life, and Initial Term components because a Variable CompLife(R) policy is classified, will be the same as those for a select or standard policy unless the class extra exceeds $10 per $1,000, aviation or avocation extras are involved, or extra premiums are involved which are payable for less than ten years. In such cases the rate shall be in accordance with policies and procedures as determined from time to time by the Company. (b) The commission rates applicable in the year of increase for extra premiums payable for Term Increases because a Variable CompLife(R) policy is classified will be in accordance with policies and procedures as from time to time amended by the Company and published in the Agents Manual of Information. EX-99.C1 3 CONSENT OF PRICE WATERHOUSE 1 EX-99.C1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Pre-Effective Amendment No. 1 to the Registration Statement on Form S-6 (the "Registration Statement") of our report dated January 25, 1995, relating to the financial statements of The Northwestern Mutual Life Insurance Company, and to our report dated January 25, 1995, relating to the financial statements of Northwestern Mutual Variable Life Account, which appear in such Prospectus. We also consent to the reference to us under the heading "Experts" in such Prospectus. PRICE WATERHOUSE LLP Milwaukee, Wisconsin September 28, 1995 EX-99.2 4 OPINION OF JOHN M. BREMER 1 EX-99.2 September 21, 1995 Board of Trustees The Northwestern Mutual Life Insurance Company Milwaukee, Wisconsin 53202 Gentlemen: As Senior Vice President, General Counsel and Secretary of The Northwestern Mutual Life Insurance Company (the "Company") I have general supervision of the Law Department of such Company and its legal affairs. In such capacity I have supervised the corporate proceedings relating to the establishment of Northwestern Mutual Variable Life Account (the "Account") pursuant to the provisions of the Wisconsin Statutes and the proposed issuance in connection therewith of certain variable CompLife insurance policies (the "Policies"). I have also participated in the preparation of Pre-Effective Amendment No. 1 to the Registration Statement on Form S-6 (the "Registration Statement") which is to be filed with the Securities and Exchange Commission with respect to the Policies. In addition, I have examined such other documents and such questions of law as, in my judgment, are necessary or appropriate for purposes of this opinion. Based on the foregoing, it is my opinion that: 1. The Company is a duly organized and validly existing mutual life insurance corporation under the laws of the State of Wisconsin, duly authorized under such laws to issue and sell life insurance and annuity contracts. 2. The Account is a separate account of the Company duly created and validly existing pursuant to Wisconsin law. 3. The issuance and sale of the Policies have been duly authorized by the Company and duly approved by the Commissioner of Insurance of the State of Wisconsin. When issued and sold in compliance with local law and in the manner stated in the Prospectus constituting a part of the Registration Statement the Policies will be valid and legally binding obligations of the Company in accordance with their terms. I hereby consent to the filing of this opinion as an exhibit to the Registration Statement. Very truly yours, JOHN M. BREMER John M. Bremer Senior Vice President, General Counsel and Secretary EX-99.C6 5 OPINION OF WILLIAM C. KOENIG 1 EX-99.C6 September 21, 1995 The Northwestern Mutual Life Insurance Company 720 East Wisconsin Avenue Milwaukee, WI 53202 Gentlemen: This opinion is furnished in connection with Pre-Effective Amendment No. 1 to the Registration Statement on Form S-6 of Northwestern Mutual Variable Life Account. The prospectus included in the Registration Statement ("Prospectus") describes the Variable CompLife insurance policies to be issued in connection with the Account ("Policies"). The Policy form was prepared under my direction, and I am familiar with the Registration Statement and Exhibits thereto. In my opinion: 1. The illustrations of cash values and death benefits included on pages 46 through 49 of the Prospectus, in the Appendix thereto, based on the assumptions stated in the illustrations, are consistent with the provisions of the Policies and current dividend scale and experience. The rate structure of the Policies has not been designed so as to make the relationship between premiums and benefits, as shown in the illustrations, appear more favorable to a prospective purchaser of a Policy for male age 35, than to prospective purchasers of Policies for a male at other ages or for a female. 2. With respect to the charge of 1.25% of premiums for federal income taxes measured by premiums, described on page 10 of the Prospectus, (a) the charge is reasonable in relation to the issuer's increased federal tax burden under Section 848 of the Internal Revenue Code of 1986; (b) the targeted rate of return (11%) used in calculating the charge is reasonable; and (c) the factors taken into account in determining such targeted rate of return are appropriate. I hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the reference to my name under the heading "Experts" in the Prospectus. Sincerely, WILLIAM C. KOENIG William C. Koenig Senior Vice President and Chief Actuary EX-27.A 6 FINANCIAL DATA SCHEDULE
6 THIS SCHEDULE CONTAINS SUMMATY FINANCIAL INFORMATION EXTRACTED FROM (A) Northwestern Mutual Variable Life Account December 31, 1994 Financial Statements AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) S-6 registration 1,000 YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 119,378 118,190 438 0 0 118,628 205 0 233 438 118,190 0 0 0 0 0 0 0 0 118,190 2,062 0 0 729 1,333 14 (1,493) (146) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
EX-27.B 7 FINANCIAL DATA SCHEDULE
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) Northwestern Mutual Variable Life Account June 30, 1995 financial Statements AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) S-6 registration 1,000 6-MOS DEC-31-1995 JAN-01-1995 JUN-30-1995 136,730 150,444 252 0 0 150,696 28 0 224 252 150,444 0 0 0 0 0 0 0 0 150,444 3,281 0 0 464 2,817 459 15,198 18,474 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
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