-----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, PX0XnO+d5yl/cTkclVpGtrWXvHDJ4KTeSNfd/4NMayvkjfqJdOjDiVlvxrsVfzu/ nVH3GQOIFQ7kLbQN0l8g8A== 0001047469-98-016710.txt : 19980430 0001047469-98-016710.hdr.sgml : 19980430 ACCESSION NUMBER: 0001047469-98-016710 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19980428 EFFECTIVENESS DATE: 19980428 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT CENTRAL INDEX KEY: 0000742277 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 002-89972 FILM NUMBER: 98602540 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-03989 FILM NUMBER: 98602541 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 485BPOS 1 485BPOS Registration No. 2-89972 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- POST-EFFECTIVE AMENDMENT NO. 20 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) __X__ on April 30, 1998 pursuant to paragraph (b) _____ 60 days after filing pursuant to paragraph (a)(1) _____ on (DATE) 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 11 . . . . . . . . . . . . . . . The Account, The Fund, Aggressive Growth Stock Portfolio, International Equity 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 12 . . . . . . . . . . . . . . . The Fund 13 . . . . . . . . . . . . . . . The Fund, 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 Fund, Allocations to the Account, Transfers Between Divisions i 17 . . . . . . . . . . . . . . . Same Captions as Items 10(a), (c), and (d) 18 . . . . . . . . . . . . . . . The Account, Annual Dividends 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 Fund 41 . . . . . . . . . . . . . . . The Fund, Distribution of the Policies 42 . . . . . . . . . . . . . . . Not Applicable 43 . . . . . . . . . . . . . . . Not Applicable 44 . . . . . . . . . . . . . . . The Fund, 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, 1998 NORTHWESTERN MUTUAL LIFE-Registered Trademark- The Quiet Company-Registered Trademark- NORTHWESTERN MUTUAL VARIABLE LIFE Whole Life Extra Ordinary Life Single Premium Life (PHOTO) Northwestern Mutual Series Fund, Inc. The Northwestern Mutual Life Insurance Company 720 East Wisconsin Avenue Milwaukee, Wisconsin 53202 (414) 271-1444 CONTENTS 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 Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 The Northwestern Mutual Life Insurance Company, Northwestern Mutual Variable Life Account and Northwestern Mutual Series Fund, Inc.. . . . . . . . . . . . . . . . . . 4 Northwestern Mutual Life. . . . . . . . . . . . . . . . . . . . . . . . 4 The Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 The Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Aggressive Growth Stock Portfolio. . . . . . . . . . . . . . . . . . . 4 International Equity Portfolio . . . . . . . . . . . . . . . . . . . . 4 Growth Stock Portfolio . . . . . . . . . . . . . . . . . . . . . . . . 4 Growth and Income Stock Portfolio. . . . . . . . . . . . . . . . . . . 4 Index 500 Stock Portfolio . . . . . . . . . . . . . . . . . . . . . . 4 Balanced Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . 5 High Yield Bond Portfolio. . . . . . . . . . . . . . . . . . . . . . . 5 Select Bond Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . 5 Money Market Portfolio . . . . . . . . . . . . . . . . . . . . . . . . 5 Detailed Information about the Policies. . . . . . . . . . . . . . . . . . 5 Requirements for Insurance . . . . . . . . . . . . . . . . . . . . . . . 5 Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Grace Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Allocations to the Account . . . . . . . . . . . . . . . . . . . . . . . 7 Transfers Between Divisions. . . . . . . . . . . . . . . . . . . . . . . 7 Deductions and Charges . . . . . . . . . . . . . . . . . . . . . . . . . 7 Deductions from Premiums for Whole Life and Extra Ordinary Life Policies . . . . . . . . . . . . . . . . . 7 Deductions for Single Premium Life Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Charges Against the Account Assets . . . . . . . . . . . . . . . . . . . 9 Guarantee of Premiums, Deductions and Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Death Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Variable Insurance Amount. . . . . . . . . . . . . . . . . . . . . . . 9 Whole Life Policy and Single Premium Life Policy . . . . . . . . . . . . . . . . . . . . . . . . . 10 Extra Ordinary Life Policy . . . . . . . . . . . . . . . . . . . . . . 11 Cash Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Annual Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Policy Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Extended Term and Paid-Up Insurance. . . . . . . . . . . . . . . . . . . 15 Reinstatement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Right to Return Policy . . . . . . . . . . . . . . . . . . . . . . . . . 15 Right to Exchange for a Fixed Benefit Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Other Policy Provisions. . . . . . . . . . . . . . . . . . . . . . . . . 15 Owner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Incontestability . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Suicide. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Misstatement of Age or Sex . . . . . . . . . . . . . . . . . . . . . . 16 Collateral Assignment. . . . . . . . . . . . . . . . . . . . . . . . . 16 Payment Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Deferral of Determination and Payment. . . . . . . . . . . . . . . . . 16 Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Substitution of Fund Shares and Other Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Special Policy for Employers . . . . . . . . . . . . . . . . . . . . . . 17 Distribution of the Policies . . . . . . . . . . . . . . . . . . . . . . 17 Tax Treatment of Policy Benefits . . . . . . . . . . . . . . . . . . . . 17 Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . 20 Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Report of Independent Accountants (for the two years ended December 31, 1997) . . . . . . . . . . . . . 21 Financial Statements of the Account (for the two years ended December 31, 1997) . . . . . . . . . . . . . 22 Financial Statements of Northwestern Mutual Life (for the three years ended December 31, 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Report of Independent Accountants (for the three years ended December 31, 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 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. Each Policy is designed to provide lifetime insurance coverage on the insured named in the Policy. A Policy may also be surrendered for its cash value during the lifetime of the insured. The death benefit and cash value of a Policy will vary to reflect the investment experience of Northwestern Mutual Variable Life Account (the "Account"). The owner of a Policy may allocate the net premiums to one or more of the nine divisions of the Account. The assets of each division will be invested in a corresponding Portfolio of Northwestern Mutual Series Fund, Inc. (the "Fund"). The prospectus for the Fund, attached to this prospectus, describes the investment objectives of the nine Portfolios: the Aggressive Growth Stock Portfolio, International Equity 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. Northwestern Mutual Life guarantees 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 premiums are paid when 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 premiums are paid when due and no Policy debt is outstanding. The Extra Ordinary Life Policy is designed 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 deductions for sales costs are made from premiums. These deductions are higher during the early Policy years. For a Single Premium Life Policy deductions for sales costs are made from the cash values of Policies surrendered during the early Policy years. Therefore a Policy should be purchased only if the purchaser intends to keep it in force for a reasonably long period. A policy may be returned for a full refund for a limited period of time. See "Right to Return Policy", p. 15. 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 PROSPECTUS FOR NORTHWESTERN MUTUAL SERIES FUND, INC. WHICH IS ATTACHED HERETO, AND SHOULD BE RETAINED FOR FUTURE REFERENCE. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. 1 THE PRIMARY PURPOSE OF THESE VARIABLE LIFE INSURANCE POLICIES IS TO PROVIDE INSURANCE PROTECTION. NO CLAIM IS MADE 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 the premiums, after certain deductions, are placed 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 selected. The death benefit is adjusted annually on the Policy anniversary. Northwestern Mutual Life guarantees that the death benefit for a Whole Life Policy will never be less than the face amount of the Policy, so long as premiums are paid when due and no Policy debt is outstanding. For an Extra Ordinary Life Policy, Northwestern Mutual Life guarantees that the death benefit will never be less than the Minimum Death Benefit stated in the Policy, so long as premiums are paid when due and no Policy debt is outstanding. The Extra Ordinary Life Policy is designed for purchasers who intend to use all Policy dividends to purchase paid-up additions. For a Single Premium Life Policy, Northwestern Mutual Life guarantees 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, the cash value is adjusted daily. There is no guaranteed minimum cash value. THE ACCOUNT AND ITS DIVISIONS The Account has nine divisions. The owner of the Policy determines how the net annual premium is to be apportioned. The assets of each division are invested in a corresponding Portfolio of Northwestern Mutual Series Fund, Inc. The nine Portfolios are the Aggressive Growth Stock Portfolio, International Equity 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 investment objectives of the Portfolios are briefly described herein. See "The Fund", p. 4. For additional information see the attached prospectus for the Fund. DEDUCTIONS AND CHARGES The net annual premium for a Whole Life Policy and an Extra Ordinary Life Policy is placed in the Account when the Policy is issued and on the Policy anniversary each year. This amount is the total premium after deductions for sales and administrative expenses, state premium taxes and risk charges. For an Extra Ordinary Life Policy, a deduction is also made for dividends to be paid or credited in accordance with the dividend scale in effect on the issue date of the Policy. For the first year there is also a fixed fee for expenses incurred in issuing the Policy. The net annual premium excludes any extra premium charged for insureds who do not qualify as select risks and the extra premium for optional benefits. For a Single Premium Life Policy an administrative charge of $l50 is made when the Policy is issued. This is the only deduction from the single premium, but if a Single Premium Policy is surrendered during the first ten policy years the cash value payable on surrender is reduced by a deduction for sales costs. The Account pays a charge at the annual rate of .50% of the Account's assets for the mortality and expense risks assumed by Northwestern Mutual Life and a charge at the annual rate of .20% of the Account's assets for federal income taxes incurred by Northwestern Mutual Life. The Fund pays an investment advisory fee, and other expenses, which vary depending on the Portfolios selected. For additional information, see "Deductions and Charges", p. 7. For a Whole Life Policy or an Extra Ordinary Life Policy the deductions in the first year for sales and administrative expenses will often amount to more than 50% of the total annual premium. The percentage varies with the age of the insured and the size of the Policy. For Whole Life Policies the percentage ranges from 40% for large Policies at the highest ages to 90% for the smallest Policies for juveniles. For Extra Ordinary Life Policies the percentage ranges from 54% for large Policies at the highest ages to 87% for the smallest Policies for juveniles. 2 OTHER INFORMATION For a Whole Life Policy the minimum face amount of insurance for which a Policy may be issued 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 for which a Policy may be issued is $50,000; if the insured is over age 70, the minimum amount is $25,000. The minimum face amount of insurance for which a Single Premium Life Policy may be issued is $5,000. For an Extra Ordinary Life Policy the insured may not be younger than age l5 on the date of issue. For either an Extra Ordinary Life Policy or a Single Premium Life Policy the insured may not be older than age 75 on the date of issue. For a limited time a Policy may be returned for a refund. See "Right to Return Policy", p. 15. 3 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT AND NORTHWESTERN MUTUAL SERIES FUND, INC. NORTHWESTERN MUTUAL LIFE The Northwestern Mutual Life Insurance Company is a mutual life insurance company organized by a special act of the Wisconsin Legislature in 1857. It is the nation's fifth largest life insurance company, based on total assets in excess of $71 billion on December 31, 1997 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 ACCOUNT Northwestern Mutual Variable Life Account was established by the Trustees of Northwestern Mutual Life on November 23, 1983, in accordance with the provisions of Wisconsin insurance law. Under Wisconsin law the income, gains and losses, realized or unrealized, of the Account are credited to or charged against the assets of the Account without regard to other income, gains or losses of Northwestern Mutual Life. The Account is used only for the variable life insurance Policies. The Account is registered as a unit investment trust under the Investment Company Act of 1940. Such registration does not involve supervision of management or investment practices or policies. The Account has nine divisions. All of the assets of each division are invested in shares of the corresponding Portfolio of the Fund described below. THE FUND Northwestern Mutual Series Fund, Inc. is a mutual fund of the series type registered under the Investment Company Act of 1940 as an open-end diversified management investment company. Shares of each Portfolio of the Fund are purchased by the corresponding division of the Account at their net asset value without any sales charge. The investment adviser for the Fund is Northwestern Mutual Investment Services, Inc. ("NMIS"), a wholly-owned subsidiary of Northwestern Mutual Life. The investment advisory agreements for the respective Portfolios provide that NMIS will provide services and bear certain expenses of the Fund. For providing investment advisory and other services and bearing Fund expenses, the Fund pays NMIS a fee at an annual rate which ranges from .20% of the aggregate average daily net assets of the Index 500 Stock Portfolio to a maximum of .67% for the International Equity Portfolio, based on 1997 asset size. Other expenses borne by the Portfolios range from 0% for the Select Bond, Money Market and Balanced Portfolios to .10% for the International Equity Portfolio. Northwestern Mutual Life provides certain personnel and facilities used by NMIS in performing its investment advisory functions and is a party to the investment advisory agreement. J.P. Morgan Investment Management, Inc. and Templeton Investment Counsel, Inc. have been retained under investment sub-advisory agreements to provide investment advice to the Growth and Income Stock Portfolio and the International Equity Portfolio, respectively. The investment objectives and types of investments for each of the nine Portfolios of the Fund are set forth below. There can be no assurance that the objectives of the Portfolios will be realized. For more information about the investment objectives and policies, the attendant risk factors and expenses see the Fund prospectus. 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 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 4 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. - -------------------------------------------------------------------------------- DETAILED INFORMATION ABOUT THE POLICIES REQUIREMENTS FOR INSURANCE The minimum face amount for which a Whole Life Policy may be issued 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 for which a Policy may be issued is $50,000; if the insured is over age 70, the minimum amount is $25,000. The minimum face amount of insurance for which a Single Premium Life Policy may be issued 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, Northwestern Mutual Life will require satisfactory evidence of insurability. Non-smokers who meet preferred underwriting requirements are considered select risks. A higher premium is charged for insureds who do not qualify as select risks. The amount of additional premium depends on the risk classification in which the insured is placed. Nonsmokers in the second best classification are considered standard plus risks. The best class of smokers are considered standard risks. PREMIUMS Payment of the first premium is required 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. The owner of a Policy may change the premium frequency. The change will be effective when the premium on the new frequency is accepted. Premiums paid more often than annually include an extra amount to compensate Northwestern Mutual Life for the extra processing costs and loss of interest because the money is received later. 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. A notice is sent to the owner of a Policy not less than two weeks before each premium is due. If the monthly premium frequency is selected, Northwestern Mutual Life may require that premium payments be made 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. 5
% 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 is guaranteed for the lifetime of the insured and the Extra Life Protection which is guaranteed for a shorter period. See "Death Benefit", p. 9, and "Extra Ordinary Life Policy", p. 11.
% 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 the purchaser 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 determined by Northwestern Mutual Life. The premiums for these Policies are the same for both select and standard plus risks, but it is expected 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 the premium is not paid within the grace period the Policy will terminate as of the date when the premium was due and will no longer be in force, unless it is continued as extended term or 6 paid-up insurance. See "Extended Term and Paid-Up Insurance", p. 15. If a Policy is surrendered, its cash value will be paid. See "Cash Value", p. 13. If the insured dies during the grace period any overdue premium will be deducted from the proceeds of the Policy. If the insured dies after payment of the premium for the period which includes the date of death, the portion of the premium for the remainder of that period will be refunded as part of the Policy proceeds. ALLOCATIONS TO THE ACCOUNT The net annual premium for a Whole Life Policy or an Extra Ordinary Life Policy is placed 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. The owner of a Whole Life or an Extra Ordinary Life Policy determines how the net annual premium is apportioned among the divisions of the Account. If any portion of a premium is directed to a division, the division must receive at least 10% of that premium. The apportionment for future premiums may be changed upon written request at any time, but the change will be effective only when the net annual premium is placed in the Account on the next Policy anniversary, even if premiums are being paid on an other than annual basis. For a Single Premium Policy the entire single premium, less an administrative charge of $150, is placed in the Account on the Policy date and apportioned among the divisions of the Account as determined by the owner of the Policy. The Account assets supporting a Policy may be apportioned among as many as six divisions of the Account at any time. TRANSFERS BETWEEN DIVISIONS The owner of a Policy 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 a written request is received at the Home Office of Northwestern Mutual Life. Northwestern Mutual Life reserves the right to charge a fee to cover administrative costs of transfers. No fee is presently charged. DEDUCTIONS AND CHARGES The net premiums placed 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 charged for insureds who do not qualify as select risks and the extra premium for any optional benefits. A charge for mortality and expense risks is made against the assets of the Account. There is also a charge for taxes. See "Charges Against the Account Assets", p. 9. In addition, the Fund in which the Account assets are invested pays an investment advisory fee and certain other expenses. Fund expenses are briefly described above on page 4, and in more detail in the attached prospectus for the Fund. 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 the premium were paid 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 who are placed 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 incurred for that year. Northwestern Mutual Life expects to recover its total sales expenses from the amounts deducted for sales costs over the period while the Policies are in force. To the extent that sales expenses exceed the amounts deducted, Northwestern Mutual Life will pay the expenses from its other assets. These assets may include, among other things, 7 any gain realized from the charge against the assets of the Account for the mortality and expense risks assumed by Northwestern Mutual Life. See "Charges Against the Account Assets", p. 9. To the extent that the amounts deducted for sales costs exceed the amounts needed, Northwestern Mutual Life will realize a gain. A deduction equal to 2% of each basic premium is made for state premium taxes. Premium taxes vary from state to state and currently range from .75% to 3.5% of life insurance premiums. The 2% rate is an average. The tax rate for a particular state may be lower, higher or equal to the 2% deduction. Northwestern Mutual Life has guaranteed 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, Northwestern Mutual Life has guaranteed 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 Northwestern Mutual Life 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 is expected 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 incurred 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. 7. The entire premium for a Single Premium Life Policy, after this deduction of $150, is placed in the Account when the Policy is issued 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. 13. The deduction decreases over time until it is eliminated at the end of the tenth Policy year. The deduction is intended to recover the costs incurred by Northwestern Mutual Life 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. 8
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 which may be borrowed during the first ten years is reduced to reflect the deduction for sales costs which would be made if the Policy were surrendered on the date of the Policy loan. See "Policy Loans", p. 14. CHARGES AGAINST THE ACCOUNT ASSETS There is a daily charge to the Account for the mortality and expense risks assumed by Northwestern Mutual Life. The charge is at the annual rate of .50% of the assets of the Account. The mortality risk is that insureds may not live as long as Northwestern Mutual Life estimated. The expense risk is that expenses of issuing and administering the Policies may exceed the estimated costs. Northwestern Mutual Life will realize a gain from this charge to the extent it is not needed to provide benefits and pay expenses under the Policies. The actual mortality and expense experience under the Policies will be the basis for determining dividends. See "Annual Dividends", p. 13. The Policies provide that a charge for taxes may be made against the assets of the Account. Currently, a daily charge for federal income taxes incurred by Northwestern Mutual Life is being made at the annual rate of .20% of the assets of the Account. The charge for taxes may be increased, decreased or eliminated in the future. In no event will the charge for taxes exceed that portion of the actual tax expenses of Northwestern Mutual Life which is fairly allocable to the Policies. GUARANTEE OF PREMIUMS, DEDUCTIONS AND CHARGES Northwestern Mutual Life guarantees and may not increase the premiums, the amounts deducted 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. 11. 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 premiums are paid when 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 have been 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. 10, and "Extra Ordinary Life Policy", p. 11. 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. The variable insurance amount is adjusted 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 it has been 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 9 the price for that amount of paid-up whole life insurance based on the insured's age at the Policy anniversary. Because the variable insurance amount is adjusted only on the Policy anniversary, Northwestern Mutual Life bears 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, the owner of the Policy will forego the benefit and Northwestern Mutual Life 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, this increased death benefit will be paid. 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. 13. 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 is guaranteed 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. The death benefit is adjusted on each Policy anniversary when the variable insurance amount is determined for the following year. The total death benefit also includes the amount of insurance provided by any paid-up additions which have been 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 premiums are paid when 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 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 43 and assuming the 12% hypothetical gross investment earnings rate on assets of the selected Portfolio of the Fund (equivalent to a net rate of 10.85% 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 $1,073 $637 $32,689 Change. . . . . . . . . . . 0 +507 +216 +723 ------- ------ ---- ------- End of Policy Year 6. . . . $30,979 $1,580 $853 $33,412
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: 10
GUARANTEED VARIABLE TOTAL FACE INSURANCE PAID-UP DEATH AMOUNT + AMOUNT + ADDITIONS = BENEFIT ---------- --------- --------- ------- End of Policy Year 5. . . . $30,979 $1,073 $637 $32,689 Change. . . . . . . . . . . 0 -381 +142 -239 ------- ------ ---- ------- End of Policy Year 6. . . . $30,979 $692 $779 $32,450
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 47 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 10.85% 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 $9,426 $433 $34,859 Change. . . . . . . . . . . 0 +2,275 +154 +2,429 ------- ------- ---- ------- End of Policy Year 6. . . . $25,000 $11,701 $587 $37,288
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 $9,426 $433 $34,859 Change. . . . . . . . . . . 0 -1,711 +104 -1,607 ------- ------ ---- ------- End of Policy Year 6. . . . $25,000 $7,715 $537 $33,252
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, and is guaranteed for the lifetime of the insured so long as premiums are paid when 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 premiums are paid when 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. 9 and "Whole Life Policy and Single Premium Life Policy", p. 10. 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. Northwestern Mutual Life guarantees 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 premiums are paid when 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 the Policy is issued, and ranges from 11 37 years at age 15 to 7 years at age 75. At age 35 the guaranteed period is 27 years. 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 assets of the Fund which support the Policy produce a gross investment rate of return of 8% or better and dividends are at least equal to those being paid 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, Northwestern Mutual Life may reduce the amount of term insurance for the Policy year. The owner of the Policy will be given notice of the reduction and 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. The owner's right to continue to purchase term insurance on this basis will terminate as of the first Policy anniversary when the owner fails 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 46 and the assumed 12% hypothetical gross annual investment earnings rate on assets of the selected Portfolio of the Fund (equivalent to a net rate of 10.85% 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 $36,321 $2,041 $1,638 $100,000 Change. . . . . . . . . . . . 0 -1,566 +973 +593 0 ------- ------- ------ ------- -------- End of Policy Year 6. . . . . $60,000 $34,755 $3,014 $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 -1.15%) 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 $36,321 $2,041 $1,638 $100,000 Change. . . . . . . . . . . . 0 +329 -732 +403 0 ------- ------- ------ ------ -------- End of Policy Year 6. . . . . $60,000 $36,650 $1,309 $2,041 $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 premiums are paid when due and no Policy debt is outstanding. The Extra Ordinary Life Policy is designed for a purchaser who intends to use all dividends to purchase paid-up additions. If dividends are used 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 the owner's 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 $63,679, by the elimination of $36,321 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: 12
Minimum Death Benefit. . . . . . . . . . . . . . . . . . . . . . $60,000 Variable Insurance Amount. . . . . . . . . . . . . . . . . . . . +2,041 Variable Paid-Up Additions . . . . . . . . . . . . . . . . . . . +1,638 Term Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 0 ------- Total Death Benefit. . . . . . . . . . . . . . . . . . . . . . . $63,679 ------- -------
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, the amount shown for the preceding anniversary in the table of cash values at the front of the Policy is noted and adjusted 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. 7. 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. 8. Second, the net single premium for the variable insurance amount is added to the tabular cash value. See the discussion of net single premiums under "Variable Insurance Amount", p. 9. 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, the algebraic sum of the tabular cash value and the net single premium for the variable insurance amount is adjusted 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. The cash value for a Policy is determined at the end of each valuation period. Each business day, together with any non-business days before it, is a valuation period. A business day is any day on which the New York Stock Exchange is open for trading. In accordance with the requirements of the Investment Company Act of l940, the cash value for a Policy may also be determined on any other day on which there is sufficient trading in securities to materially affect the value of the securities held by the Portfolios of the Fund. The owner of a Policy may surrender it for the cash value at any time during the lifetime of the insured. Alternatively, the cash value of a Whole Life Policy or an Extra Ordinary Life Policy may be applied 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 Northwestern Mutual Life will permit the owner of a Policy to split it 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 determined annually by Northwestern Mutual Life. A Policy's share will be distributed 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. No dividend will be paid on a Whole Life Policy or an Extra Ordinary Life Policy 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. 13 Northwestern Mutual Life's 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. Classes are determined by such factors as year of issue, age, plan of insurance and risk classification. The actuary then determines the amount of dividends to be equitably apportioned to each class of policies. Following the actuary's recommendations, the Trustees of Northwestern Mutual Life adopt a dividend scale each year, thereby authorizing the distribution of the dividend. Northwestern Mutual Life has no significant actual mortality experience with variable life insurance policies. For purposes of the current dividend scale used for the illustrations in this prospectus, it has been assumed that mortality experience in connection with the Policies will be comparable to that actually experienced with fixed benefit life insurance. The prospectus illustrations show dividends being used to purchase variable paid-up additions. Dividends may also be paid in cash, used to pay premiums or left to accumulate with interest; but unless all dividends paid on an Extra Ordinary Life Policy are used to purchase paid-up additions, the term insurance portion of the Extra Life Protection will be terminated. See "Extra Ordinary Life Policy", p. 11. Dividends left to accumulate with interest will be held in the general account of Northwestern Mutual Life and will be credited with a rate of interest determined annually but not 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 may be used to purchase fixed benefit paid-up additions. See "Extended Term and Paid-Up Insurance", p. 15. POLICY LOANS The owner of a Policy may borrow up to 90% of the 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, the maximum amount for any new loan is determined by applying these percentage limitations to the amount of cash value which the Policy would have if there were no loan. Loan proceeds may be taken in cash or, for the Whole Life and Extra Ordinary Life Policies, may be applied to pay premiums on the Policy. Interest on a Policy loan accrues and is payable on a daily basis. Unpaid interest is added to the amount of the loan. If the amount of the loan equals or exceeds the Policy's cash value, the Policy will terminate. The owner will be given a notice at least 31 days before the termination date. The notice will show how much must be repaid to keep the Policy in force. The Policy loan interest rate is selected by the owner. A specified annual effective rate of 8% is one choice. The other choice is a variable rate based on a corporate bond yield index. The variable rate will be adjusted annually and will not be less than 5%. The amount of a Policy loan, including interest as it accrues, will be taken from the Account divisions in proportion to the amounts in the divisions. The amounts withdrawn will be transferred to Northwestern Mutual Life's general account and will be credited on a daily basis with an annual earnings rate equal to the Policy loan interest rate less a charge for the mortality and expense risks assumed by Northwestern Mutual Life and for expenses, including taxes. The aggregate charge is currently at the annual rate of .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 it is repaid, will have a permanent effect on the Policy's variable insurance amount and cash value because the amounts borrowed will not participate in the Account's investment results while the loan is outstanding. The effect may be either favorable or unfavorable depending on whether the earnings rate credited to the loan amount is higher or lower than the rate credited to the unborrowed amount left in the Account. For example, using the Policy illustrated on page 45 and the 6% hypothetical gross rate for the Account (equivalent to a net rate of 4.85%), 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. . . . . . . . . $237 $ 237 $3,535 $3,535 6. . . . . . . . . $343 $ 556 $4,519 $4,593 7. . . . . . . . . $468 $ 889 $5,556 $5,709 8. . . . . . . . . $611 $1,235 $6,654 $6,889
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 4.85% for the Account. A Policy loan, and any accrued interest outstanding, may be repaid, in whole or in part, at any time. Payments will be credited as of the date received and will be transferred from the general account of Northwestern Mutual Life to the Account divisions, in 14 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. 6), the owner may use the cash value to provide a reduced amount of either fixed or variable benefit paid-up insurance. If neither of these options is chosen, and the Policy is not surrendered, the insurance will remain in force as extended term insurance. If the cash value is used to provide a reduced amount of fixed benefit paid-up insurance or for extended term insurance the amount of the cash value will be transferred from the Account to Northwestern Mutual Life's general account. Thereafter the Policy will not participate in the Account's investment results unless the Policy is subsequently reinstated. See "Reinstatement", below. Variable benefit paid-up insurance may be selected only if the Policy meets a $1,000 cash value minimum test. The selection of paid-up insurance must be made within three months after the due date of the first unpaid premium. The amount of paid-up insurance is determined 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. Northwestern Mutual Life will, upon request, tell the owner of a Policy 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 44 and 46 and assuming the 0% and 12% hypothetical gross rates for the Account, the cash value of $3,025 or $4,117 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 Insurance. . . . . . . . . $10,199 $13,881 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. A substantial payment may be required. The Policy may not be reinstated if it has been surrendered for its cash value. RIGHT TO RETURN POLICY A Policy may be returned for a full refund of the premium paid within 45 days after the application for insurance is signed, or within 10 days after the Policy is received, or within 10 days after a Notice of Cancellation Right is mailed or delivered to the owner, whichever date is latest. The Policy may be mailed or delivered to the agent who sold it or to the Home Office of Northwestern Mutual Life. If returned, the Policy will be considered void from the beginning. RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY The owner may exchange a Policy for a conventional whole life insurance policy with benefits that do not vary with the investment experience of a separate account. The exchange may be elected at any time within twenty-four months after the issue date of the Policy provided premiums are duly paid. Evidence of insurability is not required. The new policy will be on the life of the same insured and will have the same face amount, policy date and issue age. The premiums and cash values will be the same as those for policies issued by Northwestern Mutual Life on the issue date of the Policy. The exchange will be subject to an equitable cash adjustment. The amount will recognize the difference in premiums and investment performance of the two policies. An exchange will be effective when Northwestern Mutual Life receives a proper written request, as well as the Policy and any amount due on the exchange. The owner of a Policy may also exchange it for a fixed benefit policy if the Fund changes its investment adviser or if there is a material change in the investment policies of a Fund portfolio. The owner will be given notice of any such change and will have 60 days to make the exchange. OTHER POLICY PROVISIONS OWNER. The owner is identified in the Policy. The owner may exercise all rights under the Policy while the insured is living. Ownership may be transferred to 15 another. Written proof of the transfer must be received by Northwestern Mutual Life at its Home Office. BENEFICIARY. The beneficiary is the person to whom the death benefit is payable. The beneficiary is named in the application. After the Policy is issued the owner may change the beneficiary in accordance with the Policy provisions. INCONTESTABILITY. Northwestern Mutual Life will not contest a Policy after it has been in force during the lifetime of the insured for two years from the date of issue. SUICIDE. If the insured dies by suicide within one year from the date of issue, the amount payable under the Policy will be limited to the premiums paid. MISSTATEMENT OF AGE OR SEX. If the age or sex of the insured has been misstated, benefits under a Policy will be adjusted to reflect the correct age and sex. COLLATERAL ASSIGNMENT. The owner may assign a Policy as collateral security. Northwestern Mutual Life is not responsible for the validity or effect of a collateral assignment and will not be deemed to know of an assignment before receipt of the assignment in writing at the Home Office. PAYMENT PLANS. The Policy provides a variety of payment plans for Policy benefits. Any Northwestern Mutual Life agent authorized to sell the Policies can explain these provisions on request. DEFERRAL OF DETERMINATION AND PAYMENT. So long as premiums have been paid when due, Northwestern Mutual Life will ordinarily pay Policy benefits within seven days after receipt of all required documents at its Home Office. However, determination and payment of benefits may be deferred during any period when it is not reasonably practicable to value securities because the New York Stock Exchange is closed or an emergency exists or the Securities and Exchange Commission, by order, permits deferral for the protection of policyowners. If a Whole Life Policy or an Extra Ordinary Life Policy is continued in force as extended term or reduced paid-up insurance, Northwestern Mutual Life has the right to defer payment of the cash value for up to six months from the date of a Policy loan or surrender. If payment is deferred for 30 days or more interest will be paid at an annual effective rate of 4%. VOTING RIGHTS Northwestern Mutual Life is the owner of the Fund shares in which all assets of the Account are invested. As the owner of the shares Northwestern Mutual Life will exercise its right to vote the shares to elect directors of the Fund, to vote on matters required to be approved or ratified by mutual fund shareholders under the Investment Company Act of 1940 and to vote on any other matters that may be presented to any Fund shareholders' meeting. However, Northwestern Mutual Life will vote the Fund shares held in the Account in accordance with instructions from owners of the Policies. Northwestern Mutual Life will vote the Fund shares held in its general account in the same proportions as the shares for which voting instructions are received. If the applicable laws or regulations change so as to permit Northwestern Mutual Life to vote the Fund shares in its own discretion, it may elect to do so. The number of Fund shares for each division of the Account for which the owner of a Policy may give instructions is determined by dividing the amount of the Policy's cash value apportioned to that division, if any, by the per share value for the corresponding Fund Portfolio. The number will be determined as of a date chosen by Northwestern Mutual Life, but not more than 90 days before the Fund shareholders' meeting. Fractional votes are counted. Voting instructions will be solicited with written materials at least 14 days before the meeting. Shares as to which no instructions have been received will be voted in the same proportion as the shares as to which instructions have been received. Northwestern Mutual Life may, if required by state insurance officials, disregard voting instructions which would require Fund shares to be voted for a change in the sub-classification or investment objectives of a Fund Portfolio, or to approve or disapprove an investment advisory agreement for the Fund. Northwestern Mutual Life may also disregard voting instructions that would require changes in the investment policy or investment adviser for the Fund or a Fund Portfolio, provided that Northwestern Mutual Life reasonably determines to take this action in accordance with applicable federal law. If Northwestern Mutual Life disregards voting instructions a summary of the action and reasons therefor will be included in the next semiannual report to the owners of the Policies. SUBSTITUTION OF FUND SHARES AND OTHER CHANGES If, in the judgment of Northwestern Mutual Life, a Fund Portfolio becomes unsuitable for continued use with the Policies because of a change in investment objectives or restrictions, shares of another Portfolio or another mutual fund may be substituted. Any substitution of shares will be subject to any required approval of the Securities and Exchange Commission, the Wisconsin Commissioner of Insurance or other regulatory authority. Northwestern Mutual Life has also reserved the right, subject to applicable federal and state law, to operate the Account or any of its divisions as a management company under the Investment Company Act of 1940, or in any other 16 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) the owner of a Policy will receive a statement showing the death benefit, cash value and any Policy loan (including interest charged) as of the anniversary date. Owners will also receive annual and semiannual reports for the Account and the Fund, 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. Prospective purchasers of the Policies are urged to review any questions in this area with qualified counsel. DISTRIBUTION OF THE POLICIES The Policies will be sold through individuals who, in addition to being licensed life insurance agents of Northwestern Mutual Life, are registered representatives of Northwestern Mutual Investment Services, Inc. ("NMIS"), a wholly-owned subsidiary of Northwestern Mutual Life. NMIS is a registered broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers. Commissions paid to the agents 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. Agents who meet certain productivity and persistency standards receive additional compensation. New agents may be paid differently during a training period. General agents and district agents who are registered representatives of NMIS and have supervisory responsibility for sales of the Policies receive commission overrides and other compensation. TAX TREATMENT OF POLICY BENEFITS The Policies are "life insurance contracts" as that term is defined in sections 7702 and 817(h) of the Internal Revenue Code. Increases in cash value under a Policy are not taxable until actual surrender of the Policy. Upon surrender, the amount received is taxable at ordinary income rates under section 72(e) of the Code to the extent it exceeds the amount of the premiums paid under the Policy less any dividends or other amounts previously received tax-free (basis of the Policy). Death benefits are excludable from the beneficiary's gross income under section l0l(a) of the Code. Northwestern Mutual Life believes 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. Counsel and other competent advisers should be consulted for more complete information. - -------------------------------------------------------------------------------- OTHER INFORMATION MANAGEMENT Northwestern Mutual Life is managed by a Board of Trustees. The Trustees and senior officers of Northwestern Mutual Life and their positions including Board committee memberships, and their principal occupations, are as follows: 17
TRUSTEES NAME PRINCIPAL OCCUPATION DURING LAST FIVE YEARS - ---- ------------------------------------------- R. Quintus Anderson (A). . . . . . . . Chairman, Aarque Capital Corporation since 1997; prior thereto, Chairman, The Aarque Companies, Jamestown, NY (diversified metal products manufacturing) Edward E. Barr (HR). . . . . . . . . . Chairman, Sun Chemical Corporation, Fort Lee, New Jersey (graphic arts) since 1998; prior thereto, President and Chief Executive Officer. President and Chief Executive Officer, DIC Americas, Inc., Fort Lee, NJ Gordon T. Beaham, III (OT) . . . . . . Chairman of the Board and President, Faultless Starch/Bon Ami Company, Kansas City, MO (consumer products manufacturer) Robert C. Buchanan (A, E, F) . . . . . President and Chief Executive Officer, Fox Valley Corporation, Appleton, WI (manufacturer of gift wrap and writing paper) Robert E. Carlson (E). . . . . . . . . Executive Vice President of Northwestern Mutual Life 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 since 1993; President and Chief Operating Officer, 1991-1993; prior thereto, President 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) since 1994; Senior Partner, 1993-1994; prior thereto, Managing Partner - Milwaukee, WI office 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) . . . . . . . . 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 (sole practitioner), New Orleans, LA since 1998; prior thereto, Attorney with Monroe & Lemann, New Orleans, LA Daniel F. McKeithan, Jr. (E, F, HR) . President, Tamarack Petroleum Company, Inc., Milwaukee, WI (operator of oil and gas wells); President, Active Investor Management, Inc., Milwaukee, WI
18 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) . . . . . . . . Senior Vice President Human Resources, General Counsel & Secretary of Glaxo Wellcome Inc., Research Triangle Park, NC since 1994 (pharmaceuticals) Donald J. Schuenke (AM, E, F). . . . . Retired since 1994; Chairman of Northwestern Mutual Life, 1993-1994; Chairman and Chief Executive Officer, 1990-1993; prior thereto, President and Chief Executive Officer H. Mason Sizemore, Jr. (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 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, C.N. Flagg Power, Inc., Meriden, CT (construction services for electric power plants) and President, Williams Pacific Ventures, Inc., Redwood City, CA (venture capital) Kathryn D. Wriston (A) . . . . . . . . Director of various corporations, New York, NY A - Member, Audit Committee F - Member, Finance Committee AM - Member, Agency and Marketing HR - Member, Human Resources and Public Committee Policy Committee E - Member, Executive Committee OT - Member, Operations and Technology Committee 19 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 Northwestern Mutual Life is subject to the laws of Wisconsin governing insurance companies and to regulation by the Wisconsin Commissioner of Insurance. An annual statement in a prescribed form is filed with the Department of Insurance on or before March 1 in each year covering operations for the preceding year and including financial statements. Regulation by the Wisconsin Insurance Department includes periodic examination to determine solvency and compliance with insurance laws. Northwestern Mutual Life is also subject to the insurance laws and regulations of the other jurisdictions in which it is licensed to operate. LEGAL PROCEEDINGS Northwestern Mutual Life is engaged in litigation of various kinds which in its judgment is not of material importance in relation to its total assets. There are no legal proceedings pending to which the Account is a party. REGISTRATION STATEMENT A registration statement has been filed with the Securities and Exchange Commission, Washington, D.C. by Northwestern Mutual Life under the Securities Act of 1933, as amended, with respect to the Policies. This prospectus does not contain all the information set forth in the registration statement. A copy of the omitted material is available from the main office of the SEC in Washington, D.C. upon payment of the prescribed fee. Further information about the Policies is also available from the Home Office of Northwestern Mutual Life. The address and telephone number are on the cover of this prospectus. EXPERTS The financial statements of Northwestern Mutual Life as of December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997 and of the Account as of December 31, 1997 and for each of the two years in the period ended December 31, 1997 included in this prospectus have been so included in reliance on the reports of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. Actuarial matters included in this prospectus have been examined by William C. Koenig, F.S.A., Senior Vice President and Chief Actuary of Northwestern Mutual Life. His opinion is filed as an exhibit to the registration statement. 20 VARIABLE LIFE ACCOUNTANTS' LETTER [LOGO] [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, the Index 500 Stock Division, the Balanced Division, High Yield Bond Division, Select Bond Division, and Money Market Division thereof at December 31, 1997, the results of their operations and the changes in their equity for the year then ended and for each of the other periods presented, 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, 1997 with Northwestern Mutual Series Fund, Inc., provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Milwaukee, Wisconsin January 27, 1998 -- 21 VARIABLE LIFE FINANCIAL STATEMENTS NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT Financial Statements DECEMBER 31, 1997 STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) ASSETS Investments at Market Value: Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock 23,568 shares (cost $66,748)............... $ 78,645 International Equity 31,449 shares (cost $46,440)............... 53,117 Growth Stock 17,809 shares (cost $26,009)............... 32,234 Growth and Income Stock 27,339 shares (cost $36,512)............... 36,389 Index 500 Stock 40,734 shares (cost $74,358)............... 107,700 Balanced 63,446 shares (cost $90,745)............... 126,320 High Yield Bond 8,280 shares (cost $9,262)................. 8,802 Select Bond 7,233 shares (cost $8,546)................. 9,092 Money Market 21,899 shares (cost $21,899)............... 21,899 $ 474,198 --------- Due from Sale of Fund Shares.................................. 978 Due from Northwestern Mutual Life Insurance Company........... 382 --------- Total Assets............................................ $ 475,558 --------- --------- LIABILITIES Due to Northwestern Mutual Life Insurance Company........... $ 978 Due on Purchase of Fund Shares.............................. 382 --------- Total Liabilities....................................... 1,360 --------- EQUITY (NOTE 8) Policies Issued Before October 11, 1995..................... 315,462 Policies Issued On or After October 11, 1995................ 158,736 --------- Total Equity............................................ 474,198 --------- Total Liabilities and Equity............................ $ 475,558 --------- ---------
The Accompanying Notes are an Integral Part of the Financial Statements -- 22 VARIABLE LIFE FINANCIAL STATEMENTS NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT Statement of Operations and Changes in Equity (IN THOUSANDS)
AGGRESSIVE GROWTH STOCK COMBINED DIVISION INTERNATIONAL EQUITY DIVISION --------------------------- -------------------------- ----------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1996 1997 1996 1997 1996 ------------ ------------ ------------ ------------ ------------- ------------- INVESTMENT INCOME Dividend Income............. $ 24,262 $ 11,085 $ 3,345 $ 892 $ 1,286 $ 924 Mortality and Expense Risks..................... 1,788 1,102 271 139 197 100 Taxes....................... 767 461 116 57 85 42 ---------- ---------- --------- --------- --------- -------- Net Investment Income....... 21,707 9,522 2,958 696 1,004 782 ---------- ---------- --------- --------- --------- -------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized Gain on Investments............... 4,871 2,405 231 301 203 49 Unrealized Appreciation (Depreciation) of Investments During the Period.................... 42,532 21,398 5,109 2,690 2,358 3,197 ---------- ---------- --------- --------- --------- -------- Net Gain (Loss) on Investments............... 47,403 23,803 5,340 2,991 2,561 3,246 ---------- ---------- --------- --------- --------- -------- Increase in Equity Derived from Investment Activity.................. 69,110 33,325 8,298 3,687 3,565 4,028 ---------- ---------- --------- --------- --------- -------- EQUITY TRANSACTIONS Policyowners' Net Payments.................. 170,672 101,055 21,502 11,065 12,656 8,006 Policy Loans, Surrenders, and Death Benefits........ (23,728) (16,316) (4,003) (2,117) (2,787) (1,566) Mortality and Other (net)... (28,427) (16,382) (3,791) (1,943) (2,368) (1,529) Transfers from Other Divisions................. 86,366 45,652 19,008 14,807 14,866 6,728 Transfers to Other Divisions................. (86,366) (45,652) (4,091) (1,660) (2,149) (827) ---------- ---------- --------- --------- --------- -------- Increase in Equity Derived from Equity Transactions.... 118,517 68,357 28,625 20,152 20,218 10,812 ---------- ---------- --------- --------- --------- -------- Net Increase in Equity........ 187,627 101,682 36,923 23,839 23,783 14,840 EQUITY Beginning of Period......... 286,571 184,889 41,724 17,885 29,333 14,493 ---------- ---------- --------- --------- --------- -------- End of Period............... $ 474,198 $ 286,571 $ 78,647 $ 41,724 $ 53,116 $ 29,333 ---------- ---------- --------- --------- --------- -------- ---------- ---------- --------- --------- --------- --------
The Accompanying Notes are an Integral Part of the Financial Statements --- 23 VARIABLE LIFE FINANCIAL STATEMENTS NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT Statement of Operations and Changes in Equity (IN THOUSANDS)
GROWTH STOCK DIVISION GROWTH & INCOME STOCK DIVISION INDEX 500 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, 1997 1996 1997 1996 1997 1996 ------------ ------------- -------------- -------------- --------------- -------------- INVESTMENT INCOME Dividend Income............. $ 1,413 $ 564 $ 7,776 $ 1,458 $ 2,579 $ 1,153 Mortality and Expense Risks..................... 105 46 120 58 395 221 Taxes....................... 45 19 52 24 169 93 --------- --------- --------- --------- ---------- --------- Net Investment Income....... 1,263 499 7,604 1,376 2,015 839 --------- --------- --------- --------- ---------- --------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized Gain on Investments............... 172 88 173 117 2,375 359 Unrealized Appreciation (Depreciation) of Investments During the Period.................... 4,151 1,191 (1,823) 728 17,772 8,074 --------- --------- --------- --------- ---------- --------- Net Gain (Loss) on Investments............... 4,323 1,279 (1,650) 845 20,147 8,433 --------- --------- --------- --------- ---------- --------- Increase in Equity Derived from Investment Activity.................. 5,586 1,778 5,954 2,221 22,162 9,272 --------- --------- --------- --------- ---------- --------- EQUITY TRANSACTIONS Policyowners' Net Payments.................. 7,334 3,397 7,537 4,523 19,733 12,626 Policy Loans, Surrenders, and Death Benefits........ (1,314) (436) (1,842) (692) (5,039) (3,465) Mortality and Other (net)... (1,329) (665) (1,457) (867) (4,127) (2,351) Transfers from Other Divisions................. 8,851 4,758 10,673 3,950 20,024 8,372 Transfers to Other Divisions................. (1,341) (447) (1,104) (974) (3,783) (2,211) --------- --------- --------- --------- ---------- --------- Increase in Equity Derived from Equity Transactions.... 12,201 6,607 13,807 5,940 26,808 12,971 --------- --------- --------- --------- ---------- --------- Net Increase in Equity........ 17,787 8,385 19,761 8,161 48,970 22,243 EQUITY Beginning of Period......... 14,446 6,061 16,628 8,467 58,729 36,486 --------- --------- --------- --------- ---------- --------- End of Period............... $ 32,233 $ 14,446 $ 36,389 $ 16,628 $ 107,699 $ 58,729 --------- --------- --------- --------- ---------- --------- --------- --------- --------- --------- ---------- ---------
The Accompanying Notes are an Integral Part of the Financial Statements --- 24 NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT Statement of Operations and Changes in Equity (IN THOUSANDS)
BALANCED DIVISION HIGH YIELD BOND DIVISION ------------------------------- ----------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1996 1997 1996 -------------- -------------- ------------- ------------- INVESTMENT INCOME Dividend Income............. $ 5,105 $ 5,010 $ 1,370 $ 400 Mortality and Expense Risks..................... 558 452 29 13 Taxes....................... 239 193 12 5 --------- --------- -------- -------- Net Investment Income....... 4,308 4,365 1,329 382 --------- --------- -------- -------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized Gain on Investments............... 1,655 1,462 26 21 Unrealized Appreciation (Depreciation) of Investments During the Period.................... 15,262 5,413 (531) 83 --------- --------- -------- -------- Net Gain (Loss) on Investments............... 16,917 6,875 (505) 104 --------- --------- -------- -------- Increase in Equity Derived from Investment Activity.................. 21,225 11,240 824 486 --------- --------- -------- -------- EQUITY TRANSACTIONS Policyowners' Net Payments.................. 15,394 15,417 1,922 1,101 Policy Loans, Surrenders, and Death Benefits........ (7,260) (7,030) (349) (243) Mortality and Other (net)... (3,395) (3,034) (339) (193) Transfers from Other Divisions................. 4,266 2,467 3,276 1,043 Transfers to Other Divisions................. (4,734) (5,909) (425) (449) --------- --------- -------- -------- Increase in Equity Derived from Equity Transactions.... 4,271 1,911 4,085 1,259 --------- --------- -------- -------- Net Increase in Equity........ 25,496 13,151 4,909 1,745 EQUITY Beginning of Period......... 100,826 87,675 3,892 2,147 --------- --------- -------- -------- End of Period............... $126,322 $100,826 $ 8,801 $ 3,892 --------- --------- -------- -------- --------- --------- -------- -------- SELECT BOND DIVISION MONEY MARKET DIVISION --------------------------- ----------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1996 1997 1996 ------------ ------------ ------------- ------------- INVESTMENT INCOME Dividend Income............. $ 436 $ 176 $ 952 $ 508 Mortality and Expense Risks..................... 35 26 78 47 Taxes....................... 15 11 34 17 -------- -------- --------- --------- Net Investment Income....... 386 139 840 444 -------- -------- --------- --------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized Gain on Investments............... 36 8 -- -- Unrealized Appreciation (Depreciation) of Investments During the Period.................... 234 22 -- -- -------- -------- --------- --------- Net Gain (Loss) on Investments............... 270 30 0 0 -------- -------- --------- --------- Increase in Equity Derived from Investment Activity.................. 656 169 840 444 -------- -------- --------- --------- EQUITY TRANSACTIONS Policyowners' Net Payments.................. 1,820 1,356 82,774 43,564 Policy Loans, Surrenders, and Death Benefits........ (311) (191) (823) (576) Mortality and Other (net)... (560) (248) (11,061) (5,552) Transfers from Other Divisions................. 2,000 954 3,402 2,573 Transfers to Other Divisions................. (756) (553) (67,983) (32,622) -------- -------- --------- --------- Increase in Equity Derived from Equity Transactions.... 2,193 1,318 6,309 7,387 -------- -------- --------- --------- Net Increase in Equity........ 2,849 1,487 7,149 7,831 EQUITY Beginning of Period......... 6,243 4,756 14,750 6,919 -------- -------- --------- --------- End of Period............... $ 9,092 $ 6,243 $ 21,899 $ 14,750 -------- -------- --------- --------- -------- -------- --------- ---------
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, 1997 NOTE 1 -- Northwestern Mutual Variable Life Account (the "Account") is registered as a unit investment trust under the Investment Company Act of 1940 and is a segregated asset account of The Northwestern Mutual Life Insurance Company ("Northwestern Mutual Life") used to fund variable life insurance policies. 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, 1997 by each Division are shown below:
PURCHASES SALES -------------- -------------- Aggressive Growth Division.............. $ 32,148,589 $ 564,378 International Equity Division........... 22,025,927 803,101 Growth Stock Division................... 13,899,147 435,326 Growth & Income Stock Division................................ 21,933,009 522,627 Index 500 Stock Division................ 33,585,092 4,761,393 Balanced Division....................... 13,206,373 4,627,540 High Yield Bond Division................ 5,627,863 213,319 Select Bond Division.................... 3,269,526 691,055 Money Market Division................... 31,100,613 23,952,747
NOTE 5 -- A deduction for mortality and expense risks is determined daily and paid to Northwestern Mutual Life. Generally, for policies issued before October 11, 1995, and 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. The mortality risk is that insureds may not live as long as estimated. The expense risk is that expenses of issuing and administering the policies may exceed the estimated costs. Certain deductions are also made from the annual or single premiums before accounts 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 Life to cover the cost of providing insurance protection. This cost is actuarially calculated based upon the insured's age, the 1980 Commissioners Standard Ordinary Mortality Table and the amount of insurance provided under the policy. NOTE 6 -- Northwestern Mutual Life is taxed as a "life insurance company" under the Internal Revenue Code. The variable life insurance policies which are funded in the Account are taxed as part of the operations of Northwestern Mutual Life. Policies provide that a charge for taxes may be made against the assets of the Account. Generally, for policies issued before October 11, 1995, Northwestern Mutual Life charges the Account at an annual rate of .20% of the Account's net assets and reserves the right to increase, decrease or eliminate the charge for taxes in the future. Generally, for policies issued on or after October 11, 1995, there is no charge being made against the assets of the Account for federal income taxes, but Northwestern Mutual Life 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 Life's equity represents any unpaid portion of net annual premiums. -- 26 NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT Notes to Financial Statements DECEMBER 31, 1997 NOTE 8 -- Equity Values by Division are shown below:
POLICIES ISSUED BEFORE OCTOBER 11, 1995 EQUITY OF: ------------------------ TOTAL POLICYOWNERS NML EQUITY ------------- --------- ---------- Aggressive Growth Stock Division....................................................... $ 35,423 $ 4,027 $ 39,450 International Equity Division.......................................................... 28,405 3,253 31,658 Growth Stock Division.................................................................. 14,641 1,420 16,061 Growth and Income Stock Division....................................................... 19,349 1,808 21,157 Index 500 Stock Division............................................................... 67,754 4,993 72,747 Balanced Division...................................................................... 113,340 5,378 118,718 High Yield Bond Division............................................................... 4,331 427 4,758 Select Bond Division................................................................... 5,969 449 6,418 Money Market Division.................................................................. 4,274 221 4,495 ------------- --------- ---------- $ 293,486 $ 21,976 $ 315,462 ------------- --------- ---------- ------------- --------- ----------
POLICIES ISSUED ON OR AFTER OCTOBER 11, 1995 EQUITY OF: ------------------------ TOTAL POLICYOWNERS NML EQUITY ------------- --------- ---------- Aggressive Growth Stock Division....................................................... $ 26,389 $ 12,807 $ 39,196 International Equity Division.......................................................... 14,079 7,381 21,460 Growth Stock Division.................................................................. 10,886 5,287 16,173 Growth and Income Stock Division....................................................... 9,982 5,249 15,231 Index 500 Stock Division............................................................... 23,177 11,775 34,952 Balanced Division...................................................................... 5,155 2,448 7,603 High Yield Bond Division............................................................... 2,798 1,245 4,043 Select Bond Division................................................................... 2,034 640 2,674 Money Market Division.................................................................. 5,841 11,563 17,404 ------------- --------- ---------- $ 100,341 $ 58,395 $ 158,736 ------------- --------- ---------- ------------- --------- ----------
-- 27 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, --------------------- 1997 1996 --------- --------- ASSETS Bonds......................................... $ 32,359 $ 29,076 Common and preferred stocks................... 6,524 4,728 Mortgage loans................................ 10,835 9,564 Real estate................................... 1,372 1,385 Policy loans.................................. 7,163 6,802 Other investments............................. 2,026 1,714 Cash and temporary investments................ 572 1,131 Due and accrued investment income............. 795 764 Other assets.................................. 1,275 1,177 Separate account assets....................... 8,160 6,339 --------- --------- Total assets.............................. $ 71,081 $ 62,680 --------- --------- --------- --------- LIABILITIES AND GENERAL CONTINGENCY RESERVE Reserves for policy benefits.................. $ 47,343 $ 43,209 Policy benefit and premium deposits........... 1,624 1,567 Policyowner dividends payable................. 2,640 2,350 Interest maintenance reserve.................. 461 299 Asset valuation reserve....................... 1,974 1,538 Income taxes payable.......................... 1,043 942 Other liabilities............................. 3,735 2,921 Separate account liabilities.................. 8,160 6,339 --------- --------- Total liabilities......................... 66,980 59,165 General contingency reserve................... 4,101 3,515 --------- --------- Total liabilities and general contingency reserve.................................. $ 71,081 $ 62,680 --------- --------- --------- ---------
The accompanying notes are an integral part of the financial statements 28 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF OPERATIONS (IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, ------------------------------ 1997 1996 1995 -------- -------- -------- REVENUE Premiums...................................... $ 7,294 $ 6,667 $ 6,196 Net investment income......................... 4,171 3,836 3,673 Policy benefits left with Company and other income....................................... 861 759 733 -------- -------- -------- Total revenue............................. 12,326 11,262 10,602 -------- -------- -------- BENEFITS AND EXPENSES Benefit payments to policyowners and beneficiaries: Death benefits.............................. 775 673 655 Surrender benefits.......................... 1,422 1,182 1,375 Disability benefits......................... 227 202 174 Annuity benefits............................ 140 128 92 Matured endowments.......................... 58 52 48 Payments from policy benefits left with Company.................................... 707 684 590 -------- -------- -------- Benefits paid............................. 3,329 2,921 2,934 Net transfers to separate accounts............ 566 579 236 Net additions to policy reserves.............. 4,026 3,701 3,506 -------- -------- -------- Total benefits............................ 7,921 7,201 6,676 Operating expenses............................ 1,138 1,043 1,026 -------- -------- -------- Total benefits and expenses............... 9,059 8,244 7,702 -------- -------- -------- Gain from operations before income taxes and dividends........................................ 3,267 3,018 2,900 Policyowner dividends............................. 2,636 2,341 2,111 -------- -------- -------- Gain from operations before taxes................. 631 677 789 Income tax expense................................ 356 452 467 -------- -------- -------- Net gain from operations.......................... 275 225 322 Net realized capital gains........................ 414 395 137 -------- -------- -------- Net income................................ $ 689 $ 620 $ 459 -------- -------- -------- -------- -------- --------
The accompanying notes are an integral part of the financial statements 29 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF CHANGES IN GENERAL CONTINGENCY RESERVE (IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 1997 1996 1995 ------- ------- ------- BEGINNING OF YEAR BALANCE......................... $3,515 $2,786 $2,225 Net income...................................... 689 620 459 Increase in net unrealized capital gains........ 576 295 373 Increase in investment reserves................. (526) (176) (237) Other, net...................................... (153) (10) (34) ------- ------- ------- Net increase in general contingency reserve..... 586 729 561 ------- ------- ------- END OF YEAR BALANCE............................... $4,101 $3,515 $2,786 ------- ------- ------- ------- ------- -------
The accompanying notes are an integral part of the financial statements 30 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, ---------------------------------- 1997 1996 1995 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Insurance and annuity premiums................ $ 8,093 $ 7,361 $ 6,864 Investment income received.................... 3,928 3,634 3,480 Net disbursement of policy loans.............. (360) (326) (331) Benefits paid to policyowners and beneficiaries................................ (3,316) (2,912) (2,939) Net transfers to separate accounts............ (565) (579) (236) Policyowner dividends paid.................... (2,347) (2,105) (1,945) Operating expenses and taxes.................. (1,722) (1,663) (1,364) Other, net.................................... 564 1,558 381 ------- ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES..... 4,275 4,968 3,910 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES PROCEEDS FROM INVESTMENTS SOLD OR MATURED Bonds......................................... 38,284 31,942 25,317 Common and preferred stocks................... 9,057 4,570 2,465 Mortgage loans................................ 1,012 1,253 431 Real estate................................... 302 178 48 Other invested assets......................... 398 316 149 ------- ------- ------- 49,053 38,259 28,410 ------- ------- ------- COST OF INVESTMENTS ACQUIRED Bonds......................................... 41,169 35,342 27,596 Common and preferred stocks................... 9,848 4,463 2,562 Mortgage loans................................ 2,309 2,455 1,883 Real estate................................... 202 125 202 Other invested assets......................... 359 255 336 ------- ------- ------- 53,887 42,640 32,579 ------- ------- ------- NET CASH USED IN INVESTING ACTIVITIES......... (4,834) (4,381) (4,169) ------- ------- ------- NET (DECREASE) INCREASE IN CASH AND TEMPORARY INVESTMENTS...................................... (559) 587 (259) CASH AND TEMPORARY INVESTMENTS, BEGINNING OF YEAR............................................. 1,131 544 803 ------- ------- ------- CASH AND TEMPORARY INVESTMENTS, END OF YEAR....... $ 572 $ 1,131 $ 544 ------- ------- ------- ------- ------- -------
The accompanying notes are an integral part of the financial statements 31 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 NOTE 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 offers life, annuity and disability income 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"). Prior to December 15, 1995, these policies were considered generally accepted accounting principles ("GAAP") for mutual life insurance enterprises. However, in April 1993, the Financial Accounting Standards Board issued Interpretation No. 40, "Applicability of Generally Accepted Accounting Principles to Mutual Life Insurance Companies and Other Enterprises," which established a different definition of GAAP for mutual life insurance enterprises. Under the Interpretation, financial statements of mutual life insurance enterprises for periods beginning after December 15, 1995 which are prepared on the statutory basis of accounting are no longer characterized as being in conformity with GAAP. Financial statements prepared on the statutory basis of accounting vary from financial statements prepared on a GAAP basis 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 market value, preferred stocks are generally carried at cost, and unconsolidated subsidiaries are recorded as equity in subsidiaries' net assets 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 ventures which are valued at equity in ventures' net assets Cash and temporary investments -- Amortized cost, which approximates fair value
32 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 CASH AND 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 prorated portion of joint venture income. Net investment income is reduced by investment management expenses, real estate depreciation and depletion related to energy assets. INTEREST MAINTENANCE RESERVE The Company is required to maintain an interest maintenance reserve ("IMR"). The IMR is used to defer realized gains and losses, net of tax, on fixed income investments resulting from changes in interest rates. Net realized gains and losses deferred to the IMR are amortized into investment income over the approximate remaining term to maturity of the investment sold. ASSET VALUATION RESERVE The Company is required to maintain an asset valuation reserve ("AVR"). The AVR establishes a general reserve for invested assets held by the Company using a formula prescribed by state regulations. The AVR is designed to stabilize the general contingency reserves against potential declines in the value of investments. SEPARATE ACCOUNT BUSINESS 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 and/or a fixed interest rate option. Separate account assets are reported at fair market value. RESERVES FOR POLICY BENEFITS Reserves for policy benefits are determined by 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. 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. 33 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 POLICYOWNER DIVIDENDS 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 1996 and 1995 financial statement balances have been reclassified to conform to the current year presentation. NOTE 2 -- INVESTMENTS DEBT SECURITIES Debt securities consist of all bonds and fixed-maturity preferred stocks. The estimated market values of debt securities are based upon quoted market prices, if available. For securities not actively traded, fair values are estimated using independent pricing services or internally developed pricing models. Statement value, which principally represents amortized cost, and estimated market value of the Company's debt securities at December 31, 1997 and 1996 are as follows:
RECONCILIATION TO ESTIMATED MARKET VALUE --------------------------------------- GROSS GROSS ESTIMATED STATEMENT UNREALIZED UNREALIZED MARKET 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 ------- ------ ----- ------- ------- ------ ----- ------- RECONCILIATION TO ESTIMATED MARKET VALUE --------------------------------------- GROSS GROSS ESTIMATED STATEMENT UNREALIZED UNREALIZED MARKET DECEMBER 31, 1996 VALUE APPRECIATION DEPRECIATION VALUE - -------------------------------------------------- --------- ------------ ------------ --------- (IN MILLIONS) US Government and political obligations........... $ 4,789 $ 171 $ (2) $ 4,958 Mortgage-backed securities........................ 6,747 179 (38) 6,888 Corporate and other debt securities............... 17,540 776 (99) 18,217 ------- ------ ----- ------- 29,076 1,126 (139) 30,063 Preferred stocks.................................. 84 6 (1) 89 ------- ------ ----- ------- Total............................................. $29,160 $1,132 $(140) $30,152 ------- ------ ----- ------- ------- ------ ----- -------
34 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 The statement value of debt securities by contractual maturity at December 31, 1997 and 1996 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, 1997 1996 ------------ ------------ (IN MILLIONS) Due in one year or less........................... $ 605 $ 457 Due after one year through five years............. 4,878 4,077 Due after five years through ten years............ 9,760 7,802 Due after ten years............................... 10,268 10,077 ------- ------- 25,511 22,413 Mortgage-backed securities........................ 7,015 6,747 ------- ------- $32,526 $29,160 ------- ------- ------- -------
STOCKS The estimated market values of common and perpetual preferred stocks are based upon quoted market prices, if available. For securities not actively traded, fair values are estimated using independent pricing services or internally developed pricing models. The cost of common and preferred stock held by the Company at December 31, 1997 and 1996 is $5.0 billion and $3.7 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 properties. The fair value of mortgage loans as of December 31, 1997 and 1996 was approximately $11.5 billion and $9.8 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, 1997, real estate includes $61 million acquired through foreclosure and $124 million of home office real estate. In 1997 and 1996, the Company recorded unrealized losses of $2 million and $43 million, respectively, for the excess of carrying value over fair value of certain real estate investments and mortgage loans. 35 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 REALIZED GAINS AND LOSSES Realized investment gains and losses for the years ended December 31, 1997, 1996 and 1995 are as follows:
FOR THE YEAR ENDED FOR THE YEAR ENDED DECEMBER 31, 1997 DECEMBER 31, 1996 --------------------------------------- --------------------------------------- NET NET REALIZED REALIZED REALIZED REALIZED GAINS REALIZED REALIZED GAINS GAINS LOSSES (LOSSES) GAINS LOSSES (LOSSES) ----------- ----------- ----------- ----------- ----------- ----------- (IN MILLIONS) Bonds............................ $ 518 $(269) $249 $ 396 $(383) $ 13 Common and preferred Stocks...... 533 (150) 383 580 (115) 465 Mortgage loans................... 14 (14) - 2 (15) (13) Real estate...................... 100 (2) 98 36 0 36 Other invested assets............ 338 (105) 233 204 (51) 153 ------ ----- ---- ------ ----- ---- $1,503 $(540) $963 $1,218 $(564) $654 ------ ----- ---- ------ ----- ---- ------ ----- ---- ------ ----- ---- Less: Capital gains taxes........ 340 224 Less: IMR deferrals.............. 209 35 ---- ---- Net realized capital gains....... $414 $395 ---- ---- ---- ---- FOR THE YEAR ENDED DECEMBER 31, 1995 --------------------------------------- NET REALIZED REALIZED REALIZED GAINS GAINS LOSSES (LOSSES) ----------- ----------- ----------- Bonds............................ $ 576 $(130) $446 Common and preferred Stocks...... 574 (429) 145 Mortgage loans................... 2 (32) (30) Real estate...................... 14 (3) 11 Other invested assets............ 188 (95) 93 ------ ----- ---- $1,354 $(689) $665 ------ ----- ---- ------ ----- ---- Less: Capital gains taxes........ 239 Less: IMR deferrals.............. 289 ---- Net realized capital gains....... $137 ---- ----
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 and $1.0 billion are included in the consolidated statements of financial position at December 31, 1997 and 1996, respectively, and approximate the statement value of securities loaned at those dates. INVESTMENT IN MGIC The Company owns 18.4% (20.9 million shares) of the outstanding common stock of MGIC Investment Corporation ("MGIC"). This investment is accounted for using the equity method. At December 31, 1997, the market value of the Company's investment in MGIC exceeded the statement value of $273 million by $768 million. In July 1995, the Company entered into a forward contract with a brokerage firm to deliver 8.8 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. 36 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 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. In addition to the use of derivatives for hedging purposes, equity swaps were held for investment purposes during 1997. The Company held the following positions for hedging purposes at December 31, 1997:
NOTIONAL DERIVATIVE FINANCIAL INSTRUMENT AMOUNTS RISKS REDUCED - --------------------------------------------- ------------------ --------------------------------------------- (IN MILLIONS) Foreign Currency Forward Contracts........... $564 Currency exposure on foreign denominated investments. Common Stock Futures......................... 327 Stock market price fluctuation. Bond Futures................................. 95 Bond market price fluctuation. Options to acquire Interest Rate Swaps....... 530 Interest rates payable on certain annuity and insurance contracts. Foreign Currency and Interest Rate Swaps..... 209 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. The notional amount of equity swaps outstanding at December 31, 1997 was $143 million. The hedges are recorded by the Company in the same manner as the underlying investments. Foreign currency forwards, foreign currency swaps, stock futures, and options to acquire interest rate swaps are reported at market value. There is no statement value reported for interest rate swaps and bond futures prior to the settlement of the contract. Changes in the values of these contracts are expected to offset gains and losses on the hedged items. For hedges reported at market value, gains and losses are unrealized until expiration of the contract. The effect of derivative transactions is not material to the Company's results of operations or financial position. NOTE 3 -- RESERVES FOR POLICY BENEFITS Life insurance reserves on substantially all policies issued since 1978 are based on the Commissioner's Reserve Valuation Method ("CRVM") with interest rates ranging from 3 1/2% to 5 1/2%. Other life policy reserves are based primarily on the net level premium method employing various mortality tables at interest rates ranging from 2% to 4 1/2%. Deferred annuity reserves on contracts issued since 1985 are valued using CRVM with interest rates ranging from 3 1/2% to 6 1/4%. Other deferred annuity reserves are based on the contract value. Immediate annuity reserves are based on present values of expected benefit payments at interest rates ranging from 3 1/2% to 7 1/2%. 37 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 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 estimated using 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 using primarily 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. NOTE 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, 1997, the most recent actuarial valuation date available, the defined benefit plans were fully funded. 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 required under the plan. The defined benefit and defined contribution plans' assets of $1.4 billion at December 31, 1997 are primarily invested in the separate accounts of the Company. In addition to pension benefits, the Company provides certain health care and life insurance benefits ("postretirement benefits") for retired employees. Substantially all employees may become eligible for these benefits if they reach retirement age while working for the Company. Postretirement benefit cost for the year ended December 31, 1997 was a net benefit of $1.3 million; it includes the expected cost of postretirement benefits for newly eligible and vested employees, interest cost and return on plan assets totaling $3.6 million, offset by gains from favorable differences between actuarial assumptions and actual experience of $4.9 million.
DECEMBER 31, DECEMBER 31, 1997 1996 -------------------- -------------------- Unfunded postretirement benefit obligation for retirees and other fully eligible employees (Accrued in statement of financial position).................... $34 million $35 million Estimated postretirement benefit obligation for active non-vested employees (Not accrued until employee vests)....................... $50 million $43 million Discount rate................. 7% 7% Health care cost trend rate... 10% to an ultimate 10% to an ultimate 5%, declining 1% 5%, declining 1% for 5 years for 5 years
If the health care cost trend rate assumptions were increased by 1%, the accrued postretirement benefit obligation as of December 31, 1997 would be increased by $4 million. At December 31, 1997, the recorded postretirement benefit obligation was reduced by $20 million for assets funded for postretirement health care benefits. 38 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 NOTE 5 -- REINSURANCE In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding to reinsurers under excess coverage and co-insurance contracts. The Company retains a maximum of $15 million of coverage per individual life and $20 million maximum of coverage per joint life. The Company has an excess reinsurance contract for disability income policies with retention limits varying based upon coverage type. The amounts shown in the accompanying consolidated financial statements are net of reinsurance activity. Benefit reserves at December 31, 1997 and 1996 are reported net of reinsurance of $435 million and $355 million, respectively. The effect of reinsurance on premiums and benefits for the years ended December 31, 1997, 1996 and 1995 is as follows:
1997 1996 1995 ------- ------- ------- (IN MILLIONS) Direct premiums................................... $7,647 $7,064 $6,452 Reinsurance ceded................................. (353) (397) (256) ------- ------- ------- Net premium revenue............................... $7,294 $6,667 $6,196 ------- ------- ------- ------- ------- ------- Benefits to policyowners and beneficiaries........ $8,057 $7,348 $6,818 Reinsurance recoveries............................ (136) (147) (142) ------- ------- ------- Net benefits to policyowners and beneficiaries.... $7,921 $7,201 $6,676 ------- ------- ------- ------- ------- -------
In addition, the Company received $115 million, $93 million and $67 million in 1997, 1996 and 1995 respectively, from reinsurers representing 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 policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company; consequently, allowances are established for amounts deemed uncollectible. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies NOTE 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 income tax expense (after dividends) in 1997, 1996 and 1995 were 56%, 67% and 60%, respectively. The Company's effective tax rate exceeds the federal corporate rate of 35% because, (1) the Company pays a tax that is assessed only on mutual life insurance companies which treats a portion of policyholder dividends like nondeductible dividends paid to shareholders of stock 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"). 39 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 NOTE 7 -- CONTINGENCIES The Company has guaranteed certain obligations of its affiliates. These guarantees totaled approximately $112 million at December 31, 1997 and are generally supported by the underlying net asset values of the affiliates. The Company is engaged in various legal actions in the normal course of its investment and insurance operations. In the opinion of management, any losses resulting from such actions would not have a material effect on the Company's financial condition. 40 [LOGO] [LOGO] 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, 1997 and 1996, and the related consolidated statements of operations, of changes in general contingency reserve and of cash flows for each of the three years in the period ended December 31, 1997. 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. In our report dated January 24, 1996, we expressed an opinion that the 1995 consolidated financial statements, prepared using accounting practices prescribed or permitted by the Insurance Departments of the states in which the Company and its subsidiary were domiciled (statutory basis of accounting), were presented fairly, in all material respects, in conformity with generally accepted accounting principles. As described in Note 1 to these financial statements, pursuant to the pronouncement of the Financial Accounting Standards Board, financial statements of mutual life insurance enterprises prepared using accounting practices prescribed or permitted by insurance regulators (statutory basis of accounting) are no longer considered presentations in conformity with generally accepted accounting principles. Accordingly, our present opinion on the presentation of the 1995 financial statements, as presented herein, is different from that expressed in our previous report. 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, 1997 and 1996, or the results of their operations or their cash flows for each of the three years in the period ended December 31, 1997 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, 1997 and 1996 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, on the basis of accounting described in Note 1. /s/ PRICE WATERHOUSE LLP January 26, 1998 41 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 43. The illustrations for Extra Ordinary Life Policies are on pages 44 through 46. The illustration for the Single Premium Life Policy is on page 47. The death benefits and cash values would be different from those shown if the gross investment return rate averaged 0%, 6% or 12%, but fluctuated over and under the average rate at various points in time. The values would also be different, depending on the Account divisions selected by the owner of the Policy, if the return rate for the nine Fund Portfolios averaged 0%, 6% or 12%, but the rates for each individual Portfolio varied over and under the average. The amounts shown as the death benefits and cash values reflect the deductions from premiums, 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 1997 at the annual rate of .45% of the Fund's net assets. See "Deductions and Charges", p. 7. Thus the 0%, 6% and 12% gross hypothetical return rates on the Fund's assets are equivalent to the net rates of -1.15%, 4.85% and 10.85% 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. 13. HOWEVER, THERE IS NO GUARANTEE AS TO THE AMOUNT OF DIVIDENDS, IF ANY, THAT WILL BE PAID UNDER A POLICY. Although the tables are based on the assumption that dividends will be used to 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. 11. A comparable illustration based on a proposed insured's age, sex and risk classification and proposed face amount or premium is available upon request. 42 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* PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ACCUMULATED GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT AT RATE OF RETURN RATE OF RETURN RATE OF RETURN -------------------------------------------------------------------------------------------------------- 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 31,058 417 31,475 31,648 452 32,100 5 2,901 30,979 512 31,491 31,103 572 31,675 32,052 637 32,689 6 3,571 30,979 647 31,626 31,158 745 31,903 32,559 853 33,412 7 4,275 30,979 793 31,772 31,223 940 32,163 33,173 1,107 34,280 8 5,013 30,979 946 31,925 31,297 1,155 32,452 33,898 1,401 35,299 9 5,789 30,979 1,109 32,088 31,380 1,394 32,774 34,739 1,742 36,481 10 6,603 30,979 1,279 32,258 31,472 1,657 33,129 35,701 2,134 37,835 15 11,329 30,979 2,145 33,124 32,055 3,269 35,324 42,534 4,964 47,498 20 (age 55) 17,360 30,979 2,782 33,761 32,825 5,213 38,038 53,434 9,604 63,038 30 (age 65) 34,880 30,979 3,050 34,029 34,843 10,421 45,264 93,060 29,639 122,699
0% 6% 12% CASH VALUE* CASH VALUE* CASH VALUE ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL PREMIUMS GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ACCUMULATED INVESTMENT INVESTMENT INVESTMENT AT RATE OF RETURN RATE OF RETURN RATE OF RETURN -------------------------------------------------------------------------------------------------------- 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 1,655 739 74 813 823 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 1,615 169 1,784 1,897 188 2,085 6 3,571 1,679 198 1,877 2,039 228 2,267 2,468 261 2,729 7 4,275 1,979 250 2,229 2,477 297 2,774 3,094 350 3,444 8 5,013 2,270 308 2,578 2,929 377 3,306 3,778 457 4,235 9 5,789 2,552 373 2,925 3,395 469 3,864 4,527 586 5,113 10 6,603 2,825 444 3,269 3,877 575 4,452 5,347 741 6,088 15 11,329 4,054 867 4,921 6,520 1,321 7,841 10,758 2,007 12,765 20 (age 55) 17,360 5,049 1,299 6,348 9,565 2,434 11,999 19,190 4,485 23,675 30 (age 65) 34,880 6,236 1,839 8,075 16,716 6,283 22,999 51,821 17,872 69,693
* 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. 43 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 ACCUMULATED EXTRA LIFE PROTECTION 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 (209) 381 39,619 787 102 889 3 3,356 100,000 60,000 (486) 657 39,343 1,408 182 1,590 4 4,589 100,000 60,000 (865) 978 39,022 2,012 280 2,292 5 5,883 100,000 60,000 (1,341) 1,336 38,664 2,629 396 3,025 6 7,242 100,000 60,000 (1,905) 1,723 38,277 3,230 527 3,757 7 8,669 100,000 60,000 (2,548) 2,139 37,861 3,813 676 4,489 8 10,167 100,000 60,000 (3,262) 2,581 37,419 4,379 842 5,221 9 11,740 100,000 60,000 (4,040) 3,051 36,949 4,926 1,027 5,953 10 13,392 100,000 60,000 (4,874) 3,546 36,454 5,456 1,232 6,688 15 22,975 100,000 60,000 (9,680) 6,073 33,927 7,845 2,455 10,300 20 (age 55) 35,205 100,000 60,000 (15,104) 7,564 32,436 9,779 3,532 13,311 30 (age 65) 70,737 91,028 60,000 (26,132) 6,500 24,528 12,088 3,919 16,007
(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. 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 6% HYPOTHETICAL GROSS ANNUAL INVESTMENT RATE OF RETURN
DEATH BENEFIT (3) CASH VALUE (3) ------------------------------------------------------------------------------------------------------ PREMIUMS ACCUMULATED EXTRA LIFE PROTECTION 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 60,000 150 1,054 38,796 2,303 302 2,605 5 5,883 100,000 60,000 237 1,479 38,284 3,097 438 3,535 6 7,242 100,000 60,000 343 1,959 37,698 3,919 600 4,519 7 8,669 100,000 60,000 468 2,499 37,033 4,766 790 5,556 8 10,167 100,000 60,000 611 3,099 36,290 5,643 1,011 6,654 9 11,740 100,000 60,000 771 3,765 35,464 6,546 1,268 7,814 10 13,392 100,000 60,000 948 4,497 34,555 7,479 1,562 9,041 15 22,975 100,000 60,000 2,074 8,966 28,960 12,598 3,625 16,223 20 (age 55) 35,205 100,000 60,000 3,563 13,875 22,562 18,497 6,480 24,977 30 (age 65) 70,737 100,000 60,000 7,467 25,793 6,740 32,348 15,553 47,901
(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. 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 12% HYPOTHETICAL GROSS ANNUAL INVESTMENT RATE OF RETURN
DEATH BENEFIT (3) CASH VALUE (3) ------------------------------------------------------------------------------------------------------ PREMIUMS ACCUMULATED EXTRA LIFE PROTECTION 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 60,000 686 725 38,589 1,733 201 1,934 4 4,589 100,000 60,000 1,267 1,137 37,596 2,624 326 2,950 5 5,883 100,000 60,000 2,041 1,638 36,321 3,632 485 4,117 6 7,242 100,000 60,000 3,014 2,231 34,755 4,737 683 5,420 7 8,669 100,000 60,000 4,194 2,928 32,878 5,945 925 6,870 8 10,167 100,000 60,000 5,590 3,740 30,670 7,268 1,220 8,488 9 11,740 100,000 60,000 7,210 4,681 28,109 8,715 1,576 10,291 10 13,392 100,000 60,000 9,063 5,765 25,172 10,299 2,003 12,302 15 22,975 100,000 60,000 22,240 13,646 4,114 20,753 5,518 26,271 20 (age 55) 35,205 129,538 60,000 43,280 26,258 0 37,047 12,263 49,310 30 (age 65) 70,737 256,919 60,000 119,806 77,113 0 100,090 46,499 146,589
(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. 46 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* PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ACCUMULATED GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT AT RATE OF RETURN RATE OF RETURN RATE OF RETURN -------------------------------------------------------------------------------------------------------- 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 $ 25,205 $ 50 $25,255 $ 26,652 $ 50 $ 26,702 2 7,104 25,000 92 25,092 25,412 106 25,518 28,413 116 28,529 3 7,459 25,000 126 25,126 25,620 166 25,786 30,290 200 30,490 4 7,832 25,000 152 25,152 25,830 232 26,062 32,292 305 32,597 5 8,223 25,000 170 25,170 26,042 303 26,345 34,426 433 34,859 6 8,635 25,000 181 25,181 26,256 380 26,636 36,701 587 37,288 7 9,066 25,000 185 25,185 26,471 464 26,935 39,127 772 39,899 8 9,520 25,000 183 25,183 26,688 556 27,244 41,714 993 42,707 9 9,996 25,000 176 25,176 26,907 657 27,564 44,472 1,256 45,728 10 10,495 25,000 168 25,168 27,128 768 27,896 47,413 1,568 48,981 15 13,395 25,000 135 25,135 28,259 1,448 29,707 65,314 4,034 69,348 20 (age 55) 17,096 25,000 109 25,109 29,439 2,307 31,746 89,992 8,653 98,645 30 (age 65) 27,847 25,000 72 25,072 31,952 4,838 36,790 171,017 31,859 202,876
0% 6% 12% CASH VALUE* CASH VALUE* CASH VALUE PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ACCUMULATED GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT AT RATE OF RETURN RATE OF RETURN RATE OF RETURN -------------------------------------------------------------------------------------------------------- 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 $5,666 $13 $5,679 $6,043 $13 $6,056 $6,419 $13 $6,432 2 7,104 5,594 24 5,618 6,356 28 6,384 7,163 31 7,194 3 7,459 5,527 35 5,562 6,684 46 6,730 7,982 55 8,037 4 7,832 5,465 43 5,508 7,027 66 7,093 8,883 87 8,970 5 8,223 5,409 50 5,459 7,386 89 7,475 9,872 128 10,000 6 8,635 5,358 55 5,413 7,760 116 7,876 10,960 179 11,139 7 9,066 5,313 58 5,371 8,150 146 8,296 12,153 244 12,397 8 9,520 5,275 59 5,334 8,558 181 8,739 13,463 324 13,787 9 9,996 5,242 59 5,301 8,983 221 9,204 14,899 423 15,322 10 10,495 5,217 58 5,275 9,426 266 9,692 16,475 544 17,019 15 13,395 4,705 54 4,759 11,427 585 12,012 26,412 1,631 28,043 20 (age 55) 17,096 4,209 50 4,259 13,749 1,077 14,826 42,029 4,041 46,070 30 (age 65) 27,847 3,259 43 3,302 19,267 2,917 22,184 103,124 19,211 122,335
* 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. 47 NORTHWESTERN MUTUAL VARIABLE LIFE Northwestern Mutual Variable Life Account Northwestern Mutual Series Fund, Inc. P R O S P E C T U S NORTHWESTERN MUTUAL LIFE-REGISTERED TRADEMARK- PO Box 3095 Milwaukee WI 53201-3095 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 50 pages The undertaking with respect to fees and charges The signatures Written consents of the following persons: Price Waterhouse 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 C(1) Consent of Price Waterhouse LLP Exhibit C(6) Opinion of William C. Koenig, F.S.A. The following exhibit was filed in electronic format with the Registration Statement on Form S-6 for Northwestern Mutual Variable Life Account, File No. 333-36865, CIK 0000742277, dated October 1, 1997, and is incorporated herein by reference. Exhibit A(6)(c) Amendments to By-laws of The Northwestern Mutual Life Insurance Company dated July 23, 1997. The following exhibit was filed in electronic format with the Registration Statement on Form S-6 for Northwestern Mutual Variable Life Account, File No. 333-36865, CIK 0000742277, dated February 27, 1998, and is incorporated herein by reference. Exhibit A(6)(c)(1) Amendment to By-laws of The Northwestern Mutual Life Insurance Company dated January 28, 1998. 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-1 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant, Northwestern Mutual Variable Life Account, certifies that it meets all the requirements for effectiveness of this Amended Registration Statement pursuant to Rule 485 (b) under the Securities Act of 1933 and has duly caused this Amended Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Milwaukee, and State of Wisconsin, on the 28th day of April, 1998. 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, INC. (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 28th day of April, 1998. 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, INC. (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 April - ------------------------------ Principal Executive and 28, 1998 James D. Ericson Financial Officer II-2 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 April - ------------------------------ 28, 1998 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-3 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 April - ------------------------------ 28, 1998 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-4 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 Price Waterhouse LLP is filed as Exhibit C(1). II-5 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, 1997 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 23rd day of July, 1997. 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-6 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-7 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-8 EXHIBIT INDEX EXHIBITS FILED WITH FORM S-6 POST-EFFECTIVE AMENDMENT NO. 20 TO REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 FOR NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT EXHIBIT NUMBER EXHIBIT NAME - -------------- ------------ Exhibit C(1) Consent of Price Waterhouse LLP. Exhibit C(6) Opinion of William C. Koenig, F.S.A. The following exhibit was filed in electronic format with the Registration Statement on Form S-6 for Northwestern Mutual Variable Life Account, File No. 333-36865, CIK 0000742277, dated October 1, 1997, and is incorporated herein by reference. Exhibit A(6)(c) Amendments to By-laws of The Northwestern Mutual Life Insurance Company dated July 23, 1997. The following exhibit was filed in electronic format with the Registration Statement on Form S-6 for Northwestern Mutual Variable Life Account, File No. 333-36865, CIK 0000742277, dated February 27, 1998, and is incorporated herein by reference. Exhibit A(6)(c)(1) Amendment to By-laws of The Northwestern Mutual Life Insurance Company dated January 28, 1998. HOL03 : HOL03 Document Number 64984 H:\LAW\SSDOCS\CORP\SEC\LAW\5E6_1 EX-99.C(1) 2 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. 20 to the Registration Statement on Form S-6 (the "Registration Statement") of our report dated January 26, 1998, relating to the financial statements of The Northwestern Mutual Life Insurance Company, and of our report dated January 27, 1998, relating to the financial statements of Northwestern Mutual Variable Life Account, which appear in such Prospectus. We also consent to the reference to us under the heading "Experts" in such Prospectus. PRICE WATERHOUSE LLP Milwaukee, Wisconsin April 28, 1998 HOL03 : LAW07 Document Number 25855 H:\LAW\SSDOCS\CORP\SAHCORR\LAW\JY7_1.WPD EX-99.C(6) 3 EXHIBIT 99.C(6) Exhibit C(6) April 28, 1998 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. 20 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. 20 ("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 10, 11 and 12 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 14, 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 15 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 43 through 47 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 HOL03 : LAW07 Document Number 25853 H:\LAW\SSDOCS\CORP\SAHCORR\LAW\JY5_1.DOC -----END PRIVACY-ENHANCED MESSAGE-----