-----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, Iqb26fEkbdfH2Ca0b/un64DvNIIXZJ6/wraETrdtvj7bLmNH0kQxTbyR4436Kq9l eJtHdq2iMP5oJ1HJlNx6aQ== 0001047469-99-007266.txt : 19990226 0001047469-99-007266.hdr.sgml : 19990226 ACCESSION NUMBER: 0001047469-99-007266 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19990225 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: 485APOS SEC ACT: SEC FILE NUMBER: 002-89972 FILM NUMBER: 99549438 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 811-03989 FILM NUMBER: 99549439 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 485APOS 1 485APOS Registration No. 2-89972 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ POST-EFFECTIVE AMENDMENT NO. 21 To FORM S-6 REGISTRATION STATEMENT Under The Securities Act of 1933 ------------------ 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, Executive 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) It is proposed that this filing will become effective immediately upon filing pursuant to paragraph (b) ----- on (DATE) pursuant to paragraph (b) ----- 60 days after filing pursuant to paragraph (a)(1) ----- X on April 30, 1999 pursuant to paragraph (a)(1) ----- of Rule 485 this post-effective amendment designates a new ----- effective date for a previously filed post-effective amendment ------------------ 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 6 . . . . . . . . The Account 9 . . . . . . . . Legal Proceedings 10(a) . . . . . . . Other Policy Provisions: OWNER AND COLLATERAL ASSIGNMENT 10(b) . . . . . . . Annual Dividends 10(c) and (d) . . . Death Benefit, Cash Value, Policy Loans, Right to Return Policy, Right to Exchange for a Fixed Benefit Policy, Payment Plans 10(e) . . . . . . . Grace Period, Extended Term and Paid-Up Insurance, Reinstatement 10(f) . . . . . . . Voting Rights 10(g) Voting Rights, Substitution of Fund Shares and Other Charges 10(h) Voting Rights, Substitution of Fund Shares and Other Charges 10(I) . . . . . . . Premiums, Death Benefit, Annual Dividends, Other Policy Provisions: PAYMENT PLANS 1 . . . . . . . . . The Account, The Funds: NORTHWESTERN MUTUAL SERIES FUND, INC. -- Small Cap Growth Stock Portfolio, Aggressive Growth Stock Portfolio, International Equity Portfolio, Index 400 Stock Portfolio, Growth Stock Portfolio, Growth and Income Stock Portfolio, Index 500 Stock Portfolio, Balanced Portfolio, High Yield Bond Portfolio, Select Bond Portfolio, and Money Market Portfolio. RUSSELL INSURANCE FUNDS -- Multi-Style Equity Fund, Aggressive Equity Fund, Non-U.S. Fund, Real Estate Securities Fund, and Core Bond Fund 12 . . . . . . . . The Funds 13 . . . . . . . . The Funds, Deductions and Charges, Deductions from Premiums for Whole Life and Extra Ordinary Life Policies, Deductions for Single Premium Life Policies, Charges Against the Account Assets 14 . . . . . . . . Requirements for Insurance 15 . . . . . . . . Premiums, Allocations to the Account 16 . . . . . . . . The Account, The Funds, Allocations to the Account, Transfers Between Divisions 17 . . . . . . . . Same Captions as Items 10(a), (c), and (d) 18 . . . . . . . . The Account, Annual Dividends i 19 . . . . . . . . Reports 20 . . . . . . . . Not Applicable 21 . . . . . . . . Policy Loans 22 . . . . . . . . Not Applicable 23 . . . . . . . . Not Applicable 24 . . . . . . . . Not Applicable 25 . . . . . . . . Not Applicable 26 . . . . . . . . Not Applicable 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 37 . . . . . . . . Not Applicable 38 . . . . . . . . Distribution of the Policies 39 . . . . . . . . Distribution of the Policies 40 . . . . . . . . The Funds 41 . . . . . . . . The Funds, Distribution of the Policies 42 . . . . . . . . Not Applicable 43 . . . . . . . . Not Applicable 44 . . . . . . . . The Funds, Requirements for Insurance, Premiums 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 . . . . . . . . Charges Against the Account Assets 54 . . . . . . . . Not Applicable 55 . . . . . . . . Not Applicable ii PROSPECTUS April 30, 1999 [LOGO] The Quiet Company-Registered Trademark- NORTHWESTERN MUTUAL VARIABLE LIFE Whole Life Extra Ordinary Life Single Premium Life (PHOTO) Northwestern Mutual Series Fund, Inc. and Russell Insurance Funds The Northwestern Mutual Life Insurance Company 720 East Wisconsin Avenue Milwaukee, Wisconsin 53202 (414) 271-1444 CONTENTS FOR THIS PROSPECTUS Page Prospectus. . . . . . . . . . . . . . . . . . . . . . . 1 Northwestern Mutual Variable Life . . . . . . . . . . 1 Summary of the Policies . . . . . . . . . . . . . . . . 2 Variable Life Insurance . . . . . . . . . . . . . . . 2 The Account and its Divisions . . . . . . . . . . . . 2 Deductions and Charges. . . . . . . . . . . . . . . . 2 The Northwestern Mutual Life Insurance Company, Northwestern Mutual Variable Life Account Northwestern Mutual Series Fund, Inc and Russell Insurance Funds.. . . . . . . . . . . . . . . 4 Northwestern Mutual Life . . . . . . . . . . . . . . 4 The Account. . . . . . . . . . . . . . . . . . . . . 4 The Funds . . . . . . . . . . . . . . . . . . . . . . 4 Northwestern Mutual Series Fund, Inc.. . . . . . . . 4 Small Cap Growth Stock Portfolio. . . . . . . . . . 4 Aggressive Growth Stock Portfolio . . . . . . . . . 4 International Equity Portfolio. . . . . . . . . . . 4 Index 400 Stock Portfolio . . . . . . . . . . . . . 5 Growth Stock Portfolio. . . . . . . . . . . . . . . 5 Growth and Income Stock Portfolio . . . . . . . . . 5 Index 500 Stock Portfolio . . . . . . . . . . . . . 5 Balanced Portfolio. . . . . . . . . . . . . . . . . 5 High Yield Bond Portfolio . . . . . . . . . . . . . 5 Select Bond Portfolio . . . . . . . . . . . . . . . 5 Money Market Portfolio. . . . . . . . . . . . . . . 5 Russell Insurance Funds. . . . . . . . . . . . . . . 5 Multi-Style Equity Fund. . . . . . . . . . . . . . 5 Aggressive Equity Fund . . . . . . . . . . . . . . 5 Non-U.S. Fund. . . . . . . . . . . . . . . . . . . 5 Real Estate Securities Fund. . . . . . . . . . . . 6 Core Bond Fund . . . . . . . . . . . . . . . . . . 6 Detailed Information about the Policies . . . . . . . . 6 Requirements for Insurance. . . . . . . . . . . . . . 6 Premiums. . . . . . . . . . . . . . . . . . . . . . . 6 Grace Period. . . . . . . . . . . . . . . . . . . . . 7 Allocations to the Account. . . . . . . . . . . . . . 8 Transfers Between Divisions . . . . . . . . . . . . . 8 Deductions and Charges. . . . . . . . . . . . . . . . 8 Deductions from Premiums for Whole Life and Extra Ordinary Life Policies. . . . . . . . 8 Deductions for Single Premium Life Policies. . . . . . . . . . . . . . . . . . . . 9 Charges Against the Account Assets. . . . . . . . . .10 Guarantee of Premiums, Deductions and Charges. . . . . . . . . . . . . . . . . . . . .10 Death Benefit . . . . . . . . . . . . . . . . . . . .10 Page Variable Insurance Amount . . . . . . . . . . . . .10 Whole Life Policy and Single Premium Life Policy. . . . . . . . . . . . . . . .11 Extra Ordinary Life Policy. . . . . . . . . . . . .12 Cash Value. . . . . . . . . . . . . . . . . . . . . .14 Annual Dividends. . . . . . . . . . . . . . . . . . .14 Policy Loans. . . . . . . . . . . . . . . . . . . . .15 Extended Term and Paid-Up Insurance . . . . . . . . .15 Reinstatement . . . . . . . . . . . . . . . . . . . .16 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 . . . . . . . . . . . . . . . . . . . .17 Substitution of Fund Shares and Other Changes. . . . . . . . . . . . . . . . . .17 Reports . . . . . . . . . . . . . . . . . . . . . . .17 Special Policy for Employers. . . . . . . . . . . . .17 Distribution of the Policies. . . . . . . . . . . . .17 Tax Treatment of Policy Benefits. . . . . . . . . . .18 Other Information . . . . . . . . . . . . . . . . . . .18 Management. . . . . . . . . . . . . . . . . . . . . .18 Regulation. . . . . . . . . . . . . . . . . . . . . .20 Year 2000 Issues. . . . . . . . . . . . . . . . . . .20 Legal Proceedings . . . . . . . . . . . . . . . . . .21 Registration Statement. . . . . . . . . . . . . . . .21 Experts . . . . . . . . . . . . . . . . . . . . . . .21 Financial Statements. . . . . . . . . . . . . . . . . .22 Report of Independent Accountants (for the two years ended December 31, 1998) . . . .22 Financial Statements of the Account (for the two years ended December 31, 1998) . . . .23 Financial Statements of Northwestern Mutual Life (for the three years ended December 31, 1998). . . . . . . . . . . . . . . . .29 Report of Independent Accountants (for the three years ended December 31, 1998). . . . . . . . . . . . . . . . .42 Appendix . . . . . . . . . . . . . . . . . . . . . . .43 P R O S P E C T U S NORTHWESTERN MUTUAL VARIABLE LIFE - - WHOLE LIFE - - EXTRA ORDINARY LIFE - - SINGLE PREMIUM LIFE This prospectus describes three variable life insurance policies (the "Policies") issued by The Northwestern Mutual Life Insurance Company: Whole Life, Extra Ordinary Life and Single Premium Life. We have designed each Policy to provide lifetime insurance coverage on the insured named in the Policy. You may also surrender a Policy for its cash value during the lifetime of the insured. We use Northwestern Mutual Variable Life Account (the "Account") to keep the money you invest separate from our general assets. The death benefit and cash value of a Policy will vary to reflect the investment experience the Account. You may allocate the net premiums to one or more of the sixteen divisions of the Account. The assets of each division will be invested in a corresponding Portfolio of Northwestern Mutual Series Fund, Inc. or one of the Russell Insurance Funds. The prospectuses for these mutual funds, attached to this prospectus, describe the investment objectives for all of the Portfolios and Funds. We guarantee that the death benefit for a Whole Life Policy will never be less than the face amount of the Policy, regardless of the Account's investment experience, so long as you pay premiums when they are due and no Policy debt is outstanding. For an Extra Ordinary Life Policy, the death benefit will never be less than the Minimum Death Benefit stated in the Policy, so long as you pay premiums when they are due and no Policy debt is outstanding. We have designed the Extra Ordinary Life Policy for purchasers who intend to use all Policy dividends to purchase paid-up additions. For a Single Premium Life Policy, the death benefit will never be less than the face amount of the Policy, if no Policy debt is outstanding. There is no guaranteed minimum cash value for any of the three Policies. 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 issuance costs for a new Policy. For a Whole Life Policy or an Extra Ordinary Life Policy we make deductions for sales costs from premiums. These deductions are higher during the early Policy years. For a Single Premium Life Policy we make deductions for sales costs from the cash values of Policies surrendered during the early Policy years. Therefore you should purchase a Policy only if you intend to keep it in force for a reasonably long period. THE POLICIES DESCRIBED IN THIS PROSPECTUS ARE NO LONGER BEING ISSUED. THE VARIABLE COMPLIFE-Registered Trademark- POLICY CURRENTLY BEING OFFERED BY NORTHWESTERN MUTUAL LIFE IS DESCRIBED IN A SEPARATE PROSPECTUS. IT MAY NOT BE ADVANTAGEOUS TO REPLACE EXISTING INSURANCE WITH A VARIABLE LIFE INSURANCE POLICY. SEE DEDUCTIONS AND CHARGES AND CASH VALUE. THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR NORTHWESTERN MUTUAL SERIES FUND, INC. AND RUSSELL INSURANCE FUNDS WHICH ARE ATTACHED HERETO, AND SHOULD BE RETAINED FOR FUTURE REFERENCE. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 1 THE PRIMARY PURPOSE OF THESE VARIABLE LIFE INSURANCE POLICIES IS TO PROVIDE INSURANCE PROTECTION. WE MAKE NO CLAIM THAT THE POLICIES ARE IN ANY WAY SIMILAR OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND. - -------------------------------------------------------------------------------- SUMMARY OF THE POLICIES VARIABLE LIFE INSURANCE Variable life insurance is similar in many ways to traditional fixed-benefit whole life insurance. There are also significant differences. For both fixed and variable insurance the owner of the policy pays level premiums for lifetime insurance coverage on the person insured. Both kinds of insurance provide a cash value payable upon surrender of the policy during the insured's lifetime. In each case the cash value during the early years is ordinarily less than the sum of the premiums paid. Various optional benefits may be added to either kind of policy (except single premium policies) at extra cost. The distinctive feature of the variable Policies described in this prospectus is that we place the premiums, after certain deductions, in one or more divisions of Northwestern Mutual Variable Life Account. The death benefit and cash value of the Policy will increase or decrease to reflect the investment performance of the division or divisions you select. We adjust the death benefit annually on the Policy anniversary. We guarantee that the death benefit for a Whole Life Policy will never be less than the face amount of the Policy, so long as you pay premiums when they are due and no Policy debt is outstanding. For an Extra Ordinary Life Policy, we guarantee that the death benefit will never be less than the Minimum Death Benefit stated in the Policy, so long as you pay premiums when they are due and no Policy debt is outstanding. We have designed the Extra Ordinary Life Policy for purchasers who intend to use all Policy dividends to purchase paid-up additions. For a Single Premium Life Policy, we guarantee that the death benefit will never be less than the face amount of the Policy, if no policy debt is outstanding. For all of the Policies, we adjust the cash value daily. There is no guaranteed minimum cash value. THE ACCOUNT AND ITS DIVISIONS Northwestern Mutual Variable Life Account is the investment vehicle for the Policies. The Account has sixteen divisions. You determine how net premiums are to be apportioned. You may select up to six divisions at any one point in time. We invest the assets of each division in a corresponding Portfolio of Northwestern Mutual Series Fund, Inc. or one of the Russell Insurance Funds. The eleven Portfolios of Northwestern Mutual Series Fund, Inc. are the Small Cap Growth Stock Portfolio, Aggressive Growth Stock Portfolio, International Equity Portfolio, Index 400 Stock Portfolio, Growth Stock Portfolio, Growth and Income Stock Portfolio, Index 500 Stock Portfolio, Balanced Portfolio, High Yield Bond Portfolio, Select Bond Portfolio and Money Market Portfolio. The five Russell Insurance Funds are the Multi-Style Equity Fund, Aggressive Equity Fund, Non-U.S. Fund, Real Estate Securities Fund, and Core Bond Fund. For additional information about the funds see the attached prospectuses. DEDUCTIONS AND CHARGES FROM PREMIUMS WHOLE LIFE POLICY AND EXTRA ORDINARY LIFE POLICY - Deduction of 2% for state premium taxes - Sales load of not more than 30% of the basic premium for the first Policy year, 10% for each of the next three years and 7% in years thereafter - Annual deduction of $35 for administrative costs - Deduction of $5 for each $1,000 of insurance, for issuance expenses, in first Policy year only - Annual deduction of 1 1/2% of the basic premium for death benefit guarantee - For the Extra Ordinary Life Policy only, a deduction for dividends in the approximate range of 7-17% of the gross annual premium SINGLE PREMIUM POLICY - A deduction of $150 when the Policy is issued FROM THE ASSETS OF THE ACCOUNT - A daily charge at the annual rate of .50% of the Account assets for mortality and expense risks - A daily charge at the annual rate of .20% of the Account assets for federal income taxes SURRENDER CHARGES - For the Single Premium Life Policy only, a deduction of up to 9% of the Policy's tabular cash value if the Policy is surrendered during the first ten Policy years 2 FROM THE MUTUAL FUNDS - A daily charge for investment advisory and other services provided to the mutual funds. The total expenses vary by Portfolio or Fund and currently fall in an approximate range of .21% to 2.37% of assets on an annual basis. The following table shows the annual expenses for each of the Portfolios and Funds, as a percentage of their average net assets of the Portfolio, based on 1998 operations. Expenses for the Portfolios and Funds which were not in operation during 1998 are estimated.
NORTHWESTERN MUTUAL SERIES FUND, INC. INVESTMENT ADVISORY OTHER TOTAL PORTFOLIO FEE EXPENSES EXPENSES - --------- ----------- -------- -------- Small Cap Growth Stock . . . . . . . . .80% .12% .92% Aggressive Growth Stock . . . . . . . . .52% .00% .52% International Equity. . .67% .09% .76% Index 400 Stock . . . . .25% .10% .35% Growth Stock. . . . . . .45% .01% .46% Growth and Income Stock . . . . . . . . .57% .01% .58% Index 500 Stock . . . . .20% .01% .21% Balanced. . . . . . . . .30% .00% .30% High Yield Bond . . . . .49% .01% .50% Select Bond . . . . . . .30% .00% .30% Money Market. . . . . . .30% .00% .30%
RUSSELL INSURANCE FUNDS INVESTMENT ADVISORY OTHER TOTAL FUND FEE* EXPENSES* EXPENSES - ---- ---------- -------- -------- Multi-Style Equity Fund. . . . . . . . 0.78% 0.43% 1.21% Aggressive Equity Fund. . . . . . . . 0.95% 0.72% 1.67% Non-U.S. Fund . . . . 0.95% 1.42% 2.37% Real Estate Securities Fund. . . . . . . . 0.85% 0.31% 1.16% Core Bond Fund. . . . 0.60% 0.68% 1.28%
*MULTI-STYLE EQUITY FUND Frank Russell Investment Company's (FRIC's) advisor, Frank Russell Investment Management Company (FRIMCo) has voluntarily agreed to waive a portion of its 0.78% management fee, up to the full amount of that fee, equal to the amount by which the Fund's total operating expenses exceed 0.92% of the Fund's average daily net assets on an annual basis. FRIMCo has voluntarily agreed to reimburse the Fund for all remaining expenses after fee waivers which exceed 0.92% of the average daily net assets on an annual basis. This waiver may be revised or eliminated at any time without notice to shareholders. Taking the fee waivers into account, the actual gross annual total operating expenses were 0.92% of the average net assets of the Multi-Style Fund. AGGRESSIVE EQUITY FUND FRIMCo has voluntarily agreed to waive a portion of its 0.95% management fee, up to the full amount of that fee, equal to the amount by which the Fund's total operating expenses exceed 1.25% of the Fund's average daily net assets on an annual basis. FRIMCo has voluntarily agreed to reimburse the Fund for all remaining expenses after fee waivers which exceed 1.25% of the average daily net assets on an annual basis. This waiver may be revised or eliminated at any time without notice to shareholders. Taking the fee waivers into account, the actual gross annual total operating expenses were 1.25% of the average net assets of the Aggressive Equity Fund. NON-U.S. FUND FRIMCo has voluntarily agreed to waive a portion of its 0.95% management fee, up to the full amount of that fee, equal to the amount by which the Fund's total operating expenses exceed 1.30% of the Fund's average daily net assets on an annual basis. FRIMCo has voluntarily agreed to reimburse the Fund for all remaining expenses after fee waivers which exceed 1.30% of the average daily net assets on an annual basis. This waiver may be revised or eliminated at any time without notice to shareholders. Taking the fee waivers into account, the actual gross annual total operating expenses were 1.30% of the average net assets of the Non-U.S. Fund. REAL ESTATE SECURITIES FUND FRIMCo has voluntarily agreed to waive a portion of its ___% management fee, up to the full amount of that fee, equal to the amount by which the Fund's total operating expenses exceed ___5% of the Fund's average daily net assets on an annual basis. FRIMCo has voluntarily agreed to reimburse the Fund for all remaining expenses after fee waivers which exceed ___% of the average daily net assets on an annual basis. This waiver may be revised or eliminated at any time without notice to shareholders. Operating expenses are based on average net assets expected to be invested during the year ending December 31, 1999. During the course of this period, expenses may be more or less than the amount shown. Taking the fee waivers into account, the actual gross annual total operating expenses were ___% of the average net assets of the Real Estate Securities Fund. CORE BOND FUND FRIMCo has voluntarily agreed to waive a portion of its 0.60% management fee, up to the full amount of that fee, equal to the amount by which the Fund's total operating expenses exceed .80% of the Fund's average daily net assets on an annual basis. FRIMCo has voluntarily agreed to reimburse the Fund for all remaining expenses after fee waivers which exceed .80% of the average daily net assets on an annual basis. This waiver may be revised or eliminated at any time without notice to shareholders. Taking the fee waivers into account, the actual gross annual total operating expenses were .80% of the average net assets of the Core Bond Fund. 3 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT, NORTHWESTERN MUTUAL SERIES FUND, INC. AND RUSSELL INSURANCE FUNDS 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 fourth largest life insurance company, based on total assets in excess of $77 billion on December 31, 1998 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 income insurance policies and annuity contracts through its own field force of approximately 6,000 full time producing agents. The Internal Revenue Service Employer Identification Number of Northwestern Mutual Life is 39-0509570. "We" in this prospectus means Northwestern Mutual Life. THE ACCOUNT We established Northwestern Mutual Variable Life Account by action of our Trustees on November 23, 1983, in accordance with the provisions of Wisconsin insurance law. Under Wisconsin law the income, gains and losses, realized or unrealized, of the Account are credited to or charged against the assets of the Account without regard to our other income, gains or losses. We use the Account only for variable life insurance policies. However, we also use the Account for other variable life insurance policies which are described in other prospectuses. We no longer offer the three Policies described in this prospectus. The Account is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940. This registration does not involve supervision of management or investment practices or policies. The Account has sixteen divisions. All of the assets of each division are invested in shares of the corresponding Portfolio or Fund described below. THE FUNDS NORTHWESTERN MUTUAL SERIES FUND, INC. Northwestern Mutual Series Fund, Inc. is a mutual fund of the series type registered under the Investment Company Act of 1940 as an open-end diversified management investment company. The Account buys shares of each Portfolio at their net asset value without any sales charge. The investment adviser for the Fund is Northwestern Mutual Investment Services, LLC ("NMIS"), our wholly-owned subsidiary. The investment advisory agreements for the respective Portfolios provide that NMIS will provide services and bear certain expenses of the Fund. For providing investment advisory and other services and bearing Fund expenses, the Fund pays NMIS a fee at an annual rate which ranges from .20% of the aggregate average daily net assets of the Index 500 Stock Portfolio to a maximum of .67% for the International Equity Portfolio, based on 1998 asset size. Other expenses borne by the Portfolios range from 0% for the Select Bond, Money Market and Balanced Portfolios to .09% for the International Equity Portfolio. We provide the people and facilities NMIS uses in performing its investment advisory functions and we are a party to the investment advisory agreement. NMIS has retained J.P. Morgan Investment Management, Inc. and Templeton Investment Counsel, Inc. under investment sub-advisory agreements to provide investment advice to the Growth and Income Stock Portfolio and the International Equity Portfolio. The investment objectives and types of investments for each of the eleven Portfolios of the Fund are set forth below. There can be no assurance that the Portfolios will realize their objectives. For more information about the investment objectives and policies, the attendant risk factors and expenses see the attached prospectus for Northwestern Mutual Series Fund, Inc. SMALL CAP GROWTH STOCK PORTFOLIO The investment objective of the Small Cap Growth Stock Portfolio is long-term growth of capital. The Portfolio will seek to achieve this objective primarily by investing in the common stocks of companies which can reasonably be expected to increase sales and earnings at a pace which will exceed the growth rate of the U.S. economy over an extended period. AGGRESSIVE GROWTH STOCK PORTFOLIO. The investment objective of the Aggressive Growth Stock Portfolio is to achieve long-term appreciation of capital primarily by investing in the common stocks of companies which can reasonably be expected to increase their sales and earnings at a pace which will exceed the growth rate of the nation's economy over an extended period. INTERNATIONAL EQUITY PORTFOLIO. The investment objective of the International Equity Portfolio is long-term capital growth. It pursues its objective through a flexible policy of investing in stocks and debt securities of companies and governments outside the United States. 4 INDEX 400 STOCK PORTFOLIO The investment objective of the Index 400 Stock Portfolio is to achieve investment results that approximate the performance of the Standard & Poor's MidCap 400 Index ("S&P 400 Index"). The Portfolio will attempt to meet this objective by investing in stocks included in the S&P 400 Index. GROWTH STOCK PORTFOLIO. The investment objective of the Growth Stock Portfolio is long-term growth of capital; current income is secondary. The Portfolio will seek to achieve this objective by selecting investments in companies which have above average earnings growth potential. GROWTH AND INCOME STOCK PORTFOLIO. The investment objective of the Growth and Income Stock Portfolio is long-term growth of capital and income. Ordinarily the Portfolio pursues its investment objectives by investing primarily in dividend-paying common stock. INDEX 500 STOCK PORTFOLIO. The investment objective of the Index 500 Stock Portfolio is to achieve investment results that approximate the performance of the Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index"). The Portfolio will attempt to meet this objective by investing in stocks included in the S&P 500 Index. Stocks are generally more volatile than debt securities and involve greater investment risks. BALANCED PORTFOLIO. The investment objective of the Balanced Portfolio is to realize as high a level of long-term total rate of return as is consistent with prudent investment risk. The Balanced Portfolio will invest in common stocks and other equity securities, bonds and money market instruments. Investment in the Balanced Portfolio necessarily involves the risks inherent in stocks and debt securities of varying maturities, including the risk that the Portfolio may invest too much or too little of its assets in each type of security at any particular time. HIGH YIELD BOND PORTFOLIO. The investment objective of the High Yield Bond Portfolio is to achieve high current income and capital appreciation by investing primarily in fixed income securities that are rated below investment grade by the major rating agencies. SELECT BOND PORTFOLIO. The primary investment objective of the Select Bond Portfolio is to provide as high a level of long-term total rate of return as is consistent with prudent investment risk. A secondary objective is to seek preservation of shareholders' capital. The Select Bond Portfolio will invest primarily in debt securities. The value of debt securities will tend to rise and fall inversely with the rise and fall of interest rates. MONEY MARKET PORTFOLIO. The investment objective of the Money Market Portfolio is to realize maximum current income consistent with liquidity and stability of capital. The Money Market Portfolio will invest in money market instruments and other debt securities with maturities generally not exceeding one year. The return produced by these securities will reflect fluctuations in short-term interest rates. RUSSELL INSURANCE FUNDS The Russell Insurance Funds also comprise a mutual fund of the series type registered under the Insurance Company Act of 1940 as an open-end diversified management investment company. The Account buys shares of each of the Russell Insurance Funds at their net asset value without any sales charge. The assets of each of the Russell Insurance Funds are invested by one or more investment management organization researched and recommended by Frank Russell Company ("Russell"), and an affiliate of Russell, Frank Russell Investment Management Company ("FRIMCo"). FRIMCo also advises, operates and administers the Russell Insurance Funds. Russell is our majority-owned subsidiary. The investment objectives and types of investments for each of the five Russell Insurance Funds are set forth below. There can be no assurance that the Funds will realize their objectives. A table showing the expense ratios for each of the Russell Insurance Funds is included in the Summary above, at page 3. For more information about the investment objectives and policies, the attendant risk factors and expenses see the attached prospectus for the Russell Insurance Funds. MULTI-STYLE EQUITY FUND. The investment objective of the Multi-Style Equity Fund is to provide income and capital growth by investing principally in equity securities. The Multi-Style Equity Fund invests primarily in common stocks of medium and large capitalization companies. These companies are predominately US-based, although the Fund may invest a limited portion of its assets in non-US firms from time to time. AGGRESSIVE EQUITY FUND. The investment objective of the Aggressive Equity Fund is to provide capital appreciation by assuming a higher level of volitility than is ordinarily expected from Multi-Style Equity Fund by investing in equity securities. The Aggressive Equity Fund invests primarily in common stocks of small and medium capitalization companies. These companies are predominately US-based, although the Fund may invest in non-US firms from time to time. NON-U.S. FUND. The investment objective of the Non-U.S. Fund is to provide favorable total return and additional diversification for US investors by investing primarily in equity and fixed-income securities of non-US companies, and securities issued by non-US 5 governments. The Non-U.S. Fund invests primarily in equity securities issued by companies domiciled outside the United States and in depository receipts, which represent ownership of securities of non-US companies. REAL ESTATE SECURITIES FUND. The investment objective of the Real Estate Securities Fund is to generate a high level of total return through above average current income, while maintaining the potential for capital appreciation. The Fund seeks to achieve its objective by concentrating its investments in equity securities of issuers whose value is derived primarily from development, management and market pricing of underlying real estate properties. CORE BOND FUND. The investment objective of the Core Bond Fund is to maximize total return, through capital appreciation and income, by assuming a level of volatility consistent with the broad fixed-income market, by investing in fixed-income securities. The Core Bond Fund invests primarily in fixed-income securities. In particular, the Fund holds debt securities issued or guaranteed by the US government, or to a lesser extent by non-US governments, or by their respective agencies and instrumentalities. It also holds mortgage-backed securities, including collateralized mortgage obligations. The Fund also invests in corporate debt securities and dollar-denominated obligations issued in the US by non-US banks and corporations (Yankee Bonds). A majority of the Fund's holdings are US dollar-denominated. From time to time the Fund may invest in municipal debt obligations. - -------------------------------------------------------------------------------- DETAILED INFORMATION ABOUT THE POLICIES REQUIREMENTS FOR INSURANCE The minimum face amount we require for a Whole Life Policy is $20,000. If the insured is below age 15 or over age 49 the minimum amount is $10,000. The insured may not be older than age 70 on the date of issue. For an Extra Ordinary Life Policy the minimum initial amount of insurance is $50,000; if the insured is over age 70, the minimum amount is $25,000. The minimum face amount of insurance we require for a Single Premium Life Policy is $5,000. For an Extra Ordinary Life Policy the insured may not be younger than age l5 on the date of issue. For the Extra Ordinary Life Policy and the Single Premium Life Policy, the insured may not be older than age 75 on the date of issue. Before issuing a Policy, we will require satisfactory evidence of insurability. We consider non-smokers who meet preferred underwriting requirements select risks. We charge a higher premium for insureds who do not qualify as select risks. The amount of additional premium depends on the risk classification in which we place the insured. We consider nonsmokers in the second best classification standard plus risks. We consider the best class of smokers standard risks. PREMIUMS You must pay the first premium to put a Whole Life Policy or an Extra Ordinary Life Policy in effect. Premiums are level, fixed and payable in advance during the insured's lifetime on a monthly, quarterly, semiannual or annual basis. You may change the premium frequency. The change will be effective when we accept the premium on the new frequency. Premiums you pay more often than annually include an extra amount to compensate us for the extra processing costs and loss of interest because we receive the money later. The amount of the premium depends on the amount of insurance for which the Policy was issued and the insured's age and risk classification. The amount of the premium also reflects the sex of the insured except where state or federal law requires that premiums and other charges and values be determined without regard to sex. We send a notice to the owner of a Policy not less than two weeks before each premium is due. If you select the monthly premium frequency, we may require that you make premium payments by preauthorized check. The following table for Whole Life Policies shows representative premiums for male select, standard plus, and standard risks for various face amounts of insurance. 6
% EXCESS OF 12 MONTHLY PREMIUMS AGE AT FACE ANNUAL MONTHLY OVER ANNUAL ISSUE AMOUNT PREMIUM PREMIUM PREMIUM - -------------------------------------------------------------------------- SELECT 15 $ 50,000 $ 382.50 $ 33.60 5.4% 35 100,000 1,536.00 135.10 5.5% 55 100,000 3,766.00 331.10 5.5% STANDARD PLUS 15 50,000 406.00 35.60 5.2% 35 100,000 1,683.00 148.10 5.6% 55 100,000 4,125.00 363.10 5.6% STANDARD 15 50,000 491.50 43.10 5.2% 35 100,000 1,912.00 168.10 5.5% 55 100,000 4,587.00 404.10 5.7%
The following table for Extra Ordinary Life Policies shows representative annual premiums for male select and standard risks for various amounts of insurance. The amounts of insurance shown in the table are the total amounts in effect when the Extra Ordinary Life Policy is issued, including both the Minimum Death Benefit which we guarantee for the lifetime of the insured and the Extra Life Protection which we guarantee for a shorter period. See "Death Benefit", p. 10, and "Extra Ordinary Life Policy", p. 12.
% EXCESS OF 12 MONTHLY PREMIUMS AGE AT FACE ANNUAL MONTHLY OVER ANNUAL ISSUE AMOUNT PREMIUM PREMIUM PREMIUM - --------------------------------------------------------------------------- SELECT 15 $ 50,000 $ 261.50 $ 23.10 6.0% 35 100,000 1,014.00 89.10 5.4% 55 100,000 2,612.00 230.10 5.7% STANDARD PLUS 15 50,000 285.00 25.10 5.7% 35 100,000 1,161.00 102.10 5.5% 55 100,000 2,971.00 261.10 5.5% STANDARD 15 50,000 357.50 31.60 6.1% 35 100,000 1,377.00 121.10 5.5% 55 100,000 3,425.00 301.10 5.5%
For a Single Premium Life Policy you may choose either a face amount of insurance or the amount which a given amount of premium will provide. The Single Premium Life Policy is available only for applicants who meet select or standard plus underwriting criteria as we determine. The premiums for these Policies are the same for both select and standard plus risks, but we expect that the dividends will be lower for Policies issued to insureds in the standard plus classification. The following table for Single Premium Life Policies shows representative gross single premiums for male select and standard plus risks for various face amounts of Insurance:
FACE AGE AT AMOUNT OF GROSS SINGLE ISSUE INSURANCE PREMIUM ------ --------- ------------ 15 $10,000 $ 1,498.40 35 25,000 6,443.25 55 50,000 23,502.00
GRACE PERIOD For the Whole Life and Extra Ordinary Life Policies there is a grace period of 31 days for any premium that is not paid when due. The Policy remains in force during this period. If you do not pay the premium within the grace period the Policy will terminate as of 7 the date when the premium was due and will no longer be in force, unless it is continued as extended term or paid-up insurance. See "Extended Term and Paid-Up Insurance", p. 15. If you surrender a Policy, we will pay its cash value. See "Cash Value", p. 14. If the insured dies during the grace period we will deduct any overdue premium from the proceeds of the Policy. If the insured dies after payment of the premium for the period which includes the date of death, we will refund the portion of the premium for the remainder of that period as part of the Policy proceeds. ALLOCATIONS TO THE ACCOUNT We place the net annual premium for a Whole Life Policy or an Extra Ordinary Life Policy in the Account on the Policy date and on the Policy anniversary each year. The net annual premium is the annual premium less the deductions described below. You determine how the net annual premium for a Whole Life or an Extra Ordinary Life Policy is apportioned among the divisions of the Account. If you direct any portion of a premium to a division, the division must receive at least 10% of that premium. You may change the apportionment for future premiums by written request at any time, but the change will be effective only when we place the net annual premium in the Account on the next Policy anniversary, even if you are paying premiums on an other than annual basis. For a Single Premium Policy we place the entire single premium, less an administrative charge of $150, in the Account on the Policy date and we apportion the amount among the divisions of the Account as you determine. You may apportion the Account assets supporting your Policy among as many as six divisions of the Account at any time. TRANSFERS BETWEEN DIVISIONS You may transfer accumulated amounts from one division of the Account to another as often as four times in a Policy year. Transfers are effective on the date we receive a written request at our Home Office. We reserve the right to charge a fee to cover administrative costs of transfers. We presently charge no fee. DEDUCTIONS AND CHARGES The net premiums we place in the Account for Whole Life, Extra Ordinary Life and Single Premium Life Policies are the gross premiums after the deductions described in the next two sections below. The net premiums for Whole Life and Extra Ordinary Life Policies exclude any extra premium we charge for insureds who do not qualify as select risks and the extra premium for any optional benefits. We make a charge for mortality and expense risks against the assets of the Account. There is also a charge for taxes. See "Charges Against the Account Assets", p. 10. In addition, the mutual funds in which the Account assets are invested pay an investment advisory fee and certain other expenses. Mutual fund expenses are briefly described above on page 3, and in more detail in the attached prospectuses for the mutual funds. DEDUCTIONS FROM PREMIUMS FOR WHOLE LIFE AND EXTRA ORDINARY LIFE POLICIES The deductions described in this section are for Whole Life and Extra Ordinary Life Policies only. The deductions for Single Premium Life Policies are described under the next caption below. For the first Policy year there is a one-time deduction of not more than $5 for each $1,000 of insurance, based on the face amount for Whole Life or the Minimum Death Benefit stated in the Policy for Extra Ordinary Life. This is for the costs of processing applications, medical examinations, determining insurability and establishing records. There is an annual deduction of $35 for administrative costs to maintain the Policy. Expenses include costs of premium billing and collection, processing claims, keeping records and communicating with Policyowners. There is a deduction each year for sales costs. This amount may be considered a "sales load". The deduction will be not more than 30% of the basic premium (as defined below) for the first Policy year, not more than 10% for each of the next three years and not more than 7% each year thereafter. The basic premium for a Policy is the gross premium which would be payable if you paid the premium annually, less the annual deduction of $35 for administrative costs. The basic premium is based on the cost of insurance for insureds who qualify as select risks and does not include any extra premium amounts for insureds whom we place in other risk classifications. The basic premium does not include the extra premium for any optional benefits. For an Extra Ordinary Life Policy, the basic premium does not include any extra premium for the Extra Life Protection; the amount of term insurance included in the Extra Life Protection affects the dividends payable on the Extra Ordinary Life Policies. The amount of the deduction for sales costs for any Policy year is not specifically related to sales costs we incur for that year. We expect to recover our total sales expenses from the amounts we deduct for sales costs over the period while the Policies are in force. To the extent that sales expenses exceed the amounts deducted, we will pay the expenses from our other assets. These assets may include, among other things, any gain realized from the charge against the assets of 8 the Account for the mortality and expense risks we assume. See "Charges Against the Account Assets", p. 10. To the extent that the amounts deducted for sales costs exceed the amounts needed, we will realize a gain. We make a deduction equal to 2% of each basic premium for state premium taxes. Premium taxes vary from state to state and currently range from .5% to 3.5% of life insurance premiums. The 2% rate is an average. The tax rate for a particular state may be lower, higher or equal to the 2% deduction. We guarantee that the death benefit for a Whole Life Policy will never be less than the face amount of the Policy, regardless of the investment experience of the Account. For an Extra Ordinary Life Policy, we guarantee that the death benefit will never be less than the Minimum Death Benefit stated in the Policy. For both Policies, there is a deduction of 1-1/2% from each basic premium to compensate us for the risk that the insured may die at a point in time when the death benefit that would ordinarily be paid is less than this guaranteed minimum amount. For an Extra Ordinary Life Policy there is a deduction for dividends to be paid or credited in accordance with the dividend scale in effect on the issue date of the Policy. This deduction will vary by age of the insured and duration of the Policy, and we expect it to be in the range of approximately 7-17% of the gross annual premium. The following tables illustrate the amount of net annual premium, for select and standard risks, to be placed in the Account at the beginning of each Policy year after the deductions described above:
WHOLE LIFE MALE AGE 35 - SELECT RISK ANNUAL PREMIUM ------------------------- BEGINNING OF POLICY YEAR $500 $1,000 $5,000 ------------ ------ ------- --------- 1. . . . . . . . . . . $154.28 $320.16 $1,647.28 2 through 4. . . . . . 402.11 834.48 4,293.51 5 and later. . . . . . 416.05 863.41 4,442.36
MALE AGE 35 - STANDARD RISK ANNUAL PREMIUM --------------------------- BEGINNING OF POLICY YEAR $500 $1,000 $5,000 ------------ ------- ------- --------- 1. . . . . . . . . . . $123.37 $256.03 $1,317.30 2 through 4. . . . . . 321.57 667.33 3,433.44 5 and later. . . . . . 332.71 690.46 3,552.48
EXTRA ORDINARY LIFE MALE AGE 35 - SELECT RISK ANNUAL PREMIUM BEGINNING OF POLICY YEAR $500 $1,000 $5,000 - ------------- ------- ------- --------- 1. . . . . . . . . . . $134.23 $278.56 $1,433.21 2 through 4. . . . . . 369.62 767.07 3,946.64 5 and later. . . . . . 383.58 796.05 4,095.74
MALE AGE 35 - STANDARD RISK ANNUAL PREMIUM BEGINNING OF POLICY YEAR $500 $1,000 $5,000 - ------------- ------- ------- --------- 1. . . . . . . . . . . $ 97.92 $203.21 $1,045.54 2 through 4. . . . . . 269.65 559.59 2,879.11 5 and later. . . . . . 279.83 580.73 2,987.88
DEDUCTIONS FOR SINGLE PREMIUM LIFE POLICIES For a Single Premium Life Policy the only deduction from the single premium is an administrative charge of $150.00. The administrative costs for issuing and maintaining a Single Premium Life Policy are similar to those we incur with a Whole Life Policy or an Extra Ordinary Life Policy, except for the costs of premium billing and collection. See "Deductions from Premiums for Whole Life and Extra Ordinary Life Policies", p. 8. We place the entire premium for a Single Premium Life Policy, after this deduction of $150, in the Account when we issue the Policy without any of the other deductions which apply to premiums for Whole Life and Extra Ordinary Life Policies. There is no annual fee for a Single Premium Life Policy. For a Single Premium Life Policy during the first ten Policy years, the cash value payable on surrender of the Policy is reduced by a deduction for sales costs. The deduction during the first Policy year is not more than 9% of the Policy's tabular cash value. See "Cash Value", p. 14. The deduction decreases over time until it is eliminated at the end of the tenth Policy year. We intend the deduction to recover the costs we incur in distributing Single Premium Life Policies which are surrendered in their early years. The deduction will never be more than 9% of the single premium paid for the Policy, excluding the administrative charge of $150.00. The following table illustrates the schedule for the decreasing deduction for sales costs for a policy surrendered at the end of each of the first ten Policy years. The illustration is for a Single Premium Life Policy, male age 35. The schedule varies slightly by age and sex and amount of insurance. 9
POLICY YEAR END WHEN DEDUCTION AS % OF POLICY IS SURRENDERED TABULAR CASH VALUE - --------------------- ------------------ 1 . . . . . . . . . . . . . 7.9% 2 . . . . . . . . . . . . . 7.1 3 . . . . . . . . . . . . . 6.3 4 . . . . . . . . . . . . . 5.4 5 . . . . . . . . . . . . . 4.6 6 . . . . . . . . . . . . . 3.7 7 . . . . . . . . . . . . . 2.8 8 . . . . . . . . . . . . . 1.9 9 . . . . . . . . . . . . . 0.9 10 and subsequent years . . . 0
Since the maximum Policy loan limit for a Single Premium Life Policy is based on the cash value payable on surrender, the amount you may borrow during the first ten years is reduced to reflect the deduction for sales costs which we would make if you surrendered the Policy on the date of the Policy loan. See "Policy Loans", p. 15. CHARGES AGAINST THE ACCOUNT ASSETS There is a daily charge to the Account for the mortality and expense risks we assume. The charge is at the annual rate of .50% of the assets of the Account. The mortality risk is that insureds may not live as long as we estimated. The expense risk is that expenses of issuing and administering the Policies may exceed the costs we estimated. We will realize a gain from this charge to the extent it is not needed to provide benefits and pay expenses under the Policies. The actual mortality and expense experience under the Policies will be the basis for determining dividends. See "Annual Dividends", p. 14. The Policies provide that we may make a charge for taxes against the assets of the Account. Currently, we are making a daily charge for federal income taxes we incur at the annual rate of .20% of the assets of the Account. We may increase, decrease or eliminate the charge for taxes in the future. In no event will the charge for taxes exceed that portion of our actual tax expenses which is fairly allocable to the Policies. GUARANTEE OF PREMIUMS, DEDUCTIONS AND CHARGES We guarantee and may not increase the premiums, the amounts we deduct from premiums and the charge for mortality and expense risks. These amounts will not increase regardless of future changes in longevity or increases in expenses. The Extra Ordinary Life Policy provides an opportunity to pay an additional amount of premium after the guaranteed period for the Extra Life Protection has expired if the Total Death Benefit would otherwise fall below the initial amount of insurance. See "Extra Ordinary Life Policy", p. 12. DEATH BENEFIT The death benefit for a variable life insurance policy is, in part, a guaranteed amount which will not be reduced during the lifetime of the insured so long as you pay premiums when they are due and no policy debt is outstanding. The remainder of the death benefit is the variable insurance amount which fluctuates in response to actual investment results and is not guaranteed. The amount of any paid-up additions which you have purchased with dividends is also included in the total death benefit and, in addition, the Extra Ordinary Life Policy provides some term insurance during the early Policy years. The relationships among the guaranteed and variable amounts and any paid-up additions and term insurance depend on the design of the particular Policy. See "Whole Life Policy and Single Premium Life Policy", p. 11, and "Extra Ordinary Life Policy", p. 12. VARIABLE INSURANCE AMOUNT. The variable insurance amount reflects, on a cumulative basis, the investment experience of the Account divisions in which the Policy has participated. We adjust the variable insurance amount annually on each Policy anniversary. For the first Policy year the variable insurance amount is zero. For any subsequent year it may be either positive or negative. If the variable insurance amount is positive, subsequent good investment results will produce a larger variable insurance amount and therefore an increase in the death benefit. If the variable insurance amount is negative, subsequent good investment results will first have to offset the negative amount before the death benefit will increase. In setting the premium rates for each Policy we have assumed that investment results will cause the Account assets supporting the Policy to grow at a net annual rate of 4%. If the assets grow at a net rate of exactly 4% for a Policy year, the variable insurance amount will neither increase nor decrease on the following anniversary. If the net rate of growth exceeds 4%, the variable insurance amount will increase. If it is less than 4%, the variable insurance amount will decrease. The method for calculating the changes in the death benefit is described in the Policy. The Policy includes a table of net single premiums used to convert the investment results for a Policy into increases or decreases in the variable insurance amount. The insurance rates in the table depend on the sex and the attained age of the insured for each Policy year. For a Whole Life Policy, the changes in the death benefit will be smaller for a Policy issued with a higher premium for extra mortality risk. The net single premium for a particular variable insurance amount is the price for that amount of paid-up whole life insurance based on the insured's age at the Policy anniversary. 10 Because the variable insurance amount is adjusted only on the Policy anniversary, we bear the risk that the insured may die before the next anniversary after an interim period of adverse investment experience. If investment experience during the interim period is favorable, you will forego the benefit and we will realize a gain, unless the insured survives to the next Policy anniversary. However, if at the date of death of the insured the value of the Policy, considered as a net single premium, would buy more death benefit than the amount otherwise determined under the Policy, we will pay this increased death benefit. The cost of life insurance increases with the advancing age of the insured, and therefore a larger dollar amount of investment earnings is required to produce the same increase in the death benefit in the later Policy years. In general, however, the effect of investment results on the death benefit will tend to be greater in the later Policy years because the amount of assets invested for the Policy will tend to increase as the Policy remains in force. The cost of providing insurance protection under a Policy is reflected in the cash value of the Policy. See "Cash Value", p. 14. The cost is actuarially computed for each Policy each year, based on the insured's attained age, the l980 Commissioners Standard Ordinary Mortality Table and the net insurance amount at risk under the Policy. The net insurance amount at risk is the total death benefit for the Policy minus the cash value plus any Policy debt. The cost of insurance differs each year because the probability of death increases as the insured advances in age and the net insurance amount at risk decreases or increases from year to year depending on investment experience. The cost assumes that all insureds are in the select underwriting risk classification. The differences in the mortality rates of the various underwriting classifications are reflected in the different premiums (or different dividend scales) for those underwriting classifications. The cost of insurance is based on the mortality table identified above and we guarantee it for the life of a Policy regardless of any future changes in mortality experience. WHOLE LIFE POLICY AND SINGLE PREMIUM LIFE POLICY. For a Whole Life Policy or a Single Premium Life Policy the death benefit is the face amount of the Policy plus any positive variable insurance amount in force. We adjust the death benefit on each Policy anniversary when we determine the variable insurance amount for the following year. The total death benefit also includes the amount of insurance provided by any paid-up additions which you have purchased with dividends and is reduced by the amount of any Policy debt outstanding. The death benefit for a Whole Life Policy will not be less than the face amount so long as you pay premiums when they are due and no Policy debt is outstanding. For a Single Premium Life Policy the death benefit will not be less than the face amount so long as no Policy debt is outstanding. Paid-up additions you have purchased with dividends are not counted for purposes of the guarantee that the death benefit of a Whole Life Policy or a Single Premium Life Policy will never be less than the face amount of the Policy. If the variable insurance amount is negative, the total death benefit will be the guaranteed face amount plus the amount of insurance provided by any paid-up additions less any Policy debt. Paid-up additions are amounts of permanent insurance, paid for with dividends and added to a basic life insurance policy, for which the premium for the entire lifetime of the insured has been paid. Paid-up additions have cash surrender value and loan value. The following example shows how the death benefit for a Whole Life Policy could vary based on investment results. Using the Policy illustrated on page 44 and assuming the 12% hypothetical gross investment earnings rate on assets of the selected Portfolio of the Fund (equivalent to a net rate of 10.86% for the Account division), and the dividend scale as illustrated, the death benefit shown at the end of Policy year 5 would change as follows:
GUARANTEED VARIABLE TOTAL FACE INSURANCE PAID-UP DEATH AMOUNT + AMOUNT + ADDITIONS = BENEFIT ---------- --------- --------- ------- End of Policy Year 5 . $30,979 $1,075 $637 $32,691 Change . . . . . . . . 0 +508 +216 +724 ---------- --------- --------- ------- End of Policy Year 6 . $30,979 $1,583 $853 $33,415
If instead the gross earnings rate during the sixth Policy year had been 0% (equivalent to a net rate of -1.14%) the death benefit at the end of Policy Year 5 would change as follows: 11
GUARANTEED VARIABLE TOTAL FACE INSURANCE PAID-UP DEATH AMOUNT + AMOUNT + ADDITIONS = BENEFIT ---------- --------- --------- ------- End of Policy Year 5 . $30,979 $1,075 $637 $32,691 Change . . . . . . . . 0 -381 +142 -239 ---------- --------- --------- ------- End of Policy Year 6 . $30,979 $694 $779 $32,452
The following example shows how the death benefit for a Single Premium Life Policy could vary based on investment results. Using the Policy illustrated on page 48 and assuming the 12% hypothetical gross annual investment earnings rate on assets of the selected Portfolio of the Fund (equivalent to a net rate of 10.86% for the Account division), and the dividend scale as illustrated, the death benefit shown at the end of Policy year 5 would change as follows:
GUARANTEED VARIABLE TOTAL FACE INSURANCE PAID-UP DEATH AMOUNT + AMOUNT + ADDITIONS = BENEFIT ---------- --------- --------- ------- End of Policy Year 5 . $25,000 $9,440 $433 $34,873 Change . . . . . . . . 0 +2,280 +154 +2,434 ---------- --------- --------- ------- End of Policy Year 6 . $25,000 $11,720 $587 $37,307
If instead the gross earnings rate during the sixth Policy year had been 0% (equivalent to a net rate of -1.15%) the death benefit at the end of Policy Year 5 would change as follows:
GUARANTEED VARIABLE TOTAL FACE INSURANCE PAID-UP DEATH AMOUNT + AMOUNT + ADDITIONS = BENEFIT ---------- --------- --------- ------- End of Policy Year 5 . $25,000 $9,440 $433 $34,873 Change . . . . . . . . 0 -1,708 +104 -1,604 ---------- --------- --------- ------- End of Policy Year 6 . $25,000 $7,732 $537 $33,269
EXTRA ORDINARY LIFE POLICY. The Total Death Benefit for an Extra Ordinary Life Policy is the sum of the Minimum Death Benefit plus the amount of Extra Life Protection in force. The Minimum Death Benefit is 60% of the total amount of insurance for which the Policy is issued. We guarantee the Minimum Death Benefit for the lifetime of the insured so long as you pay premiums when they are due and no Policy debt is outstanding. The amount of Extra Life Protection is initially 40% of the total amount of insurance. It may increase but it will not decrease during the guaranteed period, so long as you pay premiums when they are due, no Policy debt is outstanding, all dividends are applied to purchase paid-up additions and no paid-up additions are surrendered for their cash value. Extra Life Protection consists of one year term insurance, positive variable insurance amount and paid-up additions which have been purchased with dividends. Term insurance is life insurance which pays a death benefit only if the insured dies during the term for which the insurance has been purchased. Term insurance is ordinarily purchased on an annual basis at a cost which rises with the increasing age of the insured. It has no cash surrender value or loan value. The variable insurance amount and paid-up additions have been described; see "Variable Insurance Amount", p. 10 and "Whole Life Policy and Single Premium Life Policy", p. 11. Initially the entire amount of Extra Life Protection is one year term insurance. As the Policy remains in force one year term insurance is reduced by any positive variable insurance amount and paid-up additions, so that the term insurance is reduced to the amount that will maintain the Total Death Benefit at the amount for which the Policy was issued. The term insurance is eliminated at any time when the sum of positive variable insurance amount plus the paid-up additions equals or exceeds the initial amount of Extra Life Protection. We guarantee that the amount of Extra Life Protection will not be reduced during the guaranteed period, regardless of the Account's investment experience or the amount of any dividends paid on the Policy, so long as you pay premiums when they are due, no Policy debt is outstanding, all dividends are applied to purchase paid-up additions and no paid-up additions are surrendered for their cash value. The length of the guaranteed period depends on the age of the insured when we issued the Policy, and ranges from 37 years at age 15 to 7 years at age 75. At age 35 the guaranteed period is 27 years. 12 For an insured age 40 or younger, the sum of positive variable insurance amount plus paid-up additions will exceed the initial amount of Extra Life Protection at or before the end of the guaranteed period if the mutual fund assets which support the Policy produce a gross investment rate of return of 8% or better and dividends are at least equal to those we are paying on the current dividend scale. However, neither the actual investment results nor the dividends to be paid on the Policy are guaranteed. After the guaranteed period expires, if the sum of positive variable insurance amount plus the paid-up additions is less than the initial amount of Extra Life Protection on any Policy anniversary, we may reduce the amount of term insurance for the Policy year. We will given you notice of the reduction and you will have an opportunity to pay an additional amount of premium in order to keep the initial amount of insurance in force. The maximum premium rate is set forth in the Policy. Your right to continue to purchase term insurance on this basis will terminate as of the first Policy anniversary when you fail to pay the additional premium when due. The following example shows how the components of the Total Death Benefit for an Extra Ordinary Life Policy could vary based on investment results. Using the Policy illustrated on page 47 and the assumed 12% hypothetical gross annual investment earnings rate on assets of the selected Portfolio or Fund (equivalent to a net rate of 10.86% for the Account division), and the dividend scale as illustrated, the amounts shown at the end of Policy year 5 would change as follows:
EXTRA LIFE PROTECTION -------------------------------------------------- MINIMUM VARIABLE TOTAL DEATH TERM INSURANCE PAID-UP DEATH BENEFIT + INSURANCE + AMOUNT + ADDITIONS = BENEFIT ------- --------- --------- --------- --------- End of Policy Year 5 . . . $60,000 $36,318 $2,044 $1,638 $100,000 Change . . . . . . . . . . 0 -1,568 +975 +593 0 ------- --------- --------- --------- --------- End of Policy Year 6 . . . $60,000 $34,750 $3,019 $2,231 $100,000
If instead the gross annual earnings rate during the sixth Policy year had been 0% (equivalent to a net rate of -1.14%) the amounts at the end of Policy year 5 would change as follows:
EXTRA LIFE PROTECTION --------------------------------------------------- MINIMUM VARIABLE TOTAL DEATH TERM INSURANCE PAID-UP DEATH BENEFIT + INSURANCE + AMOUNT + ADDITIONS = BENEFIT ------- --------- --------- --------- --------- End of Policy Year 5 . . . $60,000 $36,318 $2,044 $1,638 $100,000 Change . . . . . . . . . . 0 +327 -731 +404 0 ------- --------- --------- --------- --------- End of Policy Year 6 . . . $60,000 $36,645 $1,313 $2,042 $100,000
Note that the Total Death Benefit is not affected by either investment results or the amount of dividends paid, because the Policy is within the guaranteed period of Extra Life Protection. But the components of Extra Life Protection are affected by both factors. Good investment results and increases in dividends increase the likelihood that the Total Death Benefit will begin to rise before the guaranteed period of Extra Life Protection expires. Adverse investment results or decreases in dividends could cause the Total Death Benefit to fall below the amount of insurance which was initially in force, after the guaranteed period of Extra Life Protection expires, but it cannot fall below the Minimum Death Benefit so long as you pay premiums when they are due and no Policy debt is outstanding. We have designed the Extra Ordinary Life Policy for a purchaser who intends to use all dividends to purchase paid-up additions. If you use dividends for any other purpose, or if any paid-up additions are surrendered for their cash value, the term insurance in force will immediately terminate, any remaining guaranteed period of Extra Life Protection will terminate and your right to purchase term insurance will terminate. The amount of Extra Life Protection thereafter will be the sum of positive variable insurance amount plus any paid-up additions which remain in force. The following example (using the Policy illustrated on page 46, like the examples above) shows how the Total Death Benefit would be reduced from $100,000 to $63,682, by the elimination of $36,318 of term insurance, if dividends are used during Policy Year 6 to reduce the premium. The premium of $1,014 would be reduced by the dividend of $126.34, based on the dividend scale as illustrated, to a net premium of $887.66. The Total Death Benefit during Policy Year 6 would then be as follows: Minimum Death Benefit. . . . $60,000 Variable Insurance Amount. . +2,044 Variable Paid-Up Additions . +1,638 Term Insurance . . . . . . . 0 ------- Total Death Benefit . . . . .$63,682 ------- -------
13 CASH VALUE The cash value for the Whole Life Policy, the Extra Ordinary Life Policy and the Single Premium Life Policy will change daily in response to investment results. No minimum cash value is guaranteed. Calculation of the cash value for any date requires three steps. First, we note the amount shown for the preceding anniversary in the table of cash values at the front of the Policy and we adjust it for the time elapsed since the last Policy anniversary. The tabular cash values are based on the assumed net investment rate of 4%, the 1980 Commissioners Standard Ordinary Mortality Table and the deductions from the premiums. See "Deductions from Premiums for Whole Life and Extra Ordinary Life Policies", p. 8. For the Single Premium Life Policy the calculation begins with the adjusted tabular cash value, which reflects the deduction for sales costs if the Policy is surrendered during the first ten years. See "Deductions for Single Premium Life Policies", p. 9. Second, we add the net single premium for the variable insurance amount to the tabular cash value. See the discussion of net single premiums under "Variable Insurance Amount", p. 10. If the variable insurance amount is negative, the net single premium is a negative amount. A table of net single premiums for the insured at each Policy anniversary is in the Policy. Third, we adjust the algebraic sum of the tabular cash value and the net single premium for the variable insurance amount to reflect investment results from the last Policy anniversary to the date for which the calculation is being made. The cash value is increased by the value of any paid-up additions which have been purchased with dividends. If a portion of the premium for the current Policy year has not been paid, the cash value of a Whole Life Policy or an Extra Ordinary Life Policy will be reduced. There is not likely to be any cash value for a Whole Life Policy or an Extra Ordinary Life Policy during the early part of the first year because of the first year deductions. The cash value for the Whole Life Policy, the Extra Ordinary Life Policy and the Single Premium Life Policy will be reduced by the amount of any Policy debt outstanding. We determine the cash value for a Policy at the end of each valuation period. Each business day, together with any non-business days before it, is a valuation period. A business day is any day on which the New York Stock Exchange is open for trading. In accordance with the requirements of the Investment Company Act of l940, we may also determine the cash value for a Policy on any other day on which there is sufficient trading in securities to materially affect the value of the securities held by the Portfolios or Funds. You may surrender a Policy for the cash value at any time during the lifetime of the insured. Alternatively, you may use the cash value of a Whole Life Policy or an Extra Ordinary Life Policy to provide extended term insurance or a reduced amount of fixed or variable paid-up insurance. See "Extended Term and Paid-Up Insurance", p. 15. The Policies do not include any provision for a partial surrender. By administrative practice we will permit you to split a Policy into two Policies and surrender one of them, so long as the new Policy meets the regular minimum size requirements. The Policy which continues in force will be based on the age and risk classification of the insured at the time of issuance of the original Policy. ANNUAL DIVIDENDS The Policies share in divisible surplus to the extent we determine annually. We will distribute a Policy's share annually as a dividend payable on each Policy anniversary beginning at the end of the second year. For Single Premium Life Policies, and some other Policies, the first distribution will be at the end of the first year. We will not pay a dividend on a Whole Life Policy or an Extra Ordinary Life Policy which is in force as extended term insurance. Dividends under participating policies may be described as refunds of premiums which adjust the cost of a policy to the actual level of cost emerging over time after the policy's issue. Thus participating policies generally have gross premiums which are higher than those for comparable non-participating policies. Both federal and state tax law recognize that a dividend is considered to be a refund of a portion of the premium paid. Dividend illustrations published at the time a life insurance policy is issued reflect the actual recent experience of the issuing company with respect to investment earnings, mortality and expenses. State law generally prohibits a company from projecting or estimating future results. State law also requires that dividends be paid out of surplus, after certain necessary amounts are set aside, and that such surplus be apportioned equitably among participating policies. In summary, dividends must be based on actual experience and cannot be guaranteed at issue of a policy. Our actuary annually examines current and recent experience and compares these actual results with those which were assumed in determining premium rates when each class of policies was issued. We determine classes by such factors as year of issue, age, plan of insurance and risk classification. The actuary then determines the amount of dividends to be equitably apportioned to each class of policies. Following the actuary's recommendations, our 14 Trustees adopt a dividend scale each year, thereby authorizing the distribution of the dividend. We have no significant actual mortality experience with variable life insurance policies. For purposes of the current dividend scale used for the illustrations in this prospectus, we have assumed that mortality experience in connection with the Policies will be comparable to that actually experienced with fixed benefit life insurance. The prospectus illustrations show dividends being used to purchase variable paid-up additions. We will also pay dividends in cash, or you may use them to pay premiums or leave them to accumulate with interest; but unless you use all dividends we pay on an Extra Ordinary Life Policy to purchase paid-up additions, the term insurance portion of the Extra Life Protection will be terminated. See "Extra Ordinary Life Policy", p. 12. We hold dividends you leave to accumulate with interest in our general account and we will credit them with a rate of interest we determine annually. The interest rate will not be less than an annual effective rate of 3-l/2%. If a Whole Life Policy or an Extra Ordinary Life Policy is in force as reduced fixed benefit paid-up insurance, dividends to purchase fixed benefit paid-up additions. See "Extended Term and Paid-Up Insurance", p. 15. POLICY LOANS You may borrow up to 90% of a Policy's cash value using the Policy as security. The limit is 75% of the cash value during the first two Policy years. If a Policy loan is already outstanding, we determine the maximum amount for any new loan by applying these percentage limitations to the amount of cash value which the Policy would have if there were no loan. You may take loan proceeds in cash or, for the Whole Life and Extra Ordinary Life Policies, you may use them to pay premiums on the Policy. Interest on a Policy loan accrues and is payable on a daily basis. We add unpaid interest to the amount of the loan. If the amount of the loan equals or exceeds the Policy's cash value, the Policy will terminate. We will send you a notice at least 31 days before the termination date. The notice will show how much you must repay to keep the Policy in force. You select the Policy loan interest rate. A specified annual effective rate of 8% is one choice. The other choice is a variable rate based on a corporate bond yield index. We will adjust the variable rate annually. It will not be less than 5%. We will take the amount of a Policy loan, including interest as it accrues, from the Account divisions in proportion to the amounts in the divisions. We will transfer the amounts withdrawn to our general account and will credit those amounts on a daily basis with an annual earnings rate equal to the Policy loan interest rate less a charge for the mortality and expense risks we have assumed and for expenses, including taxes. The aggregate charge is currently at the annual rate of .85% for the 8% specified Policy loan interest rate and .85% for the variable Policy loan interest rate. For example, the earnings rate corresponding to the specified 8% Policy loan interest rate is currently 7.15%. A Policy loan, even if you repay it, will have a permanent effect on the Policy's variable insurance amount and cash value because the amounts you have 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. For example, using the Policy illustrated on page 46 and the 6% hypothetical gross rate for the Account (equivalent to a net rate of 4.86%), and assuming a Policy loan of $3,181 (90% of the cash value) at the end of Policy year 5, with the 8% Policy loan interest rate (corresponding to a net earnings rate of 7.15%), the loan will affect the variable insurance amount and cash value (before subtracting the loan amount and interest) at the end of the next three Policy years as follows:
VARIABLE INSURANCE AMOUNT CASH VALUE ---------------- ------------------ END OF WITHOUT WITH WITHOUT WITH POLICY YEAR LOAN LOAN LOAN LOAN - ----------- ------- ------ ------ ------ 5. . . . . $239 $ 239 $3,537 $3,537 6. . . . . $346 $ 559 $4,520 $4,594 7. . . . . $472 $ 893 $5,558 $5,710 8. . . . . $616 $1,240 $6,656 $6,891
The difference results from the fact that the earnings rate for the amount of the loan is 7.15% rather than the net rate of 4.86% for the Account. You may repay a Policy loan, and any accrued interest outstanding, in whole or in part, at any time. We will credit payments as of the date we receive them and we will transfer those amounts from our general account to the Account divisions, in proportion to the amounts in the divisions, as of the same date. EXTENDED TERM AND PAID-UP INSURANCE If a premium for a Whole Life Policy or an Extra Ordinary Life Policy is not paid within the 31-day grace period (see "Grace Period", p. 7), you may use the cash value to provide a reduced amount of either fixed or variable benefit paid-up insurance. If you choose neither of these options, and do not surrender the Policy, the insurance will remain in force as extended term insurance. 15 If you use the cash value to provide a reduced amount of fixed benefit paid-up insurance or for extended term insurance we will transfer the amount of the cash value from the Account to our general account. Thereafter the Policy will not participate in the Account's investment results unless the Policy is subsequently reinstated. See "Reinstatement", below. You may select variable benefit paid-up insurance only if the Policy meets a $1,000 cash value minimum test. You must select paid-up insurance within three months after the due date of the first unpaid premium. We determine the amount of paid-up insurance by the amount of cash value and the age and sex of the insured, using the table of net single premiums at the attained age. Fixed benefit paid-up insurance has guaranteed cash and loan values. Paid-up insurance remains in force for the lifetime of the insured unless the Policy is surrendered. If the Policy remains in force as extended term insurance the amount of insurance will equal the Total Death Benefit prior to the date the premium was due. The amount of cash value and the age and sex of the insured will determine how long the insurance continues. We will, upon your request, tell you the amount of insurance and how long the term will be. Extended term insurance is not available if the Policy was issued with a higher premium for extra mortality risk. Extended term insurance has a cash value but no loan value. Using the Policy illustrated on pages 45 and 47 and assuming the 0% and 12% hypothetical gross rates for the Account, the cash value of $3,026 or $4,118 at the end of Policy year 5 would provide the following amounts of reduced paid-up insurance or $100,000 of extended term insurance for the following periods: 0% 12% ---------- --------- Reduced Paid-up $10,206 $13,888 Insurance. . . . . . . . . . . Extended Term Insurance. . . . 6 Years and 9 Years and 360 Days 52 Days
REINSTATEMENT If a premium for a Whole Life Policy or an Extra Ordinary Life Policy is due and remains unpaid after the grace period expires, the Policy may be reinstated within five years after the premium due date. The insured must provide satisfactory evidence of insurability. We may require substantial payment. The Policy may not be reinstated if you have surrendered it for its cash value. RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY You may exchange a Policy for a fixed benefit policy if either of the mutual funds changes its investment adviser or if there is a material change in the investment policies of a Portfolio or Fund. We will give you notice of any such change and you 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. In this prospectus "you" means the owner of a Policy. BENEFICIARY. The beneficiary is the person to whom the death benefit is payable. The beneficiary is named in the application. After the Policy is issued you may change the beneficiary in accordance with the Policy provisions. INCONTESTABILITY. We will not contest a Policy after it has been in force during the lifetime of the insured for two years from the date of issue. SUICIDE. If the insured dies by suicide within one year from the date of issue, the amount payable under the Policy will be limited to the premiums paid. MISSTATEMENT OF AGE OR SEX. If the age or sex of the insured has been misstated, we will adjust benefits under a Policy to reflect the correct age and sex. COLLATERAL ASSIGNMENT. You may assign a Policy as collateral security. We are not responsible for the validity or effect of a collateral assignment and will not be deemed to know of an assignment before receipt of the assignment in writing at our Home Office. PAYMENT PLANS. The Policy provides a variety of payment plans for Policy benefits. Any Northwestern Mutual 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, we will ordinarily pay Policy benefits within seven days after we receive all required documents at our Home Office. However, we may defer determination and payment of benefits during any period when it is not reasonably practicable to value securities because the New York Stock Exchange is closed or an emergency exists or the Securities and Exchange Commission, by order, permits deferral for the protection of policyowners. If a Whole Life Policy or an Extra Ordinary Life Policy is continued in force as extended term or reduced paid-up insurance, we have the right to defer payment of the cash value for up to six months from the date of a Policy loan or surrender. If payment is deferred for 30 days or more we will pay interest at an annual effective rate of 4%. 16 VOTING RIGHTS We are the owner of the mutual fund shares in which all assets of the Account are invested. As the owner of the shares we will exercise our right to vote the shares to elect directors of the funds, to vote on matters required to be approved or ratified by mutual fund shareholders under the Investment Company Act of 1940 and to vote on any other matters that may be presented to any shareholders' meeting of the funds. However, we will vote the shares held in the Account in accordance with instructions from owners of the Policies. We will vote any shares held in our general account in the same proportions as the shares for which voting instructions are received. If the applicable laws or regulations change so as to permit us to vote the shares in our own discretion, we may elect to do so. The number of mutual fund shares for each division of the Account for which the owner of a Policy may give instructions is determined by dividing the amount of the Policy's cash value apportioned to that division, if any, by the per share value for the corresponding Portfolio or Fund. The number will be determined as of a date we choose, but not more than 90 days before the shareholders' meeting. Fractional votes are counted. We will solicit voting instructions with written materials at least 14 days before the meeting. We will vote shares as to which we receive no instructions in the same proportion as the shares as to which we receive instructions. We may, if required by state insurance officials, disregard voting instructions which would require mutual fund shares to be voted for a change in the sub-classification or investment objectives of a Portfolio or Fund, or to approve or disapprove an investment advisory agreement for either of the mutual funds. We may also disregard voting instructions that would require changes in the investment policy or investment adviser for either a Portfolio or a Fund, provided that we reasonably determine to take this action in accordance with applicable federal law. If we disregard voting instructions we will include a summary of the action and reasons therefor in the next semiannual report to the owners of the Policies. SUBSTITUTION OF FUND SHARES AND OTHER CHANGES If, in our judgment, a Portfolio or Fund becomes unsuitable for continued use with the Policies because of a change in investment objectives or restrictions, we may substitute shares of another Portfolio or Fund or another mutual fund. Any substitution of shares will be subject to any required approval of the Securities and Exchange Commission, the Wisconsin Commissioner of Insurance or other regulatory authority. We have also reserved the right, subject to applicable federal and state law, to operate the Account or any of its divisions as a management company under the Investment Company Act of 1940, or in any other form permitted, or to terminate registration of the Account if registration is no longer required, and to change the provisions of the Policies to comply with any applicable laws. REPORTS For each Policy year (unless a Whole Life Policy or an Extra Ordinary Life Policy is in force as extended term or fixed benefit paid-up insurance) you will receive a statement showing the death benefit, cash value and any Policy loan (including interest charged) as of the anniversary date. You will also receive annual and semiannual reports for the Account and the both of the mutual funds, including financial statements. SPECIAL POLICY FOR EMPLOYERS The premium for the standard Policy is based in part on the sex of the insured. The standard annuity rates for payment plans which last for the lifetime of the payee are also based, in part, on the sex of the payee. 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 Whole Life Policies, Extra Ordinary Life Policies and Single Premium Life Policies are available for this purpose. You are urged to review any questions in this area with qualified counsel. DISTRIBUTION OF THE POLICIES We sell the Policies through individuals who, in addition to being licensed life insurance agents of Northwestern Mutual Life, are registered representatives of Northwestern Mutual Investment Services, LLC ("NMIS"), our wholly-owned subsidiary. NMIS is a registered broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers. NMIS was organized in 1968 and is a Wisconsin limited liability company. Its address is 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202. The Internal Revenue Service Employer Identification Number of NMIS is 39-0509570. Commissions paid to the agents on sales of the Whole Life and Extra Ordinary Life Policies will not exceed 55% of the premium for the first year, 9% of the premium for the second and third years, 6% of the premium for the fourth through seventh years and 3% of the premium for the eighth through tenth years. Thereafter a persistency fee of 2% of premiums may be paid to the agent. For the Single Premium Life Policies commissions are 2-3/4% of the premium. 17 Agents who meet certain productivity and persistency standards receive additional compensation. We may pay new agents 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. We believe that loans received under the Policies (except certain Single Premium Life Policies) 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. For Single Premium Life Policies issued after June 20, 1988, partial withdrawals, Policy loans and dividends paid in cash are taxable as income to the extent the cash value of the Policy exceeds the basis of the Policy. 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 Single Premium Life Policies (including any fixed dollar single premium policies or other modified endowment contracts under Section 7702A) issued by Northwestern Mutual Life to the Policy owner during the same calendar year are aggregated. Federal estate and state and local estate, inheritance and other tax consequences of ownership or receipt of Policy proceeds depend upon the circumstances of each Policy owner or beneficiary. The foregoing summary does not purport to be complete or to cover all situations. You should consult counsel and other competent advisers for more complete information. - -------------------------------------------------------------------------------- OTHER INFORMATION MANAGEMENT Northwestern Mutual 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: TRUSTEES PRINCIPAL OCCUPATION DURING LAST FIVE NAME YEARS - ---- ------------------------------------- R. Quintus Anderson (A) . . . . . . . Chairman, Aarque Capital Corporation since 1997; prior thereto, Chairman, The Aarque Companies, Jamestown, NY (diversified metal products manufacturing) Edward E. Barr (HR) . . . . . . . . . Chairman, Sun Chemical Corporation, Fort Lee, New Jersey (graphic arts) since 1998; prior thereto, President and Chief Executive Officer. President and Chief Executive Officer, DIC Americas, Inc., Fort Lee, NJ Gordon T. Beaham, III (OT). . . . . . Chairman of the Board and President, Faultless Starch/Bon Ami Company, Kansas City, MO (consumer products manufacturer) Robert C. Buchanan (A, E, F). . . . . President and Chief Executive Officer, Fox Valley Corporation, Appleton, WI (manufacturer of gift wrap and writing paper) Robert E. Carlson (E) . . . . . . . . Executive Vice President of Northwestern Mutual Life 18 George A. Dickerman (AM). . . . . . . Chairman of the Board, Spalding Sports Worldwide, Chicopee, MA (manufacturer of sporting equipment) since 1998; prior thereto, President Pierre S. du Pont (AM). . . . . . . . Attorney, Richards, Layton and Finger, Wilmington, DE James D. Ericson (AM, E, F, HR, OT). President and Chief Executive Officer of Northwestern Mutual Life J. E. Gallegos (A). . . . . . . . . . Attorney at Law; President, Gallegos Law Firm, Santa Fe, New Mexico Stephen N. Graff (E, F, OT) . . . . . Retired Partner, Arthur Andersen LLP (public accountants) Patricia Albjerg Graham (HR). . . . . Professor, Graduate School of Education, Harvard University, Cambridge, MA, and President, The Spencer Foundation (social and behavioral sciences) Stephen F. Keller (HR). . . . . . . . Attorney. Former Chairman, Santa Anita Realty Enterprises since 1997; prior thereto, Chairman Barbara A. King (AM). . . . . . . . . President, Landscape Structures, Inc., Delano, MN (manufacturer of playground equipment) J. Thomas Lewis (HR). . . . . . . . . Attorney (retired), New Orleans, LA since 1998; prior thereto, Attorney with Monroe & Lehmann, New Orleans, LA Daniel F. McKeithan, Jr. (E, F, HR). President, Tamarack Petroleum Company, Inc., Milwaukee, WI (operator of oil and gas wells); President, Active Investor Management, Inc., Milwaukee, WI Guy A. Osborn (E, F, OT). . . . . . . Retired Chairman of Universal Foods Corporation, Milwaukee, WI since 1997; prior thereto, Chairman and Chief Executive Officer Timothy D. Proctor (A). . . . . . . . Director, Worldwide Human Resources of Glaxo Wellcome plc, Research Triangle Park, NC, since 1998; prior thereto, Senior Vice President Human Resources, General Counsel & Secretary (pharmaceuticals) Donald J. Schuenke (AM, E, F) . . . . Retired Chairman of Northwestern Mutual Life H. Mason Sizemore, Jr. (AM) . . . . . President and Chief Operating Officer, The Seattle Times, Seattle, WA (publishing) Harold B. Smith (OT). . . . . . . . . Chairman, Executive Committee, Illinois Tool Works, Inc., Chicago, IL (engineered components and industrial systems and consumables) Sherwood H. Smith, Jr. (AM) . . . . . Chairman of the Board of Carolina Power & Light since 1997; prior thereto, Chairman of the Board and Chief Executive Officer 19 John E. Steuri (OT) . . . . . . . . . Chairman, Advanced Thermal Technologies, Little Rock, AR since 1997 (heating, air-conditioning and humidity control). Retired since 1996 as Chairman and Chief Executive Officer of ALLTEL Information Services, Inc., Little Rock, AR (application software) John J. Stollenwerk (AM, E, F). . . . President and Owner, Allen-Edmonds Shoe Corporation, Port Washington, WI Barry L. Williams (HR). . . . . . . . President and Chief Executive Officer of Williams Pacific Ventures, Inc., Redwood City, CA (venture capital) Kathryn D. Wriston (A). . . . . . . . Director of various corporations, New York, NY A - Member, Audit Committee F - Member, Finance Committee AM - Member, Agency and Marketing HR - Member, Human Resources Committee and Public Policy E - Member, Executive Committee Committee OT - Member, Operations and Technology Committee SENIOR OFFICERS (OTHER THAN TRUSTEES) POSITION WITH NAME NORTHWESTERN MUTUAL LIFE - ------------------------------------------------------------------------- John M. Bremer Executive Vice President, General Counsel and Secretary Peter W. Bruce Executive Vice President Edward J. Zore Executive Vice President Deborah A. Beck Senior Vice President William H. Beckley Senior Vice President Mark G. Doll Senior Vice President Richard L. Hall Senior Vice President William C. Koenig Senior Vice President and Chief Actuary Donald L. Mellish Senior Vice President Mason G. Ross Senior Vice President Leonard F. Stecklein Senior Vice President Frederic H. Sweet Senior Vice President Dennis Tamcsin Senior Vice President Walter J. Wojcik Senior Vice President Gary E. Long Vice President and Controller REGULATION We are subject to the laws of Wisconsin governing insurance companies and to regulation by the Wisconsin Commissioner of Insurance. We file an annual statement in a prescribed form with the Department of Insurance on or before March 1 in each year covering operations for the preceding year and including financial statements. Regulation by the Wisconsin Insurance Department includes periodic examination to determine solvency and compliance with insurance laws. We are also subject to the insurance laws and regulations of the other jurisdictions in which we are licensed to operate. YEAR 2000 ISSUES Since early 1996 we have been preparing for the computer requirements associated with the approaching turn of the century. We completed assessment of our internal systems in 1996. As of the date of this prospectus the necessary system changes are substantially complete. System testing is in process and we expect testing of all critical systems to be completed during the first six months of 1999. The work on these computer systems extends to software packages we purchase from vendors. In addition, we have been communicating formally with our business partners to identify and assess potential exposure that could result from their failure to address these computer 20 issues on a timely basis. Each of our departments has prepared a contingency plan. We and our business partners bear all of the costs of identifying and resolving the computer systems issues associated with the year 2000. These costs will have no effect on the performance of the Account. We believe that our computer systems will be ready for the year 2000 well in advance of the deadline. By their nature, however, the issues in this area carry the risk of unforeseen problems, both at Northwestern Mutual Life and at all the other sites where supporting functions and interaction take place. There can be no assurance that these problems will not have a material adverse impact on the operations of Northwestern Mutual Life and the Account. LEGAL PROCEEDINGS We are engaged in litigation of various kinds which in our judgment is not of material importance in relation to our total assets. There are no legal proceedings pending to which the Account is a party. LEGAL PROCEEDINGS We are engaged in litigation of various kinds which in our judgment is not of material importance in relation to our total assets. There are no legal proceedings pending to which the Account is a party. REGISTRATION STATEMENT We have filed a registration statement with the Securities and Exchange Commission, Washington, D.C. under the Securities Act of 1933, as amended, with respect to the Policies. This prospectus does not contain all the information set forth in the registration statement. A copy of the omitted material is available from the main office of the SEC in Washington, D.C. upon payment of the prescribed fee. Further information about the Policies is also available from the Home Office of Northwestern Mutual 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, 1998 and 1997 and for each of the three years in the period ended December 31, 1998 and of the Account as of December 31, 1998 and for each of the two years in the period ended December 31, 1998 included in this prospectus have been so included in reliance on the reports of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. Actuarial matters included in this prospectus have been examined by William C. Koenig, F.S.A., Senior Vice President and Chief Actuary of Northwestern Mutual Life. His opinion is filed as an exhibit to the registration statement. 21 VARIABLE LIFE FINANCIAL STATEMENTS NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT Financial Statements DECEMBER 31, 1998 STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) ASSETS Investments at Market Value: Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock 34,420 shares (cost $102,404).............. $ 119,230 International Equity 46,760 shares (cost $73,163)............... 78,416 Growth Stock 29,383 shares (cost $49,267)............... 66,025 Growth and Income Stock 43,428 shares (cost $60,081)............... 70,528 Index 500 Stock 58,115 shares (cost $126,062).............. 191,141 Balanced 71,092 shares (cost $108,217).............. 158,110 High Yield Bond 15,509 shares (cost $16,804)............... 14,516 Select Bond 10,143 shares (cost $12,181)............... 12,669 Money Market 39,300 shares (cost $39,300)............... 39,300 $ 749,935 --------- Due from Sale of Fund Shares.................................. 95 Due from Northwestern Mutual Life Insurance Company........... 328 --------- Total Assets.................................................. $ 750,358 --------- --------- LIABILITIES Due to Northwestern Mutual Life Insurance Company........... $ 95 Due on Purchase of Fund Shares.............................. 328 --------- Total Liabilities....................................... 423 --------- EQUITY (NOTE 8) Variable Life Policies Issued Before October 11, 1995....... 392,772 Variable Complife Policies Issued On or After October 11, 1995....................................................... 356,862 Variable Executive Life Policies Issued On or After March 2, 1998....................................................... 301 --------- Total Equity............................................ 749,935 --------- Total Liabilities and Equity............................ $ 750,358 --------- ---------
The Accompanying Notes are an Integral Part of the Financial Statements -- 22 NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT Statements of Operations and Changes in Equity (IN THOUSANDS)
AGGRESSIVE GROWTH INTERNATIONAL EQUITY COMBINED STOCK DIVISION DIVISION ----------------------------- ----------------------------- ----------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1997 1998 1997 1998 1997 ------------- ------------- ------------- ------------- ------------- ------------- INVESTMENT INCOME Dividend Income............... $ 24,922 $ 24,262 $ 3,287 $3,345 $ 3,591 $ 1,286 Mortality and Expense Risks... 2,755 1,788 424 271 308 197 Taxes......................... 1,178 767 181 116 132 85 ------------- ------------- ------------- ------------- ------------- ------------- Net Investment Income......... 20,989 21,707 2,682 2,958 3,151 1,004 ------------- ------------- ------------- ------------- ------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized Gain on Investments............... 4,332 4,871 523 231 284 203 Unrealized Appreciation (Depreciation) of Investments During the Period.................... 68,780 42,532 4,928 5,109 (1,424) 2,358 ------------- ------------- ------------- ------------- ------------- ------------- Net Gain (Loss) on Investments............... 73,112 47,403 5,451 5,340 (1,140) 2,561 ------------- ------------- ------------- ------------- ------------- ------------- Increase in Equity Derived from Investment Activity.................. 94,101 69,110 8,133 8,298 2,011 3,565 ------------- ------------- ------------- ------------- ------------- ------------- EQUITY TRANSACTIONS Policyowners' Net Deposits.................. 258,672 170,672 30,145 21,502 20,672 12,656 Policy Loans, Surrenders, and Death Benefits........ (37,427) (23,728) (6,454) (4,003) (4,327) (2,787) Mortality and Other (net)... (39,611) (28,427) (5,193) (3,791) (3,785) (2,368) Transfers from Other Divisions................. 133,775 86,366 20,371 19,008 15,743 14,866 Transfers to Other Divisions................. (133,773) (86,366) (6,419) (4,091) (5,013) (2,149) ------------- ------------- ------------- ------------- ------------- ------------- Increase in Equity Derived from Equity Transactions.... 181,636 118,517 32,450 28,625 23,290 20,218 ------------- ------------- ------------- ------------- ------------- ------------- Net Increase in Equity........ 275,737 187,627 40,583 36,923 25,301 23,783 EQUITY Beginning of Year........... 474,198 286,571 78,647 41,724 53,116 29,333 ------------- ------------- ------------- ------------- ------------- ------------- End of Year................. $749,935 $474,198 $119,230 $78,647 $78,417 $53,116 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
The Accompanying Notes are an Integral Part of the Financial Statements --- 23 NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT Statements of Operations and Changes in Equity (IN THOUSANDS)
GROWTH & INCOME INDEX 500 GROWTH STOCK DIVISION STOCK DIVISION STOCK DIVISION ----------------------------- ----------------------------- ----------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1997 1998 1997 1998 1997 ------------- ------------- ------------- ------------- ------------- ------------- INVESTMENT INCOME Dividend Income............... $ 956 $ 1,413 $ 537 $ 7,776 $ 4,530 $ 2,579 Mortality and Expense Risks... 211 105 234 120 671 395 Taxes......................... 91 45 100 52 287 169 ------------- ------------- ------------- ------------- ------------- ------------- Net Investment Income......... 654 1,263 203 7,604 3,572 2,015 ------------- ------------- ------------- ------------- ------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized Gain on Investments............... 143 172 220 173 1,125 2,375 Unrealized Appreciation (Depreciation) of Investments During the Period.................... 10,533 4,151 10,574 (1,823) 31,738 17,772 ------------- ------------- ------------- ------------- ------------- ------------- Net Gain (Loss) on Investments............... 10,676 4,323 10,794 (1,650) 32,863 20,147 ------------- ------------- ------------- ------------- ------------- ------------- Increase in Equity Derived from Investment Activity.................. 11,330 5,586 10,997 5,954 36,435 22,162 ------------- ------------- ------------- ------------- ------------- ------------- EQUITY TRANSACTIONS Policyowners' Net Deposits.................. 12,991 7,334 14,771 7,537 29,665 19,733 Policy Loans, Surrenders, and Death Benefits........ (2,859) (1,314) (2,902) (1,842) (8,924) (5,039) Mortality and Other (net)... (2,494) (1,329) (2,847) (1,457) (5,367) (4,127) Transfers from Other Divisions................. 16,839 8,851 17,225 10,673 37,076 20,024 Transfers to Other Divisions................. (2,015) (1,341) (3,106) (1,104) (5,443) (3,783) ------------- ------------- ------------- ------------- ------------- ------------- Increase in Equity Derived from Equity Transactions.... 22,462 12,201 23,141 13,807 47,007 26,808 ------------- ------------- ------------- ------------- ------------- ------------- Net Increase in Equity........ 33,792 17,787 34,138 19,761 83,442 48,970 EQUITY Beginning of Year........... 32,233 14,446 36,389 16,628 107,699 58,729 ------------- ------------- ------------- ------------- ------------- ------------- End of Year................. $66,025 $32,233 $70,527 $36,389 $191,141 $107,699 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
The Accompanying Notes are an Integral Part of the Financial Statements --- 24 NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT Statements of Operations and Changes in Equity (IN THOUSANDS)
BALANCED DIVISION HIGH YIELD BOND DIVISION SELECT BOND DIVISION ----------------------------- ----------------------------- ----------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1997 1998 1997 1998 1997 ------------- ------------- ------------- ------------- ------------- ------------- INVESTMENT INCOME Dividend Income............... $ 8,344 $ 5,105 $ 1,489 $1,370 $ 743 $ 436 Mortality and Expense Risks... 681 558 53 29 51 35 Taxes......................... 292 239 22 12 22 15 ------------- ------------- ------------- ------------- ------------- ------------- Net Investment Income......... 7,371 4,308 1,414 1,329 670 386 ------------- ------------- ------------- ------------- ------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized Gain on Investments............... 1,893 1,655 47 26 97 36 Unrealized Appreciation (Depreciation) of Investments During the Period.................... 14,317 15,262 (1,828) (531) (58) 234 ------------- ------------- ------------- ------------- ------------- ------------- Net Gain (Loss) on Investments............... 16,210 16,917 (1,781) (505) 39 270 ------------- ------------- ------------- ------------- ------------- ------------- Increase in Equity Derived from Investment Activity.................. 23,581 21,225 (367) 824 709 656 ------------- ------------- ------------- ------------- ------------- ------------- EQUITY TRANSACTIONS Policyowners' Net Deposits.................. 17,811 15,394 3,490 1,922 2,004 1,820 Policy Loans, Surrenders, and Death Benefits........ (8,879) (7,260) (690) (349) (620) (311) Mortality and Other (net)... (3,232) (3,395) (641) (339) (250) (560) Transfers from Other Divisions................. 7,905 4,266 5,399 3,276 3,951 2,000 Transfers to Other Divisions................. (5,398) (4,734) (1,476) (425) (2,217) (756) ------------- ------------- ------------- ------------- ------------- ------------- Increase in Equity Derived from Equity Transactions.... 8,207 4,271 6,082 4,085 2,868 2,193 ------------- ------------- ------------- ------------- ------------- ------------- Net Increase in Equity........ 31,788 25,496 5,715 4,909 3,577 2,849 EQUITY Beginning of Year........... 126,322 100,826 8,801 3,892 9,092 6,243 ------------- ------------- ------------- ------------- ------------- ------------- End of Year................. $158,110 $126,322 $14,516 $8,801 $12,669 $9,092 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- MONEY MARKET DIVISION ----------------------------- YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1997 ------------- ------------- INVESTMENT INCOME Dividend Income............... $ 1,445 $ 952 Mortality and Expense Risks... 122 78 Taxes......................... 51 34 ------------- ------------- Net Investment Income......... 1,272 840 ------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized Gain on Investments............... -- -- Unrealized Appreciation (Depreciation) of Investments During the Period.................... -- -- ------------- ------------- Net Gain (Loss) on Investments............... -- -- ------------- ------------- Increase in Equity Derived from Investment Activity.................. 1,272 840 ------------- ------------- EQUITY TRANSACTIONS Policyowners' Net Deposits.................. 127,123 82,774 Policy Loans, Surrenders, and Death Benefits........ (1,772) (823) Mortality and Other (net)... (15,802) (11,061) Transfers from Other Divisions................. 9,266 3,402 Transfers to Other Divisions................. (102,686) (67,983) ------------- ------------- Increase in Equity Derived from Equity Transactions.... 16,129 6,309 ------------- ------------- Net Increase in Equity........ 17,401 7,149 EQUITY Beginning of Year........... 21,899 14,750 ------------- ------------- End of Year................. $39,300 $21,899 ------------- ------------- ------------- -------------
The Accompanying Notes are an Integral Part of the Financial Statements --- 25 NOTES TO FINANCIAL STATEMENTS NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT Notes to Financial Statements DECEMBER 31, 1998 NOTE 1 -- Northwestern Mutual Variable Life Account (the "Account") is registered as a unit investment trust under the Investment Company Act of 1940 and is a segregated asset account of The Northwestern Mutual Life Insurance Company ("Northwestern Mutual") used to fund variable life insurance policies. NOTE 2 -- The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principal accounting policies are summarized below. NOTE 3 -- All assets of each Division of the Account are invested in shares of the corresponding Portfolio of Northwestern Mutual Series Fund, Inc. (the "Fund"). The shares are valued at the Fund's offering and redemption price per share. The Fund is a diversified open-end investment company registered under the Investment Company Act of 1940. NOTE 4 -- 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, 1998 by each Division are shown below:
PURCHASES SALES ------------ ------------ Aggressive Growth Division....... $ 36,381,397 $ 1,248,015 International Equity Division.... 27,429,118 990,001 Growth Stock Division............ 23,393,892 279,458 Growth & Income Stock Division....................... 24,059,882 715,896 Index 500 Stock Division......... 52,625,759 2,046,627 Balanced Division................ 20,647,579 5,068,597 High Yield Bond Division......... 8,131,249 635,946 Select Bond Division............. 5,351,461 1,813,834 Money Market Division............ 47,332,350 29,930,945
NOTE 5 -- A deduction for mortality and expense risks is determined daily and paid to Northwestern Mutual. Generally, for Variable Life policies issued before October 11, 1995, and Variable Complife policies issued on or after October 11, 1995 the deduction is at an annual rate of .50% and .60%, respectively, of the net assets of the Account. A deduction for the mortality and expense risks for the Variable Executive Life policies issued on or after March 3, 1998 is determined monthly at an annual rate of .75% of the amount invested in the Account for the Policy for the first ten Policy years, and .30% thereafter. The mortality risk is that insureds may not live as long as estimated. The expense risk is that expenses of issuing and administering the policies may exceed the estimated costs. Certain deductions are also made from the annual, single or other premiums before amounts are allocated to the Account. These deductions are for (1) sales load, (2) administrative expenses, (3) taxes and (4) a risk charge for the guaranteed minimum death benefit. Additional mortality costs are deducted from the policy annually and are paid to Northwestern Mutual to cover the cost of providing insurance protection. This cost is actuarially calculated based upon the insured's age, the 1980 Commissioners Standard Ordinary Mortality Table and the amount of insurance provided under the policy. NOTE 6 -- Northwestern Mutual is taxed as a "life insurance company" under the Internal Revenue Code. The variable life insurance policies which are funded in the Account are taxed as part of the operations of Northwestern Mutual. Policies provide that a charge for taxes may be made against the assets of the Account. Generally, for Variable Life policies issued before October 11, 1995, Northwestern Mutual charges the Account at an annual rate of .20% of the Account's net assets and reserves the right to increase, decrease or eliminate the charge for taxes in the future. Generally, for Variable Complife policies issued on or after October 11, 1995, and for Variable Executive Life policies issued on or after March 3, 1998, there is no charge being made against the assets of the Account for federal income taxes, but Northwestern Mutual reserves the right to charge for taxes in the future. NOTE 7 -- The Account is credited for the policyowners' net annual premiums at the respective policy anniversary dates regardless of when policyowners actually paid their premiums. Northwestern Mutual's equity represents any unpaid portion of net annual premiums. This applies to Variable Life and Variable Complife policies only. -- 26 NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT Notes to Financial Statements (in thousands) DECEMBER 31, 1998 NOTE 8 -- Equity Values by Division are shown below:
VARIABLE LIFE POLICIES ISSUED BEFORE OCTOBER 11, 1995 EQUITY OF: ------------------------ TOTAL POLICYOWNERS NML EQUITY ------------- --------- --------- Aggressive Growth Stock Division......................................................... $ 42,391 $ 3,793 $ 46,184 International Equity Division............................................................ 32,539 3,074 35,613 Growth Stock Division.................................................................... 22,888 1,510 24,398 Growth and Income Stock Division......................................................... 26,309 1,808 28,117 Index 500 Stock Division................................................................. 95,615 4,943 100,558 Balanced Division........................................................................ 134,029 5,006 139,035 High Yield Bond Division................................................................. 4,916 428 5,344 Select Bond Division..................................................................... 6,911 417 7,328 Money Market Division.................................................................... 5,918 277 6,195 ------------- --------- --------- $ 371,516 $ 21,256 $ 392,772 ------------- --------- --------- ------------- --------- ---------
VARIABLE COMPLIFE POLICIES ISSUED ON OR AFTER OCTOBER 11, 1995 EQUITY OF: ------------------------ TOTAL POLICYOWNERS NML EQUITY ------------- --------- --------- Aggressive Growth Stock Division........................................................ $ 54,132 $ 18,846 $ 72,978 International Equity Division........................................................... 31,302 11,492 42,794 Growth Stock Division................................................................... 30,575 11,026 41,601 Growth and Income Stock Division........................................................ 30,515 11,841 42,356 Index 500 Stock Division................................................................ 65,609 24,890 90,499 Balanced Division....................................................................... 14,142 4,909 19,051 High Yield Bond Division................................................................ 6,565 2,594 9,159 Select Bond Division.................................................................... 4,161 1,171 5,332 Money Market Division................................................................... 13,154 19,938 33,092 ------------- --------- --------- $ 250,155 $ 106,707 $ 356,862 ------------- --------- --------- ------------- --------- ---------
VARIABLE EXECUTIVE LIFE POLICIES ISSUED ON OR AFTER MARCH 2, 1998 ------------------------- TOTAL EQUITY ------------------------- Aggressive Growth Stock Division...................................................................... $ 67 International Equity Division......................................................................... 10 Growth Stock Division................................................................................. 25 Growth and Income Stock Division...................................................................... 55 Index 500 Stock Division.............................................................................. 84 Balanced Division..................................................................................... 24 High Yield Bond Division.............................................................................. 13 Select Bond Division.................................................................................. 9 Money Market Division................................................................................. 14 ----- $ 301 ----- -----
-- 27 VARIABLE LIFE ACCOUNTANTS' REPORT [LOGO] 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 Aggressive Growth Stock Division, International Equity Division, Growth Stock Division, Growth and Income Stock Division, Index 500 Stock Division, Balanced Division, High Yield Bond Division, Select Bond Division, and the Money Market Division thereof at December 31, 1998, the results of each of their operations and the changes in each of their equity for each of the two years in the period ended December 31, 1998, 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, 1998 with Northwestern Mutual Series Fund, Inc., provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP Milwaukee, Wisconsin January 25, 1999 -- 28 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF FINANCIAL POSITION (IN MILLIONS) The following financial statements of Northwestern Mutual should be considered only as bearing upon the ability of Northwestern Mutual Life to meet its obligations under the Policies.
DECEMBER 31, --------------------- 1998 1997 --------- --------- ASSETS Bonds......................................... $ 34,888 $ 32,359 Common and preferred stocks................... 6,576 6,524 Mortgage loans................................ 12,250 10,835 Real estate................................... 1,481 1,372 Policy loans.................................. 7,580 7,163 Other investments............................. 1,839 2,026 Cash and temporary investments................ 1,275 572 Due and accrued investment income............. 827 795 Other assets.................................. 1,313 1,275 Separate account assets....................... 9,966 8,160 --------- --------- Total assets.............................. $ 77,995 $ 71,081 --------- --------- --------- --------- LIABILITIES AND SURPLUS Reserves for policy benefits.................. $ 51,815 $ 47,343 Policy benefit and premium deposits........... 1,709 1,624 Policyowner dividends payable................. 2,870 2,640 Interest maintenance reserve.................. 606 461 Asset valuation reserve....................... 1,994 1,974 Income taxes payable.......................... 1,161 1,043 Other liabilities............................. 3,133 3,735 Separate account liabilities.................. 9,966 8,160 --------- --------- Total liabilities......................... 73,254 66,980 Surplus....................................... 4,741 4,101 --------- --------- Total liabilities and surplus............. $ 77,995 $ 71,081 --------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements. -- 29 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF OPERATIONS (IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, --------------------------------- 1998 1997 1996 --------- --------- --------- REVENUE Premium income................................ $ 8,021 $ 7,294 $ 6,667 Net investment income......................... 4,536 4,171 3,836 Other income.................................. 922 861 759 --------- --------- --------- Total revenue............................. 13,479 12,326 11,262 --------- --------- --------- BENEFITS AND EXPENSES Benefit payments to policyowners and beneficiaries................................ 3,602 3,329 2,921 Net additions to policy benefit reserves...... 4,521 4,026 3,701 Net transfers to separate accounts............ 564 566 579 --------- --------- --------- Total benefits............................ 8,687 7,921 7,201 Operating expenses............................ 1,297 1,138 1,043 --------- --------- --------- Total benefits and expenses............... 9,984 9,059 8,244 --------- --------- --------- Gain from operations before dividends and taxes... 3,495 3,267 3,018 Policyowner dividends............................. 2,869 2,636 2,341 --------- --------- --------- Gain from operations before taxes................. 626 631 677 Income tax expense................................ 301 356 452 --------- --------- --------- Net gain from operations.......................... 325 275 225 Net realized capital gains........................ 484 414 395 --------- --------- --------- Net income................................ $ 809 $ 689 $ 620 --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements. -- 30 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF CHANGES IN SURPLUS (IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 ------- ------- ------- BEGINNING OF YEAR BALANCE......................... $4,101 $3,515 $2,786 Net income...................................... 809 689 620 Increase (decrease) in net unrealized gains..... (147) 576 295 Increase in investment reserves................. (20) (526) (176) Other, net...................................... (2) (153) (10) ------- ------- ------- Net increase in surplus......................... 640 586 729 ------- ------- ------- END OF YEAR BALANCE............................... $4,741 $4,101 $3,515 ------- ------- ------- ------- ------- -------
The accompanying notes are an integral part of these financial statements. -- 31 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, ---------------------------------- 1998 1997 1996 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Insurance and annuity premiums.................. $ 8,876 $ 8,093 $ 7,361 Investment income received...................... 4,216 3,928 3,634 Disbursement of policy loans, net of repayments..................................... (416) (360) (326) Benefits paid to policyowners and beneficiaries.................................. (3,572) (3,316) (2,912) Net transfers to separate accounts.............. (564) (565) (579) Policyowner dividends paid...................... (2,639) (2,347) (2,105) Operating expenses and taxes.................... (1,749) (1,722) (1,663) Other, net...................................... (83) 124 (59) -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES..... 4,069 3,835 3,351 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES PROCEEDS FROM INVESTMENTS SOLD OR MATURED Bonds......................................... 28,720 38,284 31,942 Common and preferred stocks................... 10,359 9,057 4,570 Mortgage loans................................ 1,737 1,012 1,253 Real estate................................... 159 302 178 Other investments............................. 768 398 316 -------- -------- -------- 41,743 49,053 38,259 -------- -------- -------- COST OF INVESTMENTS ACQUIRED Bonds......................................... 30,873 41,169 35,342 Common and preferred stocks................... 9,642 9,848 4,463 Mortgage loans................................ 3,135 2,309 2,455 Real estate................................... 268 202 125 Other investments............................. 567 359 255 -------- -------- -------- 44,485 53,887 42,640 -------- -------- -------- NET INCREASE (DECREASE) IN SECURITIES LENDING AND OTHER...................................... (624) 440 1,617 -------- -------- -------- NET CASH USED IN INVESTING ACTIVITIES......... (3,366) (4,394) (2,764) -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND TEMPORARY INVESTMENTS...................................... 703 (559) 587 CASH AND TEMPORARY INVESTMENTS, BEGINNING OF YEAR............................................. 572 1,131 544 -------- -------- -------- CASH AND TEMPORARY INVESTMENTS, END OF YEAR....... $ 1,275 $ 572 $ 1,131 -------- -------- -------- -------- -------- --------
The accompanying notes are an integral part of these financial statements. -- 32 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 1. PRINCIPAL ACCOUNTING POLICIES The accompanying consolidated statutory financial statements include the accounts of The Northwestern Mutual Life Insurance Company ("Company") and its wholly-owned life insurance subsidiary, Northwestern Long Term Care Insurance Company ("Subsidiary"). The Company and its Subsidiary offer life, annuity, disability income and long term care products to the personal, business, estate and tax-qualified markets. The consolidated financial statements have been prepared using accounting policies prescribed or permitted by the Office of the Commissioner of Insurance of the State of Wisconsin ("statutory basis of accounting"). In 1998, the National Association of Insurance Commissioners ("NAIC") adopted the Codification of Statutory Accounting Principles, which will replace the current Accounting Practices and Procedures manual as the NAIC's primary guidance on statutory accounting. The NAIC is now considering amendments to the codification guidance that would also be effective upon its planned implementation effective January 1, 2001. It is expected that the Office of the Commissioner of Insurance of the State of Wisconsin ("OCI") will adopt the codification, but it is not known whether the OCI will make any changes to that guidance. The potential effect of the codification on the Company will depend upon the guidance adopted by the OCI. Financial statements prepared on the statutory basis of accounting vary from financial statements prepared on the basis of Generally Accepted Accounting Principles ("GAAP") primarily because on a GAAP basis (1) policy acquisition costs are deferred and amortized, (2) investment valuations and insurance reserves are based on different assumptions, (3) funds received under deposit-type contracts are not reported as premium revenue, and (4) deferred taxes are provided for temporary differences between book and tax basis of certain assets and liabilities. The effects on the financial statements of the differences between the statutory basis of accounting and GAAP are material to the Company. The preparation of financial statements in conformity with the statutory basis of accounting requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual future results could differ from these estimates. INVESTMENTS The Company's investments are valued on the following bases: Bonds -- Amortized cost using the interest method; loan-backed and structured securities are amortized using estimated prepayment rates and, generally, the prospective adjustment method Common and preferred stocks -- Common stocks are carried at fair value, preferred stocks are generally carried at cost, and unconsolidated subsidiaries are recorded using the equity method Mortgage loans -- Amortized cost Real estate -- Lower of cost, less depreciation and encumbrances, or estimated net realizable value Policy loans -- Unpaid principal balance, which approximates fair value Other investments -- Consists primarily of joint venture investments which are valued at equity in ventures' net assets Cash and temporary investments -- Amortized cost, which approximates fair value
-- 33 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 TEMPORARY INVESTMENTS Temporary investments consist of debt securities that have maturities of one year or less at acquisition. NET INVESTMENT INCOME Net investment income includes interest and dividends received or due and accrued on debt securities and stocks, equity in unconsolidated subsidiaries' earnings and the Company's share of joint venture income. Net investment income is reduced by investment management expenses, real estate depreciation, depletion related to energy assets and costs associated with securities lending. INTEREST MAINTENANCE RESERVE The Company is required to maintain an interest maintenance reserve ("IMR"). The IMR is used to defer realized gains and losses, net of tax, on fixed income investments resulting from changes in interest rates. Net realized gains and losses deferred to the IMR are amortized into investment income over the approximate remaining term to maturity of the investment sold. INVESTMENT RESERVES The Company is required to maintain an asset valuation reserve ("AVR"). The AVR establishes a general reserve for invested asset valuation using a formula prescribed by state regulations. The AVR is designed to stabilize surplus against potential declines in the value of investments. In addition, the Company maintained a $200 million voluntary investment reserve at December 31, 1998 and 1997 to absorb potential investment losses exceeding those considered by the AVR formula. Increases or decreases in these investment reserves are recorded directly to surplus. SEPARATE ACCOUNTS Separate account assets and related policy liabilities represent the segregation of funds deposited by "variable" life insurance and annuity policyowners. Policyowners bear the investment performance risk associated with variable products. Separate account assets are invested at the direction of the policyowner in a variety of Company-managed mutual funds. Variable product policyowners also have the option to invest in a fixed interest rate annuity in the general account of the Company. Separate account assets are reported at fair value. PREMIUM REVENUE AND OPERATING EXPENSES Life insurance premiums are recognized as revenue at the beginning of each policy year. Annuity and disability income premiums are recognized when received by the Company. Operating expenses, including costs of acquiring new policies, are charged to operations as incurred. OTHER INCOME Other income includes considerations on supplementary contracts, ceded reinsurance expense allowances and miscellaneous policy charges. -- 34 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 BENEFIT PAYMENTS TO POLICYOWNERS AND BENEFICIARIES Benefit payments to policyowners and beneficiaries include death, surrender and disability benefits, matured endowments and supplementary contract payments. RESERVES FOR POLICY BENEFITS Reserves for policy benefits are determined using actuarial estimates based on mortality and morbidity experience tables and valuation interest rates prescribed by the Office of the Commissioner of Insurance of the State of Wisconsin. See Note 3. POLICYOWNER DIVIDENDS Almost all life insurance policies, and certain annuity and disability income policies, issued by the Company are participating. Annually, the Company's Board of Trustees approves dividends payable on participating policies in the following fiscal year, which are accrued and charged to operations when approved. RECLASSIFICATION Certain financial statement balances for 1997 and 1996 have been reclassified to conform to the current year presentation. 2. INVESTMENTS DEBT SECURITIES Debt securities consist of all bonds and fixed-maturity preferred stocks. The estimated fair values of debt securities are based upon quoted market prices, if available. For securities not actively traded, fair values are estimated using independent pricing services or internally developed pricing models. The Company records unrealized losses for debt securities considered impaired. -- 35 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 Statement value, which principally represents amortized cost, and estimated fair value of the Company's debt securities at December 31, 1998 and 1997 were as follows:
RECONCILIATION TO ESTIMATED FAIR VALUE --------------------------------------- GROSS GROSS ESTIMATED STATEMENT UNREALIZED UNREALIZED FAIR DECEMBER 31, 1998 VALUE APPRECIATION DEPRECIATION VALUE - -------------------------------------------------- --------- ------------ ------------ --------- (IN MILLIONS) US Government and political obligations........... $ 3,904 $ 461 $ (11) $ 4,354 Mortgage-backed securities........................ 7,357 280 (15) 7,622 Corporate and other debt securities............... 23,627 1,240 (382) 24,485 ------- -------- ------ ------- 34,888 1,981 (408) 36,461 Preferred stocks.................................. 189 4 (1) 192 ------- -------- ------ ------- Total............................................. $35,077 $1,985 $(409) $36,653 ------- -------- ------ ------- ------- -------- ------ ------- RECONCILIATION TO ESTIMATED FAIR VALUE --------------------------------------- GROSS GROSS ESTIMATED STATEMENT UNREALIZED UNREALIZED FAIR DECEMBER 31, 1997 VALUE APPRECIATION DEPRECIATION VALUE - -------------------------------------------------- --------- ------------ ------------ --------- (IN MILLIONS) US Government and political obligations........... $ 3,695 $ 336 $ (3) $ 4,028 Mortgage-backed securities........................ 7,015 264 (4) 7,275 Corporate and other debt securities............... 21,649 1,098 (208) 22,539 ------- -------- ------ ------- 32,359 1,698 (215) 33,842 Preferred stocks.................................. 167 4 (2) 169 ------- -------- ------ ------- Total............................................. $32,526 $1,702 $(217) $34,011 ------- -------- ------ ------- ------- -------- ------ -------
The statement value of debt securities by contractual maturity at December 31, 1998 and 1997 is shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
DECEMBER 31, DECEMBER 31, 1998 1997 ------------ ------------ (IN MILLIONS) Due in one year or less........................... $ 655 $ 605 Due after one year through five years............. 5,031 4,878 Due after five years through ten years............ 10,286 9,760 Due after ten years............................... 11,748 10,268 --------- --------- 27,720 25,511 Mortgage-backed securities........................ 7,357 7,015 --------- --------- $35,077 $32,526 --------- --------- --------- ---------
STOCKS The estimated fair values of common and perpetual preferred stocks are based upon quoted market prices, if available. For securities not actively traded, fair values are estimated using independent pricing services or internally developed pricing models. -- 36 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 The adjusted cost of common and preferred stock held by the Company at December 31, 1998 and 1997 was $4.8 billion and $5.0 billion, respectively. MORTGAGE LOANS AND REAL ESTATE Mortgage loans are collateralized by properties located throughout the United States and Canada. The Company attempts to minimize mortgage loan investment risk by diversification of geographic locations and types of collateral properties. The fair value of mortgage loans as of December 31, 1998 and 1997 was approximately $12.9 billion and $11.5 billion, respectively. The fair value of the mortgage loan portfolio is estimated by discounting the future estimated cash flows using current interest rates of debt securities with similar credit risk and maturities, or utilizing net realizable values. At December 31, 1998 and 1997, real estate includes $61 million acquired through foreclosure at each date and $120 million and $124 million, respectively, of home office real estate. In 1998, 1997 and 1996, the Company recorded unrealized losses of $5 million, $2 million and $43 million, respectively, for the excess of statement value over fair value of certain real estate investments and mortgage loans. REALIZED GAINS AND LOSSES Realized investment gains and losses for the years ended December 31, 1998, 1997 and 1996 were as follows:
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996 ------------------------------ ------------------------------ ------------------------------ 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......................... $ 514 $ (231) $ 283 $ 518 $ (269) $ 249 $ 396 $ (383) $ 13 Common and preferred stocks... 885 (240) 645 533 (150) 383 580 (115) 465 Mortgage loans................ 18 (11) 7 14 (14) - 2 (15) (13) Real estate................... 41 - 41 100 (2) 98 36 - 36 Other investments............. 330 (267) 63 338 (105) 233 204 (51) 153 -------- -------- -------- -------- -------- -------- -------- -------- -------- 1,788 (749) 1,039 1,503 (540) 963 1,218 (564) 654 -------- -------- -------- -------- -------- -------- -------- -------- -------- Less: Capital gains taxes..... 358 340 224 Less: IMR deferrals........... 197 209 35 -------- -------- -------- Net realized capital gains.... $ 484 $ 414 $ 395 -------- -------- -------- -------- -------- --------
SECURITIES LENDING The Company has entered into a securities lending agreement whereby certain securities are loaned to third parties, primarily major brokerage firms. The Company's policy requires a minimum of 102 percent of the fair value of the loaned securities as collateral, calculated on a daily basis in the form of either cash or securities. Collateral assets received and related liability due to counterparties of $1.5 billion are included in the consolidated -- 37 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 statements of financial position for each of the periods ended at December 31, 1998 and 1997, and approximate the statement value of securities loaned at those dates. INVESTMENT IN MGIC The Company owns 11.0% (11.9 million shares) of the outstanding common stock of MGIC Investment Corporation ("MGIC"). This investment is accounted for using the equity method. At December 31, 1998 and 1997, the fair value of the Company's investment in MGIC exceeded the statement value of $180 million and $273 million, respectively, by $296 million and $768 million, respectively. In July 1995, the Company entered into a forward contract with a brokerage firm to deliver 8.9 million to 10.7 million shares of MGIC (or cash in an amount equal to the market value of the MGIC shares at contract maturity) in August, 1998, in exchange for a fixed cash payment of $247 million ($24 per share). The Company's objective in entering into the forward contract was to hedge against depreciation in the value of its MGIC holdings during the contract period below the initial spot price of $24, while partially participating in appreciation, if any, during the forward contract's duration. In August 1998, the Company delivered 8.9 million shares to settle the forward contract. In conjunction with the settlement, the Company recorded a $114 million realized gain. DERIVATIVE FINANCIAL INSTRUMENTS In the normal course of business, the Company enters into transactions to reduce its exposure to fluctuations in interest rates, foreign currency exchange rates and market volatility. These hedging strategies include the use of forwards, futures, options and swaps. The Company held the following positions for hedging purposes at December 31, 1998 and 1997:
DERIVATIVE FINANCIAL INSTRUMENT NOTIONAL AMOUNTS - --------------------------------------------- --------------------------------------- (IN MILLIONS) DECEMBER 31, DECEMBER 31, 1998 1997 ------------------ ------------------ Foreign Currency Forward Contracts................................... $601 $564 Common Stock Futures......................... 657 327 Bond Futures................................. 379 95 Options to acquire Interest Rate Swaps....... 419 530 Foreign Currency and Interest Rate Swaps..... 94 209 DERIVATIVE FINANCIAL INSTRUMENT RISKS REDUCED - --------------------------------------------- --------------------------------------------- Foreign Currency Forward Currency exposure on foreign-denominated Contracts................................... investments. Common Stock Futures......................... Stock market price fluctuation. Bond Futures................................. Bond market price fluctuation. Options to acquire Interest Rate Swaps....... Interest rates payable on certain annuity and insurance contracts. Foreign Currency and Interest Rate Swaps..... Interest rates on variable rate notes and currency exposure on foreign-denominated bonds.
The notional or contractual amounts of derivative financial instruments are used to denominate these types of transactions and do not represent the amounts exchanged between the parties. In addition to the use of derivatives for hedging purposes, equity swaps were held for investment purposes during 1997 and 1998. The notional amount of equity swaps outstanding at December 31, 1998 and 1997 was $188 million and $143 million, respectively. Foreign currency forwards, foreign currency swaps, stock futures and equity swaps are reported at fair value. Resulting gains and losses on these contracts are unrealized until expiration of the contract. There is no statement -- 38 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 value reported for interest rate swaps, bond futures and options to acquire interest rate swaps prior to the settlement of the contract, at which time realized gains and losses are deferred to IMR. Changes in the value of derivative instruments are expected to offset gains and losses on the hedged investments. During 1998, net realized and unrealized gains on investments were partially offset by net realized losses of $104 million and net unrealized losses of $58 million on derivative instruments. The effect of derivative instruments in 1997 and 1996 was not material to the Company's results of operations. 3. RESERVES FOR POLICY BENEFITS Life insurance reserves on substantially all policies issued since 1978 are based on the Commissioner's Reserve Valuation Method with interest rates ranging from 3 1/2% to 5 1/2%. Other life policy reserves are primarily based on the net level premium method employing various mortality tables at interest rates ranging from 2% to 4 1/2%. Deferred annuity reserves on contracts issued since 1985 are valued primarily using the Commissioner's Annuity Reserve Valuation Method with interest rates ranging from 3 1/2% to 6 1/4%. Other deferred annuity reserves are based on contract value. Immediate annuity reserves are based on present values of expected benefit payments at interest rates ranging from 3 1/2% to 7 1/2%. Active life reserves for disability income ("DI") policies issued since 1987 are primarily based on the two-year preliminary term method using a 4% interest rate and the 1985 Commissioner's Individual Disability Table A ("CIDA") for morbidity. Active life reserves for prior DI policies are based on the net level premium method, a 3% to 4% interest rate and the 1964 Commissioner's Disability Table for morbidity. Disabled life reserves for DI policies are based on the present values of expected benefit payments primarily using the 1985 CIDA (modified for Company experience in the first two years of disability) with interest rates ranging from 3% to 5 1/2%. Use of these actuarial tables and methods involves estimation of future mortality and morbidity based on past experience. Actual future experience could differ from these estimates. 4. EMPLOYEE AND AGENT BENEFIT PLANS The Company sponsors noncontributory defined benefit retirement plans for all eligible employees and agents. The expense associated with these plans is generally recorded by the Company in the period contributions to the plans are funded. As of January 1, 1998, the most recent actuarial valuation date available, the qualified defined benefit plans were fully funded. The Company recorded a liability of $98 million and $87 million for nonqualified defined benefit plans at December 31, 1998 and 1997, respectively. In addition, the Company has a contributory 401(k) plan for eligible employees and a noncontributory defined contribution plan for all full-time agents. The Company's contributions are expensed in the period contributions are made to the plans. The Company recorded $29 million, $27 million and $25 million of total expense related to its defined benefit and defined contribution plans for the years ended December 31, 1998, 1997 and 1996, respectively. The defined benefit and defined contribution plans' assets of $1.9 billion and $1.7 billion at December 31, 1998 and 1997, respectively, were primarily invested in the separate accounts of the Company. In addition to pension and retirement benefits, the Company provides certain health care and life insurance benefits ("postretirement benefits") for retired employees. Substantially all employees may become eligible for these benefits if they reach retirement age while working for the Company. Postretirement benefit costs for the years ended December 31, 1998, 1997 and 1996 were a net expense (benefit) of $1.8 million, ($1.3) million and -- 39 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 ($12.0) million, respectively. Net benefits were primarily a result of favorable differences between actuarial assumptions and actual experience.
DECEMBER 31, DECEMBER 31, 1998 1997 -------------------- -------------------- Unfunded postretirement benefit obligation for retirees and other fully eligible employees (Accrued in statement of financial position).................... $35 million $34 million Estimated postretirement benefit obligation for active non-vested employees (Not accrued until employee vests)....................... $56 million $50 million Discount rate................. 7% 7% Health care cost trend rate... 10% to an ultimate 10% to an ultimate 5%, declining 1% for 5%, declining 1% for 5 years 5 years
If the health care cost trend rate assumptions were increased by 1%, the accrued postretirement benefit obligation as of December 31, 1998 and 1997 would have been increased by $5 million and $4 million, respectively. At December 31, 1998 and 1997, the recorded postretirement benefit obligation was reduced by $23 million and $20 million, respectively, for assets funded for postretirement health care benefits. 5. REINSURANCE In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding to reinsurers under excess coverage and coinsurance contracts. The Company retains a maximum of $25 million of coverage per individual life and $35 million maximum of coverage per joint life. The Company has an excess reinsurance contract for disability income policies with retention limits varying based upon on coverage type. The amounts shown in the accompanying consolidated financial statements are net of reinsurance. Policy benefit reserves at December 31, 1998 and 1997 were reported net of ceded reserves of $518 million and $435 million, respectively. The effect of reinsurance on premiums and benefits for the years ended December 31, 1998, 1997 and 1996 was as follows:
1998 1997 1996 ------- ------- ------- (IN MILLIONS) Direct premiums................................... $8,426 $7,647 $7,064 Premiums ceded.................................... (405) (353) (397) ------- ------- ------- Net premium revenue............................... $8,021 $7,294 $6,667 ------- ------- ------- ------- ------- ------- Benefits to policyowners and beneficiaries........ $8,869 $8,057 $7,348 Benefits ceded.................................... (182) (136) (147) ------- ------- ------- Net benefits to policyowners and beneficiaries.... $8,687 $7,921 $7,201 ------- ------- ------- ------- ------- -------
-- 40 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 In addition, the Company received $121 million, $115 million and $93 million for the years ended December 31, 1998, 1997 and 1996, respectively, from reinsurers representing allowances for reimbursement of commissions and other expenses. These amounts are included in other income in the consolidated statement of operations. Reinsurance contracts do not relieve the Company from its obligations to policyowners. Failure of reinsurers to honor their obligations could result in losses to the Company; consequently, allowances are established for amounts deemed uncollectible. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. 6. INCOME TAXES Provisions for income taxes are based on current income tax payable without recognition of deferred taxes. The Company files a consolidated life-nonlife federal income tax return. Federal income tax returns for years through 1988 are closed as to further assessment of tax. Adequate provision has been made in the financial statements for any additional taxes which may become due with respect to the open years. The Company's effective tax rate on gains from operations before taxes for the years ended December 31, 1998, 1997 and 1996 was 48%, 56%, and 67% respectively. The Company's effective tax rate exceeds the federal corporate rate of 35% primarily because, (1) the Company pays a tax that is assessed only on the surplus of mutual life insurance companies ("equity tax"), and (2) the Company must capitalize and amortize (as opposed to immediately deducting) an amount deemed to represent the cost of acquiring new business ("DAC tax"). 7. ACQUISITION OF FRANK RUSSELL COMPANY Pursuant to an Agreement and Plan of Merger, dated as of August 10, 1998, the Company acquired Frank Russell Company effective January 1, 1999 for a purchase price of approximately $950 million. Frank Russell is a leading investment management and consulting firm, providing investment advice, analytical tools and investment vehicles to institutional and individual investors in more than 30 countries. In connection with its acquisition of Frank Russell Company, the Company will be required in 1999 to charge-off directly from surplus approximately $341 million, which represents the amount of acquisition goodwill less 10% of the Company's surplus at December 31, 1998. In addition, the Company will request permission from the OCI to charge-off the remaining $474 million of acquisition goodwill in 1999 and currently intends to do so. In connection with the acquisition, the Company has unconditionally guaranteed certain debt obligations of Frank Russell Company, including $350 million of senior notes and up to $150 million of other credit facilities. 8. CONTINGENCIES The Company has guaranteed certain obligations of its affiliates. These guarantees totaled approximately $133 million at December 31, 1998 and are generally supported by the underlying net asset values of the affiliates. In addition, the Company routinely makes commitments to fund mortgage loans or other investments in the normal course of business. These commitments aggregated to $2.1 billion at December 31, 1998 and were extended at market interest rates and terms. The Company is engaged in various legal actions in the normal course of its investment and insurance operations. In the opinion of management, any losses resulting from such actions would not have a material effect on the Company's financial position. -- 41 [LETTERHEAD] REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Trustees and Policyowners of The Northwestern Mutual Life Insurance Company We have audited the accompanying consolidated statement of financial position of The Northwestern Mutual Life Insurance Company and its subsidiary as of December 31, 1998 and 1997, and the related consolidated statements of operations, of changes in surplus and of cash flows for each of the three years in the period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note 1, these consolidated financial statements were prepared in conformity with accounting practices prescribed or permitted by the Office of the Commissioner of Insurance of the State of Wisconsin (statutory basis of accounting), which practices differ from generally accepted accounting principles. Accordingly, the consolidated financial statements are not intended to represent a presentation in accordance with generally accepted accounting principles. The effects on the consolidated financial statements of the variances between the statutory basis of accounting and generally accepted accounting principles, although not reasonably determinable, are presumed to be material. In our opinion, the consolidated financial statements audited by us (1) do not present fairly in conformity with generally accepted accounting principles, the financial position of The Northwestern Mutual Life Insurance Company and its subsidiary at December 31, 1998 and 1997, or the results of their operations or their cash flows for each of the three years in the period ended December 31, 1998 because of the effects of the variances between the statutory basis of accounting and generally accepted accounting principles referred to in the preceding paragraph and (2) do present fairly, in all material respects, the financial position of The Northwestern Mutual Life Insurance Company and its subsidiary at December 31, 1998 and 1997 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, on the basis of accounting described in Note 1. /s/ PricewaterhouseCoopers LLP January 25, 1999 -- 42 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 Whole Life Policy, an Extra Ordinary Life Policy and a Single Premium Life 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 Fund. The Policies illustrated are for male insureds, select risks, age 35. The illustration for the Whole Life Policy is on page 44. The illustrations for Extra Ordinary Life Policies are on pages 45 through 47. The illustration for the Single Premium Life Policy is on page 48. 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 eleven 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, the charge at the annual rate of .50% of the Account's assets for mortality and expense risks and the charge at the annual rate of .20% of the Account's assets for taxes. The amounts shown as the cash values for the Single Premium Life Policy reflect the deduction for sales costs during the first ten Policy years. The amounts shown also reflect the average of the investment advisory fees and the other Fund expenses applicable to each of the nine Portfolios of the Fund during 1998 at the annual rate of .44% of the Fund's net assets. See "Deductions and Charges", p. 8. Thus the 0%, 6% and 12% gross hypothetical return rates on the Fund's assets are equivalent to the net rates of -1.14%, 4.86% and 10.86% 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 or single premium were invested to earn interest, after taxes, at the stated interest rate compounded annually. The death benefits and corresponding cash values shown for paid-up additions purchased with dividends 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. 14. 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 purchase additional paid-up death benefits, other dividend options are available. The Extra Ordinary Life Policy is designed for a purchaser who intends to use all dividends to purchase paid-up additions. See "Extra Ordinary Life Policy," p.12. A comparable illustration based on a proposed insured's age, sex and risk classification and proposed face amount or premium is available upon request. 43 VARIABLE WHOLE LIFE INSURANCE POLICY MALE ISSUE AGE 35 $500 ANNUAL PREMIUM FOR SELECT UNDERWRITING RISK FACE AMOUNT $30,979 DIVIDENDS USED TO PURCHASE PAID-UP ADDITIONS
0% 6% 12% DEATH BENEFIT* DEATH BENEFIT* DEATH BENEFIT* ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL PREMIUMS GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT ACCUMULATED RATE OF RETURN RATE OF RETURN RATE OF RETURN AT ------------------------------------------------------------------------------------------- END OF 5% INTEREST BASE PAID-UP BASE PAID-UP BASE PAID-UP POLICY YEAR PER YEAR POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL - ------------------------------------------------------------------------------------------------------------------------ 1 $ 525 $30,979 $ 73 $31,052 $30,983 $ 73 $31,056 $31,012 $ 73 $31,085 2 1,076 30,979 163 31,142 30,998 167 31,165 31,133 172 31,305 3 1,655 30,979 267 31,246 31,023 282 31,305 31,344 298 31,642 4 2,263 30,979 384 31,363 31,059 417 31,476 31,649 452 32,101 5 2,901 30,979 512 31,491 31,105 572 31,677 32,054 637 32,691 6 3,571 30,979 647 31,626 31,161 745 31,906 32,562 853 33,415 7 4,275 30,979 793 31,772 31,227 940 32,167 33,177 1,108 34,285 8 5,013 30,979 947 31,926 31,302 1,156 32,458 33,904 1,402 35,306 9 5,789 30,979 1,110 32,089 31,386 1,395 32,781 34,747 1,743 36,490 10 6,603 30,979 1,281 32,260 31,479 1,658 33,137 35,711 2,135 37,846 15 11,329 30,979 2,148 33,127 32,069 3,271 35,340 42,559 4,968 47,527 20 (age 55) 17,360 30,979 2,785 33,764 32,849 5,217 38,066 53,488 9,614 63,102 30 (age 65) 34,880 30,979 3,057 34,036 34,895 10,436 45,331 93,239 29,689 122,928
0% 6% 12% CASH VALUE* CASH VALUE* CASH VALUE* ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL PREMIUMS GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT ACCUMULATED RATE OF RETURN RATE OF RETURN RATE OF RETURN AT ------------------------------------------------------------------------------------------- END OF 5% INTEREST BASE PAID-UP BASE PAID-UP BASE PAID-UP POLICY YEAR PER YEAR POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL - ------------------------------------------------------------------------------------------------------------------------ 1 $ 525 $ 91 $ 18 $ 109 $ 98 $ 18 $ 116 $ 106 $ 18 $ 124 2 1,076 419 43 462 454 44 498 491 46 537 3 1,655 740 74 814 823 78 901 913 82 995 4 2,263 1,052 110 1,162 1,206 119 1,325 1,375 129 1,504 5 2,901 1,370 151 1,521 1,616 169 1,785 1,897 188 2,085 6 3,571 1,680 198 1,878 2,040 228 2,268 2,469 261 2,730 7 4,275 1,980 250 2,230 2,478 297 2,775 3,095 350 3,445 8 5,013 2,271 309 2,580 2,931 377 3,308 3,780 457 4,237 9 5,789 2,553 373 2,926 3,397 469 3,866 4,530 587 5,117 10 6,603 2,826 445 3,271 3,880 576 4,456 5,350 741 6,091 15 11,329 4,057 868 4,925 6,526 1,322 7,848 10,768 2,009 12,777 20 (age 55) 17,360 5,054 1,300 6,354 9,576 2,436 12,012 19,215 4,490 23,705 30 (age 65) 34,880 6,246 1,843 8,089 16,747 6,293 23,040 51,929 17,902 69,831
- ---------------------------- * Assumes no policy loan has been made. DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALE AND EXPERIENCE AND ARE NOT GUARANTEED. 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. 44 EXTRA ORDINARY VARIABLE LIFE INSURANCE POLICY MALE ISSUE AGE 35 $100,000 OF INSURANCE ($60,000 GUARANTEED MINIMUM + $40,000 OF EXTRA LIFE PROTECTION GUARANTEED FOR 27 YEARS (1)) ANNUAL PREMIUM FOR SELECT UNDERWRITING RISK: $1,014.00 (2) DIVIDENDS USED TO PURCHASE PAID-UP ADDITIONS (1) ASSUMING 0% HYPOTHETICAL GROSS ANNUAL INVESTMENT RATE OF RETURN
DEATH BENEFIT (3) CASH VALUE (3) ----------------------------------------------------------------------------------- PREMIUMS EXTRA LIFE PROTECTION ACCUMULATED --------------------------------- CASH CASH AT TOTAL MINIMUM VARIABLE VARIABLE VALUE VALUE OF TOTAL END OF 5% INTEREST DEATH DEATH INSURANCE PAID-UP TERM OF BASE PAID-UP CASH POLICY YEAR PER YEAR BENEFIT BENEFIT AMOUNT ADDITIONS INSURANCE POLICY ADDITIONS VALUE - -------------------------------------------------------------------------------------------------------------- 1 $ 1,065 $100,000 $ 60,000 $ (43) $ 158 $ 39,842 $ 153 $ 41 $ 194 2 2,183 100,000 60,000 (208) 381 39,619 788 102 890 3 3,356 100,000 60,000 (485) 657 39,343 1,408 182 1,590 4 4,589 100,000 60,000 (863) 978 39,022 2,013 280 2,293 5 5,883 100,000 60,000 (1,338) 1,336 38,664 2,630 396 3,026 6 7,242 100,000 60,000 (1,901) 1,723 38,277 3,231 527 3,758 7 8,669 100,000 60,000 (2,543) 2,139 37,861 3,814 676 4,490 8 10,167 100,000 60,000 (3,256) 2,581 37,419 4,381 842 5,223 9 11,740 100,000 60,000 (4,032) 3,051 36,949 4,928 1,027 5,955 10 13,392 100,000 60,000 (4,865) 3,546 36,454 5,459 1,232 6,691 15 22,975 100,000 60,000 (9,665) 6,076 33,924 7,851 2,457 10,308 20 (age 55) 35,205 100,000 60,000 (15,083) 7,571 32,429 9,789 3,535 13,324 30 (age 65) 70,737 91,250 60,000 (26,104) 6,514 24,736(4) 12,105 3,928 16,033
- ------------------------ (1) Extra Life Protection is guaranteed to be at least $40,000 for 27 years, so long as all premiums are paid when due, no policy loan is outstanding, all dividends are applied to purchase paid-up additions and no paid-up additions are surrendered for their cash value. Extra Life Protection is the sum of any positive variable insurance amount plus variable paid-up additions plus term insurance. (2) If premiums were paid monthly, the monthly payments would be $89.10. The death benefit and cash values would not be affected. (3) Assumes no policy loan has been made. (4) After the guaranteed period of 27 years for Extra Life Protection, the amount of term insurance depends on the dividend scale. The amount illustrated is based on current scale and experience and is not guaranteed. DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALE AND EXPERIENCE AND ARE NOT GUARANTEED. 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 RATE OF RETURN AVERAGED 0% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME. 45 EXTRA ORDINARY VARIABLE LIFE INSURANCE POLICY MALE ISSUE AGE 35 $100,000 OF INSURANCE ($60,000 GUARANTEED MINIMUM + $40,000 OF EXTRA LIFE PROTECTION GUARANTEED FOR 27 YEARS (1)) ANNUAL PREMIUM FOR SELECT UNDERWRITING RISK: $1,014.00 (2) DIVIDENDS USED TO PURCHASE PAID-UP ADDITIONS (1) ASSUMING 6% HYPOTHETICAL GROSS ANNUAL INVESTMENT RATE OF RETURN
DEATH BENEFIT (3) CASH VALUE (3) ----------------------------------------------------------------------------------- PREMIUMS EXTRA LIFE PROTECTION ACCUMULATED --------------------------------- CASH CASH AT TOTAL MINIMUM VARIABLE VARIABLE VALUE VALUE OF TOTAL END OF 5% INTEREST DEATH DEATH INSURANCE PAID-UP TERM OF BASE PAID-UP CASH POLICY YEAR PER YEAR BENEFIT BENEFIT AMOUNT ADDITIONS INSURANCE POLICY ADDITIONS VALUE - -------------------------------------------------------------------------------------------------------------- 1 $ 1,065 $100,000 $ 60,000 $ 7 $ 158 $ 39,835 $ 166 $ 41 $ 207 2 2,183 100,000 60,000 35 390 39,575 853 104 957 3 3,356 100,000 60,000 83 690 39,227 1,566 191 1,757 4 4,589 100,000 60,000 151 1,054 38,795 2,304 302 2,606 5 5,883 100,000 60,000 239 1,479 38,282 3,098 438 3,536 6 7,242 100,000 60,000 346 1,959 37,695 3,920 600 4,520 7 8,669 100,000 60,000 472 2,499 37,029 4,768 790 5,558 8 10,167 100,000 60,000 616 3,099 36,285 5,644 1,011 6,655 9 11,740 100,000 60,000 778 3,765 35,457 6,548 1,268 7,816 10 13,392 100,000 60,000 957 4,498 34,545 7,482 1,562 9,044 15 22,975 100,000 60,000 2,096 8,970 28,934 12,607 3,627 16,234 20 (age 55) 35,205 100,000 60,000 3,605 13,887 22,508 18,517 6,485 25,002 30 (age 65) 70,737 100,000 60,000 7,562 25,845 6,593(4) 32,405 15,584 47,989
- ------------------- (1) Extra Life Protection is guaranteed to be at least $40,000 for 27 years, so long as all premiums are paid when due, no policy loan is outstanding, all dividends are applied to purchase paid-up additions and no paid-up additions are surrendered for their cash value. Extra Life Protection is the sum of any positive variable insurance amount plus variable paid-up additions plus term insurance. (2) If premiums were paid monthly, the monthly payments would be $89.10. The death benefit and cash values would not be affected. (3) Assumes no policy loan has been made. (4) After the guaranteed period of 27 years for Extra Life Protection, the amount of term insurance depends on the dividend scale. The amount illustrated is based on current scale and experience and is not guaranteed. DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALE AND EXPERIENCE AND ARE NOT GUARANTEED. 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 RATE OF RETURN AVERAGED 6% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME. 46 EXTRA ORDINARY VARIABLE LIFE INSURANCE POLICY MALE ISSUE AGE 35 $100,000 OF INSURANCE ($60,000 GUARANTEED MINIMUM + $40,000 OF EXTRA LIFE PROTECTION GUARANTEED FOR 27 YEARS (1)) ANNUAL PREMIUM FOR SELECT UNDERWRITING RISK: $1,014.00 (2) DIVIDENDS USED TO PURCHASE PAID-UP ADDITIONS (1) ASSUMING 12% HYPOTHETICAL GROSS ANNUAL INVESTMENT RATE OF RETURN
DEATH BENEFIT (3) CASH VALUE (3) ----------------------------------------------------------------------------------- PREMIUMS EXTRA LIFE PROTECTION ACCUMULATED --------------------------------- CASH CASH AT TOTAL MINIMUM VARIABLE VARIABLE VALUE VALUE OF TOTAL END OF 5% INTEREST DEATH DEATH INSURANCE PAID-UP TERM OF BASE PAID-UP CASH POLICY YEAR PER YEAR BENEFIT BENEFIT AMOUNT ADDITIONS INSURANCE POLICY ADDITIONS VALUE - -------------------------------------------------------------------------------------------------------------- 1 $ 1,065 $100,000 $ 60,000 $ 58 $ 158 $39,784 $ 179 $ 41 $ 220 2 2,183 100,000 60,000 285 400 39,315 920 107 1,027 3 3,356 100,000 60,000 687 725 38,588 1,734 201 1,935 4 4,589 100,000 60,000 1,269 1,137 37,594 2,625 326 2,951 5 5,883 100,000 60,000 2,044 1,638 36,318 3,633 485 4,118 6 7,242 100,000 60,000 3,019 2,231 34,750 4,738 683 5,421 7 8,669 100,000 60,000 4,201 2,929 32,870 5,947 926 6,873 8 10,167 100,000 60,000 5,599 3,741 30,660 7,271 1,221 8,492 9 11,740 100,000 60,000 7,221 4,683 28,096 8,719 1,577 10,296 10 13,392 100,000 60,000 9,078 5,767 25,155 10,304 2,003 12,307 15 22,975 100,000 60,000 22,282 13,656 4,062 20,770 5,522 26,292 20 (age 55) 35,205 129,657 60,000 43,372 26,285 0 37,090 12,276 49,366 30 (age 65) 70,737 257,373 60,000 120,126 77,247 0 100,283 46,580 146,863
- ------------------------- (1) Extra Life Protection is guaranteed to be at least $40,000 for 27 years, so long as all premiums are paid when due, no policy loan is outstanding, all dividends are applied to purchase paid-up additions and no paid-up additions are surrendered for their cash value. Extra Life Protection is the sum of any positive variable insurance amount plus variable paid-up additions plus term insurance. (2) If premiums were paid monthly, the monthly payments would be $89.10. The death benefit and cash values would not be affected. (3) Assumes no policy loan has been made. DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALE AND EXPERIENCE AND ARE NOT GUARANTEED. 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 RATE OF RETURN AVERAGED 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME. 47 SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY MALE ISSUE AGE 35 FACE AMOUNT $25,000 SINGLE PREMIUM FOR SELECT UNDERWRITING RISK: $6,443.25 DIVIDENDS USED TO PURCHASE PAID-UP ADDITIONS
0% 6% 12% DEATH BENEFIT* DEATH BENEFIT* DEATH BENEFIT* ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL PREMIUMS GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT ACCUMULATED RATE OF RETURN RATE OF RETURN RATE OF RETURN AT -------------------------------------------------------------------------------------------- END OF 5% INTEREST BASE PAID-UP BASE PAID-UP BASE PAID-UP POLICY YEAR PER YEAR POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL - ----------------------------------------------------------------------------------------------------------------------- 1 $ 6,765 $25,000 $ 50 $ 25,050 $25,207 $ 50 $25,257 $26,654 $ 50 $26,704 2 7,104 25,000 92 25,092 25,416 106 25,522 28,417 116 28,533 3 7,459 25,000 126 25,126 25,627 166 25,793 30,297 200 30,497 4 7,832 25,000 152 25,152 25,840 232 26,072 32,302 305 32,607 5 8,223 25,000 170 25,170 26,054 303 26,357 34,440 433 34,873 6 8,635 25,000 181 25,181 26,270 381 26,651 36,720 587 37,307 7 9,066 25,000 185 25,185 26,488 465 26,953 39,151 773 39,924 8 9,520 25,000 183 25,183 26,708 557 27,265 41,743 994 42,737 9 9,996 25,000 176 25,176 26,930 658 27,588 44,507 1,258 45,765 10 10,495 25,000 168 25,168 27,154 769 27,923 47,454 1,571 49,025 15 13,395 25,000 135 25,135 28,299 1,449 29,748 65,398 4,044 69,442 20 (age 55) 17,096 25,000 109 25,109 29,494 2,311 31,805 90,149 8,676 98,825 30 (age 65) 27,847 25,000 72 25,072 32,044 4,854 36,898 171,473 31,962 203,435
0% 6% 12% DEATH BENEFIT* DEATH BENEFIT* DEATH BENEFIT* ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL PREMIUMS GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT ACCUMULATED RATE OF RETURN RATE OF RETURN RATE OF RETURN AT -------------------------------------------------------------------------------------------- END OF 5% INTEREST BASE PAID-UP BASE PAID-UP BASE PAID-UP POLICY YEAR PER YEAR POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL POLICY ADDITIONS TOTAL - ----------------------------------------------------------------------------------------------------------------------- 1 $ 6,765 $ 5,667 $ 13 $ 5,680 $ 6,043 $ 13 $ 6,056 $ 6,420 $ 13 $ 6,433 2 7,104 5,596 24 5,620 6,357 28 6,385 7,164 31 7,195 3 7,459 5,529 35 5,564 6,686 46 6,732 7,984 55 8,039 4 7,832 5,468 43 5,511 7,030 66 7,096 8,886 87 8,973 5 8,223 5,412 50 5,462 7,389 89 7,478 9,877 128 10,005 6 8,635 5,362 55 5,417 7,765 116 7,881 10,965 179 11,144 7 9,066 5,317 58 5,375 8,156 147 8,303 12,160 244 12,404 8 9,520 5,279 59 5,338 8,565 181 8,746 13,472 324 13,796 9 9,996 5,247 59 5,306 8,991 221 9,212 14,911 423 15,334 10 10,495 5,223 58 5,281 9,435 267 9,702 16,489 545 17,034 15 13,395 4,712 54 4,766 11,444 585 12,029 26,446 1,635 28,081 20 (age 55) 17,096 4,218 50 4,268 13,774 1,079 14,853 42,103 4,052 46,155 30 (age 65) 27,847 3,269 43 3,312 19,322 2,927 22,249 103,399 19,273 122,672
- ----------------------- * Assumes no policy loan has been made. DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALE AND EXPERIENCE AND ARE NOT GUARANTEED. 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 More information about Northwestern Mutual Series Fund, Inc. is included in the Fund's Statement of Additional Information (SAI), incorporated by reference in this prospectus, which is available free of charge. More information about the Fund's investments is included in the Fund's annual and semi-annual reports, which discuss the market conditions and investment strategies that significantly affected each Portfolio's performance during the previous fiscal period. To request a free copy of the Fund's SAI, or current annual or semi-annual report, call us at 1-800-519-4665. Information about the Fund (including the SAI) can be reviewed and copied at the Public Reference Room of the Securities and Exchange Commission (SEC) in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Reports and other information about the Fund are available on the SEC's Internet site at http://www.sec.gov. Copies of this information may be obtained, upon payment of a duplicating fee, by writing the Public Reference Section of the SEC, Washington, DC 20549-6009. N O R T H W E S T E R N M U T U A L L I F E NORTHWESTERN MUTUAL VARIABLE LIFE NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT NORTHWESTERN MUTUAL SERIES FUND, INC. RUSSELL INSURANCE FUNDS P R O S P E C T U S Investment Company Act File No. 811-3990 NORTHWESTERN MUTUAL LIFE-Registered Trademark- PO Box 3095 Milwaukee WI 53201-3095 Change Service Requested EXHIBIT INDEX EXHIBITS FILED WITH FORM S-6 POST-EFFECTIVE AMENDMENT NO. 21 TO REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 FOR NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT Exhibit Number Exhibit Name - -------------- ------------ Exhibit A(5)(a) Amendment to Variable Life and Variable EOL Policy Exhibit A(9)(a) Form of Participation Agreement Among Russell Insurance Funds, Russell Fund Distributors, Inc. and The Northwestern Mutual Life Insurance Company Exhibit A(9)(b) Form of Administrative Service Fee Agreement between The Northwestern Mutual Life Insurance Company and Frank Russell Company Exhibit C(1) Consent of PricewaterhouseCoopers LLP Exhibit C(6) Opinion of William C. Koenig, F.S.A. Exhibit 27 Financial Data Schedule for period ended December 31, 1998 The following exhibit was filed in electronic format with the Registration Statement on Form S-6 for Northwestern Mutual Variable Life Account, File No. 333-59103, CIK 0000742277, dated July 15, 1998, and is incorporated herein by reference. Exhibit A(6)(b) Amended By-Laws of The Northwestern Mutual Life Insurance Company dated January 28, 1998 PART II 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 48 pages The undertaking with respect to fees and charges The signatures Written consents of the following persons: PricewaterhouseCoopers LLP (filed herewith as Exhibit C(1)) William C. Koenig, F.S.A. (included in his opinion filed herewith as Exhibit C(6)) The following exhibits: Exhibit A(5)(a) Amendment to Variable Life and Variable EOL Policy Exhibit A(9)(a) Form of Participation Agreement Among Russell Insurance Funds, Russell Fund Distributors, Inc. and The Northwestern Mutual Life Insurance Company Exhibit A(9)(b) Form of Administrative Service Fee Agreement between The Northwestern Mutual Life Insurance Company and Frank Russell Company Exhibit C(1) Consent of PricewaterhouseCoopers LLP Exhibit C(6) Opinion of William C. Koenig, F.S.A. Exhibit 27 Financial Data Schedule for period ended December 31, 1998 The following exhibit was filed in electronic format with the Registration Statement on Form S-6 for Northwestern Mutual Variable Life Account, File No. 333-59103, CIK 0000742277, dated July 15, 1998, and is incorporated herein by reference. Exhibit A(6)(b) Amended By-Laws of The Northwestern Mutual Life Insurance Company dated January 28, 1998 II-1 UNDERTAKING The Northwestern Mutual Life Insurance Company hereby represents that the fees and charges deducted under the contracts registered by this registration statement, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the insurance company. II-2 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 25th day of February, 1999. 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, Executive Vice James D. Ericson, President and President, General Counsel Chief Executive Officer and Secretary By NORTHWESTERN MUTUAL INVESTMENT SERVICES, LLC (Depositor) Attest: MERRILL C. LUNDBERG By: RICHARD L. HALL ------------------------- -------------------------------- Merrill C. Lundberg, Secretary Richard L. Hall, President and CEO 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 25th day of February, 1999. THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY (Depositor) Attest: JOHN M. BREMER By: JAMES D. ERICSON ------------------------- -------------------------------- John M. Bremer, Executive Vice James D. Ericson, President and President, General Counsel Chief Executive Officer and Secretary NORTHWESTERN MUTUAL INVESTMENT SERVICES, LLC (Depositor) Attest: MERRILL C. LUNDBERG By: RICHARD L. HALL ------------------------- -------------------------------- Merrill C. Lundberg, Secretary Richard L. Hall, President and CEO 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 February - ------------------------- Principal Executive and 25, 1999 James D. Ericson Financial Officer II-3 GARY E. LONG Vice President, Controller - ------------------------- and Principal Accounting Gary E. Long Officer HAROLD B. SMITH* Trustee - ------------------------- Harold B. Smith J. THOMAS LEWIS* Trustee - ------------------------- J. Thomas Lewis PATRICIA ALBJERG GRAHAM* Trustee - ------------------------- Patricia Albjerg Graham DONALD J. SCHUENKE* Trustee - ------------------------- Donald J. Schuenke R. QUINTUS ANDERSON* Trustee - ------------------------- R. Quintus Anderson STEPHEN F. KELLER* Trustee Dated February - ------------------------- 25, 1999 Stephen F. Keller PIERRE S. DU PONT* Trustee - ------------------------- Pierre S. du Pont J. E. GALLEGOS* Trustee - ------------------------- J. E. Gallegos 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 - ------------------------- Daniel F. McKeithan, Jr. ROBERT E. CARLSON* Trustee - ------------------------- Robert E. Carlson II-4 EDWARD E. BARR* Trustee - ------------------------- Edward E. Barr ROBERT C. BUCHANAN* Trustee - ------------------------- Robert C. Buchanan SHERWOOD H. SMITH, JR.* Trustee - ------------------------- Sherwood H. Smith, Jr. H. MASON SIZEMORE, JR.* Trustee - ------------------------- H. Mason Sizemore, Jr. JOHN J. STOLLENWERK* Trustee - ------------------------- John J. Stollenwerk GEORGE A. DICKERMAN* Trustee - ------------------------- George A. Dickerman GUY A. OSBORN* Trustee Dated February - ------------------------- 25, 1999 Guy A. Osborn JOHN E. STEURI* Trustee - ------------------------- John E. Steuri STEPHEN N. GRAFF* Trustee - ------------------------- Stephen N. Graff BARBARA A. KING* Trustee - ------------------------- Barbara A. King TIMOTHY D. PROCTOR* Trustee - ------------------------- Timorhy D. Proctor *By: JAMES D. ERICSON ----------------------------------- James D. Ericson, Attorney in fact, pursuant to the Power of Attorney attached hereto II-5 CONSENT OF ACTUARY The Consent of William C. Koenig, F.S.A., is contained in his opinion filed as Exhibit C(6). CONSENT OF INDEPENDENT ACCOUNTANTS The Consent of PricewaterhouseCoopers LLP is filed as Exhibit C(1). II-6 POWER OF ATTORNEY The undersigned Trustees of THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY hereby constitute and appoint James D. Ericson and Robert E. Carlson, or either of them, their true and lawful attorneys and agents to sign the names of the undersigned Trustees to (1) the registration statement or statements to be filed under the Securities Act of 1933 and to any instrument or document filed as part thereof or in connection therewith or in any way related thereto, and any and all amendments thereto in connection with variable contracts issued or sold by The Northwestern Mutual Life Insurance Company or any separate account credited therein and (2) the Form 10-K Annual Report or Reports of The Northwestern Mutual Life Insurance Company and/or its separate accounts for its or their fiscal year ended December 31, 1998 to be filed 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 22nd day of July, 1998. R. QUINTUS ANDERSON Trustee ------------------------------ R. Quintus Anderson EDWARD E. BARR Trustee ------------------------------ Edward E. Barr GORDON T. BEAHAM III Trustee ------------------------------ Gordon T. Beaham III ROBERT C. BUCHANAN Trustee ------------------------------ Robert C. Buchanan ROBERT E. CARLSON Trustee ------------------------------ Robert E. Carlson GEORGE A. DICKERMAN Trustee ------------------------------ George A. Dickerman II-7 PIERRE S. DU PONT Trustee ------------------------------ Pierre S. du Pont JAMES D. ERICSON Trustee ------------------------------ James D. Ericson J. E. GALLEGOS Trustee ------------------------------ J. E. Gallegos STEPHEN N. GRAFF Trustee ------------------------------ Stephen N. Graff PATRICIA ALBJERG GRAHAM Trustee ------------------------------ Patricia Albjerg Graham STEPHEN F. KELLER Trustee ------------------------------ Stephen F. Keller BARBARA A. KING Trustee ------------------------------ Barbara A. King J. THOMAS LEWIS Trustee ------------------------------ J. Thomas Lewis DANIEL F. MCKEITHAN, JR. Trustee ------------------------------ Daniel F. McKeithan, Jr. GUY A. OSBORN Trustee ------------------------------ Guy A. Osborn II-8 TIMOTHY D. PROCTOR Trustee ------------------------------ Timothy D. Proctor DONALD J. SCHUENKE Trustee ------------------------------ Donald J. Schuenke H. MASON SIZEMORE, JR. Trustee ------------------------------ H. Mason Sizemore, Jr. HAROLD B. SMITH Trustee ------------------------------ Harold B. Smith SHERWOOD H. SMITH, JR. Trustee ------------------------------ Sherwood H. Smith, Jr. JOHN E. STEURI Trustee ------------------------------ John E. Steuri JOHN J. STOLLENWERK Trustee ------------------------------ John J. Stollenwerk BARRY L. WILLIAMS Trustee ------------------------------ Barry L. Williams KATHRYN D. WRISTON Trustee ------------------------------ Kathryn D. Wriston II-9 EX-99.A(5)(A) 2 EXHIBIT 99.A(5)(A) EXHIBIT A(5)(a) AMENDMENT TO SEPARATE ACCOUNT DIVISIONS AS OF JUNE 30, 1999, THE SECOND PARAGRAPH OF THE SEPARATE ACCOUNT SECTION OF THE CONTRACT RELATING TO THE DIVISIONS OF THE SEPARATE ACCOUNT AND THE ASSETS ALLOCATED TO THESE DIVISIONS IS AMENDED TO READ AS FOLLOWS: The Separate Account is comprised of the Select Bond, International Equity, Money Market, Balanced, Index 500 Stock, Aggressive Growth Stock, High Yield Bond, Growth Stock, Growth and Income Stock, Index 400 Stock, Small Cap Growth Stock, Russell Multi-Style Equity, Russell Aggressive Equity, Russell Non-US, Russell Real Estate Securities, and Russell Core Bond Divisions. Assets allocated to these Divisions are invested in shares of corresponding mutual funds or portfolios of mutual funds, both of which are referred to in this policy as Portfolios. Shares of the Portfolios are purchased for the Separate Account at their net asset value. The Company may make available additional Divisions and Portfolios. At any time, the assets supporting this policy may be allocated among up to six of the Divisions of the Separate Account. AS OF JUNE 30, 1999, THE FIFTH AND SIXTH PARAGRAPHS OF THE SEPARATE ACCOUNT SECTION OF THE CONTRACT RELATING TO THE DIVISIONS OF THE SEPARATE ACCOUNT AND THE ASSETS ALLOCATED TO THESE DIVISIONS ARE AMENDED TO READ AS FOLLOWS: The Owner may exchange this policy for a fixed benefit life insurance policy being offered at that time by the Company if the Portfolio changes its investment advisor or has a material change in its investment objectives or restrictions. The Company will notify the Owner if there is any such change. The Owner may exchange this policy within 60 days after the notice or the effective date of the change, whichever is later. If, in the judgment of the Company, a Portfolio no longer suits the purposes of this policy due to a change in its investment objectives or restrictions, the Company may substitute shares of another Portfolio. Any such substitution will be subject to any required approval of the Securities and Exchange Commission (SEC), the Wisconsin Commissioner of Insurance or other regulatory authority. Secretary NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY VLI.FUNDS.(0799) EX-99.A(9)(A) 3 EXHIBIT 99.A(9)(A) EXHIBIT A(9)(a) PARTICIPATION AGREEMENT AMONG RUSSELL INSURANCE FUNDS, RUSSELL FUND DISTRIBUTORS, INC. AND THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THIS AGREEMENT is made and entered into as of this ____ day of ______________,by and among THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY a Wisconsin life insurance company (hereinafter the "Company"), on its own behalf and on behalf of each segregated asset account of the Company set forth on Schedule A hereto as such schedule may be amended from time to time (each such account hereinafter referred to as the "Account" and collectively as the "Accounts"), and RUSSELL INSURANCE FUNDS, a Massachusetts Business Trust (hereinafter the "Investment Company"), and RUSSELL FUND DISTRIBUTORS, INC. a Washington corporation (hereinafter the "Underwriter"). WHEREAS, Investment Company engages in business as a diversified open-end management investment company and is available to act as the investment vehicle for separate accounts established for variable life insurance policies and variable annuity contracts (collectively, the "Variable Insurance Products"); and WHEREAS, the beneficial interest in the Investment Company is divided into several series of shares, referred to individually as "Funds" and representing the interest in a particular managed portfolio of securities and other assets; and WHEREAS, Investment Company is registered as an open-end management investment company under the 1940 Act, and its shares are registered under the Securities Act of 1933, as amended (hereinafter the "1933 Act"); and WHEREAS, Frank Russell Investment Management Company (the "Adviser") is registered as an investment adviser under the federal Investment Advisers Act of 1940 and any applicable state securities law; and WHEREAS, the Company has registered or will register certain variable life or annuity contracts or both under the 1933 Act, and offers or will offer for sale certain variable life or annuity contracts or both which are or will be exempt from registration; and WHEREAS, each Account is a duly organized, validly existing, segregated asset account, established by resolution of the Board of Trustees of the Company, on the date shown for such Account on Schedule A hereto, to set aside and invest assets attributable to one or more variable life or annuity contracts; and WHEREAS, the Company has registered or will register some of the Accounts as unit investment trusts under the 1940 Act and other Accounts are exempt from registration; and 1 WHEREAS, Investment Company has received "mixed and shared funding" exemptive relief from the Securities and Exchange Commission permitting it to offer its shares to life insurers in connection with variable annuity contracts and variable life insurance policies offered by such insurers which may or may not be affiliated with each other (SEC Release IC-16160, Dec. 7, 1987); and WHEREAS, the Underwriter is registered as a broker/dealer with the SEC under the Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act") and is a member in good standing of the National Association of Securities Dealers, Inc. (hereinafter the "NASD"); and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares in the Funds on behalf of each Account to fund certain of the aforesaid variable life or annuity contracts or both, and the Underwriter is authorized to sell such shares to unit investment trusts such as each Account at net asset value. NOW THEREFORE, in consideration of the premises and of the mutual covenants herein contained and other good and valuable consideration the receipt of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE 1. SALE OF INVESTMENT COMPANY SHARES 1.1 The Underwriter agrees to sell to the Company those shares of Investment Company which each Account orders, executing such orders on a daily basis at the net asset value next computed after receipt by the Investment Company or its designee of the order for the shares of the Investment Company. For purposes of this Section 1.1, the Company shall be the designee of the Investment Company for receipt of such orders from each Account and receipt by such designee shall constitute receipt by the Investment Company; provided that the Investment Company receives notice of such order by 8:00 a.m. Pacific time on the next following Business Day. "Business Day" shall mean any day on which the New York Stock Exchange is open for trading and on which Investment Company calculated its net asset value pursuant to the rules of the Securities and Exchange Commission. 1.2 The Investment Company agrees to make its shares available indefinitely for purchase at the applicable net asset value per share by the Company and its Accounts on those days on which the Investment Company calculates its net asset value pursuant to rules of the Securities and Exchange Commission, and the Investment Company shall use reasonable efforts to calculate such net asset value on each day on which the New York Stock Exchange is open for trading. Notwithstanding the foregoing, the Board of Directors of the Investment Company (hereinafter the "Board") may refuse to sell shares of any Fund, or suspend or terminate the offering of shares of any Fund if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the Board acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, necessary in the best interests of the shareholders of such Fund. 1.3 The Investment Company and the Underwriter agree that no shares of any Fund will be sold to the general public. 2 1.4 The Investment Company agrees to redeem for cash, on the Company's request, any full or fractional shares of the Investment Company held by the Company, executing such requests on a daily basis at the net asset value next computed after receipt by the Investment Company or its designee of the request for redemption. For purposes of this Section 1.4, the Company shall be the designee of the Investment Company for receipt of requests for redemption from each Account, and receipt by such designee shall constitute receipt by the Investment Company; provided that the Investment Company receives notice of such request for redemption by 8:00 a.m. Pacific time on the next following Business Day. 1.5 The Company agrees to purchase and redeem the shares of selected Funds offered by the then-current prospectus of the Investment Company and in accordance with the provisions of such prospectus. The parties agree that all net amounts available under the variable life and annuity contracts with the form number(s) which are listed on Schedule B attached hereto and incorporated herein by this reference, as such Schedule B may be amended from time to time hereafter by mutual written agreement of all the parties hereto (the "Contracts"), may be invested in the Investment Company, in other separate accounts of the Company, in other investment companies, in the Company's general account, or in other funding vehicles. 1.6 The Company shall pay for Investment Company shares on the next Business Day after an order to purchase Investment Company shares is made in accordance with the provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire. 1.7 Issuance and transfer of the Investment Company's shares will be by book entry only. Stock certificates will not be issued to the Company or any Account. Shares ordered from the Investment Company will be recorded in an appropriate title for each Account. 1.8 The Investment Company shall furnish same day notice (by wire or telephone, followed by written confirmation) to the Company of any income dividends or capital gain distributions payable on the Investment Company's shares. The Company hereby elects to receive all such income dividends and capital gain distributions as are payable on the Fund shares in additional shares of that Fund. The Company reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash. Investment Company shall furnish same day notice to the Company of the number of shares so issued as payment of such dividends and distributions. 1.9 The Investment Company shall make the net asset value per share for each Fund available to the Company on a daily basis as soon as reasonably practical after the net asset value per share is calculated. ARTICLE II. REPRESENTATIONS AND WARRANTIES 2.1 The Company represents and warrants that the Contracts are registered under the 1933 Act or are exempt from registration thereunder; that the Contracts will be issued and sold in compliance in all material respects with all applicable Federal and State laws and that the sale of the Contracts shall comply in all material respects with state insurance suitability requirements. The Company further represents and warrants that it is an insurance company duly organized and in good standing under applicable law and that it has legally and validly established each 3 Account prior to any issuance or sale of Contracts funded thereby as a segregated asset account under applicable state insurance law and that each Account is or will be registered as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated investment account for the Contracts or is exempt from registration thereunder. 2.2 The Investment Company represents and warrants that Investment Company shares sold pursuant to this Agreement shall be registered under the 1933 and 1940 Acts, duly authorized for issuance and sold in compliance with the laws of the State of Washington and all applicable federal and state securities laws and that the Investment Company is and shall remain registered under the 1940 Act. The Investment Company shall amend the Registration Statement for its shares under the 1933 and the 1940 Acts from time to time as required in order to effect the continuous offering of its shares. The Investment Company shall register and qualify the shares for sale in accordance with the laws of the various states only if and to the extent deemed advisable by the Investment Company or the Underwriter. 2.3 The Investment Company represents that it is currently qualified as a Regulated Investment Company under Subchapter M of the Internal Revenue Code of 1986, as amended, (the "Code") and that it will make every effort to maintain such qualification (under Subchapter M or any successor or similar provision) and that it will notify the Company immediately upon having a reasonable basis for believing that it has ceased to so qualify or that it might not so qualify in the future. 2.4 The Company represents that the Contracts are currently treated as endowment, annuity or life insurance contracts, under applicable provisions of the Code and that it will make every effort to maintain such treatment and that it will notify the Investment Company and the Underwriter immediately upon having a reasonable basis for believing that the Contracts have ceased to be so treated or that they might not be so treated in the future. 2.5 The Investment Company currently does not intend to make any payments to finance distribution expenses pursuant to Rule l2b-1 under the 1940 Act or otherwise, although it may make such payments in the future. To the extent that it decides to finance distribution expenses pursuant to Rule 12b-1, the Investment Company undertakes to have its board of trustees, a majority of whom are not interested persons of the Investment Company, formulate and approve any plan under Rule l2b-1 to finance distribution expenses. 2.6 The Investment Company makes no representation as to whether any aspect of its operations (including, but not limited to, fees and expenses and investment policies) complies with the insurance laws or regulations of the various states. 2.7 The Underwriter represents and warrants that it is a member in good standing of the NASD and is registered as a broker-dealer with the SEC. The Underwriter further represents that it will sell and distribute the Investment Company shares in accordance with any applicable state laws and federal securities laws, including without limitation the 1933 Act, the 1934 Act, and the 1940 Act. 2.8 The Investment Company represents that it is lawfully organized and validly existing under the laws of the Commonwealth of Massachusetts and that it does and will comply in all material respects with the 1940 Act. 4 2.9 The Underwriter represents and warrants that the Adviser is and shall remain duly registered in all material respects under all applicable federal and state securities laws and that the Adviser shall perform its obligations for the Investment Company in compliance in all material respects any applicable state laws and federal securities laws. 2.10 The Investment Company and Underwriter represent and warrant that all of their directors, officers, employees, investment advisers, and other individuals/entities dealing with the money or securities of the Investment Company are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Investment Company in an amount not less than the minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid Bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. 2.11 The Company represents and warrants that all of its directors, officers, employees, investment advisers, and other entities dealing with the money or securities of the Investment Company are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Investment Company in an amount not less than five million dollars ($5 million). The aforesaid Bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS: VOTING 3.1 The Underwriter shall provide the Company with as many printed copies of the Investment Company's current prospectus and Statement of Additional Information as the Company may reasonably request. If requested by the Company in lieu thereof, the Investment Company shall provide camera-ready film or computer diskettes containing the Investment Company's prospectus and Statement of Additional Information and such other assistance as is reasonably necessary in order for the Company once each year (or more frequently if the prospectus and/or Statement of Additional Information for the Investment Company is amended during the year) to have the prospectus for the Contracts and the Investment Company's prospectus printed together in one document, and to have the Statement of Additional Information for the Investment Company and the Statement of Additional Information for the Contracts printed together in one document. Alternatively, the Company may print the Investment Company's prospectus and/or its Statement of Additional Information in combination with other fund companies' prospectuses and statements of additional information. Except as provided in the following three sentences, all expenses of printing and distributing Investment Company prospectuses and Statements of Additional Information distributed by the Company shall be the expense of the Company. For Prospectuses and Statement of Additional Information provided by the Company to its existing owners of Contracts in order to update disclosure as required by the 1933 Act and/or the 1940 Act, the cost of printing shall be borne by the Investment Company. If the Company chooses to receive camera-ready film or computer diskettes in lieu of receiving printed copies of the Investment Company's prospectus, the Investment Company will reimburse the Company in an amount equal to the product of A and B where A is the number of such prospectuses distributed to owners of the Contracts, and B is the Investment Company's per unit cost of typesetting and printing the Invstment Company's 5 prospectus. The same procedures shall be followed with respect to the Investment Company's Statement of Additional Information. The Company agrees to provide the Investment Company or its designee with such information as may be reasonably requested by the Investment Company to assure that the Investment Company's expenses do not include the cost of printing any prospectuses or Statements of Additional Information other than those actually distributed to existing owners of the Contracts. 3.2 The Investment Company's prospectus shall state that the Statement of Additional Information for the Investment Company is available from the Underwriter or the Company (or in the Fund's discretion, the Prospectus shall state that such Statement is available from the Investment Company). 3.3 The Investment Company, at its expense, shall provide the Company with copies of its proxy statements, reports to shareholders, and other required communications (except for prospectuses and Statement of Additional Information, which are covered in Section 3.1) to shareholders in such quantity as the Company shall reasonably require for distributing to Contract owners. 3.4 The Company will provide pass-through voting privileges to all Contract owners to the extent that and so long as the SEC continues to interpret the Investment Company Act of 1940 as requiring pass-through voting privileges for Contract owners. Accordingly, the Company, where applicable, will vote shares of the Fund held in its Separate Accounts in a manner consistent with voting instructions timely received from its Contract owners. The Company will be responsible for assuring that each of its separate accounts that participates in the Investment Company calculates voting privileges in a manner consistent with other participating insurance companies. The Company will vote shares for which it has not received timely voting instructions, as well as shares it owns, in the same proportion as it votes those shares for which it has received voting instructions. 3.5 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or if Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Investment Company Act of 1940 or the rules thereunder with respect to mixed and shared funding on terms and conditions materially different from any exemptions granted in the Investment Company's mixed and shared funding exemptive order, then the Investment Company, and/or the Company, as appropriate, shall take such steps as may be necessary to comply with Rule 6e-2 and Rule 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such Rules are applicable. 3.6 The Investment Company will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular the Investment Company will either provide for annual or special meetings or comply with the requirements of Section 16(c) of the 1940 Act (although the Investment Company is not one of the trusts described in Section 16(c) of that Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further, the Investment Company will act in accordance with the SEC's interpretation of the requirements of Section 16(a) with respect to periodic elections of directors and with whatever rules the SEC may promulgate with respect thereto. 6 ARTICLE IV. SALES MATERIAL AND INFORMATION 4.1 The Company shall furnish, or shall cause to be furnished, to the Investment Company or its designee, each piece of sales literature or other promotional material, or component thereof, in which the Investment Company, the Adviser, or the Underwriter is named, at least fifteen Business Days prior to its use. No such material shall be used if the Investment Company or its designee object to such use within fifteen Business Days after receipt of such material. Once any such material has been so furnished to the Investment Company or its designee and fifteen Business days have elapsed, such materials need not again be so furnished absent any subsequent changes to such material that affect the materials' discussion or presentation relating to the Investment Company, its advisor, the Underwriter, or any of their affiliates (other than the Company or persons that are deemed affiliates only by virtue of being controlled by the Company). In particular, materials that have been changed merely to update performance or financial information need not be so furnished. 4.2 The Company shall not give any information or make any representations or statements on behalf of the Investment Company or concerning the Investment Company in connection with the sale of the Contracts other than the information or representations contained in the registration statement or prospectus for the Investment Company shares, as such registration statement and prospectus may be amended or supplemented from time to time, or in reports or proxy statements for the Investment Company, or in sales literature or other promotional material approved by the Investment Company or its designee or by the Underwriter, except with the permission of the Investment Company or the Underwriter or the designee of either. 4.3 The Investment Company, the Underwriter, or their designees shall furnish, or shall cause to be furnished, to the Company or its designee, each piece of sales literature or other promotional material, or component thereof, in which the Company or its separate Accounts are named at least fifteen Business Days prior to its use. No such material shall be used if the Company or its designee objects to such use within fifteen Business Days after receipt of such material. 4.4 The Investment Company and the Underwriter shall not give any information or make any representations on behalf of the Company or concerning the Company, each Account, or the Contracts other than the information or representations contained in a registration statement, prospectus or offering materials for the Contracts, as such may be amended or supplemented from time to time, or in published reports for each Account which are in the public domain or approved by the Company for distribution to Contract owners, or in sales literature or other promotional material approved by the Company or its designee, except with the permission of the Company. 4.5 The Investment Company will provide to the Company at least one complete copy of all registration statements, prospectuses, Statements of Additional Information, reports, proxy statements, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Investment Company or its shares, contemporaneously with the filing of such document with the Securities and Exchange Commission or other regulatory authorities. 7 4.6 The Company will provide to the Investment Company at least one complete copy of all registration statements, prospectuses, Statements of Additional Information, reports, solicitations for voting instructions, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Contracts or each Account, contemporaneously with the filing of such document with the SEC or other regulatory authorities. In the case of unregistered Contracts, in lieu of providing prospectuses and Statements of Additional Information, the Company shall provide the Investment Company with one complete copy of the offering materials for the Contracts. 4.7 For purposes of this Article IV, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, electronic media, or other public media), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, and registration statements, prospectuses, Statements of Additional Information, shareholder reports, and proxy materials. ARTICLE V. POTENTIAL CONFLICTS 5.1 The parties acknowledge that Investment Company has received a "mixed and shared funding "exemptive order from the SEC granting relief from various provisions of the Investment Company Act of 1940 and the rules thereunder to the extent necessary to permit Investment Company shares to be sold to and held by Variable Insurance Products separate accounts of both affiliated and unaffiliated participating insurance companies. The exemptive order requires the Investment Company and each participating insurance company to comply with conditions and undertakings substantially as provided in this Article V. The Investment Company will not enter into a participation agreement with any other participating insurance company unless it imposes the same conditions and undertakings as are imposed on the Company. 5.2 The Investment Company's Board of Trustees ("Board") will monitor the Investment Company for the existence of any material irreconcilable conflict between the interests of Contract owners of all separate accounts investing in the Investment Company. An irreconcilable material conflict may arise for a variety of reasons, which may include: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling or any similar action by insurance, tax or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of the Investment Company are being managed; (e) a difference in voting instructions given by Contract owners; and (f) a decision by a participating insurance company to disregard the voting instructions of Contract owners. 5.3 The Company will report any potential or existing conflicts to the Investment Company's Board. The Company will be responsible for assisting the Board in carrying out its duties in this regard by providing the Board with all information reasonably necessary for the Board to 8 consider any issues raised. The responsibility includes, but is not limited to, an obligation by the Company to inform the Board whenever it has determined to disregard Contract owner voting instructions. These responsibilities of the Company will be carried out with a view only to the interests of the Contract owners. 5.4 If a majority of the Board or majority of its disinterested Trustees, determines that a material irreconcilable conflict exists affecting the Company, then the Company, at its expense and to the extent reasonably practicable (as determined by a majority of the Board's disinterested Trustees), will take any steps necessary to remedy or eliminate the irreconcilable material conflict, including: (a) withdrawing the assets allocable to some or all of the separate accounts from the Investment Company or any Fund thereof and reinvesting those assets in a different investment medium, which may include another Fund of the Investment Company, or another investment company; (b) submitting the question as to whether such segregation should be implemented to a vote of all affected Contract owners and as appropriate, segregating the assets of any appropriate group (i.e., variable annuity or variable life insurance contract owners of one or more participating insurance companies) that votes in favor of such segregation, or offering to the affected Contract owners the option of making such a change; and (c) establishing a new registered management investment company (or series thereof) or managed separate account. If a material irreconcilable conflict arises because of the Company's decision to disregard Contract owner voting instructions, and that decision represents a minority position or would preclude a majority vote, the Company may be required at the election of the Investment Company, to withdraw its separate accounts' investment in the Investment Company, and no charge or penalty will be imposed as a result of such withdrawal. The responsibility to take such remedial action shall be carried out with a view only to the interests of the Contract owners. For the purposes of this Section 5.4, a majority of the disinterested members of the Board shall determine whether or not any proposed action adequately remedies any irreconcilable material conflict but in no event will the Investment Company or any investment adviser of the Investment Company be required to establish a new funding medium for any Contract. Further, the Company shall not be required by this Section 5.4 to establish a new funding medium for any Contract if any offer to do so has been declined by a vote of a majority of Contract owners materially and adversely affected by the irreconcilable material conflict. 5.5 The Board's determination of the existence of an irreconcilable material conflict and its implications shall be made known promptly and in writing to the Company. 5.6 No less than annually, the Company shall submit to the Board such reports, materials or data as the Board may reasonably request so that the Board may fully carry out its obligations. Such reports, materials, and data shall be submitted more frequently if deemed appropriate by the Board. ARTICLE VI. FEES AND EXPENSES 6.1 The Investment Company and the Underwriter shall pay no fee or other compensation to the Company under this Agreement, except that if the Investment Company or any Fund adopts and implements a plan pursuant to Rule l2b-1 to finance distribution expenses, then the Underwriter may make payments to the Company or to the underwriter for the Contracts if and in amounts agreed to by the Underwriter in writing and such payments will be made out of 9 existing fees otherwise payable to the Underwriter, past profits of the Underwriter, or other resources available to the Underwriter. No such payments shall be made directly by the Investment Company. Currently, no such payments are contemplated. 6.2 All expenses incident to performance by the Investment Company under this Agreement shall be paid by the Investment Company. The Investment Company shall ensure that all its shares are registered and authorized for issuance in accordance with applicable federal law and, if and to the extent deemed advisable by the Investment Company, in accordance with applicable state laws prior to their sale. The Investment Company shall bear the expenses for the cost of registration and qualification of the Investment Company's shares, preparation and filing of the Investment Company's prospectus and registration statement, proxy materials and reports, setting the prospectus in type, setting in type and printing the proxy materials and reports to shareholders (including the costs of printing a prospectus that constitutes an annual report), the preparation of all statements and notices required by any federal or state law, and all taxes and fees on the issuance or transfer of the Investment Company's shares. 6.3 The Company shall bear the expenses of distributing the Investment Company's prospectus, proxy materials, and reports to owners of Contracts issued by the Company. ARTICLE VII. DIVERSIFICATION 7.1 The Investment Company will at all times invest money from the Contracts in such a manner as to ensure that the Contracts will be treated as variable contracts under the Internal Revenue Code and the regulations issued thereunder. Without limiting the scope of the foregoing, the Investment Company will at all times comply with Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the diversification requirements for variable annuity, endowment, or life insurance contracts and any amendments or other modifications to such Section or Regulations. ARTICLE VIII. INDEMNIFICATION 8.1 INDEMNIFICATION BY THE COMPANY 8.1(a). The Company agrees to indemnify and hold harmless the Investment Company and each member of the Board and officers and each person, if any, who controls the Investment Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company) or litigation (including legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or action in respect thereof) or settlements are related to the Company's sale or acquisition of the Investment Company's shares or the Contracts and: (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in any Registration Statement, prospectus or other offering materials for the Contracts or contained in the Contracts or sales literature for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or 10 necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Company by or on behalf of the Investment Company for use in any Registration Statement or prospectus for the Contracts or in the Contracts or sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Investment Company's shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the Registration Statement, prospectus or sales literature of the Investment Company not supplied by the Company, or persons under its control) or wrongful conduct of the Company or persons under its control, with respect to the sale or distribution of the Contracts or Investment Company shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement, prospectus, or sales literature of the Investment Company or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon information furnished to the Investment Company by or on behalf of the Company; or (iv) arise as a result of any failure by the Company to provide the services and furnish the materials under the terms of this Agreement; or (v) arise out of a result from any material breach of any representation or warranty made by the Company in this Agreement or arise out of or result from any other material breach of this Agreement by the Company, as limited by and in accordance with the provisions of Sections 8.1(b) and 8.1(c) hereof. 8.1(b). The Company shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation incurred or assessed against an Indemnified Party as such may arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to the Investment Company, whichever is applicable. 8.1(c). The Company shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Company in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Company of any such claim shall not relieve the Company from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Company shall be entitled to participate, at its own expense, in the defense of such action. The Company also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Company to such party of the Company's election to assume the defense thereof, the Indemnified Party shall 11 bear the fees and expenses of any additional counsel retained by it, and the Company will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.1(d). The Indemnified Parties will promptly notify the Company of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the Investment Company shares or the Contracts or the operation of the Investment Company. 8.2 INDEMNIFICATION BY THE UNDERWRITER 8.2(a). The Underwriter agrees to indemnify and hold harmless the Company and each of its directors and officers and each person, if any, who controls or is controlled by the Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Underwriter) or litigation expenses (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Investment Company's shares or the Contracts and; (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement or prospectus or sales literature of the Investment Company (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Underwriter or Investment Company by or on behalf of the Company for use in the Registration Statement or prospectus for the Investment Company or in the sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Investment Company shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in any Registration Statement, prospectus, other offering materials or sales literature for the Contracts not supplied by the Underwriter or persons under its control) or wrongful conduct of the Investment Company, Adviser, or Underwriter or persons under their control, with respect to the sale or distribution of the Contracts or Investment Company shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, prospectus, other offering materials or sales literature covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Company by or on behalf of the Investment Company; or 12 (iv) arise as a result of any failure by the Investment Company to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification requirements specified in Article VII of this Agreement); or (v) arise out of or result from any material breach of any representation or warranty made by the Underwriter in this Agreement or arise out of or result from any other material breach of this Agreement by the Underwriter; as limited by and in accordance with the provisions of Sections 8.2(b) and 8.2(c) hereof. 8.2(b). The Underwriter shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to the Company or each Account, whichever is applicable. 8.2(c). The Underwriter shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Underwriter in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Underwriter of any such claim shall not relieve the Underwriter from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Underwriter will be entitled to participate, at its own expense, in the defense thereof. The Underwriter also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Underwriter to such party of the Underwriter's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Underwriter will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.2(d). The Company agrees promptly to notify the Underwriter of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts or the operation of any Account. 8.3 INDEMNIFICATION BY THE INVESTMENT COMPANY 8.3(a). The Investment Company agrees to indemnify and hold harmless the Company and each of its directors and officers and each person, if any, who controls or is controlled by the Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.3) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Investment Company) or litigation expenses (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, at common law or otherwise, insofar as such losses, claims, 13 damages, liabilities or expenses (or actions in respect thereof) or settlements result from the gross negligence, bad faith or willful misconduct of the Board or any member thereof, are related to the operations of the Investment Company and: (i) arise as a result of any failure by the Investment Company to provide the services and furnish the materials under the terms of this Agreement (including a failure to comply with the diversification requirements specified in Article VII of this Agreement); or (ii) arise out of or result from any material breach of any representation or warranty made by the Investment Company in this Agreement or arise out of or result from any other material breach of this Agreement by the Investment Company, as limited by and in accordance with the provisions of Sections 8.3(b) and 8.3(c) hereof. 8.3(b). The Investment Company shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation incurred or assessed against an Indemnified Party as such may arise from such Indemnified Party's will misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to the Company, the Investment Company, the Underwriter or any Account, which ever is applicable. 8.3(c). The Investment Company shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Investment Company in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Investment Company of any such claim shall not relieve the Investment Company from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Investment Company will be entitled to participate, at its own expense, in the defense thereof. The Investment Company also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Investment Company to such party of the Investment Company's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Investment Company will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.3(d). The Company and the Underwriter agree promptly to notify the Investment Company of the commencement of any litigation or proceeding against it or any of its respective officers or directors in connection with this Agreement, the issuance or sale of the Contracts, with respect to the operation of any Account, or the sale or acquisition of shares of the Investment Company. 14 ARTICLE IX. APPLICABLE LAW 9.1 This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of Washington. 9.2 To the extent they are applicable, this Agreement shall be subject to the provisions of the 1933, 1934 and 1940 acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the Securities and Exchange Commission may grant and the terms hereof shall be interpreted and construed in accordance therewith. ARTICLE X. TERMINATION OF AGREEMENT 10.1 This Agreement shall continue in full force and effect until the first to occur of: (a) termination by any party for any reason by sixty (60) days advance written notice delivered to the other parties; or (b) termination by the Company by written notice to the Investment Company and the Underwriter with respect to any fund based upon the Company's determination that shares of such Fund are not reasonably available to meet the requirements of the Contracts; or (c) termination by the Company by written notice to the Investment Company and the Underwriter with respect to any Fund in the event any of the Fund's shares are not registered, issued, or sold materially in accordance with applicable state or federal law or such law precludes the use of such shares as the underlying investment media of the Contracts issued or to be issued by the Company; or (d) Termination by the Company by written notice to the Investment Company and the Underwriter with respect to any Fund in the event that such Fund ceases to qualify as a Regulated Investment Company under Subchapter M of the Code or under any successor or similar provision, or if the Company reasonably believes that the Investment Company may fail to so qualify; or (e) termination by the Company by written notice to the Investment Company and the Underwriter with respect to any Fund in the event that such Fund fails to meet the diversification requirements specified in Article VII hereof; or (f) termination by either the Investment Company or the Underwriter by written notice to the Company, if either one or both of the Investment Company or the Underwriter respectively, shall determine, in their sole judgment exercised in good faith, that the Company or its affiliated companies has suffered a material adverse change in its business, operations, financial condition, or prospects since the date of this Agreement or is the subject of material adverse publicity; or (g) termination by the Company by written notice to the Investment Company and the Underwriter, if the Company shall determine, in its sole judgment exercised in good faith, that either the Investment Company or the Underwriter has suffered a material adverse change in its 15 business, operations, financial condition, or prospects since the date of this Agreement or is the subject of material adverse publicity. 10.2 Notwithstanding any termination of this Agreement, the Investment Company and the Underwriter shall at the option of the Company, continue to make available additional shares of the Investment Company pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"). Specifically, without limitation, the owners of the Existing Contracts shall be permitted to reallocate investment in the Investment Company, redeem investments in the Investment Company, or invest in the Investment Company upon the making of additional purchase payments under the Existing Contracts. 10.3 The Company shall not redeem Investment Company shares attributable to the Contracts (as opposed to Investment Company shares attributable to the Company's assets held in any of the Accounts) except (i) as necessary to implement Contract Owner initiated transactions, or (ii) as required by state or federal laws or regulations or judicial or other legal precedent of general application (hereinafter referred to as a "Legally Required Redemption"). Upon request, the Company will promptly furnish to the Investment Company and the Underwriter the opinion of counsel for the Company (which counsel shall be reasonably satisfactory to the Investment Company and the Underwriter) to the effect that any redemption pursuant to clause (ii) above is a Legally Required Redemption. Furthermore, except in cases where permitted under the terms of the Contracts, the Company shall not prevent Existing Contract Owners from allocating payments to a Fund that was otherwise available under the Contracts without first giving the Investment Company or the Underwriter sixty (60) days notice of its intention to do so. ARTICLE XI. NOTICES Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Investment Company: 909 A. Street Tacoma, Washington 98402 Attention: Karl J. Ege, Esq. If to the Company: 720 East Wisconsin Avenue Milwaukee, Wisconsin 53202-4797 Attention: _________________________ If to the Underwriter: 909 A. Street Tacoma, Washington 98402 Attention: Karl J. Ege, Esq. 16 ARTICLE XII. MISCELLANEOUS 12.1 All persons dealing with the Investment Company must look solely to the property of the Investment Company for the enforcement of any claims against the investment Company as neither the Board, officers, agents or shareholders assume any personal liability for obligations entered into on behalf of the Investment Company. 12.2 Subject to the requirements of legal process and regulatory authority, each party hereto shall treat as confidential the names and addresses of the owners of the Contracts and all information reasonably identified as confidential in writing by any other party hereto and, except as permitted by this Agreement, shall not disclose, disseminate or utilize such names and addresses and other confidential information until such time as it may come into the public domain without the express written consent of the affected party. 12.3 The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 12.4 This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 12.5 If any provisions of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 12.6 Each party hereto shall cooperate with each other party and all appropriate governmental authorities (including without limitation the SEC, the NASD and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. Notwithstanding the generality of the foregoing, each party hereto further agrees to furnish the California Insurance Commissioner with any information or reports in connection with services provided under this Agreement which such Commissioner may request in order to ascertain whether the variable life insurance operations of the Company are being conducted in a manner consistent with the California Variable Life Insurance Regulations and any other applicable law or regulations. 12.7 The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. 12.8 This Agreement or any of the rights and obligations hereunder may not be assigned by any party without the prior written consent of all parties hereto; provided, however, that the Underwriter may assign this Agreement or any rights or obligations hereunder to any affiliate of or company under common control with the Underwriter, if such assignee is duly licensed and registered to perform the obligations of the Underwriter under this Agreement. 17 12.9 The Company shall furnish, or shall cause to be furnished, to the Investment Company or its designee copies of the following reports: (a) the Company's annual statement prepared under statutory accounting principles, as soon as practical and in any event within 90 days after the end of each fiscal year; (b) the Company's quarterly statement (statutory), as soon as practical and in any event within 45 days after the end of each quarterly period; and (c) any financial statement, proxy statement, notice or report of the Company sent to stockholders or policyholders, as soon as practical after the delivery thereof; and 12.10 The Master Trust Agreement dated 11 July 1996, as amended from time to time, establishing the Investment Company, which is hereby referred to and a copy of which is on file with the Secretary of The Commonwealth of Massachusetts, provides that the name Russell Insurance Funds means the Trustees from time to time serving (as Trustees but not personally) under said Master Trust Agreement. It is expressly acknowledged and agreed that the obligations of the Investment Company hereunder shall not be binding upon any of the shareholders, Trustees, officers, employees or agents of the Investment Company, personally, but shall bind only the trust property of the Investment Company as provided in its Master Trust Agreement. The execution and delivery of this Agreement have been authorized by the Trustees of the Investment Company and signed by the President of the Investment Company, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the trust property of the Investment Company as provided in its Master Trust Agreement. IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement to be executed in its name and on behalf by its duly authorized representative and its seal to be hereunder affixed hereto as of the date first written above. THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY ATTEST: BY: - ---------------------------------------- ------------------------------ Secretary Title: RUSSELL INSURANCE FUNDS ATTEST: BY: - ---------------------------------------- ------------------------------ Secretary President RUSSELL FUND DISTRIBUTORS, INC. 18 ATTEST: BY: - ---------------------------------------- ------------------------------ Secretary President 19 SCHEDULE A ACCOUNTS Name of Account Date of Resolution of Company's Board that established the Account NML Variable Annuity Account A February 14, 1968 NML Variable Annuity Account B February 14, 1968 NML Variable Annuity Account C July 22, 1970 Northwestern Mutual Variable Life Account November 23, 1983 20 SCHEDULE B CONTRACTS 1. Contract Form Numbers: Variable Life: RR.VJL.(1298) RR Series Variable Joint Life RR.VEL.(0398) RR Series Variable Executive Life QQ.VCL QQ Series Variable CompLife MM 15 MM Series Variable Whole Life MM 16 MM Series Variable Single Premium Life MM 17 MM Series Variable Extraordinary Life Individual Variable Annuity: QQV.ACCT.A QQV.ACCT.B QQ Series VAs MM V 1A MM V 1B MM V 1 MM Series VAs LL V 1A LL V 1B LL V 1 LL Series VAs KK V 1A KK V 1B KK V 1 KK Series VAs JJ V 1A JJ V 1B JJ Series VAs Group Variable Annuity NPV.1C NN Series GPA MP V 1C MM Series GPA LL V 1C LL Series GPA KK V 1C KK Series GPA JJ V 1C JJ Series GPA 2. Funds currently available to act as investment vehicles for the above-listed contracts: Russell Insurance Funds: Multi-Style Equity Fund Aggressive Equity Fund Non-U.S. Fund Core Bond Fund Russell Real Estate Securities Fund HOL03 116508 S-6's 21 EX-99.A(9)(B) 4 EXHIBIT 99.A(9)(B) Exhibit A(9)(b) February __, 1999 The Northwestern Mutual Life Insurance Company 720 East Wisconsin Avenue Milwaukee, WI 53202 Re: Administrative Service Fee Gentlemen: The purpose of this letter is to confirm certain financial arrangements between Frank Russell Investment Management Company ("FRIMCo"), the investment adviser to Russell Insurance Funds, a registered investment company (the "Trust"), and The Northwestern Mutual Life Insurance Company ("NML") in connection with NML's investment in the Trust. FRIMCo or its affiliates will pay an administrative services fee to NML equal, on an annualized basis, to 0.10% of the aggregate net assets of the Trust attributable to NML (other than assets attributable to NML employee and agent qualified plans). Such fee shall be paid quarterly (on a calendar year basis) in arrears for as long as NML owns shares in the Trust. Sincerely, FRANK RUSSELL INVESTMENT MANAGEMENT COMPANY By: --------------------------- Lynn L. Andersen Chief Executive Officer Agreed to and accepted: THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY By: ----------------------- Mark G. Doll Senior Vice President EX-99.C(1) 5 EXHIBIT 99.C(1) Exhibit C(1) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Post-Effective Amendment No. 21 to the Registration Statement on Form S-6 (the "Registration Statement") of our report dated January 25, 1999, relating to the financial statements of The Northwestern Mutual Life Insurance Company, and of our report dated January 25, 1999, 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. PricewaterhouseCoopers LLP Milwaukee, Wisconsin February 25, 1999 EX-99.C(6) 6 EXHIBIT 99.C(6) Exhibit C(6) February 25, 1999 The Northwestern Mutual Life Insurance Company 720 East Wisconsin Avenue Milwaukee, Wisconsin 53202 Gentlemen: This opinion is furnished in connection with Post-Effective Amendment No. 21 to the Registration Statement on Form S-6, Registration No. 2-89972, of Northwestern Mutual Variable Life Account (File No. 2-89972). The prospectus included in Post-Effective Amendment No. 21 ("Prospectus") describes three variable life insurance policies which are issued in connection with the Account ("Policies"): Whole Life, Extra Ordinary Life Policies and Single Premium Life Policies. The Policy forms were prepared under my direction, and I am familiar with the Registration Statement and Amendments and Exhibits thereto. In my opinion: l. The illustrations of death benefits included on pages 11, 12 and 13 of the Prospectus, based on the assumptions stated in the illustrations, are consistent with the provisions of the Policies. 2. The illustration of the effect of a Policy loan on the death benefit and cash value included on page 15, based on the assumptions stated in the illustration, is consistent with the provisions of the Policies. 3. The illustration of reduced paid-up insurance and extended term in- surance included on page 16 of the Prospectus, based on the assumptions stated in the illustration, is consistent with the provisions of the Policies. 4. The illustrations of cash values and death benefits included on pages 44 through 48 of the Prospectus, in the Appendix thereto, including the amounts shown for the Base Policy and as Paid-Up Additions, based on the assumptions stated in the illustrations, are consistent with the provi- sions 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 illustra- tions, 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. 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, F.S.A. Senior Vice President and Chief Actuary EX-27 7 EXHIBIT 27
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT DECEMBER 31, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 587,479 749,935 423 0 0 750,358 328 0 95 423 749,935 0 0 0 0 0 0 0 0 749,935 24,922 0 0 3,933 20,989 4,332 68,780 94,101 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3,933 0 0 0 0 0 0 0 0 0 0 0
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