-----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, Dg8+B7x0zvRNL9ofqrzFuyuhNEDlwi0DPat4WgYXNvio6lU3C2oYl/XdTUfMhEnp XL4CnAXLG9sVqLxOf+5tWA== 0001047469-99-007262.txt : 19990226 0001047469-99-007262.hdr.sgml : 19990226 ACCESSION NUMBER: 0001047469-99-007262 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19990225 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT CENTRAL INDEX KEY: 0000742277 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 333-36865 FILM NUMBER: 99549431 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 811-03989 FILM NUMBER: 99549432 BUSINESS ADDRESS: STREET 1: 720 E WISCONSIN AVE CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4142711444 MAIL ADDRESS: STREET 1: 720 EAST WISCONSIN AVENUE CITY: MILWAUKEE STATE: WI ZIP: 53202 485APOS 1 485APOS Registration No. 333-36865 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- POST-EFFECTIVE AMENDMENT NO. 2 TO FORM S-6 FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 ---------------- NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT (EXACT NAME OF TRUST) THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY (NAME OF DEPOSITOR) 720 EAST WISCONSIN AVENUE MILWAUKEE, WISCONSIN 53202 (COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) JOHN M. BREMER, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY 720 EAST WISCONSIN AVENUE MILWAUKEE, WISCONSIN 53202 (NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE) It is proposed that this filing will become effective immediately upon filing pursuant to paragraph (b) ----- on (DATE) pursuant to paragraph (b) ----- 60 days after filing pursuant to paragraph (a)(1) ----- X on April 30, 1999 pursuant to paragraph (a)(1) ----- of Rule 485 this post-effective amendment designates a new ----- effective date for a previously filed post-effective amendment ---------------- THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT VARIABLE EXECUTIVE LIFE INSURANCE POLICIES 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 7 . . . . . . . . . . . Not Applicable 8 . . . . . . . . . . . Not Applicable 9 . . . . . . . . . . . Legal Proceedings 10(a). . . . . . . . . . Other Policy Provisions: OWNER 10(b). . . . . . . . . . Other Policy Provisions: DIVIDENDS 10(c) and (d). . . . . . Death Benefit, Cash Value, Policy Loans, Withdrawals of Policy Value, Right to Return Policy 10(e). . . . . . . . . . Premiums, Termination and Reinstatement 10(f). . . . . . . . . . Voting Rights 10(g). . . . . . . . . . Voting Rights, Substitution of Fund Shares and Other Changes 10(h). . . . . . . . . . Voting Rights, Substitution of Fund Shares and Other Changes 10(i). . . . . . . . . . Premiums, Death Benefit, Cash Value, Dividends 11 . . . . . . . . . . . The Account, The Funds 12 . . . . . . . . . . . The Funds 13 . . . . . . . . . . . Summary, The Funds, Deductions and Charges, Distribution of the Policies 14 . . . . . . . . . . . Summary: The Policy: Availability Limitations 15 . . . . . . . . . . . Premiums, Allocations to the Account 16 . . . . . . . . . . . The Account, The Funds, Allocations to the Account 17 . . . . . . . . . . . Same Captions as Items 10(a), (c), and (d) 18 . . . . . . . . . . . The Account, Detailed Information about the Policy 19 . . . . . . . . . . . Reports 20 . . . . . . . . . . . Not Applicable 21 . . . . . . . . . . . Policy Loans 22 . . . . . . . . . . . Other Policy Provisions: INCONTESTABILITY and DEFERRAL OF DETERMINATION AND PAYMENT 23 . . . . . . . . . . . Not Applicable 24 . . . . . . . . . . . Not Applicable 25 . . . . . . . . . . . Northwestern Mutual Life 26 . . . . . . . . . . . The Funds, Deductions and Charges 27 . . . . . . . . . . . Northwestern Mutual Life 28 . . . . . . . . . . . Management 29 . . . . . . . . . . . Not Applicable 30 . . . . . . . . . . . Not Applicable 31 . . . . . . . . . . . Not Applicable 32 . . . . . . . . . . . Not Applicable -ii- 33 . . . . . . . . . . . Not Applicable 34 . . . . . . . . . . . Not Applicable 35 . . . . . . . . . . . Northwestern Mutual Life 36 . . . . . . . . . . . Not Applicable 37 . . . . . . . . . . . Not Applicable 38 . . . . . . . . . . . Distribution of the Policies 39 . . . . . . . . . . . Distribution of the Policies 40 . . . . . . . . . . . The Funds 41 . . . . . . . . . . . The Funds, Distribution of the Policies 42 . . . . . . . . . . . Not Applicable 43 . . . . . . . . . . . Not Applicable 44 . . . . . . . . . . . The Funds, Premiums, Death Benefit, Allocations to the Account, Cash Value 45 . . . . . . . . . . . Not Applicable 46 . . . . . . . . . . . Same Captions as Items 10(c) and (d) 47 . . . . . . . . . . . Not Applicable 48 . . . . . . . . . . . Not Applicable 49 . . . . . . . . . . . Not Applicable 50 . . . . . . . . . . . The Account 51 . . . . . . . . . . . Numerous Captions 52 . . . . . . . . . . . Substitution of Fund Shares and Other Changes 53 . . . . . . . . . . . Not Applicable 54 . . . . . . . . . . . Not Applicable 55 . . . . . . . . . . . Not Applicable 56 . . . . . . . . . . . Not Applicable 57 . . . . . . . . . . . Not Applicable 58 . . . . . . . . . . . Not Applicable 59 . . . . . . . . . . . Financial Statements
-iii- P R O S P E C T U S April 30, 1999 NORTHWESTERN MUTUAL LIFE-Registered Trademark- The Quiet Company-Registered Trademark- NORTHWESTERN MUTUAL VARIABLE EXECUTIVE LIFE Flexible Premium Variable Life Insurance Policy (PHOTO) Northwestern Mutual Series Fund, Inc. and Russell Insurance Funds The Northwestern Mutual Life Insurance Company 720 East Wisconsin Avenue Milwaukee, Wisconsin 53202 (414) 271-1444 CONTENTS FOR THIS PROSPECTUS
PAGE PAGE - ---- ---- Prospectus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Variable Life Insurance. . . . . . . . . . . . . . . . . . . . . . 2 The Account and its Divisions. . . . . . . . . . . . . . . . . . . 2 The Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Availability Limitations. . . . . . . . . . . . . . . . . . . . . 2 Premiums. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Cash Value . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Deductions and Charges. . . . . . . . . . . . . . . . . . . . . . 2 From Premiums. . . . . . . . . . . . . . . . . . . . . . . . . . 2 From Policy Value. . . . . . . . . . . . . . . . . . . . . . . . 2 From the Mutual Funds. . . . . . . . . . . . . . . . . . . . . . 3 The Northwestern Mutual Life Insurance Company, Northwestern Mutual Variable Life Account and Northwestern Mutual Series Fund, Inc. . . . . . . . . . . . . . 3 Northwestern Mutual Life . . . . . . . . . . . . . . . . . . . . . 3 The Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 The Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Northwestern Mutual Series Fund, Inc. . . . . . . . . . . . . . . 4 Small Cap Growth Stock Portfolio. . . . . . . . . . . . . . . . 4 Aggressive Growth Stock Portfolio . . . . . . . . . . . . . . . 4 International Equity Portfolio. . . . . . . . . . . . . . . . . 4 Index 400 Stock Portfolio . . . . . . . . . . . . . . . . . . . 4 Growth Stock Portfolio. . . . . . . . . . . . . . . . . . . . . 4 Index 500 Stock Portfolio . . . . . . . . . . . . . . . . . . . 5 Balanced Portfolio. . . . . . . . . . . . . . . . . . . . . . . 5 High Yield Bond Portfolio . . . . . . . . . . . . . . . . . . . 5 Select Bond Portfolio . . . . . . . . . . . . . . . . . . . . . 5 Money Market Portfolio. . . . . . . . . . . . . . . . . . . . . 5 Russell Insurance Funds . . . . . . . . . . . . . . . . . . . . . 5 Multi-Style Equity Fund . . . . . . . . . . . . . . . . . . . . 5 Aggressive Equity Fund. . . . . . . . . . . . . . . . . . . . . 5 Non-U.S. Fund . . . . . . . . . . . . . . . . . . . . . . . . . 6 Real Estate Securities Fund . . . . . . . . . . . . . . . . . . 6 Core Bond Fund. . . . . . . . . . . . . . . . . . . . . . . . . 6 Detailed Information About the Policy . . . . . . . . . . . . . . . . 6 Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Death Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Death Benefit Options . . . . . . . . . . . . . . . . . . . . . . 6 Choice of Tests for Tax Purposes. . . . . . . . . . . . . . . . . 6 Death Benefit Changes . . . . . . . . . . . . . . . . . . . . . . 6 Allocations to the Account . . . . . . . . . . . . . . . . . . . . 7 Deductions and Charges . . . . . . . . . . . . . . . . . . . . . . 7 Deductions from Premiums. . . . . . . . . . . . . . . . . . . . . 7 Charges Against the Policy Value. . . . . . . . . . . . . . . . . 8 Expenses of the Funds . . . . . . . . . . . . . . . . . . . . . . 8 Cash Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Policy Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Withdrawals of Policy Value. . . . . . . . . . . . . . . . . . . . . 9 Termination and Reinstatement. . . . . . . . . . . . . . . . . . . . 9 Right to Return Policy. . . . . . . . . . . . . . . . . . . . . . 9 Other Policy Provisions . . . . . . . . . . . . . . . . . . . . . 10 Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Incontestability. . . . . . . . . . . . . . . . . . . . . . . . 10 Suicide . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Misstatement of Age or Sex. . . . . . . . . . . . . . . . . . . 10 Collateral Assignment . . . . . . . . . . . . . . . . . . . . . 10 Deferral of Determination and Payment . . . . . . . . . . . . . 10 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Substitution of Fund Shares and Other Changes. . . . . . . . . . . . . . . . . . . . . . . . 11 Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Distribution of the Policies . . . . . . . . . . . . . . . . . . . . 11 Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . 11 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Life Insurance Qualification. . . . . . . . . . . . . . . . . . . 11 Tax Treatment of Life Insurance . . . . . . . . . . . . . . . . . 11 Modified Endowment Contracts. . . . . . . . . . . . . . . . . . . 12 Other Tax Considerations. . . . . . . . . . . . . . . . . . . . . 12 Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . 13 Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Regulation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Year 2000 Issues. . . . . . . . . . . . . . . . . . . . . . . . . 15 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 16 Registration Statement. . . . . . . . . . . . . . . . . . . . . . 16 Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 17 Report of Independent Accountants (for the two years ended December 31, 1998) . . . . . . . . . . . 17 Financial Statements of the Account (for the two years ended December 31, 1998) . . . . . . . . . . . 18 Financial Statements of Northwestern Mutual Life (for the three years ended December 31, 1998). . . . . . . . . . . . . . . . . . . . . . 24 Report of Independent Accountants (for the three years ended December 31, 1998). . . . . . . . . . . . . . . . . . . . . . . 37 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
P R O S P E C T U S NORTHWESTERN MUTUAL VARIABLE EXECUTIVE LIFE FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY This prospectus describes the Variable Executive Life Policy (the "Policy") offered by The Northwestern Mutual Life Insurance Company. The Policy is an individual flexible premium variable life insurance policy designed to be used for a variety of business purposes. The Policy offers flexible premium payments, sixteen investment funding options and a choice of three death benefit options. The investment options correspond to the eleven Portfolios of Northwestern Mutual Series Fund, Inc. and the five Funds which comprise the Russell Insurance Funds. The prospectuses for these mutual funds, attached to this prospectus, describe the investment objectives for all of the Portfolios and Funds. The values provided by the Policy vary daily depending on investment results. These values are not guaranteed. The Portfolios and Funds present varying degrees of investment risk. You may return a Policy for a limited period of time. See "Right to Return Policy", p. 9. IT MAY NOT BE ADVANTAGEOUS TO REPLACE EXISTING INSURANCE WITH A VARIABLE LIFE INSURANCE POLICY. SEE DEDUCTIONS AND CHARGES AND CASH VALUE. THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR NORTHWESTERN MUTUAL SERIES FUND, INC. AND THE RUSSELL INSURANCE FUNDS WHICH ARE ATTACHED HERETO, AND SHOULD BE RETAINED FOR FUTURE REFERENCE. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 1 SUMMARY THE FOLLOWING SUMMARY PROVIDES A BRIEF OVERVIEW OF THE POLICY. IT OMITS DETAILS WHICH ARE INCLUDED ELSEWHERE IN THIS PROSPECTUS AND THE ATTACHED MUTUAL FUND PROSPECTUSES AND IN THE TERMS OF THE POLICY. VARIABLE LIFE INSURANCE Variable life insurance is cash value life insurance and is similar in many ways to traditional fixed benefit life insurance. Both kinds of life insurance provide an income tax-free death benefit and a cash value that grows tax-deferred. Variable life insurance allows the policyowner to direct the premiums, after certain deductions, among a range of investment options. The variable life insurance death benefit and cash value vary to reflect the performance of the selected investments. THE ACCOUNT AND ITS DIVISIONS Northwestern Mutual Variable Life Account is the investment vehicle for the Policies. The Account has sixteen divisions. You determine how net premiums are to be apportioned. We invest the assets of each division in a corresponding Portfolio of Northwestern Mutual Series Fund, Inc. or one of the Russell Insurance Funds. The eleven Portfolios of Northwestern Mutual Series Fund, Inc. are the Small Cap Growth Stock Portfolio, Aggressive Growth Stock Portfolio, International Equity Portfolio, Index 400 Stock Portfolio, Growth Stock Portfolio, Growth and Income Stock Portfolio, Index 500 Stock Portfolio, Balanced Portfolio, High Yield Bond Portfolio, Select Bond Portfolio and Money Market Portfolio. The five Russell Insurance Funds are the Multi-Style Equity Fund, Aggressive Equity Fund, Non-U.S. Fund, Real Estate Securities Fund, and Core Bond Fund. For additional information about the funds see the attached prospectuses. THE POLICY AVAILABILITY LIMITATIONS We have designed the Variable Executive Life Policy for use with non-tax qualified executive benefit plans. We offer the Policy for use with corporate-sponsored plans where at least five Policies will be issued, each on the life of a different eligible insured person, and the first year premium for the group will be at least $250,000. We will permit exceptions in some cases and additional requirements may apply. Each case must be approved at our Home Office. PREMIUMS You may pay premiums at any time and in any amounts, within limits, but additional premiums will be required to keep the Policy in force if values become insufficient to pay current charges. DEATH BENEFIT The Policy offers a choice of three death benefit options: - - SPECIFIED AMOUNT (OPTION A) - - SPECIFIED AMOUNT PLUS POLICY VALUE (OPTION B) - - SPECIFIED AMOUNT PLUS PREMIUMS PAID (OPTION C) In each case, the death benefit will be at least the amount needed to meet federal income tax requirements for life insurance. You select the Specified Amount when you purchase the Policy. You may increase or decrease the Specified Amount, within limits and subject to conditions, after a Policy is issued. The minimum amount is $50,000.00. No minimum death benefit is guaranteed. CASH VALUE The cash value of a Policy is not guaranteed and varies daily to reflect investment experience. You may surrender a Policy for its cash value. The Policy also includes loan and withdrawal provisions. DEDUCTIONS AND CHARGES FROM PREMIUMS - - Deduction of 3.6% for local, state and federal taxes attributable to premiums - - Sales load of 15% up to the Target Premium for first Policy year, and 3% of all other premiums FROM POLICY VALUE - - Cost of insurance charge deducted monthly, is based on the net amount at risk, the age, sex and risk classification of the insured, and the Policy duration. Current charges are based on our experience. Maximum charges are based on the 1980 CSO Mortality Tables. - - Monthly mortality and expense risk charge. The current charge is at the annual rate of .75% (0.06250% monthly rate) of the amount invested in the Account for the Policy for the first 10 Policy years, and .30% (0.02500% monthly rate) thereafter. The maximum annual rate is .90% (0.07500% monthly rate). 2 - - Monthly administrative charge. The current charge is $15.00 in the first Policy year and $5.00 thereafter. The maximum charge is $15 in the first Policy year and $10 thereafter. - - Charge for expenses and taxes associated with the Policy loan, if any. The aggregate charge is at the current annual rate of .75% (0.06250% monthly rate) of the Policy debt for the first ten Policy years and .20% (0.01667%) thereafter. - - Any transaction charges that may result from a withdrawal, a transfer, a change in the Specified Amount or a change in the death benefit option. We are currently waiving these charges. The maximum charge is $250 for death benefit option changes and $25 for each of the other transactions. FROM THE MUTUAL FUNDS - - A daily charge for investment advisory and other services provided to the mutual funds. The total expenses vary by Portfolio or Fund and currently fall in an approximate range of .21% to 2.37% of assets on an annual basis. The following table shows the annual expenses for each of the Portfolios and Funds, as a percentage of the average net assets, based on 1998 operations. Expenses for the Portfolios and Funds which were not in operation during 1998 are estimated. NORTHWESTERN MUTUAL SERIES FUND, INC.
INVESTMENT ADVISORY OTHER TOTAL PORTFOLIO FEE EXPENSES EXPENSES - --------- ----------- -------- -------- Small Cap Growth Stock. . . . . . . . . .80% .12% .92% Aggressive Growth Stock. . . . . . . . . .52% .00% .52% International Equity . . .67% .09% .76% Index 400 Stock. . . . . .25% .10% .35% Growth Stock . . . . . . .45% .01% .46% Growth and Income Stock. . . . . . . . . .57% .01% .58% Index 500 Stock. . . . . .20% .01% .21% Balanced . . . . . . . . .30% .00% .30% High Yield Bond. . . . . .49% .01% .50% Select Bond. . . . . . . .30% .00% .30% Money Market . . . . . . .30% .00% .30%
RUSSELL INSURANCE FUNDS
INVESTMENT ADVISORY OTHER TOTAL FUND FEE * EXPENSES* EXPENSES - ---- ---------- ----------- -------- Multi-Style Equity Fund . . . . . . . . . . . . 0.78% 0.43% 1.21% Aggressive Equity Fund . . . . . . . . . . . . 0.95% 0.72% 1.67% Non-U.S. Fund. . . . . . . . . 0.95% 1.42% 2.37% Real Estate Securities Fund . . . . . . . . . . . . 0.85% 0.31% 1.16% Core Bond Fund . . . . . . . . 0.60% 0.68% 1.28%
*Multi-Style Equity Fund Frank Russell Investment Company's (FRIC's) advisor, Frank Russell Investment Management Company (FRIMCo) has voluntarily agreed to waive a portion of its 0.78% management fee, up to the full amount of that fee, equal to the amount by which the Fund's total operating expenses exceed 0.92% of the Fund's average daily net assets on an annual basis. FRIMCo has voluntarily agreed to reimburse the Fund for all remaining expenses after fee waivers which exceed 0.92% of the average daily net assets on an annual basis. This waiver may be revised or eliminated at any time without notice to shareholders. Taking the fee waivers into account, the actual gross annual total operating expenses were 0.92% of the average net assets of the Multi-Style Fund. Aggressive Equity Fund FRIMCo has voluntarily agreed to waive a portion of its 0.95% management fee, up to the full amount of that fee, equal to the amount by which the Fund's total operating expenses exceed 1.25% of the Fund's average daily net assets on an annual basis. FRIMCo has voluntarily agreed to reimburse the Fund for all remaining expenses after fee waivers which exceed 1.25% of the average daily net assets on an annual basis. This waiver may be revised or eliminated at any time without notice to shareholders. Taking the fee waivers into account, the actual gross annual total operating expenses were 1.25% of the average net assets of the Aggressive Equity Fund. Non-U.S. Fund FRIMCo has voluntarily agreed to waive a portion of its 0.95% management fee, up to the full amount of that fee, equal to the amount by which the Fund's total operating expenses exceed 1.30% of the Fund's average daily net assets on an annual basis. FRIMCo has voluntarily agreed to reimburse the Fund for all remaining expenses after fee waivers which exceed 1.30% of the average daily net assets on an annual basis. This waiver may be revised or eliminated at any time without notice to shareholders. Taking the fee waivers into account, the actual gross annual total operating expenses were 1.30% of the average net assets of the Non-U.S. Fund. Real Estate Securities Fund FRIMCo has voluntarily agreed to waive a portion of its ___% management fee, up to the full amount of that fee, equal to the amount by which the Fund's total operating expenses exceed ___5% of the Fund's average daily net assets on an annual basis. FRIMCo has voluntarily agreed to reimburse the Fund for all remaining expenses after fee waivers which exceed ___% of the average daily net assets on an annual basis. This waiver may be revised or eliminated at any time without notice to shareholders. Operating expenses are based on average net assets expected to be invested during the year ending December 31, 1999. During the course of this period, expenses may be more or less than the amount shown. Taking the fee waivers into account, the actual gross annual total operating expenses were ___% of the average net assets of the Real Estate Securities Fund. Core Bond Fund FRIMCo has voluntarily agreed to waive a portion of its 0.60% management fee, up to the full amount of that fee, equal to the amount by which the Fund's total operating expenses exceed .80% of the Fund's average daily net assets on an annual basis. FRIMCo has voluntarily agreed to reimburse the Fund for all remaining expenses after fee waivers which exceed .80% of the average daily net assets on an annual basis. This waiver may be revised or eliminated at any time without notice to shareholders. Taking the fee waivers into account, the actual gross annual total operating expenses were .80% of the average net assets of the Core Bond Fund. 3 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT, NORTHWESTERN MUTUAL SERIES FUND, INC. AND RUSSELL INSURANCE FUNDS NORTHWESTERN MUTUAL LIFE The Northwestern Mutual Life Insurance Company is a mutual life insurance company organized by a special act of the Wisconsin Legislature in 1857. It is the nation's fourth largest life insurance company, based on total assets in excess of $77 billion on December 31, 1998, and is licensed to conduct a conventional life insurance business in the District of Columbia and in all states of the United States. Northwestern Mutual Life sells life and disability insurance policies and annuity contracts through its own field force of approximately 6,000 full time producing agents. The Internal Revenue Service Employer Identification Number of Northwestern Mutual Life is 39-0509570. "We" in this prospectus means Northwestern Mutual Life. THE ACCOUNT We established Northwestern Mutual Variable Life Account by action of our Trustees on November 23, 1983, in accordance with the provisions of Wisconsin insurance law. Under Wisconsin law the income, gains and losses, realized or unrealized, of the Account are credited to or charged against the assets of the Account without regard to our other income, gains or losses. We use the Account only for variable life insurance policies, including other variable life insurance policies which are described in other prospectuses. The Account is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940. This registration does not involve supervision of management or investment practices or policies. The Account has sixteen divisions. All of the assets of each division are invested in shares of the corresponding Portfolio or Fund described below. THE FUNDS NORTHWESTERN MUTUAL SERIES FUND, INC. Northwestern Mutual Series Fund, Inc. is a mutual fund of the series type registered under the Investment Company Act of 1940 as an open-end diversified management investment company. The Account buys shares of each Portfolio at their net asset value without any sales charge. The investment adviser for the Fund is Northwestern Mutual Investment Services, LLC ("NMIS"), our wholly-owned subsidiary. The investment advisory agreements for the respective Portfolios provide that NMIS will provide services and bear certain expenses of the Fund. For providing investment advisory and other services and bearing Fund expenses, the Fund pays NMIS a fee at an annual rate which ranges from .20% of the aggregate average daily net assets of the Index 500 Stock Portfolio to a maximum of .67% for the International Equity Portfolio, based on 1998 asset size. Other expenses borne by the Portfolios range from 0% for the Select Bond, Money Market and Balanced Portfolios to .09% for the International Equity Portfolio. We provide the people and facilities NMIS uses in performing its investment advisory functions and we are a party to the investment advisory agreement. NMIS has retained J.P. Morgan Investment Management, Inc. and Templeton Investment Counsel, Inc. under investment sub-advisory agreements to provide investment advice to the Growth and Income Stock Portfolio and the International Equity Portfolio. The investment objectives and types of investments for each of the eleven Portfolios of the Fund are set forth below. There can be no assurance that the Portfolios will realize their objectives. For more information about the investment objectives and policies, the attendant risk factors and expenses see the attached prospectus for Northwestern Mutual Series Fund, Inc. SMALL CAP GROWTH STOCK PORTFOLIO The investment objective of the Small Cap Growth Stock Portfolio is long-term growth of capital. The Portfolio will seek to achieve this objective primarily by investing in the common stocks of companies which can reasonably be expected to increase sales and earnings at a pace which will exceed the growth rate of the U.S. economy over an extended period. WE EXPECT THE SMALL CAP GROWTH STOCK PORTFOLIO TO BE AVAILABLE FOR USE WITH THE POLICIES BEGINNING ON JUNE 30, 1999. AGGRESSIVE GROWTH STOCK PORTFOLIO. The investment objective of the Aggressive Growth Stock Portfolio is to achieve long-term appreciation of capital primarily by investing in the common stocks of companies which can reasonably be expected to increase their sales and earnings at a pace which will exceed the growth rate of the nation's economy over an extended period. INTERNATIONAL EQUITY PORTFOLIO. The investment objective of the International Equity Portfolio is long-term capital growth. It pursues its objective through a flexible policy of investing in stocks and debt securities of companies and governments outside the United States. 4 INDEX 400 STOCK PORTFOLIO The investment objective of the Index 400 Stock Portfolio is to achieve investment results that approximate the performance of the Standard & Poor's MidCap 400 Index ("S&P 400 Index"). The Portfolio will attempt to meet this objective by investing in stocks included in the S&P 400 Index. WE EXPECT THE INDEX 400 STOCK PORTFOLIO TO BE AVAILABLE FOR USE WITH THE POLICIES BEGINNING ON JUNE 30, 1999. GROWTH STOCK PORTFOLIO. The investment objective of the Growth Stock Portfolio is long-term growth of capital; current income is secondary. The Portfolio will seek to achieve this objective by selecting investments in companies which have above average earnings growth potential. GROWTH AND INCOME STOCK PORTFOLIO. The investment objective of the Growth and Income Stock Portfolio is long-term growth of capital and income. Ordinarily the Portfolio pursues its investment objectives by investing primarily in dividend-paying common stock. INDEX 500 STOCK PORTFOLIO. The investment objective of the Index 500 Stock Portfolio is to achieve investment results that approximate the performance of the Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index"). The Portfolio will attempt to meet this objective by investing in stocks included in the S&P 500 Index. Stocks are generally more volatile than debt securities and involve greater investment risks. BALANCED PORTFOLIO. The investment objective of the Balanced Portfolio is to realize as high a level of long-term total rate of return as is consistent with prudent investment risk. The Balanced Portfolio will invest in common stocks and other equity securities, bonds and money market instruments. Investment in the Balanced Portfolio necessarily involves the risks inherent in stocks and debt securities of varying maturities, including the risk that the Portfolio may invest too much or too little of its assets in each type of security at any particular time. HIGH YIELD BOND PORTFOLIO. The investment objective of the High Yield Bond Portfolio is to achieve high current income and capital appreciation by investing primarily in fixed income securities that are rated below investment grade by the major rating agencies. SELECT BOND PORTFOLIO. The primary investment objective of the Select Bond Portfolio is to provide as high a level of long-term total rate of return as is consistent with prudent investment risk. A secondary objective is to seek preservation of shareholders' capital. The Select Bond Portfolio will invest primarily in debt securities. The value of debt securities will tend to rise and fall inversely with the rise and fall of interest rates. MONEY MARKET PORTFOLIO. The investment objective of the Money Market Portfolio is to realize maximum current income consistent with liquidity and stability of capital. The Money Market Portfolio will invest in money market instruments and other debt securities with maturities generally not exceeding one year. The return produced by these securities will reflect fluctuations in short-term interest rates. RUSSELL INSURANCE FUNDS The Russell Insurance Funds also comprise a mutual fund of the series type registered under the Insurance Company Act of 1940 as an open-end diversified management investment company. The Account buys shares of each of the Russell Insurance Funds at their net asset value without any sales charge. The assets of each of the Russell Insurance Funds are invested by one or more investment management organization researched and recommended by Frank Russell Company ("Russell"), and an affiliate of Russell, Frank Russell Investment Management Company ("FRIMCo"). FRIMCo also advises, operates and administers the Russell Insurance Funds. Russell is our majority-owned subsidiary. The investment objectives and types of investments for each of the five Russell Insurance Funds are set forth below. There can be no assurance that the Funds will realize their objectives. A table showing the expense ratios for each of the Russell Insurance Funds is included in the Summary above, at page 3. For more information about the investment objectives and policies, the attendant risk factors and expenses see the attached prospectus for the Russell Insurance Funds. WE EXPECT THE RUSSELL INSURANCE FUNDS TO BE AVAILABLE FOR USE WITH THE POLICIES BEGINNING ON JUNE 30, 1999. MULTI-STYLE EQUITY FUND. The investment objective of the Multi-Style Equity Fund is to provide income and capital growth by investing principally in equity securities. The Multi-Style Equity Fund invests primarily in common stocks of medium and large capitalization companies. These companies are predominately US-based, although the Fund may invest a limited portion of its assets in non-US firms from time to time. AGGRESSIVE EQUITY FUND. The investment objective of the Aggressive Equity Fund is to provide capital appreciation by assuming a higher level of volitility than is ordinarily expected from Multi-Style Equity Fund by investing in equity securities. The Aggressive Equity Fund invests primarily in common stocks of small and medium capitalization companies. These 5 companies are predominately US-based, although the Fund may invest in non-US firms from time to time. NON-U.S. FUND. The investment objective of the Non-U.S. Fund is to provide favorable total return and additional diversification for US investors by investing primarily in equity and fixed-income securities of non-US companies, and securities issued by non-US governments. The Non-U.S. Fund invests primarily in equity securities issued by companies domiciled outside the United States and in depository receipts, which represent ownership of securities of non-US companies. REAL ESTATE SECURITIES FUND. The investment objective of the Real Estate Securities Fund is to generate a high level of total return through above average current income, while maintaining the potential for capital appreciation. The Fund seeks to achieve its objective by concentrating its investments in equity securities of issuers whose value is derived primarily from development, management and market pricing of underlying real estate properties. CORE BOND FUND. The investment objective of the Core Bond Fund is to maximize total return, through capital appreciation and income, by assuming a level of volatility consistent with the broad fixed-income market, by investing in fixed-income securities. The Core Bond Fund invests primarily in fixed-income securities. In particular, the Fund holds debt securities issued or guaranteed by the US government, or to a lesser extent by non-US governments, or by their respective agencies and instrumentalities. It also holds mortgage-backed securities, including collateralized mortgage obligations. The Fund also invests in corporate debt securities and dollar-denominated obligations issued in the US by non-US banks and corporations (Yankee Bonds). A majority of the Fund's holdings are US dollar-denominated. From time to time the Fund may invest in municipal debt obligations. - -------------------------------------------------------------------------------- DETAILED INFORMATION ABOUT THE POLICY PREMIUMS The Policy permits you to pay premiums at any time before the Policy anniversary that is nearest the insured's 95th birthday and in any amounts within the limits described in this section. We use the Specified Amount you select when you purchase the Policy to determine the minimum initial premium. The minimum initial premium is approximately equal to three times the initial monthly Cost of Insurance Charge and other deductions. We calculate a Target Premium when the Policy is issued and we use the Target Premium to determine the sales load for the first Policy year. The Target Premium is based on the Specified Amount and the age and sex of the insured. After a Policy is issued, there are no minimum premiums, except that we will not accept a premium of less than $25. The Policy will remain in force during the insured's lifetime so long as the Policy Value, less the amount of any Policy debt, is sufficient to pay the monthly cost of insurance charge and other current charges. The Policy sets no maximum on premiums, but we will accept a premium that would increase the net amount at risk only if the insurance, as increased, will be within our issue limits, the insured meets our insurability requirements and we receive the premium prior to the anniversary nearest the insured's 75th birthday. We will not accept a premium if it would disqualify the Policy as life insurance for federal income tax purposes. See "Tax Considerations", p. 11. DEATH BENEFIT DEATH BENEFIT OPTIONS The Policy provides for three death benefit options: SPECIFIED AMOUNT (OPTION A) You select the Specified Amount when you purchase the Policy. SPECIFIED AMOUNT PLUS POLICY VALUE (OPTION B) The Policy Value is the cumulative amount invested, adjusted for investment results, reduced by the charges for insurance and other expenses. SPECIFIED AMOUNT PLUS PREMIUMS PAID (OPTION C) In addition, under any of the Options, we will increase the Death Benefit if necessary to meet the definitional requirements for life insurance for federal income tax purposes as discussed below. Under any of the death benefit options the death benefit will be equal to the Policy Value at all times on and after the Policy anniversary nearest the 100th birthday of the insured. CHOICE OF TESTS FOR TAX PURPOSES A Policy must satisfy one of two testing methods to qualify as life insurance for federal income tax purposes. You may choose either the Guideline Premium/Cash Value Corridor Test or the Cash Value Accumulation Test. Both tests require the Policy to meet minimum ratios, or multiples, of death benefit to the Policy Value. The minimum multiple decreases as the age of the insured advances. You make the choice of testing methods 6 when you purchase a Policy and it may not be changed. For the Guideline Premium/Cash Value Corridor Test the minimum multiples of death benefit to the Policy Value are shown below. GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST MULTIPLES
Attained Policy Attained Policy Age Value % Age Value % - --- ------- --- ------- 40 or under. . 250 61 . . . . . . 128 41 . . . . . . 243 62 . . . . . . 126 42 . . . . . . 236 63 . . . . . . 124 43 . . . . . . 229 64 . . . . . . 122 44 . . . . . . 222 65 . . . . . . 120 45 . . . . . . 215 66 . . . . . . 119 46 . . . . . . 209 67 . . . . . . 118 47 . . . . . . 203 68 . . . . . . 117 48 . . . . . . 197 69 . . . . . . 116 49 . . . . . . 191 70 . . . . . . 115 50 . . . . . . 185 71 . . . . . . 113 51 . . . . . . 178 72 . . . . . . 111 52 . . . . . . 171 73 . . . . . . 109 53 . . . . . . 164 74 . . . . . . 107 54 . . . . . . 157 75-90. . . . . 105 55 . . . . . . 150 91 . . . . . . 104 56 . . . . . . 146 92 . . . . . . 103 57 . . . . . . 142 93 . . . . . . 102 58 . . . . . . 138 94 . . . . . . 101 59 . . . . . . 134 95 or over . . 100 60 . . . . . . 130
For the Cash Value Accumulation Test the minimum multiples of death benefit to the Policy Value are calculated using net single premiums based on the attained age of the insured and the Policy's underwriting classification, using a 4% interest rate. The Guideline Premium/Cash Value Corridor Test has lower minimum multiples than the Cash Value Accumulation Test, usually resulting in better cash value accumulation for a given amount of premium. But the Guideline Premium/Cash Value Corridor Test limits the amount of premium that may be paid in each Policy year. The Cash Value Accumulation Test has no such annual limitation, and allows more premium to be paid during the early Policy years. DEATH BENEFIT CHANGES After we issue a Policy you may change the death benefit option, or increase or decrease the Specified Amount, subject to our approval. Changes are subject to insurability requirements and issue limits. We will not permit a change if it results in a Specified Amount less than the minimum for a new Policy that we would issue on that date. A change in the death benefit option, or an increase or decrease in the Specified Amount, will be effective on the monthly processing date next following receipt of a written request at our Home Office. Administrative charges of up to $250 for a change in the death benefit option, and up to $25 for each of more than one change in the Specified Amount in a Policy year, may apply. We will deduct any such charges from the Policy Value. We are currently waiving these charges. A change in the death benefit option, or an increase or decrease in the Specified Amount, may have important tax effects. See "Tax Considerations", p. 11. The cost of insurance charge will increase if a change results in a larger net amount at risk. See "Charges Against the Policy Value," below. ALLOCATIONS TO THE ACCOUNT We place the initial net premium in the Account on the Policy date. Net premiums you pay thereafter are placed in the Account on the date we receive them at our Home Office. Net premiums are premiums less the deductions from premiums. See "Deductions from Premiums", below. We invest premiums we place in the Account prior to the initial allocation date in the Money Market Division of the Account. The initial allocation date is identified in the Policy and is the later of the date we approved the application and the date we received the initial premium at our Home Office. A different initial allocation date applies in those states which require a refund of at least the premium paid during the period when the Policy may be returned. See "Right to Return Policy," p. 9. On the initial allocation date we invest the amount in the Money Market Division in the Account divisions as you have directed in the application for the Policy. You may change the allocation for future net premiums at any time by written request and the change will be effective for premiums we place in the Account thereafter. Allocation must be in whole percentages. You may transfer accumulated amounts from one division of the Account to another. Transfers are effective on the date we receive a written request at our Home Office. We reserve the right to charge a fee of up to $25, to cover administrative costs of transfers, if there are more than twelve transfers in a Policy year. We are currently waiving these charges. DEDUCTIONS AND CHARGES DEDUCTIONS FROM PREMIUMS We deduct a charge for taxes attributable to premiums from each premium. The total amount of this deduction is 3.6% of the 7 premium. Of this amount 2.35% is for state premium taxes. Premium taxes vary from state to state and currently range from .5% to 3.5% of life insurance premiums. The 2.35% rate is an average. The tax rate for a particular state may be lower, higher, or equal to the 2.35% deduction. We do not expect to profit from this charge. The remainder of the deduction, 1.25% of each premium, is for federal income taxes measured by premiums. We believe that this charge does not exceed a reasonable estimate of our federal income taxes attributable to the treatment of deferred acquisition costs. We deduct a charge for sales costs from each premium. The charge is 15% of premiums paid during each of the first ten Policy years up to the Target Premium and 3% of all other premiums. The Target Premium is based on the Specified Amount and the age and sex of the insured. To the extent that sales expenses exceed the amounts deducted, we will pay the expenses from our other assets. These assets may include, among other things, any gain realized from the monthly charge against the Policy Value for the mortality and expense risks we have assumed, as described below. CHARGES AGAINST THE POLICY VALUE We deduct a cost of insurance charge from the Policy Value on each monthly processing date. We determine the amount by multiplying the net amount at risk by the cost of insurance rate. The net amount at risk is equal to the death benefit currently in effect less the Policy Value. The cost of insurance rate reflects the issue age, policy duration and risk classification of the insured. The maximum cost of insurance rates are included in the Policy. We also deduct a charge for the mortality and expense risks we have assumed. The maximum amount of the charge is equal to an annual rate of .90% (0.07500% monthly rate) of the Policy Value. Currently the charge is equal to an annual rate of .75% (0.06250% monthly rate) of Policy Value for the first ten Policy years and .30% (0.0250% monthly rate) thereafter. The mortality risk is that insureds may not live as long as we estimated. The expense risk is that expenses of issuing and administering the Policies may exceed the estimated costs. We will realize a gain from this charge to the extent it is not needed to provide benefits and pay expenses under the Policies. There is a monthly administrative charge of not more than $15 for the first Policy year and $10 thereafter. Currently this charge will be $5 after the first Policy year. This charge is for administrative expenses, including costs of premium collection, processing claims, keeping records and communicating with Policyowners. We do not expect to profit from this charge. We make a charge for the expenses and taxes associated with the Policy debt, if any. The aggregate charge is at the current annual rate of 0.75% (0.06250% monthly rate) of the Policy debt for the first ten Policy years and 0.20% (0.01667% monthly rate) thereafter. The Policy provides for transaction fees to be deducted from the Policy Value on the dates on which transactions take place. These charges are $25 for changes in the Specified Amount, withdrawals or transfers of assets among the divisions of the Account if more than twelve transfers take place in a Policy year. The fee for a change in the death benefit option is $250. Currently we are waiving all of these fees. We will apportion deductions from the Policy Value among the divisions of the Account in proportion to the amounts invested in the divisions. EXPENSES OF THE FUNDS The investment performance of each division of the Account reflects all expenses borne by the corresponding Portfolio or Fund. The expenses are summarized above on page 3. See the attached mutual fund prospectuses for more information about those expenses. CASH VALUE You may surrender a Policy for the cash value at any time during the lifetime of the insured. The cash value for the Policy will change daily in response to investment results. No minimum cash value is guaranteed. The cash value is equal to the Policy Value reduced by any Policy debt outstanding. During the first Policy year the cash value is increased by the amount of sales load previously deducted from premiums, and during the second Policy year the cash value is increased by 50% of previous sales load deductions. This increase in cash value during the first two Policy years does not apply if the Policy is in a grace period on the date on which you surrender the Policy. We determine the cash value for a Policy at the end of each valuation period. Each business day, together with any non-business days before it, is a valuation period. A business day is any day on which the New York Stock Exchange is open for trading. In accordance with the requirements of the Investment Company Act of l940, we may also determine the cash value for a Policy on any other day on which there is sufficient trading in securities to materially affect the value of the securities held by the Portfolios or Funds. POLICY LOANS You may borrow up to 90% of the Policy Value using the Policy as security. If a Policy loan is already outstanding, the maximum amount for any new loan is 90% of the Policy Value, less the amount already borrowed. 8 Interest on a Policy loan accrues and is payable on a daily basis at an annual effective rate of 5%. We add unpaid interest to the amount of the loan. If the amount of the loan equals or exceeds the Policy Value on a monthly processing date, the Policy will enter the grace period. See "Termination and Reinstatement", below. We will send you a notice at least 61 days before the termination date. The notice will show how much you must pay to keep the Policy in force. We will take the amount of a Policy loan from the Account divisions in proportion to the amounts in the divisions. We will transfer the amounts withdrawn to our general account and will credit them on a daily basis with an annual earnings rate equal to the 5% Policy loan interest rate. A Policy loan, even if you repay it, will have a permanent effect on the Policy 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. You may repay a Policy loan, and any accrued interest outstanding, in whole or in part, at any time. We will credit payments as of the date we receive them and will transfer those amounts from our general account to the Account divisions, in proportion to the premium allocation in effect, as of the same date. A Policy loan may have important tax consequences. See "Tax Considerations", p. 11. WITHDRAWALS OF POLICY VALUE You may make a withdrawal of Policy Value. A withdrawal may not reduce the loan value to less than any Policy debt outstanding. The loan value is 90% of the Policy Value, less any Policy debt already outstanding. Following a withdrawal the remaining Policy Value, less any Policy debt outstanding, must be at least three times the current monthly charges for the cost of insurance and other expenses. The minimum amount for withdrawals is $250. We permit up to four withdrawals in a Policy year. An administrative charge of up to $25 may apply, but we are currently waiving this charge. A withdrawal of Policy Value decreases the death benefit by the same amount. If the death benefit for a Policy has been increased to meet the federal tax requirements for life insurance, the decrease in the death benefit caused by a subsequent withdrawal will be larger than the amount of the withdrawal. If Option A or Option C is in effect a withdrawal of Policy Value will reduce the Specified Amount by the amount of the withdrawal. Following a withdrawal the remaining death benefit must be at least the minimum amount that we would currently issue. We will take the amount withdrawn from Policy Value from the Account divisions in proportion to the amounts in the divisions. The Policy makes no provision for repayment of amounts withdrawn. A withdrawal of Policy Value may have important tax consequences. See "Tax Considerations", p. 11. TERMINATION AND REINSTATEMENT If the Policy Value, less any Policy debt outstanding, is less than the monthly charges for the cost of insurance and other expenses on any monthly processing date, we allow a grace period of 61 days for the payment of sufficient premium to keep the Policy in force. The grace period begins on the date that we send you a notice. The notice will state the minimum amount of premium required to keep the Policy in force and the date by which you must pay the premium. The Policy will terminate unless you pay the required amount before the grace period expires. After a Policy has terminated, it may be reinstated within one year. The insured must provide satisfactory evidence of insurability. The minimum amount of premium required for reinstatement will be the monthly charges that were due when the Policy terminated plus the charges for three more months. Reinstatement of a Policy will be effective on the first monthly processing date after an application for reinstatement is received at our Home Office, subject to our approval. Any Policy debt that was outstanding when the Policy terminated will also be reinstated. The Policy Value when a Policy is reinstated is equal to the premium paid, after the deduction for taxes and sales load, less the sum of all monthly charges for the cost of insurance and other expenses for the grace period and for the current month. We will allocate the Policy Value among the Account divisions based on the allocation for premiums currently in effect. A Policy may not be reinstated after the Policy has been surrendered for its cash value. See "Tax Considerations", p. 11, for a discussion of the tax effects associated with termination and reinstatement of a Policy. RIGHT TO RETURN POLICY You may return a Policy within 45 days after you signed the application for insurance or within 10 days (or later where required by state law) after you receive the Policy, whichever is later. You may mail or deliver the Policy to the agent who sold it or to our Home Office. If you return it, we will consider the Policy void from the beginning. We will refund the sum of the amounts deducted from the premium paid plus the value of the Policy in the Account on the date we receive the returned Policy. In some states, the amount we refund will not be less than the premium you paid. 9 OTHER POLICY PROVISIONS OWNER. The owner is identified in the Policy. The owner may exercise all rights under the Policy while the insured is living. Ownership may be transferred to another. We must receive written proof of the transfer at our Home Office. "You" in this prospectus means the owner or prospective purchaser of a Policy. BENEFICIARY. The beneficiary is the person to whom the death benefit is payable. The beneficiary is named in the application. After we issue the Policy you may change the beneficiary in accordance with the Policy provisions. INCONTESTABILITY. We will not contest a Policy after it has been in force during the lifetime of the insured for two years from the date of issue. We will not contest an increase in the amount of insurance that was subject to insurability requirements after the increased amount has been in force during the lifetime of the insured for two years from the date of issuance of the increase. SUICIDE. If the insured dies by suicide within one year from the date of issue, the amount payable under the Policy will be limited to the premiums paid, less the amount of any Policy debt and withdrawals. If the insured dies by suicide within one year of the date of issuance of an increase in the amount of insurance, which was subject to insurability requirements, the amount payable with respect to the increase will be limited to the amounts charged for the cost of insurance and other expenses attributable to the increase. MISSTATEMENT OF AGE OR SEX. If the age or sex of the insured has been misstated, we will adjust the charges for cost of insurance and other expenses under a Policy to reflect the correct age and sex. COLLATERAL ASSIGNMENT. You may assign a Policy as collateral security. We are not responsible for the validity or effect of a collateral assignment and will not be deemed to know of an assignment before receipt of the assignment in writing at our Home Office. DEFERRAL OF DETERMINATION AND PAYMENT. We will ordinarily pay Policy benefits within seven days after we receive all required documents at our Home Office. However, we may defer determination and payment of benefits during any period when it is not reasonably practicable to value securities because the New York Stock Exchange is closed or an emergency exists or the Securities and Exchange Commission, by order, permits deferral for the protection of Policyowners. DIVIDENDS. The Policies will share in divisible surplus to the extent we determine annually. Since we do not expect the Policies to contribute to divisible surplus, we do not expect to pay any dividends. VOTING RIGHTS We are the owner of the shares of both mutual funds in which all assets of the Account are invested. As the owner of the shares we will exercise our right to vote the shares to elect directors of the mutual funds, to vote on matters required to be approved or ratified by mutual fund shareholders under the Investment Company Act of 1940 and to vote on any other matters that may be presented to any mutual fund shareholders' meeting. However, we will vote the mutual fund shares held in the Account in accordance with instructions from owners of the Policies. we will vote any shares of the mutual funds held in our general account in the same proportions as the shares for which we have received voting instructions. If the applicable laws or regulations change so as to permit us to vote the shares in our own discretion, we may elect to do so. The number of mutual fund shares for each division of the Account for which the owner of a Policy may give instructions is determined by dividing the amount of the Policy Value apportioned to that division, if any, by the per share value for the corresponding Portfolio or Fund. The number will be determined as of a date we choose, but not more than 90 days before the shareholders' meeting. Fractional votes are counted. We will solicit voting instructions with written materials at least 14 days before the meeting. We will vote shares as to which we receive no instructions in the same proportion as the shares as to which we receive instructions. We may, if required by state insurance officials, disregard voting instructions which would require mutual fund shares to be voted for a change in the sub-classification or investment objectives of a Portfolio or Fund, or to approve or disapprove an investment advisory agreement for either of the mutual funds. We may also disregard voting instructions that would require changes in the investment policy or investment adviser for either a Portfolio or a Fund, provided that we reasonably determine to take this action in accordance with applicable federal law. If we disregard voting instructions, we will include a summary of the action and reasons therefor in the next semiannual report to the owners of the Policies. SUBSTITUTION OF FUND SHARES AND OTHER CHANGES If, in our judgment, a Portfolio or Fund becomes unsuitable for continued use with the Policies because of a change in investment objectives or restrictions, shares of another Portfolio or Fund 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 10 authority. We have also reserved the right, subject to applicable federal and state law, to operate the Account or any of its divisions as a management company under the Investment Company Act of 1940, or in any other form permitted, or to terminate registration of the Account if registration is no longer required, and to change the provisions of the Policies to comply with any applicable laws. REPORTS At least once each Policy year you will receive a statement showing the death benefit, cash value, Policy Value and any Policy loan, including loan interest. This report will show the apportionment of invested assets among the Account divisions. You will also receive annual and semiannual reports for the Account and both of the mutual funds, including financial statements. DISTRIBUTION OF THE POLICIES We sell the Policies through individuals who, in addition to being licensed life insurance agents of Northwestern Mutual Life, are registered representatives of Northwestern Mutual Investment Services LLC ("NMIS"), our wholly-owned subsidiary. NMIS is a registered broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers. NMIS was organized in 1968 as a Wisconsin corporation. Its address is 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202. The Internal Revenue Service Employer Identification Number of NMIS is 39-0509570. Commissions paid to the agents will not exceed 15% of the premium for the first year and 2-3/4% of the premium thereafter. During the sixth Policy year and thereafter agents will receive compensation at the annual rate of .20% of the cash value of a Policy. 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 CONSIDERATIONS GENERAL The following discussion provides a general description of federal income tax considerations relating to the Policy. The discussion is based on current provisions of the Internal Revenue Code ("Code") as currently interpreted by the Internal Revenue Service. We do not intend this discussion is not intended as tax advice. The discussion is not exhaustive, it does not address the likelihood of future changes in federal income tax law or interpretations thereof, and it does not address state or local tax considerations which may be significant in the purchase and ownership of a Policy. LIFE INSURANCE QUALIFICATION Section 7702 of the Code defines life insurance for federal income tax purposes. The Code provides two alternative tests for determining whether the death benefit is a sufficient multiple of the Policy Value. See "Choice of Tests for Tax Purposes", p. 6. We have designed the Policy to comply with these rules. We will return premiums that would cause a Policy to be disqualified as life insurance. Section 817(h) of the Code authorizes the Secretary of the Treasury to set standards for diversification of the investments underlying variable life insurance policies. Final regulations have been issued pursuant to this authority. Failure to meet the diversification requirements would disqualify the Policies as life insurance for purposes of Section 7702 of the Code. We intend to comply with these requirements. The Treasury Department, in connection with the diversification requirements, stated that it expected to issue guidance about circumstances where a policyowner's control of separate account assets would cause the policyowner, and not the life insurance company, to be treated as the owner of those assets. These guidelines have not been issued. If the owner of a Policy were treated as the owner of the Fund shares held in the Account, the income and gains related to those shares would be included in the owner's gross income for federal income tax purposes. We believe that we own the assets of the Account under current federal income tax law. TAX TREATMENT OF LIFE INSURANCE While a Policy is in force, increases in the Policy Value as a result of investment experience are not subject to federal income tax until there is a distribution as defined by the Code. The death benefit received by a beneficiary will not be subject to federal income tax. Unless the Policy is a modified endowment contract, as described below, we believe that a loan received under a Policy will be construed as indebtedness of the owner and no part of the loan will be treated as a distribution subject to current federal income tax. Interest paid by individual owners of the Policies will ordinarily not be deductible. You should consult a qualified tax adviser as to the deductibility of interest paid, or accrued, by other purchasers of the Policies. See "Other Tax Considerations", below. As a general rule, the proceeds from a withdrawal of Policy Value will be taxable only to the extent that the withdrawal exceeds the basis of the Policy. The basis of the Policy is generally equal to the premiums paid less any amounts previously received as tax-free distributions. In certain circumstances, a withdrawal of Policy Value during the first 15 Policy years may be taxable to the extent that the Policy Value exceeds the basis of the Policy. This means that the amount withdrawn may be taxable even if that amount is less 11 than the basis of the Policy. In addition, if a Policy terminates while a Policy loan is outstanding, the cancellation of the loan and accrued interest will be treated as a distribution from the Policy and may be taxable under these rules. Special tax rules may apply when ownership of a Policy is transferred. You should seek qualified tax advice if you plan a transfer of ownership. MODIFIED ENDOWMENT CONTRACTS A Policy will be classified as a modified endowment contract if the cumulative premium paid during the first seven Policy years exceeds a defined "seven-pay" limit. The seven-pay limit is based on a hypothetical life insurance policy issued on the same insured person and for the same initial death benefit which, under specified conditions (which include the absence of expense and administrative charges) will be fully paid for after seven level annual payments. A Policy will be treated as a modified endowment contract unless cumulative premiums paid under the Policy, at all times during the first seven Policy years, are less than or equal to the cumulative seven-pay premiums which would have been paid under the hypothetical policy on or before such times. Whenever there is a "material change" under a Policy, it will generally be treated as a new contract for purposes of determining whether the Policy is a modified endowment contract, and subjected to a new seven-pay period and a new seven-pay limit. The new seven-pay limit would be determined taking into account the Policy Value of the Policy at the time of such change. A materially changed Policy would be considered a modified endowment contract if it failed to satisfy the new seven-pay limit. A material change could occur as a result of a change in the death benefit option, a change in the Specified Amount, and certain other changes. If the benefits are reduced during the first seven Policy years after entering into the Policy (or within seven years after a material change), for example, by requesting a decrease in the Specified Amount or, in some cases, by making a withdrawal of Policy Value, the seven-pay premium limit will be redetermined based on the reduced level of benefits and applied retroactively for purposes of the seven-pay test. If the premiums previously paid are greater than the calculated seven-pay premium level limit, the Policy will become a modified endowment contract. A life insurance policy which is received in exchange for a modified endowment contract will also be considered a modified endowment contract. If a Policy is a modified endowment contract, any distribution from the Policy will be taxed on a gain- first basis. Distributions for this purpose include a loan (including any increase in the loan amount to pay interest on an existing loan or an assignment or a pledge to secure a loan) or a withdrawal of Policy Value. Any such distributions will be considered taxable income to the extent the Policy Value exceeds the basis in the Policy. For modified endowment contracts, the basis would be increased by the amount of any prior loan under the Policy that was considered taxable income. For purposes of determining the taxable portion of any distribution, all modified endowment contracts issued by Northwestern Mutual Life to the same policyowner (excluding certain qualified plans) during any calendar year are to be aggregated. The Secretary of the Treasury has authority to prescribe additional rules to prevent avoidance of gain-first taxation on distributions from modified endowment contracts. A 10% penalty tax will apply to the taxable portion of a distribution from a modified endowment contract. The penalty tax will not, however, apply to distributions (i) to taxpayers 59 1/2 years of age or older, (ii) in the case of a disability (as defined in the Code) or (iii) received as part of a series of substantially equal periodic annuity payments for the life (or life expectancy) of the taxpayers or the joint lives (or joint life expectancies) of the taxpayer and his beneficiaries. If a Policy is surrendered, the excess, if any, of the Policy Value over the basis of the Policy will be subject to federal income tax and, unless one of the above exceptions applies, the 10% penalty tax. The exceptions generally do not apply to life insurance policies owned by corporations or other entities. If a Policy terminates while there is a Policy loan, the cancellation of the loan and accrued loan interest will be treated as a distribution to the extent not previously treated as such and could be subject to tax, including the penalty tax, as described under the above rules. If a Policy becomes a modified endowment contract, distributions that occur during the Policy year it becomes a modified endowment contract and any subsequent Policy year will be taxed as described in the two preceding paragraphs. In addition, distributions from a Policy within two years before it becomes a modified endowment contract will be subject to tax in this manner. This means that a distribution made from a Policy that is not a modified endowment contract could later become taxable as a distribution from a modified endowment contract. The Secretary of the Treasury has been authorized to prescribe rules which would treat similarly other distributions made in anticipation of a policy becoming a modified endowment contract. OTHER TAX CONSIDERATIONS Business-owned life insurance may be subject to certain additional rules. Section 264(a)(1) of the Code generally disallows a deduction for premiums paid on Policies by anyone who is directly or indirectly a beneficiary under the Policy. Increases in Policy Value may also be subject 12 to tax under the corporation alternative minimum tax provisions. Section 264(a)(4) of the Code limits the Policyowner's deduction for interest on loans taken against life insurance policies to interest on an aggregate total of $50,000 of loans per covered life only with respect to life insurance policies covering key persons. Generally, a key person means an officer or a 20% owner. However, the number of key persons will be limited to the greater of (a) five individuals, or (b) the lesser of 5% of the total officers and employees of the taxpayer or 20 individuals. Deductible interest for these Policies will be subject to limits based on current market rates. In addition, Section 264(f) disallows a proportionate amount of a business' interest deduction based on the amount of unborrowed cash value of non-exempt life insurance policies held in relation to other business assets. Exempt policies include policies held by natural persons unless the business is a direct or indirect beneficiary under the policy and policies owned by a business and insuring employees, directors, officers and 20% owners (as well as joint policies insuring 20% owners and their spouses). Finally, life insurance subject to a split dollar arrangement is taxable to the employee in the amount of the annual value of the economic benefit to the employee measured by the issuer's lowest one-year term rates as defined by various Internal Revenue Service rulings or the government's P.S. 58 table rates. The Internal Revenue Service has also ruled in a private letter ruling related to a specific taxpayer under audit that the accrued earnings in the equity split dollar policies held by the taxpayer were taxable in the year earned. The Internal Revenue Service has not issued a formal ruling on this issue and is currently reviewing the taxation of split dollar arrangements generally. Depending on the circumstances, the exchange of a Policy, a change in the death benefit option, a Policy loan, a withdrawal of Policy Value, a change in ownership or an assignment of the Policy may have federal income tax consequences. In addition, federal, state and local transfer, estate, inheritance, and other tax consequences of Policy ownership, premium payments and receipt of Policy proceeds depend on the circumstances of each Policyowner or beneficiary. If you contemplate any such transaction you should consult a qualified tax adviser. - -------------------------------------------------------------------------------- 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, as of the date of this prospectus, are listed below. Unless otherwise indicated, the business address of each Trustee and senior officer is c/o The Northwestern Mutual Life Insurance Company, 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202. TRUSTEES
NAME PRINCIPAL OCCUPATION DURING LAST FIVE YEARS - ---- ------------------------------------------- R. Quintus Anderson (A). . . . . . . . . Chairman, Aarque Capital Corporation since 1997; prior thereto, Chairman, The Aarque Companies, 111 West Second Street, P.O. Box 310, Jamestown, NY 14702-0310 (diversified metal products manufacturing) Edward E. Barr (HR). . . . . . . . . . . Chairman, Sun Chemical Corporation, 222 Bridge Plaza South, Fort Lee, New Jersey 07024 (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, 1025 West Eighth Street, Kansas City, MO 64101 (consumer products manufacturer) Robert C. Buchanan (A, E, F) . . . . . . President and Chief Executive Officer, Fox Valley Corporation, 100 West Lawrence Street, P.O. Box 727, Appleton, WI 54911 (manufacturer of gift wrap and writing paper) Robert E. Carlson (E). . . . . . . . . . Executive Vice President of Northwestern Mutual Life 13 George A. Dickerman (AM) . . . . . . . . Chairman of the Board, Spalding Sports Worldwide, 425 Meadow Street, P.O. Box 901, Chicopee, MA 01021-0901 (manufacturer of sporting equipment) since 1998; prior thereto, President Pierre S. du Pont (AM) . . . . . . . . . Attorney, Richards, Layton and Finger, P.O. Box 551, 1 Rodney Square, Wilmington, DE 19899 James D. Ericson (AM, E, F. HR, OT). . . President and Chief Executive Officer of Northwestern Mutual Life J. E. Gallegos (A) . . . . . . . . . . . Attorney at Law; President, Gallegos Law Firm, 460 St. Michaels Drive, Building 300, Santa Fe, NM 87505 Stephen N. Graff (E, F, OT). . . . . . . Retired Partner, Arthur Andersen LLP (public accountants). Address: 805 Lone Tree Road, Elm Grove, WI 53122-2014 Patricia Albjerg Graham (HR) . . . . . . Professor, Graduate School of Education, Harvard University, 420 Gutman, Cambridge, MA 02138. President, The Spencer Foundation (social and behavioral sciences) Stephen F. Keller (HR) . . . . . . . . . Attorney. Former Chairman, Santa Anita Realty Enterprises since 1997; prior thereto, Chairman. Address: 101 South Las Palmas Avenue, Los Angeles, CA 90004 Barbara A. King (AM) . . . . . . . . . . President, Landscape Structures, Inc., Rt 3, 601 - 7th Street South, Delano, MN 55328 (manufacturer of playground equipment) J. Thomas Lewis (HR) . . . . . . . . . . Attorney (retired), 228 St. Charles Avenue, Suite 1024, New Orleans, LA 70130, since 1998; prior thereto, Attorney, Monroe & Lemann, New Orleans, LA Daniel F. McKeithan, Jr. (E, F, HR). . . President, Tamarack Petroleum Company, Inc., 777 East Wisconsin Avenue, Milwaukee, WI 53202 (operator of oil and gas wells); President, Active Investor Management, Inc., Milwaukee, WI Guy A. Osborn (E, F, OT) . . . . . . . . Retired Chairman of Universal Foods Corporation, 433 East Michigan Street, Milwaukee, WI 53202 since 1997; prior thereto, Chairman and Chief Executive Officer Timothy D. Proctor (A) . . . . . . . . . Director, Worldwide Human Resources of Glaxo Wellcome plc, P.O. Box 13398, 5 Moore Drive, Research Triangle Park, NC 27709, since 1998; prior thereto, Senior Vice President Human Resources, General Counsel & Secretary (pharmaceuticals) Donald J. Schuenke (AM, E, F). . . . . . Retired Chairman of Northwestern Mutual Life H. Mason Sizemore, Jr. (AM). . . . . . . President and Chief Operating Officer, The Seattle Times, Fairview Avenue North and John Street, P.O. Box 70, Seattle, WA 98109 (publishing) Harold B. Smith (OT) . . . . . . . . . . Chairman, Executive Committee, Illinois Tool Works, Inc., 3600 West Lake Avenue, Glenview, IL 60025-5811 (engineered components and industrial systems and consumables) Sherwood H. Smith, Jr. (AM). . . . . . . Chairman of the Board of Carolina Power & Light, 411 Fayetteville Street Mall, P.O. Box 1551, Raleigh, NC 27602, since 1997; prior thereto, Chairman of the Board and Chief Executive Officer. 14 John E. Steuri (OT). . . . . . . . . . . Chairman, Advanced Thermal Technologies, 2102 Riverfront Drive, Suite 120, Little Rock, AR 72202-1747 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, 201 East Seven Hills Road, P.O. Box 998, Port Washington, WI 53074-0998 Barry L. Williams (HR) . . . . . . . . . President and Chief Executive Officer of Williams Pacific Ventures, Inc., 100 First Street, Suite 2350, San Francisco, CA 94105-2634 (venture capital) Kathryn D. Wriston (A) . . . . . . . . . Director of various corporations. Address: c/o Shearman & Sterling, 599 Lexington Avenue, Room 1126, New York, NY 10022
A -- Member, Audit Committee F -- Member, Finance Committee AM -- Member, Agency and Marketing HR -- Member, Human Resources and Committee Public Policy Committee E -- Member, Executive Committee OT -- Member, Operations and Technology Committee SENIOR OFFICERS (OTHER THAN TRUSTEES)
POSITION WITH NAME NORTHWESTERN MUTUAL LIFE - -------------------------------------------------------------------------------- John M. Bremer Executive Vice President, General Counsel and Secretary Peter W. Bruce Executive Vice President Edward J. Zore Executive Vice President Deborah A. Beck Senior Vice President William H. Beckley Senior Vice President Mark G. Doll Senior Vice President Richard L. Hall Senior Vice President William C. Koenig Senior Vice President and Chief Actuary Donald L. Mellish Senior Vice President Mason G. Ross Senior Vice President Leonard F. Stecklein Senior Vice President Frederic H. Sweet Senior Vice President Dennis Tamcsin Senior Vice President Walter J. Wojcik Senior Vice President Gary E. Long Vice President and Controller
REGULATION We are subject to the laws of Wisconsin governing insurance companies and to regulation by the Wisconsin Commissioner of Insurance. We file an annual statement in a prescribed form with the Department of Insurance on or before March 1 in each year covering operations for the preceding year and including financial statements. Regulation by the Wisconsin Insurance Department includes periodic examination to determine solvency and compliance with insurance laws. We are also subject to the insurance laws and regulations of the other jurisdictions in which we are licensed to operate. YEAR 2000 ISSUES Since early 1996 we have been preparing for the computer requirements associated with the approaching turn of the century. We completed assessment of internal systems in 1996. As of the date of this prospectus the necessary system changes are substantially complete. System testing is in process and we expect testing of all critical systems to be completed during the first six months of 1999. The work on these computer systems extends to software packages we purchase from vendors. In addition, we have been communicating formally with 15 our business partners to identify and assess potential exposure that could result from their failure to address these computer issues on a timely basis. Each of our departments has prepared a contingency plan. We and our business partners bear all of the costs of identifying and resolving the computer systems issues associated with the year 2000. These costs will have no effect on the performance of the Account. The Policies permit charges for administrative expenses to be increased up to the guaranteed maximum rates. However, we do not expect our costs for year 2000 compliance to have any significant effect on the benefits or values provided by the Policies. We believe that our computer systems will be ready for the year 2000 well in advance of the deadline. By their nature, however, the issues in this area carry the risk of unforeseen problems, both at Northwestern Mutual Life and at all the other sites where supporting functions and interaction take place. There can be no assurance that these problems will not have a material adverse impact on the operations of Northwestern Mutual Life and the Account. LEGAL PROCEEDINGS We are engaged in litigation of various kinds which in our judgment is not of material importance in relation to its total assets. There are no legal proceedings pending to which the Account is a party. REGISTRATION STATEMENT We have filed a registration statement with the Securities and Exchange Commission, Washington, D.C. under the Securities Act of 1933, as amended, with respect to the Policies. This prospectus does not contain all the information set forth in the registration statement. A copy of the omitted material is available from the main office of the SEC in Washington, D.C. upon payment of the prescribed fee. Further information about the Policies is also available from the Home Office of Northwestern Mutual Life. The address and telephone number are on the cover of this prospectus. EXPERTS The financial statements of Northwestern Mutual Life as of December 31, 1998 and 1997 and for each of the three years in the period ended December 31, 1998 and of the Account as of December 31, 1998 and for each of the two years in the period ended December 31, 1998 included in this prospectus have been so included in reliance on the reports of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. Actuarial matters included in this prospectus have been examined by William C. Koenig, F.S.A., Senior Vice President and Chief Actuary of Northwestern Mutual Life. His opinion is filed as an exhibit to the registration statement. 16 VARIABLE LIFE ACCOUNTANTS' REPORT [LOGO] Report of Independent Accountants To The Northwestern Mutual Life Insurance Company and Policyowners of Northwestern Mutual Variable Life Account In our opinion, the accompanying combined statement of assets and liabilities and the related combined and separate statements of operations and changes in equity present fairly, in all material respects, the financial position of Northwestern Mutual Variable Life Account and Aggressive Growth Stock Division, International Equity Division, Growth Stock Division, Growth and Income Stock Division, Index 500 Stock Division, Balanced Division, High Yield Bond Division, Select Bond Division, and the Money Market Division thereof at December 31, 1998, the results of each of their operations and the changes in each of their equity for each of the two years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of The Northwestern Mutual Life Insurance Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included direct confirmation of the number of shares owned at December 31, 1998 with Northwestern Mutual Series Fund, Inc., provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers Milwaukee, Wisconsin January 25, 1999 17 VARIABLE LIFE FINANCIAL STATEMENTS NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT Financial Statements DECEMBER 31, 1998 STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) ASSETS Investments at Market Value: Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock 34,420 shares (cost $102,404).............. $ 119,230 International Equity 46,760 shares (cost $73,163)............... 78,416 Growth Stock 29,383 shares (cost $49,267)............... 66,025 Growth and Income Stock 43,428 shares (cost $60,081)............... 70,528 Index 500 Stock 58,115 shares (cost $126,062).............. 191,141 Balanced 71,092 shares (cost $108,217).............. 158,110 High Yield Bond 15,509 shares (cost $16,804)............... 14,516 Select Bond 10,143 shares (cost $12,181)............... 12,669 Money Market 39,300 shares (cost $39,300)............... 39,300 $ 749,935 --------- Due from Sale of Fund Shares.................................. 95 Due from Northwestern Mutual Life Insurance Company........... 328 --------- Total Assets.................................................. $ 750,358 --------- --------- LIABILITIES Due to Northwestern Mutual Life Insurance Company........... $ 95 Due on Purchase of Fund Shares.............................. 328 --------- Total Liabilities....................................... 423 --------- EQUITY (NOTE 8) Variable Life Policies Issued Before October 11, 1995....... 392,772 Variable Complife Policies Issued On or After October 11, 1995....................................................... 356,862 Variable Executive Life Policies Issued On or After March 2, 1998....................................................... 301 --------- Total Equity............................................ 749,935 --------- Total Liabilities and Equity............................ $ 750,358 --------- ---------
The Accompanying Notes are an Integral Part of the Financial Statements 18 VARIABLE LIFE FINANCIAL STATEMENTS NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT Statements of Operations and Changes in Equity (IN THOUSANDS)
AGGRESSIVE GROWTH INTERNATIONAL EQUITY COMBINED STOCK DIVISION DIVISION ----------------------------- ----------------------------- ----------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1997 1998 1997 1998 1997 ------------- ------------- ------------- ------------- ------------- ------------- INVESTMENT INCOME Dividend Income............... $ 24,922 $ 24,262 $ 3,287 $3,345 $ 3,591 $ 1,286 Mortality and Expense Risks... 2,755 1,788 424 271 308 197 Taxes......................... 1,178 767 181 116 132 85 ------------- ------------- ------------- ------------- ------------- ------------- Net Investment Income......... 20,989 21,707 2,682 2,958 3,151 1,004 ------------- ------------- ------------- ------------- ------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized Gain on Investments............... 4,332 4,871 523 231 284 203 Unrealized Appreciation (Depreciation) of Investments During the Period.................... 68,780 42,532 4,928 5,109 (1,424) 2,358 ------------- ------------- ------------- ------------- ------------- ------------- Net Gain (Loss) on Investments............... 73,112 47,403 5,451 5,340 (1,140) 2,561 ------------- ------------- ------------- ------------- ------------- ------------- Increase in Equity Derived from Investment Activity.................. 94,101 69,110 8,133 8,298 2,011 3,565 ------------- ------------- ------------- ------------- ------------- ------------- EQUITY TRANSACTIONS Policyowners' Net Deposits.................. 258,672 170,672 30,145 21,502 20,672 12,656 Policy Loans, Surrenders, and Death Benefits........ (37,427) (23,728) (6,454) (4,003) (4,327) (2,787) Mortality and Other (net)... (39,611) (28,427) (5,193) (3,791) (3,785) (2,368) Transfers from Other Divisions................. 133,775 86,366 20,371 19,008 15,743 14,866 Transfers to Other Divisions................. (133,773) (86,366) (6,419) (4,091) (5,013) (2,149) ------------- ------------- ------------- ------------- ------------- ------------- Increase in Equity Derived from Equity Transactions.... 181,636 118,517 32,450 28,625 23,290 20,218 ------------- ------------- ------------- ------------- ------------- ------------- Net Increase in Equity........ 275,737 187,627 40,583 36,923 25,301 23,783 EQUITY Beginning of Year........... 474,198 286,571 78,647 41,724 53,116 29,333 ------------- ------------- ------------- ------------- ------------- ------------- End of Year................. $749,935 $474,198 $119,230 $78,647 $78,417 $53,116 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
The Accompanying Notes are an Integral Part of the Financial Statements 19 VARIABLE LIFE FINANCIAL STATEMENTS NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT Statements of Operations and Changes in Equity (IN THOUSANDS)
GROWTH & INCOME INDEX 500 GROWTH STOCK DIVISION STOCK DIVISION STOCK DIVISION ----------------------------- ----------------------------- ----------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1997 1998 1997 1998 1997 ------------- ------------- ------------- ------------- ------------- ------------- INVESTMENT INCOME Dividend Income............... $ 956 $ 1,413 $ 537 $ 7,776 $ 4,530 $ 2,579 Mortality and Expense Risks... 211 105 234 120 671 395 Taxes......................... 91 45 100 52 287 169 ------------- ------------- ------------- ------------- ------------- ------------- Net Investment Income......... 654 1,263 203 7,604 3,572 2,015 ------------- ------------- ------------- ------------- ------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized Gain on Investments............... 143 172 220 173 1,125 2,375 Unrealized Appreciation (Depreciation) of Investments During the Period.................... 10,533 4,151 10,574 (1,823) 31,738 17,772 ------------- ------------- ------------- ------------- ------------- ------------- Net Gain (Loss) on Investments............... 10,676 4,323 10,794 (1,650) 32,863 20,147 ------------- ------------- ------------- ------------- ------------- ------------- Increase in Equity Derived from Investment Activity.................. 11,330 5,586 10,997 5,954 36,435 22,162 ------------- ------------- ------------- ------------- ------------- ------------- EQUITY TRANSACTIONS Policyowners' Net Deposits.................. 12,991 7,334 14,771 7,537 29,665 19,733 Policy Loans, Surrenders, and Death Benefits........ (2,859) (1,314) (2,902) (1,842) (8,924) (5,039) Mortality and Other (net)... (2,494) (1,329) (2,847) (1,457) (5,367) (4,127) Transfers from Other Divisions................. 16,839 8,851 17,225 10,673 37,076 20,024 Transfers to Other Divisions................. (2,015) (1,341) (3,106) (1,104) (5,443) (3,783) ------------- ------------- ------------- ------------- ------------- ------------- Increase in Equity Derived from Equity Transactions.... 22,462 12,201 23,141 13,807 47,007 26,808 ------------- ------------- ------------- ------------- ------------- ------------- Net Increase in Equity........ 33,792 17,787 34,138 19,761 83,442 48,970 EQUITY Beginning of Year........... 32,233 14,446 36,389 16,628 107,699 58,729 ------------- ------------- ------------- ------------- ------------- ------------- End of Year................. $66,025 $32,233 $70,527 $36,389 $191,141 $107,699 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
The Accompanying Notes are an Integral Part of the Financial Statements 20 VARIABLE LIFE FINANCIAL STATEMENTS NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT Statements of Operations and Changes in Equity (IN THOUSANDS)
BALANCED DIVISION HIGH YIELD BOND DIVISION SELECT BOND DIVISION ----------------------------- ----------------------------- ----------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1997 1998 1997 1998 1997 ------------- ------------- ------------- ------------- ------------- ------------- INVESTMENT INCOME Dividend Income............... $ 8,344 $ 5,105 $ 1,489 $1,370 $ 743 $ 436 Mortality and Expense Risks... 681 558 53 29 51 35 Taxes......................... 292 239 22 12 22 15 ------------- ------------- ------------- ------------- ------------- ------------- Net Investment Income......... 7,371 4,308 1,414 1,329 670 386 ------------- ------------- ------------- ------------- ------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized Gain on Investments............... 1,893 1,655 47 26 97 36 Unrealized Appreciation (Depreciation) of Investments During the Period.................... 14,317 15,262 (1,828) (531) (58) 234 ------------- ------------- ------------- ------------- ------------- ------------- Net Gain (Loss) on Investments............... 16,210 16,917 (1,781) (505) 39 270 ------------- ------------- ------------- ------------- ------------- ------------- Increase in Equity Derived from Investment Activity.................. 23,581 21,225 (367) 824 709 656 ------------- ------------- ------------- ------------- ------------- ------------- EQUITY TRANSACTIONS Policyowners' Net Deposits.................. 17,811 15,394 3,490 1,922 2,004 1,820 Policy Loans, Surrenders, and Death Benefits........ (8,879) (7,260) (690) (349) (620) (311) Mortality and Other (net)... (3,232) (3,395) (641) (339) (250) (560) Transfers from Other Divisions................. 7,905 4,266 5,399 3,276 3,951 2,000 Transfers to Other Divisions................. (5,398) (4,734) (1,476) (425) (2,217) (756) ------------- ------------- ------------- ------------- ------------- ------------- Increase in Equity Derived from Equity Transactions.... 8,207 4,271 6,082 4,085 2,868 2,193 ------------- ------------- ------------- ------------- ------------- ------------- Net Increase in Equity........ 31,788 25,496 5,715 4,909 3,577 2,849 EQUITY Beginning of Year........... 126,322 100,826 8,801 3,892 9,092 6,243 ------------- ------------- ------------- ------------- ------------- ------------- End of Year................. $158,110 $126,322 $14,516 $8,801 $12,669 $9,092 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- MONEY MARKET DIVISION ----------------------------- YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1997 ------------- ------------- INVESTMENT INCOME Dividend Income............... $ 1,445 $ 952 Mortality and Expense Risks... 122 78 Taxes......................... 51 34 ------------- ------------- Net Investment Income......... 1,272 840 ------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized Gain on Investments............... -- -- Unrealized Appreciation (Depreciation) of Investments During the Period.................... -- -- ------------- ------------- Net Gain (Loss) on Investments............... -- -- ------------- ------------- Increase in Equity Derived from Investment Activity.................. 1,272 840 ------------- ------------- EQUITY TRANSACTIONS Policyowners' Net Deposits.................. 127,123 82,774 Policy Loans, Surrenders, and Death Benefits........ (1,772) (823) Mortality and Other (net)... (15,802) (11,061) Transfers from Other Divisions................. 9,266 3,402 Transfers to Other Divisions................. (102,686) (67,983) ------------- ------------- Increase in Equity Derived from Equity Transactions.... 16,129 6,309 ------------- ------------- Net Increase in Equity........ 17,401 7,149 EQUITY Beginning of Year........... 21,899 14,750 ------------- ------------- End of Year................. $39,300 $21,899 ------------- ------------- ------------- -------------
The Accompanying Notes are an Integral Part of the Financial Statements 21 NOTES TO FINANCIAL STATEMENTS NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT Notes to Financial Statements DECEMBER 31, 1998 NOTE 1 -- Northwestern Mutual Variable Life Account (the "Account") is registered as a unit investment trust under the Investment Company Act of 1940 and is a segregated asset account of The Northwestern Mutual Life Insurance Company ("Northwestern Mutual") used to fund variable life insurance policies. NOTE 2 -- The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principal accounting policies are summarized below. NOTE 3 -- All assets of each Division of the Account are invested in shares of the corresponding Portfolio of Northwestern Mutual Series Fund, Inc. (the "Fund"). The shares are valued at the Fund's offering and redemption price per share. The Fund is a diversified open-end investment company registered under the Investment Company Act of 1940. NOTE 4 -- Dividend income from the Fund is recorded on the record date of the dividends. Transactions in Fund shares are accounted for on the trade date. The basis for determining cost on sale of Fund shares is identified cost. Purchases and sales of Fund shares for the year ended December 31, 1998 by each Division are shown below:
PURCHASES SALES ------------ ------------ Aggressive Growth Division....... $ 36,381,397 $ 1,248,015 International Equity Division.... 27,429,118 990,001 Growth Stock Division............ 23,393,892 279,458 Growth & Income Stock Division....................... 24,059,882 715,896 Index 500 Stock Division......... 52,625,759 2,046,627 Balanced Division................ 20,647,579 5,068,597 High Yield Bond Division......... 8,131,249 635,946 Select Bond Division............. 5,351,461 1,813,834 Money Market Division............ 47,332,350 29,930,945
NOTE 5 -- A deduction for mortality and expense risks is determined daily and paid to Northwestern Mutual. Generally, for Variable Life policies issued before October 11, 1995, and Variable Complife policies issued on or after October 11, 1995 the deduction is at an annual rate of .50% and .60%, respectively, of the net assets of the Account. A deduction for the mortality and expense risks for the Variable Executive Life policies issued on or after March 3, 1998 is determined monthly at an annual rate of .75% of the amount invested in the Account for the Policy for the first ten Policy years, and .30% thereafter. The mortality risk is that insureds may not live as long as estimated. The expense risk is that expenses of issuing and administering the policies may exceed the estimated costs. Certain deductions are also made from the annual, single or other premiums before amounts are allocated to the Account. These deductions are for (1) sales load, (2) administrative expenses, (3) taxes and (4) a risk charge for the guaranteed minimum death benefit. Additional mortality costs are deducted from the policy annually and are paid to Northwestern Mutual to cover the cost of providing insurance protection. This cost is actuarially calculated based upon the insured's age, the 1980 Commissioners Standard Ordinary Mortality Table and the amount of insurance provided under the policy. NOTE 6 -- Northwestern Mutual is taxed as a "life insurance company" under the Internal Revenue Code. The variable life insurance policies which are funded in the Account are taxed as part of the operations of Northwestern Mutual. Policies provide that a charge for taxes may be made against the assets of the Account. Generally, for Variable Life policies issued before October 11, 1995, Northwestern Mutual charges the Account at an annual rate of .20% of the Account's net assets and reserves the right to increase, decrease or eliminate the charge for taxes in the future. Generally, for Variable Complife policies issued on or after October 11, 1995, and for Variable Executive Life policies issued on or after March 3, 1998, there is no charge being made against the assets of the Account for federal income taxes, but Northwestern Mutual reserves the right to charge for taxes in the future. NOTE 7 -- The Account is credited for the policyowners' net annual premiums at the respective policy anniversary dates regardless of when policyowners actually paid their premiums. Northwestern Mutual's equity represents any unpaid portion of net annual premiums. This applies to Variable Life and Variable Complife policies only. 22 NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT Notes to Financial Statements (in thousands) DECEMBER 31, 1998 NOTE 8 -- Equity Values by Division are shown below:
VARIABLE LIFE POLICIES ISSUED BEFORE OCTOBER 11, 1995 EQUITY OF: ------------------------ TOTAL POLICYOWNERS NML EQUITY ------------- --------- --------- Aggressive Growth Stock Division......................................................... $ 42,391 $ 3,793 $ 46,184 International Equity Division............................................................ 32,539 3,074 35,613 Growth Stock Division.................................................................... 22,888 1,510 24,398 Growth and Income Stock Division......................................................... 26,309 1,808 28,117 Index 500 Stock Division................................................................. 95,615 4,943 100,558 Balanced Division........................................................................ 134,029 5,006 139,035 High Yield Bond Division................................................................. 4,916 428 5,344 Select Bond Division..................................................................... 6,911 417 7,328 Money Market Division.................................................................... 5,918 277 6,195 ------------- --------- --------- $ 371,516 $ 21,256 $ 392,772 ------------- --------- --------- ------------- --------- ---------
VARIABLE COMPLIFE POLICIES ISSUED ON OR AFTER OCTOBER 11, 1995 EQUITY OF: ------------------------ TOTAL POLICYOWNERS NML EQUITY ------------- --------- --------- Aggressive Growth Stock Division........................................................ $ 54,132 $ 18,846 $ 72,978 International Equity Division........................................................... 31,302 11,492 42,794 Growth Stock Division................................................................... 30,575 11,026 41,601 Growth and Income Stock Division........................................................ 30,515 11,841 42,356 Index 500 Stock Division................................................................ 65,609 24,890 90,499 Balanced Division....................................................................... 14,142 4,909 19,051 High Yield Bond Division................................................................ 6,565 2,594 9,159 Select Bond Division.................................................................... 4,161 1,171 5,332 Money Market Division................................................................... 13,154 19,938 33,092 ------------- --------- --------- $ 250,155 $ 106,707 $ 356,862 ------------- --------- --------- ------------- --------- ---------
VARIABLE EXECUTIVE LIFE POLICIES ISSUED ON OR AFTER MARCH 2, 1998 ------------------------- TOTAL EQUITY ------------------------- Aggressive Growth Stock Division...................................................................... $ 67 International Equity Division......................................................................... 10 Growth Stock Division................................................................................. 25 Growth and Income Stock Division...................................................................... 55 Index 500 Stock Division.............................................................................. 84 Balanced Division..................................................................................... 24 High Yield Bond Division.............................................................................. 13 Select Bond Division.................................................................................. 9 Money Market Division................................................................................. 14 ----- $ 301 ----- -----
-- 23 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF FINANCIAL POSITION (IN MILLIONS) The following financial statements of Northwestern Mutual should be considered only as bearing upon the ability of Northwestern Mutual Life to meet its obligations under the Policies.
DECEMBER 31, --------------------- 1998 1997 --------- --------- ASSETS Bonds......................................... $ 34,888 $ 32,359 Common and preferred stocks................... 6,576 6,524 Mortgage loans................................ 12,250 10,835 Real estate................................... 1,481 1,372 Policy loans.................................. 7,580 7,163 Other investments............................. 1,839 2,026 Cash and temporary investments................ 1,275 572 Due and accrued investment income............. 827 795 Other assets.................................. 1,313 1,275 Separate account assets....................... 9,966 8,160 --------- --------- Total assets.............................. $ 77,995 $ 71,081 --------- --------- --------- --------- LIABILITIES AND SURPLUS Reserves for policy benefits.................. $ 51,815 $ 47,343 Policy benefit and premium deposits........... 1,709 1,624 Policyowner dividends payable................. 2,870 2,640 Interest maintenance reserve.................. 606 461 Asset valuation reserve....................... 1,994 1,974 Income taxes payable.......................... 1,161 1,043 Other liabilities............................. 3,133 3,735 Separate account liabilities.................. 9,966 8,160 --------- --------- Total liabilities......................... 73,254 66,980 Surplus....................................... 4,741 4,101 --------- --------- Total liabilities and surplus............. $ 77,995 $ 71,081 --------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements. -- 24 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF OPERATIONS (IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, --------------------------------- 1998 1997 1996 --------- --------- --------- REVENUE Premium income................................ $ 8,021 $ 7,294 $ 6,667 Net investment income......................... 4,536 4,171 3,836 Other income.................................. 922 861 759 --------- --------- --------- Total revenue............................. 13,479 12,326 11,262 --------- --------- --------- BENEFITS AND EXPENSES Benefit payments to policyowners and beneficiaries................................ 3,602 3,329 2,921 Net additions to policy benefit reserves...... 4,521 4,026 3,701 Net transfers to separate accounts............ 564 566 579 --------- --------- --------- Total benefits............................ 8,687 7,921 7,201 Operating expenses............................ 1,297 1,138 1,043 --------- --------- --------- Total benefits and expenses............... 9,984 9,059 8,244 --------- --------- --------- Gain from operations before dividends and taxes... 3,495 3,267 3,018 Policyowner dividends............................. 2,869 2,636 2,341 --------- --------- --------- Gain from operations before taxes................. 626 631 677 Income tax expense................................ 301 356 452 --------- --------- --------- Net gain from operations.......................... 325 275 225 Net realized capital gains........................ 484 414 395 --------- --------- --------- Net income................................ $ 809 $ 689 $ 620 --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements. -- 25 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF CHANGES IN SURPLUS (IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 ------- ------- ------- BEGINNING OF YEAR BALANCE......................... $4,101 $3,515 $2,786 Net income...................................... 809 689 620 Increase (decrease) in net unrealized gains..... (147) 576 295 Increase in investment reserves................. (20) (526) (176) Other, net...................................... (2) (153) (10) ------- ------- ------- Net increase in surplus......................... 640 586 729 ------- ------- ------- END OF YEAR BALANCE............................... $4,741 $4,101 $3,515 ------- ------- ------- ------- ------- -------
The accompanying notes are an integral part of these financial statements. -- 26 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, ---------------------------------- 1998 1997 1996 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Insurance and annuity premiums.................. $ 8,876 $ 8,093 $ 7,361 Investment income received...................... 4,216 3,928 3,634 Disbursement of policy loans, net of repayments..................................... (416) (360) (326) Benefits paid to policyowners and beneficiaries.................................. (3,572) (3,316) (2,912) Net transfers to separate accounts.............. (564) (565) (579) Policyowner dividends paid...................... (2,639) (2,347) (2,105) Operating expenses and taxes.................... (1,749) (1,722) (1,663) Other, net...................................... (83) 124 (59) -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES..... 4,069 3,835 3,351 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES PROCEEDS FROM INVESTMENTS SOLD OR MATURED Bonds......................................... 28,720 38,284 31,942 Common and preferred stocks................... 10,359 9,057 4,570 Mortgage loans................................ 1,737 1,012 1,253 Real estate................................... 159 302 178 Other investments............................. 768 398 316 -------- -------- -------- 41,743 49,053 38,259 -------- -------- -------- COST OF INVESTMENTS ACQUIRED Bonds......................................... 30,873 41,169 35,342 Common and preferred stocks................... 9,642 9,848 4,463 Mortgage loans................................ 3,135 2,309 2,455 Real estate................................... 268 202 125 Other investments............................. 567 359 255 -------- -------- -------- 44,485 53,887 42,640 -------- -------- -------- NET INCREASE (DECREASE) IN SECURITIES LENDING AND OTHER...................................... (624) 440 1,617 -------- -------- -------- NET CASH USED IN INVESTING ACTIVITIES......... (3,366) (4,394) (2,764) -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND TEMPORARY INVESTMENTS...................................... 703 (559) 587 CASH AND TEMPORARY INVESTMENTS, BEGINNING OF YEAR............................................. 572 1,131 544 -------- -------- -------- CASH AND TEMPORARY INVESTMENTS, END OF YEAR....... $ 1,275 $ 572 $ 1,131 -------- -------- -------- -------- -------- --------
The accompanying notes are an integral part of these financial statements. -- 27 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 1. PRINCIPAL ACCOUNTING POLICIES The accompanying consolidated statutory financial statements include the accounts of The Northwestern Mutual Life Insurance Company ("Company") and its wholly-owned life insurance subsidiary, Northwestern Long Term Care Insurance Company ("Subsidiary"). The Company and its Subsidiary offer life, annuity, disability income and long term care products to the personal, business, estate and tax-qualified markets. The consolidated financial statements have been prepared using accounting policies prescribed or permitted by the Office of the Commissioner of Insurance of the State of Wisconsin ("statutory basis of accounting"). In 1998, the National Association of Insurance Commissioners ("NAIC") adopted the Codification of Statutory Accounting Principles, which will replace the current Accounting Practices and Procedures manual as the NAIC's primary guidance on statutory accounting. The NAIC is now considering amendments to the codification guidance that would also be effective upon its planned implementation effective January 1, 2001. It is expected that the Office of the Commissioner of Insurance of the State of Wisconsin ("OCI") will adopt the codification, but it is not known whether the OCI will make any changes to that guidance. The potential effect of the codification on the Company will depend upon the guidance adopted by the OCI. Financial statements prepared on the statutory basis of accounting vary from financial statements prepared on the basis of Generally Accepted Accounting Principles ("GAAP") primarily because on a GAAP basis (1) policy acquisition costs are deferred and amortized, (2) investment valuations and insurance reserves are based on different assumptions, (3) funds received under deposit-type contracts are not reported as premium revenue, and (4) deferred taxes are provided for temporary differences between book and tax basis of certain assets and liabilities. The effects on the financial statements of the differences between the statutory basis of accounting and GAAP are material to the Company. The preparation of financial statements in conformity with the statutory basis of accounting requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual future results could differ from these estimates. INVESTMENTS The Company's investments are valued on the following bases: Bonds -- Amortized cost using the interest method; loan-backed and structured securities are amortized using estimated prepayment rates and, generally, the prospective adjustment method Common and preferred stocks -- Common stocks are carried at fair value, preferred stocks are generally carried at cost, and unconsolidated subsidiaries are recorded using the equity method Mortgage loans -- Amortized cost Real estate -- Lower of cost, less depreciation and encumbrances, or estimated net realizable value Policy loans -- Unpaid principal balance, which approximates fair value Other investments -- Consists primarily of joint venture investments which are valued at equity in ventures' net assets Cash and temporary investments -- Amortized cost, which approximates fair value
-- 28 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 TEMPORARY INVESTMENTS Temporary investments consist of debt securities that have maturities of one year or less at acquisition. NET INVESTMENT INCOME Net investment income includes interest and dividends received or due and accrued on debt securities and stocks, equity in unconsolidated subsidiaries' earnings and the Company's share of joint venture income. Net investment income is reduced by investment management expenses, real estate depreciation, depletion related to energy assets and costs associated with securities lending. INTEREST MAINTENANCE RESERVE The Company is required to maintain an interest maintenance reserve ("IMR"). The IMR is used to defer realized gains and losses, net of tax, on fixed income investments resulting from changes in interest rates. Net realized gains and losses deferred to the IMR are amortized into investment income over the approximate remaining term to maturity of the investment sold. INVESTMENT RESERVES The Company is required to maintain an asset valuation reserve ("AVR"). The AVR establishes a general reserve for invested asset valuation using a formula prescribed by state regulations. The AVR is designed to stabilize surplus against potential declines in the value of investments. In addition, the Company maintained a $200 million voluntary investment reserve at December 31, 1998 and 1997 to absorb potential investment losses exceeding those considered by the AVR formula. Increases or decreases in these investment reserves are recorded directly to surplus. SEPARATE ACCOUNTS Separate account assets and related policy liabilities represent the segregation of funds deposited by "variable" life insurance and annuity policyowners. Policyowners bear the investment performance risk associated with variable products. Separate account assets are invested at the direction of the policyowner in a variety of Company-managed mutual funds. Variable product policyowners also have the option to invest in a fixed interest rate annuity in the general account of the Company. Separate account assets are reported at fair value. PREMIUM REVENUE AND OPERATING EXPENSES Life insurance premiums are recognized as revenue at the beginning of each policy year. Annuity and disability income premiums are recognized when received by the Company. Operating expenses, including costs of acquiring new policies, are charged to operations as incurred. OTHER INCOME Other income includes considerations on supplementary contracts, ceded reinsurance expense allowances and miscellaneous policy charges. -- 29 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 BENEFIT PAYMENTS TO POLICYOWNERS AND BENEFICIARIES Benefit payments to policyowners and beneficiaries include death, surrender and disability benefits, matured endowments and supplementary contract payments. RESERVES FOR POLICY BENEFITS Reserves for policy benefits are determined using actuarial estimates based on mortality and morbidity experience tables and valuation interest rates prescribed by the Office of the Commissioner of Insurance of the State of Wisconsin. See Note 3. POLICYOWNER DIVIDENDS Almost all life insurance policies, and certain annuity and disability income policies, issued by the Company are participating. Annually, the Company's Board of Trustees approves dividends payable on participating policies in the following fiscal year, which are accrued and charged to operations when approved. RECLASSIFICATION Certain financial statement balances for 1997 and 1996 have been reclassified to conform to the current year presentation. 2. INVESTMENTS DEBT SECURITIES Debt securities consist of all bonds and fixed-maturity preferred stocks. The estimated fair values of debt securities are based upon quoted market prices, if available. For securities not actively traded, fair values are estimated using independent pricing services or internally developed pricing models. The Company records unrealized losses for debt securities considered impaired. -- 30 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 Statement value, which principally represents amortized cost, and estimated fair value of the Company's debt securities at December 31, 1998 and 1997 were as follows:
RECONCILIATION TO ESTIMATED FAIR VALUE --------------------------------------- GROSS GROSS ESTIMATED STATEMENT UNREALIZED UNREALIZED FAIR DECEMBER 31, 1998 VALUE APPRECIATION DEPRECIATION VALUE - -------------------------------------------------- --------- ------------ ------------ --------- (IN MILLIONS) US Government and political obligations........... $ 3,904 $ 461 $ (11) $ 4,354 Mortgage-backed securities........................ 7,357 280 (15) 7,622 Corporate and other debt securities............... 23,627 1,240 (382) 24,485 --------- ------------ ------ --------- 34,888 1,981 (408) 36,461 Preferred stocks.................................. 189 4 (1) 192 --------- ------------ ------ --------- Total............................................. $35,077 $1,985 $(409) $36,653 --------- ------------ ------ --------- --------- ------------ ------ --------- RECONCILIATION TO ESTIMATED FAIR VALUE --------------------------------------- GROSS GROSS ESTIMATED STATEMENT UNREALIZED UNREALIZED FAIR DECEMBER 31, 1997 VALUE APPRECIATION DEPRECIATION VALUE - -------------------------------------------------- --------- ------------ ------------ --------- (IN MILLIONS) US Government and political obligations........... $ 3,695 $ 336 $ (3) $ 4,028 Mortgage-backed securities........................ 7,015 264 (4) 7,275 Corporate and other debt securities............... 21,649 1,098 (208) 22,539 --------- ------------ ------ --------- 32,359 1,698 (215) 33,842 Preferred stocks.................................. 167 4 (2) 169 --------- ------------ ------ --------- Total............................................. $32,526 $1,702 $(217) $34,011 --------- ------------ ------ --------- --------- ------------ ------ ---------
The statement value of debt securities by contractual maturity at December 31, 1998 and 1997 is shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
DECEMBER 31, DECEMBER 31, 1998 1997 ------------ ------------ (IN MILLIONS) Due in one year or less........................... $ 655 $ 605 Due after one year through five years............. 5,031 4,878 Due after five years through ten years............ 10,286 9,760 Due after ten years............................... 11,748 10,268 ------------ ------------ 27,720 25,511 Mortgage-backed securities........................ 7,357 7,015 ------------ ------------ $35,077 $32,526 ------------ ------------ ------------ ------------
STOCKS The estimated fair values of common and perpetual preferred stocks are based upon quoted market prices, if available. For securities not actively traded, fair values are estimated using independent pricing services or internally developed pricing models. -- 31 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 The adjusted cost of common and preferred stock held by the Company at December 31, 1998 and 1997 was $4.8 billion and $5.0 billion, respectively. MORTGAGE LOANS AND REAL ESTATE Mortgage loans are collateralized by properties located throughout the United States and Canada. The Company attempts to minimize mortgage loan investment risk by diversification of geographic locations and types of collateral properties. The fair value of mortgage loans as of December 31, 1998 and 1997 was approximately $12.9 billion and $11.5 billion, respectively. The fair value of the mortgage loan portfolio is estimated by discounting the future estimated cash flows using current interest rates of debt securities with similar credit risk and maturities, or utilizing net realizable values. At December 31, 1998 and 1997, real estate includes $61 million acquired through foreclosure at each date and $120 million and $124 million, respectively, of home office real estate. In 1998, 1997 and 1996, the Company recorded unrealized losses of $5 million, $2 million and $43 million, respectively, for the excess of statement value over fair value of certain real estate investments and mortgage loans. REALIZED GAINS AND LOSSES Realized investment gains and losses for the years ended December 31, 1998, 1997 and 1996 were as follows:
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996 ------------------------------ ------------------------------ ------------------------------ NET NET NET REALIZED REALIZED REALIZED REALIZED REALIZED GAINS REALIZED REALIZED GAINS REALIZED REALIZED GAINS GAINS LOSSES (LOSSES) GAINS LOSSES (LOSSES) GAINS LOSSES (LOSSES) -------- -------- -------- -------- -------- -------- -------- -------- -------- (IN MILLIONS) Bonds......................... $ 514 $ (231) $ 283 $ 518 $ (269) $ 249 $ 396 $ (383) $ 13 Common and preferred stocks... 885 (240) 645 533 (150) 383 580 (115) 465 Mortgage loans................ 18 (11) 7 14 (14) - 2 (15) (13) Real estate................... 41 - 41 100 (2) 98 36 - 36 Other investments............. 330 (267) 63 338 (105) 233 204 (51) 153 -------- -------- -------- -------- -------- -------- -------- -------- -------- 1,788 (749) 1,039 1,503 (540) 963 1,218 (564) 654 -------- -------- -------- -------- -------- -------- -------- -------- -------- Less: Capital gains taxes..... 358 340 224 Less: IMR deferrals........... 197 209 35 -------- -------- -------- Net realized capital gains.... $ 484 $ 414 $ 395 -------- -------- -------- -------- -------- --------
SECURITIES LENDING The Company has entered into a securities lending agreement whereby certain securities are loaned to third parties, primarily major brokerage firms. The Company's policy requires a minimum of 102 percent of the fair value of the loaned securities as collateral, calculated on a daily basis in the form of either cash or securities. Collateral assets received and related liability due to counterparties of $1.5 billion are included in the consolidated -- 32 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 statements of financial position for each of the periods ended at December 31, 1998 and 1997, and approximate the statement value of securities loaned at those dates. INVESTMENT IN MGIC The Company owns 11.0% (11.9 million shares) of the outstanding common stock of MGIC Investment Corporation ("MGIC"). This investment is accounted for using the equity method. At December 31, 1998 and 1997, the fair value of the Company's investment in MGIC exceeded the statement value of $180 million and $273 million, respectively, by $296 million and $768 million, respectively. In July 1995, the Company entered into a forward contract with a brokerage firm to deliver 8.9 million to 10.7 million shares of MGIC (or cash in an amount equal to the market value of the MGIC shares at contract maturity) in August, 1998, in exchange for a fixed cash payment of $247 million ($24 per share). The Company's objective in entering into the forward contract was to hedge against depreciation in the value of its MGIC holdings during the contract period below the initial spot price of $24, while partially participating in appreciation, if any, during the forward contract's duration. In August 1998, the Company delivered 8.9 million shares to settle the forward contract. In conjunction with the settlement, the Company recorded a $114 million realized gain. DERIVATIVE FINANCIAL INSTRUMENTS In the normal course of business, the Company enters into transactions to reduce its exposure to fluctuations in interest rates, foreign currency exchange rates and market volatility. These hedging strategies include the use of forwards, futures, options and swaps. The Company held the following positions for hedging purposes at December 31, 1998 and 1997:
DERIVATIVE FINANCIAL INSTRUMENT NOTIONAL AMOUNTS - --------------------------------------------- --------------------------------------- (IN MILLIONS) DECEMBER 31, 1998 DECEMBER 31, 1997 ------------------ ------------------ Foreign Currency Forward Contracts................................... $601 $564 Common Stock Futures......................... 657 327 Bond Futures................................. 379 95 Options to acquire Interest Rate Swaps....... 419 530 Foreign Currency and Interest Rate Swaps..... 94 209 DERIVATIVE FINANCIAL INSTRUMENT RISKS REDUCED - --------------------------------------------- --------------------------------------------- Foreign Currency Forward Currency exposure on foreign-denominated Contracts................................... investments. Common Stock Futures......................... Stock market price fluctuation. Bond Futures................................. Bond market price fluctuation. Options to acquire Interest Rate Swaps....... Interest rates payable on certain annuity and insurance contracts. Foreign Currency and Interest Rate Swaps..... Interest rates on variable rate notes and currency exposure on foreign-denominated bonds.
The notional or contractual amounts of derivative financial instruments are used to denominate these types of transactions and do not represent the amounts exchanged between the parties. In addition to the use of derivatives for hedging purposes, equity swaps were held for investment purposes during 1997 and 1998. The notional amount of equity swaps outstanding at December 31, 1998 and 1997 was $188 million and $143 million, respectively. Foreign currency forwards, foreign currency swaps, stock futures and equity swaps are reported at fair value. Resulting gains and losses on these contracts are unrealized until expiration of the contract. There is no statement -- 33 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 value reported for interest rate swaps, bond futures and options to acquire interest rate swaps prior to the settlement of the contract, at which time realized gains and losses are deferred to IMR. Changes in the value of derivative instruments are expected to offset gains and losses on the hedged investments. During 1998, net realized and unrealized gains on investments were partially offset by net realized losses of $104 million and net unrealized losses of $58 million on derivative instruments. The effect of derivative instruments in 1997 and 1996 was not material to the Company's results of operations. 3. RESERVES FOR POLICY BENEFITS Life insurance reserves on substantially all policies issued since 1978 are based on the Commissioner's Reserve Valuation Method with interest rates ranging from 3 1/2% to 5 1/2%. Other life policy reserves are primarily based on the net level premium method employing various mortality tables at interest rates ranging from 2% to 4 1/2%. Deferred annuity reserves on contracts issued since 1985 are valued primarily using the Commissioner's Annuity Reserve Valuation Method with interest rates ranging from 3 1/2% to 6 1/4%. Other deferred annuity reserves are based on contract value. Immediate annuity reserves are based on present values of expected benefit payments at interest rates ranging from 3 1/2% to 7 1/2%. Active life reserves for disability income ("DI") policies issued since 1987 are primarily based on the two-year preliminary term method using a 4% interest rate and the 1985 Commissioner's Individual Disability Table A ("CIDA") for morbidity. Active life reserves for prior DI policies are based on the net level premium method, a 3% to 4% interest rate and the 1964 Commissioner's Disability Table for morbidity. Disabled life reserves for DI policies are based on the present values of expected benefit payments primarily using the 1985 CIDA (modified for Company experience in the first two years of disability) with interest rates ranging from 3% to 5 1/2%. Use of these actuarial tables and methods involves estimation of future mortality and morbidity based on past experience. Actual future experience could differ from these estimates. 4. EMPLOYEE AND AGENT BENEFIT PLANS The Company sponsors noncontributory defined benefit retirement plans for all eligible employees and agents. The expense associated with these plans is generally recorded by the Company in the period contributions to the plans are funded. As of January 1, 1998, the most recent actuarial valuation date available, the qualified defined benefit plans were fully funded. The Company recorded a liability of $98 million and $87 million for nonqualified defined benefit plans at December 31, 1998 and 1997, respectively. In addition, the Company has a contributory 401(k) plan for eligible employees and a noncontributory defined contribution plan for all full-time agents. The Company's contributions are expensed in the period contributions are made to the plans. The Company recorded $29 million, $27 million and $25 million of total expense related to its defined benefit and defined contribution plans for the years ended December 31, 1998, 1997 and 1996, respectively. The defined benefit and defined contribution plans' assets of $1.9 billion and $1.7 billion at December 31, 1998 and 1997, respectively, were primarily invested in the separate accounts of the Company. In addition to pension and retirement benefits, the Company provides certain health care and life insurance benefits ("postretirement benefits") for retired employees. Substantially all employees may become eligible for these benefits if they reach retirement age while working for the Company. Postretirement benefit costs for the years ended December 31, 1998, 1997 and 1996 were a net expense (benefit) of $1.8 million, ($1.3) million and -- 34 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 ($12.0) million, respectively. Net benefits were primarily a result of favorable differences between actuarial assumptions and actual experience.
DECEMBER 31, DECEMBER 31, 1998 1997 -------------------- -------------------- Unfunded postretirement benefit obligation for retirees and other fully eligible employees (Accrued in statement of financial position).................... $35 million $34 million Estimated postretirement benefit obligation for active non-vested employees (Not accrued until employee vests)....................... $56 million $50 million Discount rate................. 7% 7% Health care cost trend rate... 10% to an ultimate 10% to an ultimate 5%, declining 1% for 5%, declining 1% for 5 years 5 years
If the health care cost trend rate assumptions were increased by 1%, the accrued postretirement benefit obligation as of December 31, 1998 and 1997 would have been increased by $5 million and $4 million, respectively. At December 31, 1998 and 1997, the recorded postretirement benefit obligation was reduced by $23 million and $20 million, respectively, for assets funded for postretirement health care benefits. 5. REINSURANCE In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding to reinsurers under excess coverage and coinsurance contracts. The Company retains a maximum of $25 million of coverage per individual life and $35 million maximum of coverage per joint life. The Company has an excess reinsurance contract for disability income policies with retention limits varying based upon on coverage type. The amounts shown in the accompanying consolidated financial statements are net of reinsurance. Policy benefit reserves at December 31, 1998 and 1997 were reported net of ceded reserves of $518 million and $435 million, respectively. The effect of reinsurance on premiums and benefits for the years ended December 31, 1998, 1997 and 1996 was as follows:
1998 1997 1996 ------- ------- ------- (IN MILLIONS) Direct premiums................................... $8,426 $7,647 $7,064 Premiums ceded.................................... (405) (353) (397) ------- ------- ------- Net premium revenue............................... $8,021 $7,294 $6,667 ------- ------- ------- ------- ------- ------- Benefits to policyowners and beneficiaries........ $8,869 $8,057 $7,348 Benefits ceded.................................... (182) (136) (147) ------- ------- ------- Net benefits to policyowners and beneficiaries.... $8,687 $7,921 $7,201 ------- ------- ------- ------- ------- -------
-- 35 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 In addition, the Company received $121 million, $115 million and $93 million for the years ended December 31, 1998, 1997 and 1996, respectively, from reinsurers representing allowances for reimbursement of commissions and other expenses. These amounts are included in other income in the consolidated statement of operations. Reinsurance contracts do not relieve the Company from its obligations to policyowners. Failure of reinsurers to honor their obligations could result in losses to the Company; consequently, allowances are established for amounts deemed uncollectible. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. 6. INCOME TAXES Provisions for income taxes are based on current income tax payable without recognition of deferred taxes. The Company files a consolidated life-nonlife federal income tax return. Federal income tax returns for years through 1988 are closed as to further assessment of tax. Adequate provision has been made in the financial statements for any additional taxes which may become due with respect to the open years. The Company's effective tax rate on gains from operations before taxes for the years ended December 31, 1998, 1997 and 1996 was 48%, 56%, and 67% respectively. The Company's effective tax rate exceeds the federal corporate rate of 35% primarily because, (1) the Company pays a tax that is assessed only on the surplus of mutual life insurance companies ("equity tax"), and (2) the Company must capitalize and amortize (as opposed to immediately deducting) an amount deemed to represent the cost of acquiring new business ("DAC tax"). 7. ACQUISITION OF FRANK RUSSELL COMPANY Pursuant to an Agreement and Plan of Merger, dated as of August 10, 1998, the Company acquired Frank Russell Company effective January 1, 1999 for a purchase price of approximately $950 million. Frank Russell is a leading investment management and consulting firm, providing investment advice, analytical tools and investment vehicles to institutional and individual investors in more than 30 countries. In connection with its acquisition of Frank Russell Company, the Company will be required in 1999 to charge-off directly from surplus approximately $341 million, which represents the amount of acquisition goodwill less 10% of the Company's surplus at December 31, 1998. In addition, the Company will request permission from the OCI to charge-off the remaining $474 million of acquisition goodwill in 1999 and currently intends to do so. In connection with the acquisition, the Company has unconditionally guaranteed certain debt obligations of Frank Russell Company, including $350 million of senior notes and up to $150 million of other credit facilities. 8. CONTINGENCIES The Company has guaranteed certain obligations of its affiliates. These guarantees totaled approximately $133 million at December 31, 1998 and are generally supported by the underlying net asset values of the affiliates. In addition, the Company routinely makes commitments to fund mortgage loans or other investments in the normal course of business. These commitments aggregated to $2.1 billion at December 31, 1998 and were extended at market interest rates and terms. The Company is engaged in various legal actions in the normal course of its investment and insurance operations. In the opinion of management, any losses resulting from such actions would not have a material effect on the Company's financial position. -- 36 [LETTERHEAD] REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Trustees and Policyowners of The Northwestern Mutual Life Insurance Company We have audited the accompanying consolidated statement of financial position of The Northwestern Mutual Life Insurance Company and its subsidiary as of December 31, 1998 and 1997, and the related consolidated statements of operations, of changes in surplus and of cash flows for each of the three years in the period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note 1, these consolidated financial statements were prepared in conformity with accounting practices prescribed or permitted by the Office of the Commissioner of Insurance of the State of Wisconsin (statutory basis of accounting), which practices differ from generally accepted accounting principles. Accordingly, the consolidated financial statements are not intended to represent a presentation in accordance with generally accepted accounting principles. The effects on the consolidated financial statements of the variances between the statutory basis of accounting and generally accepted accounting principles, although not reasonably determinable, are presumed to be material. In our opinion, the consolidated financial statements audited by us (1) do not present fairly in conformity with generally accepted accounting principles, the financial position of The Northwestern Mutual Life Insurance Company and its subsidiary at December 31, 1998 and 1997, or the results of their operations or their cash flows for each of the three years in the period ended December 31, 1998 because of the effects of the variances between the statutory basis of accounting and generally accepted accounting principles referred to in the preceding paragraph and (2) do present fairly, in all material respects, the financial position of The Northwestern Mutual Life Insurance Company and its subsidiary at December 31, 1998 and 1997 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, on the basis of accounting described in Note 1. [SIGNATURE] January 25, 1999 -- 37 APPENDIX ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES AND ACCUMULATED PREMIUMS. The tables on the following pages illustrate how the death benefit and cash value for a Policy would vary over time based on hypothetical investment results. The tables assume gross investment return rates of 0%, 6% and 12% on assets of the Account. The Policies illustrated are on a sex-neutral basis, age 45, $500,000 Specified Amount and death benefit Option A with a $10,000 annual planned premium. The first four illustrations, on pages 39-42, are for a Policy issued to a guaranteed issue, non-Tobacco risk using 1) the guideline premium/cash value corridor test, and 2) the cash value accumulation test for the definition of life insurance, based on both current charges and on maximum charges. The next four illustrations are for a Policy issued to a select risk using the two different definition of life insurance tests and based on both current charges and on maximum charges. 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 Portfolio or Funds return rate averaged 0%, 6% or 12%, but the rates for each individual Portfolio or Fund varied over and under the average. The amounts shown as the death benefits and cash values reflect the deductions from premiums and deductions from Policy Value. The amounts shown as the cash values reflect the fact that the Company will refund a portion of the sales load for a policy surrendered during the first two years. The amounts shown also reflect the average of the investment advisory fees and other expenses applicable to each of the nine Portfolios of which were in operation during 1998 at the annual rate of .44% of the Portfolio's net assets. See "The Funds", p. 3. Thus the 0%, 6% and 12% gross hypothetical return rates on the Fund's assets are equivalent to the net rates of -.44%, 5.56% and 11.56% on the assets of the Account. The second column of each table shows the amount which would accumulate if an amount equal to the annual premium were invested to earn interest, after taxes, at a 5% interest rate compounded annually. The death benefits and corresponding cash values shown on pages 39, 41, 43 and 45 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. HOWEVER, CURRENT MONTHLY COST OF INSURANCE AND EXPENSE CHARGES MAY CHANGE SUBJECT TO THE STATED MAXIMUM CHARGES. A comparable illustration based on a proposed insured's age, sex and risk classification and proposed face amount or premium is available upon request. 38 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY SEX-NEUTRAL ISSUE AGE 45 -- GUARANTEED ISSUE NON-TOBACCO $500,000 SPECIFIED AMOUNT DEATH BENEFIT OPTION A $10,000 ANNUAL PREMIUM GUIDELINE PREMIUM / CASH VALUE CORRIDOR TEST CURRENT CHARGES
DEATH BENEFIT CASH VALUE ---------------------------- --------------------------- PREMIUM ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS ACCUMULATED ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF END OF AT 5% INTEREST POLICY YEAR PER YEAR 0% 6% 12% 0% 6% 12% - ----------- -------- --------- --------- --------- --------- --------- --------- 1 10,500 500,000 500,000 500,000 8,667 9,124 9,582 2 21,525 500,000 500,000 500,000 16,410 17,847 19,340 3 33,101 500,000 500,000 500,000 23,710 26,672 29,868 4 45,256 500,000 500,000 500,000 31,715 36,765 42,427 5 58,019 500,000 500,000 500,000 39,586 47,303 56,303 6 71,420 500,000 500,000 500,000 47,272 58,258 71,590 7 85,491 500,000 500,000 500,000 54,779 69,656 88,449 8 100,266 500,000 500,000 500,000 62,112 81,524 107,064 9 115,779 500,000 500,000 500,000 69,224 93,843 127,588 10 132,068 500,000 500,000 500,000 76,174 106,693 150,294 15 226,575 500,000 500,000 500,000 109,762 182,911 312,324 20 347,193 500,000 500,000 719,925 137,478 279,169 590,102 25 501,135 500,000 500,000 1,227,176 156,934 404,012 1,057,910 30 697,608 500,000 609,427 1,974,555 161,439 569,558 1,845,379 35 948,363 500,000 821,973 3,336,689 136,948 782,832 3,177,799 40 1,268,398 500,000 1,101,276 5,659,250 46,903 1,048,834 5,389,762 45 1,676,852 0 1,439,616 9,440,935 0 1,371,063 8,991,367
ASSUMES NO POLICY LOAN OR WITHDRAWAL HAS BEEN MADE. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER TO THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE DIFFERENT RATES OF RETURN OF THE VARIABLE ACCOUNT. 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. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES THAN SHOWN. 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. 39 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY SEX-NEUTRAL ISSUE AGE 45 -- GUARANTEED ISSUE NON-TOBACCO $500,000 SPECIFIED AMOUNT DEATH BENEFIT OPTION A $10,000 ANNUAL PREMIUM GUIDELINE PREMIUM / CASH VALUE CORRIDOR TEST GUARANTEED CHARGES
DEATH BENEFIT CASH VALUE ---------------------------- --------------------------- PREMIUM ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS ACCUMULATED ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF END OF AT 5% INTEREST POLICY YEAR PER YEAR 0% 6% 12% 0% 6% 12% - ----------- -------- --------- --------- --------- --------- --------- --------- 1 10,500 500,000 500,000 500,000 7,250 7,661 8,074 2 21,525 500,000 500,000 500,000 13,424 14,679 15,987 3 33,101 500,000 500,000 500,000 19,068 21,610 24,362 4 45,256 500,000 500,000 500,000 25,388 29,670 34,491 5 58,019 500,000 500,000 500,000 31,435 37,921 45,519 6 71,420 500,000 500,000 500,000 37,218 46,381 57,560 7 85,491 500,000 500,000 500,000 42,688 55,014 70,682 8 100,266 500,000 500,000 500,000 47,856 63,840 85,027 9 115,779 500,000 500,000 500,000 52,728 72,880 100,752 10 132,068 500,000 500,000 500,000 57,207 82,056 117,937 15 226,575 500,000 500,000 500,000 73,694 130,542 233,543 20 (age 65) 347,193 500,000 500,000 523,373 77,528 183,326 428,994 25 501,135 500,000 500,000 874,351 59,911 238,956 753,751 30 697,608 500,000 500,000 1,369,493 3,710 297,993 1,279,900 35 948,363 0 500,000 2,249,598 0 362,440 2,142,474 40 1,268,398 0 500,000 3,688,630 0 453,462 3,512,981 45 1,676,852 0 626,715 5,923,991 0 596,871 5,641,896
ASSUMES NO POLICY LOAN OR WITHDRAWAL HAS BEEN MADE. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER TO THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE DIFFERENT RATES OF RETURN OF THE VARIABLE ACCOUNT. 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. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES THAN SHOWN. 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. 40 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY SEX-NEUTRAL ISSUE AGE 45 -- GUARANTEED ISSUE NON-TOBACCO $500,000 SPECIFIED AMOUNT DEATH BENEFIT OPTION A $10,000 ANNUAL PREMIUM CASH VALUE ACCUMULATION TEST CURRENT CHARGES
DEATH BENEFIT CASH VALUE ---------------------------- --------------------------- PREMIUM ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS ACCUMULATED ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF END OF AT 5% INTEREST POLICY YEAR PER YEAR 0% 6% 12% 0% 6% 12% - ----------- -------- --------- --------- --------- --------- --------- --------- 1 10,500 500,000 500,000 500,000 8,667 9,124 9,582 2 21,525 500,000 500,000 500,000 16,410 17,847 19,340 3 33,101 500,000 500,000 500,000 23,710 26,672 29,868 4 45,256 500,000 500,000 500,000 31,715 36,765 42,427 5 58,019 500,000 500,000 500,000 39,586 47,303 56,303 6 71,420 500,000 500,000 500,000 47,272 58,258 71,590 7 85,491 500,000 500,000 500,000 54,779 69,656 88,449 8 100,266 500,000 500,000 500,000 62,112 81,524 107,064 9 115,779 500,000 500,000 500,000 69,224 93,843 127,588 10 132,068 500,000 500,000 500,000 76,174 106,693 150,294 15 226,575 500,000 500,000 622,371 109,762 182,911 311,634 20 (age 65) 347,193 500,000 500,000 1,016,155 137,478 279,169 577,257 25 501,135 500,000 628,128 1,584,595 156,934 399,577 1,008,024 30 697,608 500,000 772,300 2,409,045 161,439 543,120 1,694,161 35 948,363 500,000 928,404 3,618,853 136,948 708,994 2,763,609 40 1,268,398 500,000 1,093,530 5,371,013 46,903 894,016 4,391,072 45 1,676,852 0 1,265,827 7,885,228 0 1,091,143 6,797,067
ASSUMES NO POLICY LOAN OR WITHDRAWAL HAS BEEN MADE. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER TO THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE DIFFERENT RATES OF RETURN OF THE VARIABLE ACCOUNT. 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. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES THAN SHOWN. 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. 41 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY SEX-NEUTRAL ISSUE AGE 45 -- GUARANTEED ISSUE NON-TOBACCO $500,000 SPECIFIED AMOUNT DEATH BENEFIT OPTION A $10,000 ANNUAL PREMIUM CASH VALUE ACCUMULATION TEST GUARANTEED CHARGES
DEATH BENEFIT CASH VALUE ---------------------------- --------------------------- PREMIUM ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS ACCUMULATED ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF END OF AT 5% INTEREST POLICY YEAR PER YEAR 0% 6% 12% 0% 6% 12% - ----------- -------- --------- --------- --------- --------- --------- --------- 1 10,500 500,000 500,000 500,000 7,250 7,661 8,074 2 21,525 500,000 500,000 500,000 13,424 14,679 15,987 3 33,101 500,000 500,000 500,000 19,068 21,610 24,362 4 45,256 500,000 500,000 500,000 25,388 29,670 34,491 5 58,019 500,000 500,000 500,000 31,435 37,921 45,519 6 71,420 500,000 500,000 500,000 37,218 46,381 57,560 7 85,491 500,000 500,000 500,000 42,688 55,014 70,682 8 100,266 500,000 500,000 500,000 47,856 63,840 85,027 9 115,779 500,000 500,000 500,000 52,728 72,880 100,752 10 132,068 500,000 500,000 500,000 57,207 82,056 117,937 15 226,575 500,000 500,000 500,000 73,694 130,542 233,543 20 347,193 500,000 500,000 735,943 77,528 183,326 418,075 25 501,135 500,000 500,000 1,088,007 59,911 238,956 692,125 30 697,608 500,000 500,000 1,552,297 3,710 297,993 1,091,653 35 948,363 0 500,000 2,170,177 0 362,440 1,657,299 40 1,268,398 0 542,273 2,996,942 0 443,335 2,450,150 45 1,676,852 0 610,800 4,108,957 0 526,509 3,541,921
ASSUMES NO POLICY LOAN OR WITHDRAWAL HAS BEEN MADE. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER TO THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE DIFFERENT RATES OF RETURN OF THE VARIABLE ACCOUNT. 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. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES THAN SHOWN. 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. 42 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY SEX-NEUTRAL ISSUE AGE 45 -- SELECT UNDERWRITING RISK $500,000 SPECIFIED AMOUNT DEATH BENEFIT OPTION A $10,000 ANNUAL PREMIUM GUIDELINE PREMIUM / CASH VALUE CORRIDOR TEST CURRENT CHARGES
DEATH BENEFIT CASH VALUE ---------------------------- --------------------------- PREMIUM ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS ACCUMULATED ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF END OF AT 5% INTEREST POLICY YEAR PER YEAR 0% 6% 12% 0% 6% 12% - ----------- -------- --------- --------- --------- --------- --------- --------- 1 10,500 500,000 500,000 500,000 9,019 9,487 9,955 2 21,525 500,000 500,000 500,000 17,045 18,524 20,059 3 33,101 500,000 500,000 500,000 24,621 27,673 30,964 4 45,256 500,000 500,000 500,000 32,951 38,156 43,990 5 58,019 500,000 500,000 500,000 41,082 49,041 58,319 6 71,420 500,000 500,000 500,000 49,076 60,408 74,153 7 85,491 500,000 500,000 500,000 56,829 72,177 91,556 8 100,266 500,000 500,000 500,000 64,453 84,481 110,813 9 115,779 500,000 500,000 500,000 71,952 97,348 132,131 10 132,068 500,000 500,000 500,000 79,327 110,811 155,743 15 226,575 500,000 500,000 500,000 115,608 191,139 324,336 20 (age 65) 347,193 500,000 500,000 746,091 145,341 291,910 611,550 25 501,135 500,000 500,000 1,269,131 165,077 421,567 1,094,078 30 697,608 500,000 633,723 2,039,713 170,177 592,265 1,906,274 35 948,363 500,000 852,485 3,444,572 147,132 811,891 3,280,544 40 1,268,398 500,000 1,140,063 5,840,056 60,601 1,085,774 5,561,958 45 1,676,852 0 1,488,350 9,740,433 0 1,417,476 9,276,603
ASSUMES NO POLICY LOAN OR WITHDRAWAL HAS BEEN MADE. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER TO THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE DIFFERENT RATES OF RETURN OF THE VARIABLE ACCOUNT. 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. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES THAN SHOWN. 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 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY SEX-NEUTRAL ISSUE AGE 45 -- SELECT UNDERWRITING RISK $500,000 SPECIFIED AMOUNT DEATH BENEFIT OPTION A $10,000 ANNUAL PREMIUM GUIDELINE PREMIUM / CASH VALUE CORRIDOR TEST GUARANTEED CHARGES
DEATH BENEFIT CASH VALUE ---------------------------- --------------------------- PREMIUM ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS ACCUMULATED ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF END OF AT 5% INTEREST POLICY YEAR PER YEAR 0% 6% 12% 0% 6% 12% - ----------- -------- --------- --------- --------- --------- --------- --------- 1 10,500 500,000 500,000 500,000 7,250 7,661 8,074 2 21,525 500,000 500,000 500,000 13,424 14,679 15,987 3 33,101 500,000 500,000 500,000 19,068 21,610 24,362 4 45,256 500,000 500,000 500,000 25,388 29,670 34,491 5 58,019 500,000 500,000 500,000 31,435 37,921 45,519 6 71,420 500,000 500,000 500,000 37,218 46,381 57,560 7 85,491 500,000 500,000 500,000 42,688 55,014 70,682 8 100,266 500,000 500,000 500,000 47,856 63,840 85,027 9 115,779 500,000 500,000 500,000 52,728 72,880 100,752 10 132,068 500,000 500,000 500,000 57,207 82,056 117,937 15 226,575 500,000 500,000 500,000 73,694 130,542 233,543 20 347,193 500,000 500,000 523,373 77,528 183,326 428,994 25 501,135 500,000 500,000 874,351 59,911 238,956 753,751 30 697,608 500,000 500,000 1,369,493 3,710 297,993 1,279,900 35 948,363 0 500,000 2,249,598 0 362,440 2,142,474 40 1,268,398 0 500,000 3,688,630 0 453,462 3,512,981 45 1,676,852 0 626,715 5,923,991 0 596,871 5,641,896
ASSUMES NO POLICY LOAN OR WITHDRAWAL HAS BEEN MADE. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER TO THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE DIFFERENT RATES OF RETURN OF THE VARIABLE ACCOUNT. 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. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES THAN SHOWN. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME. 44 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY SEX-NEUTRAL ISSUE AGE 45 -- SELECT UNDERWRITING RISK $500,000 SPECIFIED AMOUNT DEATH BENEFIT OPTION A $10,000 ANNUAL PREMIUM CASH VALUE ACCUMULATION TEST CURRENT CHARGES
DEATH BENEFIT CASH VALUE ---------------------------- --------------------------- PREMIUM ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS ACCUMULATED ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF END OF AT 5% INTEREST POLICY YEAR PER YEAR 0% 6% 12% 0% 6% 12% - ----------- -------- --------- --------- --------- --------- --------- --------- 1 10,500 500,000 500,000 500,000 9,019 9,487 9,955 2 21,525 500,000 500,000 500,000 17,045 18,524 20,059 3 33,101 500,000 500,000 500,000 24,621 27,673 30,964 4 45,256 500,000 500,000 500,000 32,951 38,156 43,990 5 58,019 500,000 500,000 500,000 41,082 49,041 58,319 6 71,420 500,000 500,000 500,000 49,076 60,408 74,153 7 85,491 500,000 500,000 500,000 56,829 72,177 91,556 8 100,266 500,000 500,000 500,000 64,453 84,481 110,813 9 115,779 500,000 500,000 500,000 71,952 97,348 132,131 10 132,068 500,000 500,000 500,000 79,327 110,811 155,743 15 226,575 500,000 500,000 646,324 115,608 191,139 323,627 20 (age 65) 347,193 500,000 513,802 1,055,732 145,341 291,881 599,740 25 501,135 500,000 653,052 1,642,719 165,077 415,433 1,044,999 30 697,608 500,000 799,981 2,494,150 170,177 562,587 1,754,011 35 948,363 500,000 959,238 3,743,835 147,132 732,541 2,859,055 40 1,268,398 500,000 1,127,758 5,553,924 60,601 921,998 4,540,611 45 1,676,852 0 1,303,603 8,151,377 0 1,123,706 7,026,487
ASSUMES NO POLICY LOAN OR WITHDRAWAL HAS BEEN MADE. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER TO THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE DIFFERENT RATES OF RETURN OF THE VARIABLE ACCOUNT. 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. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES THAN SHOWN. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME. 45 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY SEX-NEUTRAL ISSUE AGE 45 -- SELECT UNDERWRITING RISK $500,000 SPECIFIED AMOUNT DEATH BENEFIT OPTION A $10,000 ANNUAL PREMIUM CASH VALUE ACCUMULATION TEST GUARANTEED CHARGES
DEATH BENEFIT CASH VALUE ---------------------------- --------------------------- PREMIUM ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS ACCUMULATED ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF END OF AT 5% INTEREST POLICY YEAR PER YEAR 0% 6% 12% 0% 6% 12% - ----------- -------- --------- --------- --------- --------- --------- --------- 1 10,500 500,000 500,000 500,000 7,250 7,661 8,074 2 21,525 500,000 500,000 500,000 13,424 14,679 15,987 3 33,101 500,000 500,000 500,000 19,068 21,610 24,362 4 45,256 500,000 500,000 500,000 25,388 29,670 34,491 5 58,019 500,000 500,000 500,000 31,435 37,921 45,519 6 71,420 500,000 500,000 500,000 37,218 46,381 57,560 7 85,491 500,000 500,000 500,000 42,688 55,014 70,682 8 100,266 500,000 500,000 500,000 47,856 63,840 85,027 9 115,779 500,000 500,000 500,000 52,728 72,880 100,752 10 132,068 500,000 500,000 500,000 57,207 82,056 117,937 15 226,575 500,000 500,000 500,000 73,694 130,542 233,543 20 347,193 500,000 500,000 735,943 77,528 183,326 418,075 25 501,135 500,000 500,000 1,088,007 59,911 238,956 692,125 30 697,608 500,000 500,000 1,552,297 3,710 297,993 1,091,653 35 948,363 0 500,000 2,170,177 0 362,440 1,657,299 40 1,268,398 0 542,273 2,996,942 0 443,335 2,450,150 45 1,676,852 0 610,800 4,108,957 0 526,509 3,541,921
ASSUMES NO POLICY LOAN OR WITHDRAWAL HAS BEEN MADE. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER TO THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE DIFFERENT RATES OF RETURN OF THE VARIABLE ACCOUNT. 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. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES THAN SHOWN. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME. 46 More information about Northwestern Mutual Series Fund, Inc. is included in the Fund's Statement of Additional Information (SAI), incorporated by reference in this prospectus, which is available free of charge. More information about the Fund's investments is included in the Fund's annual and semi-annual reports, which discuss the market conditions and investment strategies that significantly affected each Portfolio's performance during the previous fiscal period. To request a free copy of the Fund's SAI, or current annual or semi-annual report, call us at 1-800-519-4665. Information about the Fund (including the SAI) can be reviewed and copied at the Public Reference Room of the Securities and Exchange Commission (SEC) in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Reports and other information about the Fund are available on the SEC's Internet site at http://www.sec.gov. Copies of this information may be obtained, upon payment of a duplicating fee, by writing the Public Reference Section of the SEC, Washington, DC 20549-6009. N O R T H W E S T E R N M U T U A L L I F E NORTHWESTERN MUTUAL VARIABLE EXECUTIVE LIFE NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT Northwestern Mutual Series Fund, Inc. Russell Insurance Funds P R O S P E C T U S Investment Company Act File No. 811-3990 NORTHWESTERN MUTUAL LIFE-Registered Trademark- PO Box 3095 Milwaukee WI 53201-3095 Change Service Requested 73021 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 46 pages The undertaking with respect to fees and charges The signatures Written consents of the following persons: PricewaterhouseCoopers LLP (filed herewith as Exhibit C(1)) William C. Koenig, F.S.A. (included in his opinion filed herewith as Exhibit C(6)) The following exhibits: Exhibit A(5)(a) Flexible Premium Variable Life Insurance Policy, RR.VEL. (0398), with application and supplement application, including Policy amendment (sex-neutral) Exhibit A(5)(b) Flexible Premium Variable Life Insurance Policy, RR.VEL. (0398), with application and supplement application, including Policy amendment (sex-distinct) Exhibit A(5)(c) Form of Notice of short-term cancellation right Exhibit A(5)(d) Application forms are included in Exhibits A(5)(a) and A(5)(b) above Exhibit A(9)(a) Form of Participation Agreement Among Russell Insurance Funds, Russell Fund Distributors, Inc. and The Northwestern Mutual Life Insurance Company Exhibit A(9)(b) Form of Administrative Service Fee Agreement between The Northwestern Mutual Life Insurance Company and Frank Russell Company Exhibit C(1) Consent of PricewaterhouseCoopers LLP Exhibit C(6) Opinion and consent of William C. Koenig, F.S.A. Exhibit 27 Financial Data Schedule for period ended December 31, 1998 The following exhibit was filed in electronic format with the Registration Statement on Form S-6 for Northwestern Mutual Variable Life Account, File No. 333-59103, CIK 0000742277, dated July 15, 1998, and is incorporated herein by reference. Exhibit A(6)(b) Amended By-Laws of The Northwestern Mutual Life Insurance Company dated January 28, 1998 II-1 UNDERTAKING The Northwestern Mutual Life Insurance Company hereby represents that the fees and charges deducted under the contracts registered by this registration statement, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the insurance company. II-2 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant, Northwestern Mutual Variable Life Account, has duly caused this Amended Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Milwaukee, and State of Wisconsin, on the 25th day of February, 1999. NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT (Registrant) By THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY (Depositor) Attest: JOHN M. BREMER By: JAMES D. ERICSON ---------------------------- -------------------------------- John M. Bremer, Executive Vice James D. Ericson, President and President, General Counsel Chief Executive Officer and Secretary By NORTHWESTERN MUTUAL INVESTMENT SERVICES, LLC (Depositor) Attest: MERRILL C. LUNDBERG By: RICHARD L. HALL ---------------------------- -------------------------------- Merrill C. Lundberg, Secretary Richard L. Hall, President and CEO Pursuant to the requirements of the Securities Act of 1933, the depositors have duly caused this Amended Registration Statement to be signed on their behalf by the undersigned, thereunto duly authorized, and their seals to be hereunto affixed, all in the City of Milwaukee, and State of Wisconsin, on the 25th day of February, 1999. THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY (Depositor) Attest: JOHN M. BREMER By: JAMES D. ERICSON ---------------------------- -------------------------------- John M. Bremer, Executive Vice James D. Ericson, President and President, General Counsel Chief Executive Officer and Secretary NORTHWESTERN MUTUAL INVESTMENT SERVICES, LLC (Depositor) Attest: MERRILL C. LUNDBERG By: RICHARD L. HALL ---------------------------- -------------------------------- Merrill C. Lundberg, Secretary Richard L. Hall, President and CEO Pursuant to the requirements of the Securities Act of 1933, this Amended Registration Statement has been signed by the following persons in the capacities with the depositor and on the dates indicated: Signature Title - --------- ----- JAMES D. ERICSON Trustee, President and Dated - ---------------------------- Principal Executive and February 25, James D. Ericson Financial Officer 1999 II-3 GARY E. LONG Vice President, Controller - ---------------------------- and Principal Accounting Gary E. Long Officer HAROLD B. SMITH* Trustee - ---------------------------- Harold B. Smith J. THOMAS LEWIS* Trustee - ---------------------------- J. Thomas Lewis PATRICIA ALBJERG GRAHAM* Trustee - ---------------------------- Patricia Albjerg Graham DONALD J. SCHUENKE* Trustee - ---------------------------- Donald J. Schuenke R. QUINTUS ANDERSON* Trustee - ---------------------------- R. Quintus Anderson STEPHEN F. KELLER* Trustee Dated - ---------------------------- February 25, Stephen F. Keller 1999 PIERRE S. du PONT* Trustee - ---------------------------- Pierre S. du Pont J. E. GALLEGOS* Trustee - ---------------------------- J. E. Gallegos KATHRYN D. WRISTON* Trustee - ---------------------------- Kathryn D. Wriston BARRY L. WILLIAMS* Trustee - ---------------------------- Barry L. Williams GORDON T. BEAHAM III* Trustee - ---------------------------- Gordon T. Beaham III DANIEL F. McKEITHAN, JR.* Trustee - ---------------------------- Daniel F. McKeithan, Jr. ROBERT E. CARLSON* Trustee - ---------------------------- Robert E. Carlson II-4 EDWARD E. BARR* Trustee - ---------------------------- Edward E. Barr ROBERT C. BUCHANAN* Trustee - ---------------------------- Robert C. Buchanan SHERWOOD H. SMITH, JR.* Trustee - ---------------------------- Sherwood H. Smith, Jr. H. MASON SIZEMORE, JR.* Trustee - ---------------------------- H. Mason Sizemore, Jr. JOHN J. STOLLENWERK* Trustee - ---------------------------- John J. Stollenwerk GEORGE A. DICKERMAN* Trustee - ---------------------------- George A. Dickerman GUY A. OSBORN* Trustee Dated - ---------------------------- February 25, Guy A. Osborn 1999 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 - ---------------------------- Timothy D. Proctor *By: JAMES D. ERICSON ------------------------------------ James D. Ericson, Attorney in fact, pursuant to the Power of Attorney attached hereto II-5 CONSENT OF ACTUARY The Consent of William C. Koenig, F.S.A., is contained in his opinion filed as Exhibit C(6). CONSENT OF INDEPENDENT ACCOUNTANTS The Consent of PricewaterhouseCoopers LLP is filed as Exhibit C(1). II-6 POWER OF ATTORNEY The undersigned Trustees of THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY hereby constitute and appoint James D. Ericson and Robert E. Carlson, or either of them, their true and lawful attorneys and agents to sign the names of the undersigned Trustees to (1) the registration statement or statements to be filed under the Securities Act of 1933 and to any instrument or document filed as part thereof or in connection therewith or in any way related thereto, and any and all amendments thereto in connection with variable contracts issued or sold by The Northwestern Mutual Life Insurance Company or any separate account credited therein and (2) the Form 10-K Annual Report or Reports of The Northwestern Mutual Life Insurance Company and/or its separate accounts for its or their fiscal year ended December 31, 1998 to be filed under the Securities Exchange Act of 1934 and to any instrument or document filed as part thereof or in connection therewith or in any way related thereto, and any and all amendments thereto. "Variable contracts" as used herein means any contracts providing for benefits or values which may vary according to the investment experience of any separate account maintained by The Northwestern Mutual Life Insurance Company, including variable annuity contracts and variable life insurance policies. Each of the undersigned hereby ratifies and confirms all that said attorneys and agents shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has subscribed these presents this 22nd day of July, 1998. R. QUINTUS ANDERSON Trustee ------------------------------- R. Quintus Anderson EDWARD E. BARR Trustee ------------------------------- Edward E. Barr GORDON T. BEAHAM III Trustee ------------------------------- Gordon T. Beaham III ROBERT C. BUCHANAN Trustee ------------------------------- Robert C. Buchanan ROBERT E. CARLSON Trustee ------------------------------- Robert E. Carlson GEORGE A. DICKERMAN Trustee ------------------------------- George A. Dickerman II-7 PIERRE S. du PONT Trustee ------------------------------- Pierre S. du Pont JAMES D. ERICSON Trustee ------------------------------- James D. Ericson J. E. GALLEGOS Trustee ------------------------------- J. E. Gallegos STEPHEN N. GRAFF Trustee ------------------------------- Stephen N. Graff PATRICIA ALBJERG GRAHAM Trustee ------------------------------- Patricia Albjerg Graham STEPHEN F. KELLER Trustee ------------------------------- Stephen F. Keller BARBARA A. KING Trustee ------------------------------- Barbara A. King J. THOMAS LEWIS Trustee ------------------------------- J. Thomas Lewis DANIEL F. McKEITHAN, JR. Trustee ------------------------------- Daniel F. McKeithan, Jr. GUY A. OSBORN Trustee ------------------------------- Guy A. Osborn II-8 TIMOTHY D. PROCTOR Trustee ------------------------------- Timothy D. Proctor DONALD J. SCHUENKE Trustee ------------------------------- Donald J. Schuenke H. MASON SIZEMORE, JR. Trustee ------------------------------- H. Mason Sizemore, Jr. HAROLD B. SMITH Trustee ------------------------------- Harold B. Smith SHERWOOD H. SMITH, JR. Trustee ------------------------------- Sherwood H. Smith, Jr. JOHN E. STEURI Trustee ------------------------------- John E. Steuri JOHN J. STOLLENWERK Trustee ------------------------------- John J. Stollenwerk BARRY L. WILLIAMS Trustee ------------------------------- Barry L. Williams KATHRYN D. WRISTON Trustee ------------------------------- Kathryn D. Wriston II-9 EXHIBIT INDEX EXHIBITS FILED WITH FORM S-6 POST-EFFECTIVE AMENDMENT NO.2 TO REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 FOR NORTHWESTERN MUTUAL VARIABLE EXECUTIVE LIFE
Exhibit Number Exhibit Name - -------------- ------------ Exhibit A(5)(a) Flexible Premium Variable Life Insurance Policy, RR.VEL. (0398), with application and supplement application, including Policy amendment (sex-neutral) Exhibit A(5)(b) Flexible Premium Variable Life Insurance Policy, RR.VEL. (0398), with application and supplement application, including Policy amendment (sex-distinct) Exhibit A(5)(c) Form of Notice of short-term cancellation right Exhibit A(5)(d) Application forms are included in Exhibits A(5)(a) and A(5)(b) above Exhibit A(9)(a) Form of Participation Agreement Among Russell Insurance Funds, Russell Fund Distributors, Inc. and The Northwestern Mutual Life Insurance Company Exhibit A(9)(b) Form of Administrative Service Fee Agreement between The Northwestern Mutual Life Insurance Company and Frank Russell Company Exhibit C(1) Consent of PricewaterhouseCoopers LLP Exhibit C(6) Opinion of William C. Koenig, F.S.A. Exhibit 27 Financial Data Schedule for period ended December 31, 1998 The following exhibit was filed in electronic format with the Registration Statement on Form S-6 for Northwestern Mutual Variable Life Account, File No. 333-59103, CIK 0000742277, dated July 15, 1998, and is incorporated herein by reference. Exhibit A(6)(b) Amended By-Laws of The Northwestern Mutual Life Insurance Company dated January 28, 1998
EX-99.A(5)(A) 2 EXHIBIT 99.A(5)(A) Exhibit A(5)(a) - ------------------------------------------------------------------------------- The Northwestern Mutual Life Insurance Company agrees to pay the benefits provided in this policy, subject to its terms and conditions. Signed at Milwaukee, Wisconsin on the Date of Issue. /s/ /s/ PRESIDENT AND CEO SECRETARY FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY ELIGIBLE FOR ANNUAL DIVIDENDS Insurance payable at death of Insured. Flexible premiums. Benefits reflect investment results. Variable benefits described in Sections 1, 3, 6, 7 and 8. THE DEATH BENEFIT MAY INCREASE OR DECREASE DAILY DEPENDING ON INVESTMENT RESULTS. THERE IS NO GUARANTEED MINIMUM DEATH BENEFIT. THE CASH VALUE UNDER THIS POLICY MAY INCREASE OR DECREASE DAILY DEPENDING ON INVESTMENT RESULTS. THERE IS NO GUARANTEED MINIMUM CASH VALUE. RIGHT TO RETURN POLICY. Please read this policy carefully. The policy may be returned by the Owner for any reason within (1) ten days after it was received or (2) forty-five days after the application was signed, whichever is later. The policy may be returned to your agent or to the Home Office of the Company at 720 East Wisconsin Avenue, Milwaukee, WI 53202. If returned, the policy will be considered void from the beginning. The Company will refund the sum of (a) the difference between any premium paid and the amount allocated to the Separate Account plus (b) the value of the policy in the Separate Account on the date the returned policy is received. RR.VEL.(0398) [LOGO] - ------------------------------------------------------------------------------- INSURED John J. Doe AGE AND SEX 35 Male-SN POLICY DATE March 1, 1998 POLICY NUMBER 10 000 000 PLAN Flexible Premium SPECIFIED AMOUNT $1,000,000 Variable Life RR.VEL.(0398) THIS POLICY IS A LEGAL CONTRACT BETWEEN THE OWNER AND THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY. READ YOUR POLICY CAREFULLY. GUIDE TO POLICY PROVISIONS BENEFITS AND PREMIUMS SECTION 1. THE CONTRACT Life Insurance Benefit payable on death of Insured. Incontestability. Suicide. Definition of dates. Insurability requirements. Reports to Owner. SECTION 2. OWNERSHIP Rights of the Owner. Assignment as collateral. SECTION 3. DEATH BENEFIT Description of death benefit options. Changes to death benefits. SECTION 4. PREMIUMS, TRANSFERS AND REINSTATEMENT Payment of premiums. Calculation and allocation of net premiums. Transfer of assets. Premium limitations. Grace period of 61 days to pay premium. How to reinstate the policy. SECTION 5. DIVIDENDS Annual dividends. Use of dividends. Dividend at death. SECTION 6. THE SEPARATE ACCOUNT The Separate Account and the Divisions. Valuation of assets. SECTION 7. DETERMINATION OF VALUES Policy Value. Monthly Policy Charge. SECTION 8. CASH VALUE AND SURRENDER Cash value. Surrender. Deferral of payments. SECTION 9. LOANS AND WITHDRAWALS Policy loans. Interest on loans. Withdrawals. SECTION 10. BENEFICIARIES Naming and change of beneficiaries. Marital deduction provision for spouse of Insured. Succession in interest of beneficiaries. APPLICATION RR.VEL.(0398) BENEFITS AND PREMIUMS DATE OF ISSUE - MARCH 1, 1998 Plan: Flexible Premium Variable Life Specified Amount: $1,000,000 Death Benefit Option: Specified Amount (Option A) Definition of Life Insurance Test: Guideline Premium/Cash Value Corridor Test The minimum premium (Section 4.4) is $25.00. The maximum premium under the Guideline Premium/Cash Value Corridor Test: Guideline Single Premium = $ 169,430.00 Guideline Annual Level Premium = $ 13,860.00 The minimum withdrawal amount (Section 9.5) is $250.00. This policy is issued in a select premium class. DIRECT BENEFICIARY XYZ Corporation OWNER XYZ Corporation INSURED John J. Doe AGE AND SEX 35 Male-SN POLICY DATE March 1, 1998 POLICY NUMBER 10 000 000 PLAN Flexible Premium SPECIFIED AMOUNT $1,000,000 Variable Life RP.VEL.(0398) Page 3 POLICY NUMBER 10 000 000 SCHEDULE OF MAXIMUM CHARGES The Premium Expense Charge (Section 4.2) is the sum of the following: 1. Sales Load:
Premium Paid First Policy Year Policy Years 2+ ------------ ----------------- --------------- Up to $ 39,090.00 15% 3% In Excess of $ 39,090.00 3% 3%
2. Federal Deferred Acquisition Cost Charge l.25% of premium 3. Premium Tax Charge 2.35% of premium The Premium Expense Charge for Deferred Acquisition Cost and Premium Tax may change to reflect changes in tax law. Maximum Monthly Policy Charges: The maximum Monthly Administrative Charge (Section 7.3) is $15 in the first policy year and $10 thereafter. The maximum Monthly Mortality and Expense Risk Charge (Section 7.4) is .075% of the amount invested for this policy in the Separate Account. Maximum Transaction Charges: The maximum charge for death benefit option changes (Section 3.2) is $250.00 per change. The maximum charge for Specified Amount changes (Section 3.3) is $25.00 per change for more than one change during any policy year. The maximum transfer fee (Section 4.3) is $25.00 per transfer for more than 12 transfers during any policy year. The maximum withdrawal charge (Section 9.5) is $25.00 per withdrawal. RP.VEL.(0398) Page 4 POLICY NUMBER 10 000 000 TABLE OF GUARANTEED MAXIMUM COST OF INSURANCE RATES MONTHLY RATES PER $1.00 (Section 7.5)
Attained Age Monthly Rate Attained Age Monthly Rate Attained Age Monthly Rate 35 .00017 60 .00123 85 .01178 36 .00018 61 .00133 86 .01285 37 .00019 62 .00146 87 .01396 38 .00021 63 .00160 88 .01510 39 .00022 64 .00175 89 .01629 40 .00024 65 .00193 90 .01754 41 .00026 66 .00211 91 .01888 42 .00029 67 .00230 92 .02034 43 .00031 68 .00250 93 .02200 44 .00033 69 .00272 94 .02411 45 .00036 70 .00297 95 .02707 46 .00039 71 .00325 96 .03175 47 .00042 72 .00357 97 .03981 48 .00045 73 .00394 98 .05478 49 .00049 74 .00436 99 .08333 50 .00053 75 .00482 51 .00058 76 .00530 52 .00063 77 .00581 53 .00068 78 .00633 54 .00075 79 .00688 55 .00081 80 .00749 56 .00089 81 .00816 57 .00096 82 .00893 58 .00104 83 .00980 59 .00113 84 .01076
RP.VEL.(0398) Page 5 POLICY NUMBER 10 000 000 GUIDELINE PREMIUM/CASH VALUE CORRIDOR PERCENTAGES The Corridor Percentages are used to determine the Minimum Death Benefit under the Guideline Premium/Cash Value Corridor Test (Section 3.1).
Attained Age Attained Age Attained Age Corridor % Corridor % Corridor % 35 250 60 130 85 105 36 250 61 128 86 105 37 250 62 126 87 105 38 250 63 124 88 105 39 250 64 122 89 105 40 250 65 120 90 105 41 243 66 119 91 104 42 236 67 118 92 103 43 229 68 117 93 102 44 222 69 116 94 101 45 215 70 115 95+ 100 46 209 71 113 47 203 72 111 48 197 73 109 49 191 74 107 50 185 75 105 51 178 76 105 52 171 77 105 53 164 78 105 54 157 79 105 55 150 80 105 56 146 81 105 57 142 82 105 58 138 83 105 59 134 84 105
RP.VEL.(0398) Page 6 POLICY NUMBER 10 000 000 POLICY NUMBER 10 000 000 SEPARATE ACCOUNT DIVISIONS (Section 6) Select Bond Division International Equity Division Money Market Division Balanced Division Index 500 Stock Division Aggressive Growth Stock Division High Yield Bond Division Growth Stock Division Growth & Income Stock Division Index 400 Stock Division Small Cap Growth Stock Division Russell Multi-Style Equity Division Russell Aggressive Equity Division Russell Non-US Division Russell Real Estate Securities Division Russell Core Bond Division The Initial Allocation Date (Section 4.3) is July 1, 1999. RR.VEL.(0799) Page 7 SECTION 1. THE CONTRACT 1.1 LIFE INSURANCE BENEFIT The Northwestern Mutual Life Insurance Company will pay a benefit on the death of the Insured while this policy is in force. Subject to the terms and conditions of the policy: - payment of the death proceeds will be made after proof of the death of the Insured is received at the Home Office; and - payment will be made to the beneficiary or other payee under Section 10. The amount of the death proceeds will be: - the death benefit (Section 3.1); less - the amount of any policy debt (Section 9.3); less - any Monthly Policy Charges due and unpaid if the Insured dies during the grace period (Section 4.5). These amounts will be determined as of the date of death. The Company will pay interest on the death proceeds from the date of death until the proceeds are withdrawn in cash. Interest will be at a rate of not less than 2%, or at any higher rate required by state law. 1.2 ENTIRE CONTRACT; CHANGES This policy, including the attached application and any amendments, endorsements or riders, is the entire contract. Statements in the application are representations and not warranties. A change in the policy is valid only if it is approved in writing by an officer of the Company. The Company may require that the policy be sent to it for endorsement to show a change. No agent has the authority to change the policy or to waive any of its terms. RP.VEL.(0398) 8 1.3 INCONTESTABILITY The Company will not contest this policy after the policy has been in force, during the lifetime of the Insured, for two years from the Date of Issue. An increase in the amount of insurance after the Date of Issue, which occurred upon the request of the Owner and was subject to the Company's insurability requirements, will be incontestable after the increase has been in force, during the lifetime of the Insured, for two years from the date of issuance of the increase. In issuing the insurance, the Company has relied on the application. While the insurance is contestable, the Company, on the basis of a misstatement in the application, may rescind the insurance or deny a claim. 1.4 SUICIDE If the Insured dies by suicide within one year from the Date of Issue, the amount payable by the Company will be limited to the premiums paid, less the amount of any policy debt and withdrawals. If the Insured dies by suicide within one year from the date of issuance of an increase in the amount of insurance, which occurred upon the request of the Owner and was subject to the Company's insurability requirements, the amount payable with respect to such increase will be limited to the Monthly Policy Charges attributable to the increase. 1.5 POLICY DATE AND DATE OF ISSUE Monthly processing dates and policy months, years and anniversaries are computed from the Policy Date. The contestable and suicide periods begin with the Date of Issue. These dates are shown on page 3. 1.6 MISSTATEMENT OF AGE If the age of the Insured has been misstated, the policy will be modified by recalculating all Monthly Policy Charges based on the correct age. 1.7 PAYMENTS BY THE COMPANY All payments by the Company under this policy are payable at its Home Office. 1.8 INSURABILITY REQUIREMENTS To make some changes under this policy, the Insured must meet the Company's insurability requirements. These requirements are as follows: - evidence of insurability must be given that is satisfactory to the Company; and - under the Company's underwriting standards, the Insured is in an underwriting classification that is the same as, or is better than, the one for this policy. SECTION 2. OWNERSHIP 2.1 THE OWNER The Owner is named on page 3. The Owner, the Owner's successor or the Owner's transferee may exercise policy rights without the consent of any beneficiary, except to the extent the Owner's rights are restricted by a designation of an irrevocable beneficiary. 2.2 TRANSFER OF OWNERSHIP The Owner may transfer the ownership of this policy. Written proof of transfer satisfactory to the Company must be received at its Home Office. The transfer will then take effect as of the date that it was signed. The Company may require that the policy be sent to it for endorsement to show the transfer. 2.3 COLLATERAL ASSIGNMENT The Owner may assign this policy as collateral security. The Company is not responsible for the validity or effect of the collateral assignment. The Company will not be responsible to an assignee for any payment or other action taken by the Company before receipt of the assignment in writing at its Home Office. The interest of any beneficiary will be subject to any collateral assignment made either before or after the beneficiary is named. The collateral assignee is not an Owner. The collateral assignment is not a transfer of ownership. Ownership can be transferred only by complying with Section 2.2. RR.VEL.(0398) 9 SECTION 3. DEATH BENEFIT 3.1 DEATH BENEFIT OPTIONS This policy provides for three death benefit options. The option in effect is shown on page 3. SPECIFIED AMOUNT (OPTION A) - The death benefit before the policy anniversary nearest the Insured's 100th birthday is the greater of: - the Specified Amount; or - the Minimum Death Benefit. SPECIFIED AMOUNT PLUS POLICY VALUE (OPTION B) - The death benefit before the policy anniversary nearest the Insured's 100th birthday is the greater of: - the Specified Amount plus the Policy Value; or - the Minimum Death Benefit. SPECIFIED AMOUNT PLUS PREMIUMS PAID (OPTION C) - The death benefit before the policy anniversary nearest the Insured's 100th birthday is the greater of: - the Specified Amount plus the sum of the premiums paid; or - the Minimum Death Benefit. MINIMUM DEATH BENEFIT. The Minimum Death Benefit is the amount required by the Internal Revenue Code (IRC), as amended, to maintain this policy as life insurance. The test in effect for determining compliance with the IRC definition of life insurance is shown on page 3 and will be either: (1) the Guideline Premium/Cash Value Corridor Test: the Minimum Death Benefit equals the Policy Value multiplied by the corridor percentage shown on page 6 at the Insured's attained age; or (2) the Cash Value Accumulation Test: the Minimum Death Benefit equals the Policy Value divided by the Net Single Premium shown on page 6 at the Insured's attained age. AGE 100 AND LATER. The death benefit on and after the policy anniversary nearest the Insured's 100th birthday will be equal to the Policy Value regardless of the death benefit option in effect. 3.2 DEATH BENEFIT OPTION CHANGES Subject to approval by the Company, the Owner may change the death benefit option upon written request. This change will be effective on the first monthly processing date following receipt of the request at the Home Office. The Company reserves the right to charge for a death benefit option change. This charge will be deducted from the Policy Value and will not exceed the amount shown on page 4. A change will not be allowed if the Specified Amount following a change would be less than the minimum amount the Company would issue at the time of change. CHANGES TO OPTION A. The death benefit option may be changed to Option A at any time. On the effective date of change, the Specified Amount will be changed as follows: (1) If the change is from Option B to Option A, the Specified Amount after the change will be equal to the Specified Amount before the change plus the Policy Value on the effective date of the change. (2) If the change is from Option C to Option A, the Specified Amount after the change will be equal to the Specified Amount before the change plus the sum of the premiums paid as of the effective date of the change. CHANGES TO OPTION B OR OPTION C. The death benefit option may be changed to Option B or Option C at any time before the policy anniversary nearest the Insured's 75th birthday. All changes to Option B or Option C will be subject to the Company's insurability requirements (Section 1.8). On the effective date of change, the Specified Amount will be changed as follows: (1) If the change is from Option A to Option B, the Specified Amount after the change will be equal to the Specified Amount before the change minus the Policy Value on the effective date of the change. (2) If the change is from Option A to Option C, the Specified Amount after the change will be equal to the Specified Amount before the change minus the sum of the premiums paid as of the effective date of the change. (3) If the change is from Option B to Option C, the Specified Amount after the change will be equal to the Specified Amount before the change plus (a) the Policy Value on the effective date of the change, minus (b) the sum of the premiums paid as of the effective date of the change. (4) If the change is from Option C to Option B, the Specified Amount after the change will be equal to the Specified Amount before the change plus (a) the sum of the premiums paid as of the effective date of the change, minus (b) the Policy Value on the effective date of the change. RR.VEL.(0398) 10 3.3 SPECIFIED AMOUNT CHANGES Subject to approval by the Company, the Owner may change the Specified Amount upon written request. This change will be effective on the first monthly processing date following receipt of the request at the Home Office. The Company reserves the right to charge for more than one Specified Amount change in a policy year. This charge will be deducted from the Policy Value and will not exceed the amount shown on page 4. INCREASES. An increase will be made only if, at the time the increase is applied for: - the insurance in force, as increased, will be within the Company's issue limits; - the Company's insurability requirements (Section 1.8) are met; and - the increase request is received prior to the policy anniversary nearest the Insured's 75th birthday. DECREASES. A decrease will not be allowed if the Specified Amount following the decrease would be less than the minimum amount the Company would issue at the time of change. SECTION 4. PREMIUMS, TRANSFERS AND REINSTATEMENT 4.1 PREMIUM PAYMENT All premiums after the first are payable at the Home Office or to an authorized agent. Premiums may be paid to the Company at any time and in any amount subject to the limitations described in Section 4.4. A receipt signed by an officer of the Company will be furnished on request. 4.2 NET PREMIUM The net premium is the amount of each premium paid that is available for allocation to the Divisions of the Separate Account. The amount of the net premium will be: - the premium paid; less - the Premium Expense Charge. The Premium Expense Charge will consist of the amounts shown on page 4. 4.3 ALLOCATION OF NET PREMIUMS AND SUBSEQUENT TRANSFERS The initial net premium and any additional net premiums received prior to the Initial Allocation Date will be allocated to the Money Market Division on the date the premiums are received in the Home Office. The Initial Allocation Date is shown on page 7. On the Initial Allocation Date, amounts in the Money Market Division will be allocated in accordance with the application. This allocation will remain in effect for later net premiums unless changed by the Owner by written request. Any change in allocation will be in effect for net premiums credited to the policy following the receipt of the written request at the Home Office. Allocations must be in whole percentages. On or after the Initial Allocation Date, the Owner may transfer the amounts invested in any of the Divisions. The transfer will take effect on the date a written request is received in the Home Office. The Company reserves the right to charge for more than twelve transfers in a policy year. This charge will be deducted from the Policy Value and will not exceed the amount shown on page 4. 4.4 PREMIUM LIMITATIONS Premiums may be paid to the Company at any time before the policy anniversary that is nearest the Insured's 95th birthday. The minimum premium the Company will accept is shown on page 3. The Company will not accept any premium that causes this policy not to qualify as a life insurance policy under the Internal Revenue Code, as amended. Further, the Company reserves the right to make distributions from this policy as necessary to continue to qualify the policy as life insurance under the Internal Revenue Code. A premium payment that would increase the policy's death benefit more than it increases the Policy Value will be accepted only if: - the insurance in force, as increased, will be within the Company's issue limits; - the Company's insurability requirements (Section 1.8) are met; and - the premium payment is received prior to the policy anniversary nearest the Insured's 75th birthday. 4.5 GRACE PERIOD If the Policy Value less the amount of any policy debt on a monthly processing date is not sufficient to cover the current Monthly Policy Charge, a grace period of 61 days will be allowed for the payment of sufficient premium to keep the policy in force. The minimum premium that must be paid is three times the Monthly Policy Charge due when the insufficiency occurred. The grace period will begin on the date the Company sends written notice of the insufficiency. The grace period will end 61 days after the notice is sent. The notice will state the date the grace period ends and the amount of premium required to keep the policy in force. Upon receipt of payment, the Company will allocate the net premium, less any Monthly Policy Charges due and unpaid, to the Divisions of the Separate Account according to the allocation of net premiums currently in effect. The policy will remain in force during the grace period. If sufficient premium is not paid by the end of the grace period, the policy will terminate with no value. If the Insured dies during the grace period, any Monthly Policy Charges due and unpaid will be deducted from the death proceeds of the policy. RR.VEL.(0398) 11 4.6 REINSTATEMENT If it has terminated under Section 4.5, the policy may be reinstated not more than one year after the end of the grace period, subject to approval by the Company. To reinstate the policy the Company's insurability requirements (Section 1.8) must be met and sufficient premium to cover the following must be paid: - all Monthly Policy Charges that were due and unpaid before the end of the grace period; plus - three times the Monthly Policy Charge due on the effective date of reinstatement. On the date the policy is reinstated, the Policy Value will be equal to the net premium less the sum of all Monthly Policy Charges that were due and unpaid before the end of the grace period and the Monthly Policy Charge on the effective date of reinstatement. The Company will allocate the Policy Value to the Divisions of the Separate Account according to the allocation of net premiums currently in effect. Any policy debt on the date of termination will also be reinstated and added to the Policy Value. If the Company approves the application for reinstatement, the effective date of the reinstated policy will be the first monthly processing date following receipt at the Home Office of the reinstatement application. This policy may not be reinstated if the policy was surrendered. SECTION 5. DIVIDENDS 5.1 ANNUAL DIVIDENDS This policy will share in the divisible surplus of the Company to the extent it contributes to this surplus. This surplus is determined each year. This policy's share will be credited as a dividend on the policy anniversary. Since this policy is not expected to contribute to divisible surplus, it is not expected that any dividends will be paid. 5.2 USE OF DIVIDENDS Annual dividends may be paid in cash or used to increase the Policy Value. Dividends used to increase the Policy Value will be allocated to the Divisions of the Separate Account according to the allocation of net premiums currently in effect. If no direction is given for the use of dividends, they will be used to increase the Policy Value. 5.3 DIVIDEND AT DEATH If a dividend is payable for the period from the beginning of the policy year to the date of the Insured's death, the dividend is payable as part of the policy proceeds. RR.VEL.(0398) 12 SECTION 6. THE SEPARATE ACCOUNT 6.1 DESCRIPTION Northwestern Mutual Variable Life Account (the Separate Account) is registered as a unit investment trust under the Investment Company Act of 1940. The Separate Account has several Divisions, as shown on page 7. Assets of the Separate Account are invested in shares of Northwestern Mutual Series Fund, Inc. (the Fund). The Fund is registered under the Investment Company Act of 1940 as an open-end, diversified investment company. The Fund has one Portfolio for each Division. Assets of each Division of the Separate Account are invested in shares of the corresponding Portfolio of the Fund. Shares of the Fund are purchased for the Separate Account at their net asset value. The Company may make available additional Divisions and Portfolios. Assets will be allocated to the Separate Account to support the operation of this and other variable life insurance policies. Assets may also be allocated for other purposes, but not to support the operation of any contracts or policies other than variable life insurance. Income and realized and unrealized gains and losses from assets in the Separate Account are credited to or charged against it without regard to other income, gains or losses of the Company. The assets of the Separate Account will be valued on each valuation day. They are the property of the Company. The portion of these assets equal to policy reserves and liabilities will not be charged with liabilities arising out of any other business the Company may conduct. The Company reserves the right to transfer assets of the Separate Account in excess of these reserves and liabilities to its General Account. The Owner may exchange this policy for a fixed benefit life insurance policy if the Fund changes its investment advisor or if a Portfolio has a material change in its investment objectives or restrictions. The Company will notify the Owner if there is any such change. The Owner may exchange this policy within 60 days after the notice or the effective date of the change, whichever is later. If, in the judgment of the Company, a Portfolio no longer suits the purposes of this policy due to a change in its investment objectives or restrictions, the Company may substitute shares of another Portfolio of the Fund or shares of another mutual fund. Any such substitution will be subject to any required approval of the Securities and Exchange Commission (SEC), the Wisconsin Commissioner of Insurance or other regulatory authority. The Company also may, to the extent permitted by applicable laws and regulations (including any order of the SEC), make changes as follows: - the Separate Account or a Division may be operated as a management company under the Investment Company Act of 1940, or in any other form permitted by law, if deemed by the Company to be in the best interest of the policyowners. - the Separate Account may be deregistered under the Investment Company Act of 1940 in the event registration is no longer required. - the provisions of this and other policies may be modified to comply with any other applicable federal or state laws. In the event of a substitution or change, the Company may make appropriate endorsement of this and other policies having an interest in the Separate Account and take other actions as may be necessary to effect the substitution or change. 6.2 VALUATION DAY AND VALUATION PERIOD A valuation day is any day on which the assets of the Separate Account are valued. A valuation period is a valuation day and any immediately preceding days which are not valuation days. Assets are valued as the close of trading on the New York Stock Exchange on each day the Exchange is open. Each Division's share of amounts allocated, transferred or added to a Division or deducted, loaned, transferred or withdrawn from a Division, on any day, will be determined as of the end of the valuation period that contains that day. SECTION 7. DETERMINATION OF VALUES 7.1 POLICY VALUE On the Policy Date, the Policy Value is equal to the net premium less the Monthly Policy Charge. On any day after that, the Policy Value is equal to what it was on the previous day plus any of these items applicable on that day: - any increase due to investment results of all amounts invested in all Divisions for the Policy Value; - interest on the policy debt at an annual rate equal to the loan interest rate; - the net premium, if a premium is paid; - any policy dividend directed to increase the Policy Value; and minus any of these items applicable on that day: - any decrease due to investment results of all amounts invested in all Divisions for the Policy Value; - the Monthly Policy Charge; - on any monthly processing date on which there is a policy debt, a charge for expenses and taxes associated with the debt; - any withdrawals; and - any transaction charges that may result from a withdrawal, a transfer, a change in the Specified Amount or a change in the death benefit option. The Monthly Policy Charge, any charge for expenses and taxes associated with policy debt, withdrawals and any transaction charges will be deducted from the Policy Value. The deduction will be allocated to each Division in proportion to the amounts in each Division. 7.2 MONTHLY POLICY CHARGE A Monthly Policy Charge is deducted from the Policy Value on each monthly processing date and is equal to the sum of the following: - the Monthly Administrative Charge; - the Mortality and Expense Risk Charge; and - the Cost of Insurance Charge. RR.VEL.(0398) 13 7.3 MONTHLY ADMINISTRATIVE CHARGE A Monthly Administrative Charge is deducted from the Policy Value on each monthly processing date as part of the Monthly Policy Charge. The maximum Monthly Administrative Charge is shown on page 4. 7.4 MORTALITY AND EXPENSE RISK CHARGE A charge for the mortality and expense risk the Company assumes is deducted from the Policy Value on each monthly processing date as part of the Monthly Policy Charge. The maximum Monthly Mortality and Expense Risk Charge is shown on page 4. 7.5 COST OF INSURANCE CHARGE A Cost of Insurance Charge is deducted from the Policy Value on each monthly processing date as part of the Monthly Policy Charge. The Cost of Insurance Charge is the cost of insurance rate times the net amount at risk. The cost of insurance rate is based on the attained age of the Insured. The maximum cost of insurance rates are shown on page 5. The net amount at risk is (a) minus (b) where: (a) is the death benefit on the monthly processing date, after deduction of the Monthly Administrative Charge and the Mortality and Expense Risk Charge, divided by 1.0032737; and (b) is the Policy Value on the monthly processing date after deduction of the Monthly Administrative Charge and the Mortality and Expense Risk Charge. SECTION 8. CASH VALUE AND SURRENDER 8.1 CASH VALUE The cash value of this policy is equal to: - the Policy Value; less - any policy debt. 8.2 SURRENDER The Owner may surrender this policy for its cash value. A written surrender of all claims, satisfactory to the Company, will be required. The date of surrender will be the date of receipt at the Home Office of the written surrender. The policy will terminate, and the cash value will be determined, as of the end of the valuation period which includes the date of surrender. The Company may require that the policy be sent to it. 8.3 DEFERRAL OF PAYMENTS The Company reserves the right: - to defer determination of the cash value and payment of the cash value; - to defer payment of a loan or withdrawal; and - to defer determination of a change in the amount of variable insurance or other variable amounts payable on death, and, if such determination has been deferred, to defer payment of the death benefit; during any period when: - the New York Stock Exchange is closed or trading on the New York Stock Exchange is restricted as determined by the SEC; or - the SEC declares that an emergency exists as a result of which the sale or determination of investment results is not reasonably practicable; or - the SEC, by order, permits deferral for the protection of the Company's policyowners. RR.VEL.(0398) 14 SECTION 9. LOANS AND WITHDRAWALS 9.1 POLICY LOANS The Owner may obtain a loan from the Company in an amount that, when added to existing policy debt, is not more than the loan value. On the date a loan is made, the amount invested for this policy in the Separate Account will be reduced by the amount of the loan. The reduction will be allocated to each Division in proportion to the amounts in each Division. On the date a loan repayment is made, or the date accrued interest is paid, the amount invested for this policy in the Separate Account will be increased by the amount of the payment. The increase will be allocated to the Divisions of the Separate Account according to the allocation of net premiums currently in effect. 9.2 LOAN VALUE The loan value is 90% of the Policy Value on the date of the loan. 9.3 POLICY DEBT Policy debt consists of all outstanding loans and accrued interest. It may be paid to the Company at any time. Any policy debt will be deducted from the policy proceeds. If the policy debt equals or exceeds the Policy Value on a monthly processing date, the policy will terminate with no value subject to the conditions of the Grace Period (Section 4.5). 9.4 LOAN INTEREST Interest accrues and is payable on a daily basis from the date of the loan. Unpaid interest is added to policy debt. Interest is payable at an annual effective rate of 5%. 9.5 WITHDRAWALS The Owner may make a withdrawal of the Policy Value. The Company reserves the right to charge for withdrawals. This charge will be deducted from the Policy Value and will not exceed the amount shown on page 4. However, the Owner may not: - withdraw an amount which would reduce the loan value to less than the policy debt; - withdraw an amount which would reduce the death benefit to less than the minimum amount the Company would issue at the time of withdrawal; - withdraw an amount which would reduce the cash value to less than three times the most recent Monthly Policy Charge; - withdraw less than the minimum withdrawal amount shown on page 3; or - make more than four withdrawals in a policy year. When a withdrawal from the Policy Value is made, the amount invested for this policy in the Separate Account will be reduced by the amount of the withdrawal. The reduction will be allocated to each Division in proportion to the amounts in each Division. If the death benefit option in effect at the time of withdrawal is either Option A or Option C, the Specified Amount will be reduced by the lesser of: - the amount of the withdrawal; or - the excess, if any, of the Specified Amount over the result of (a) minus (b) where: (a) is the death benefit immediately prior to the withdrawal; and (b) is the amount of the withdrawal. RR.VEL.(0398) 15 SECTION 10. BENEFICIARIES 10.1 DEFINITION OF BENEFICIARIES The term "beneficiaries" as used in this policy includes direct beneficiaries, contingent beneficiaries and further payees. 10.2 NAMING AND CHANGE OF BENEFICIARIES BY OWNER. The Owner may name and change the beneficiaries of death proceeds: - while the Insured is living. - during the first 60 days after the date of death of the Insured, if the Insured was not the Owner immediately prior to the Insured's death. A change made during this 60 days may not be revoked. BY DIRECT BENEFICIARY. A direct beneficiary may name and change the contingent beneficiaries and further payees of the direct beneficiary's share of the proceeds: - if the direct beneficiary is the Owner; or - if, at any time after the death of the Insured, no contingent beneficiary or further payee of that share is living. These direct beneficiary rights are subject to the Owner's rights during the 60 days after the date of death of the Insured. BY SPOUSE (MARITAL DEDUCTION PROVISION). - POWER TO APPOINT. The spouse of the Insured will have the power alone and in all events to appoint all amounts payable to the spouse under the policy if: a. immediately before the Insured's death, the Insured was the Owner; and b. the spouse is a direct beneficiary; and c. the spouse survives the Insured. Under this power, the spouse can appoint: a. to the estate of the spouse; or b. to any other persons as contingent beneficiaries and further payees. - EFFECT OF EXERCISE. As to the amounts appointed, the exercise of this power will: c. revoke any other designation of beneficiaries; d. revoke any election of payment plan as it applies to them; and e. cause any provision to the contrary in Section 10 of the policy to be of no effect. EFFECTIVE DATE. A naming or change of a beneficiary will be made on receipt at the Home Office of a written request that is acceptable to the Company. The request will then take effect as of the date that it was signed. The Company is not responsible for any payment or other action that is taken by it before the receipt of the request. The Company may require that the policy be sent to it to be endorsed to show the naming or change. 10.3 SUCCESSION IN INTEREST OF BENEFICIARIES DIRECT BENEFICIARIES. The proceeds of this policy will be payable in equal shares to the direct beneficiaries who survive and receive payment. If a direct beneficiary dies before receiving all or part of the direct beneficiary's full share, the unpaid portion will be payable in equal shares to the other direct beneficiaries who survive and receive payment. CONTINGENT BENEFICIARIES. At the death of all of the direct beneficiaries, the proceeds will be payable in equal shares to the contingent beneficiaries who survive and receive payment. If a contingent beneficiary dies before receiving all or part of the contingent's full share, the unpaid portion will be payable in equal shares to the other contingent beneficiaries who survive and receive payment. FURTHER PAYEES. At the death of all of the direct and contingent beneficiaries, the proceeds will be paid in one sum: - in equal shares to the further payees who survive and receive payment; or - if no further payees survive and receive payment, to the estate of the last to die of all of the direct and contingent beneficiaries who survive the Insured. OWNER OR THE OWNER'S ESTATE. If no beneficiaries are alive when the Insured dies, the proceeds will be paid to the Owner or to the Owner's estate. 10.4 GENERAL TRANSFER OF OWNERSHIP. A transfer of ownership of itself will not change the interest of a beneficiary. CLAIMS OF CREDITORS. So far as allowed by law, no amount payable under this policy will be subject to the claims of creditors of a beneficiary. AMENDMENT TO FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY AS OF THE DATE OF ISSUE, SECTION 8.1 CASH VALUE, IS AMENDED AS FOLLOWS: During the first policy year, if the policy is not in a grace period, the cash value of this policy is equal to: - the Policy Value; plus - [100%] of the sum of Sales Loads (page 4) deducted from premiums paid to date; less - any policy debt. During the second policy year, if the policy is not in a grace period, the cash value of this policy is equal to: - the Policy Value; plus - [50%] of the sum of Sales Loads (page 4) deducted from premiums paid to date; less - any policy debt. During the third and later policy years and any time the policy is in a grace period; the cash value of this policy is equal to: - the Policy Value; less - any policy debt. Secretary THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY RR.VEL RSL.(0398) AMENDMENT TO SECTION 6 THE SEPARATE ACCOUNT FOR FLEXIBLE PREMIUM VARIABLE LIFE AS OF THE DATE OF ISSUE, THE FIRST PARAGRAPH OF SECTION 6.1 IS AMENDED TO READ AS FOLLOWS: Northwestern Mutual Variable Life Account (the Separate Account) is registered as a unit investment trust under the Investment Company Act of 1940. The Separate Account has several Divisions, as shown on page 7. Assets of the Separate Account are invested in shares of mutual funds or portfolios of mutual funds, both of which are referred to in this policy as Portfolios. Shares of the Portfolios are purchased for the Separate Account at their net asset value. The Company may make available additional Divisions and Portfolios. AS OF THE DATE OF ISSUE, THE FOURTH AND FIFTH PARAGRAPHS OF SECTION 6.1 ARE AMENDED TO READ AS FOLLOWS: The Owner may exchange this policy for a fixed benefit life insurance policy being offered at that time by the Company if the Portfolio changes its investment advisor or has a material change in its investment objectives or restrictions. The Company will notify the Owner if there is any such change. The Owner may exchange this policy within 60 days after the notice or the effective date of the change, whichever is later. If, in the judgment of the Company, a Portfolio no longer suits the purposes of this policy due to a change in its investment objectives or restrictions, the Company may substitute shares of another Portfolio. Any such substitution will be subject to any required approval of the Securities and Exchange Commission (SEC), the Wisconsin Commissioner of Insurance or other regulatory authority. Secretary NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY VEL.FUNDS.(0799) POLICY APPLICATION SUPPLEMENT FOR FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY 720 East Wisconsin Avenue Milwaukee, Wisconsin 53202 INSURED: ---------------- POLICY: Specified Amount: $ --------------- Death Benefit Option: --------------- Definition of Life Insurance Test: --------------- Initial Premium: $ --------------- Reminder Premium: $ --------------- Reminder Mode: --------------- - -------------------------------------------------------------------------------- For Home Office Use Only Underwriting Amount: $ --------------- Illustrated Cumulative Premiums: Year 5: $ Year 15: $ --------------- --------------- Year 10: $ Year 20: $ --------------- --------------- VEL, --------------- - -------------------------------------------------------------------------------- Illustration No. -------------- 90-1 VEL.Supp.(0799) Page 1 of 3 THE DEATH BENEFIT MAY INCREASE OR DECREASE DAILY DEPENDING ON INVESTMENT RESULTS. THERE IS NO GUARANTEED MINIMUM DEATH BENEFIT. THE CASH VALUE UNDER THIS POLICY MAY INCREASE OR DECREASE DAILY DEPENDING ON INVESTMENT RESULTS. THERE IS NO GUARANTEED MINIMUM CASH VALUE. ALLOCATION OF NET PREMIUMS This allocation will apply to all net premiums and loan repayments. Use whole percentages only. If monthly dollar cost averaging is desired, complete both this section and the monthly dollar cost averaging section below. Only allocations to the Money Market Division are utilized for dollar cost averaging purposes.
Money Market Division % Growth & Income Stock Division % ---- ---- Select Bond Division % Index 400 Stock Division % ---- ---- International Equity Division % Small Cap Growth Stock Division % ---- ---- Balanced Division % Russell Multi-Style Equity Division % ---- ---- Index 500 Stock Division % Russell Aggressive Equity Division % ---- ---- Aggressive Growth Stock Division % Russell Non-US Division % ---- ---- High Yield Bond Division % Russell Real Estate Securities Division % ---- ---- Growth Stock Division % Russell Core Bond Division % ---- ---- Total 100% ---- ----
MONTHLY DOLLAR COST AVERAGING To elect monthly dollar cost averaging complete the following section. Transfer the following amount from the Money Market Division on each monthly processing date and allocate it among the other Divisions as specified below: $__________. If the amount specified is larger than the balance in the Money Market Division, the entire balance will be transferred. Use whole percentages only.
Select Bond Division % Growth & Income Stock Division % ---- ---- International Equity Division % Index 400 Stock Division % ---- ---- Balanced Division % Small Cap Growth Stock Division % ---- ---- Index 500 Stock Division % Russell Multi-Style Equity Division % ---- ---- Aggressive Growth Stock Division % Russell Aggressive Equity Division % ---- ---- High Yield Bond Division % Russell Non-US Division % ---- ---- Growth Stock Division % Russell Real Estate Securities Division % ---- ---- Russell Core Bond Division % ---- Total 100% ---- ----
Insured: --------------------- Illustration No. -------------- 90-1 VEL.Supp.(0799) Page 2 of 3 THIS PAGE WILL BE REQUIRED ONLY IF THE INSURED HAS INVESTMENT RESPONSIBILITY. SUITABILITY Northwestern Mutual Life is required to make the following inquiries for purposes of determining the suitability of this sale. Responses will be kept confidential. TOTAL ANNUAL INCOME (all sources) $ -------------------- TOTAL NET WORTH $ -------------------------------------- YEARS OF EXPERIENCE WITH THE FOLLOWING: Less than Five or Five More None Years Years ---------- --------- ---------- Mutual Funds ---------- --------- ---------- Individual Common Stocks ---------- --------- ---------- Variable Annuities ---------- --------- ---------- Variable Life Insurance ---------- --------- ---------- Signature of Insured: ------------------------------------------------- Insured: ---------------------- Illustration No. -------------- 90-1 VEL.Supp.(0799) Page 3 of 3 HOL03 116608 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY ------------------------- 720 E. WISCONSIN AVENUE, MILWAUKEE, WISCONSIN 53202 POLICY NUMBER EMPLOYER SPONSORED LIFE INSURANCE APPLICATION ------------------------------ / / Companion policies PLAN GROUP NUMBER INSURED - ---------------------------------------------------------------------------------------------------------------------------------- 1 Has an application or informal inquiry ever been made to Northwestern Mutual Life for annuity, life, long term care, or disability insurance on the life of the Insured? / / Yes / / No If yes, the last policy number is ----------------------------------------------------------------------------------------------------------------------------- A. / / Mr. / / Mrs. / / Ms. / / Dr. / / Other B. / / MALE ---------------- / / FEMALE ----------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------- C. BIRTHDATE: (Month, Day Year) D. STATE OF BIRTH (or Foreign Country): E. TAXPAYER IDENTIFICATION NUMBER: -- -- ---------------------------- ------------------------------------ ------------------------------ ----------------------------------------------------------------------------------------------------------------------------- F. PRIMARY RESIDENCE: STREET OR PO BOX: ---------------------------------------------------------------------------------- CITY, STATE, ZIP (Country if other than U.S.A.): ------------------------------------------------------------- E-MAIL ADDRESS: ------------------------------------------------------------------------------------ - ---------------------------------------------------------------------------------------------------------------------------------- APPLICANT - ---------------------------------------------------------------------------------------------------------------------------------- 2 Select ONLY ONE: / /Insured at Insured's Address OR / /Other (Complete A, B and C) A. / / Mr. / / Mrs. / / Ms. / / Dr. / / Other ----------------- / / MALE PERSONAL NAME: / / FEMALE --------------------------------------------------------- (FIRST, MIDDLE INITIAL, LAST) RELATIONSHIP TO INSURED: --------------------------------------- ---------------------------------------- OR MONTH DAY YEAR BUSINESS/TRUST: ----------------------------------------------------------------------------------------- TYPE OF ORGANIZATION: / / Trust / / Corporation / / Partnership / / Other type of Business ------------------------------ AUTHORIZED COMPANY REP/TRUSTEE NAME: ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------- B. TAXPAYER IDENTIFICATION NUMBER: -------------------------------- ----------------------------------------------------------------------------------------------------------------------------- C. ADDRESS: STREET OR PO BOX: -------------------------------------------------------------------------------------------- CITY, STATE, ZIP (Country if other than U.S.A.): ---------------------------------------------------------------------------- E-MAIL ADDRESS: ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- PREMIUM PAYER - ---------------------------------------------------------------------------------------------------------------------------------- 3 Select ONLY ONE: / /ISA (Omit A through D below) OR / /Insured (Complete D only) / /Applicant (Complete D only) / /Owner (Complete D only) / / Other (Complete A, B, C and D) A. / / Mr. / / Mrs. / / Ms. / / Dr. / / Other ----------------- / / MALE PERSONAL NAME: / / FEMALE --------------------------------------------------------- (FIRST, MIDDLE INITIAL, LAST) BIRTHDATE ------------------------ MONTH DAY YEAR OR BUSINESS/TRUST: ` ----------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- B. TAXPAYER IDENTIFICATION NUMBER: C. DAYTIME TELEPHONE NUMBER: ------------------------------ Area Code ( ) --------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Send premium and other notices regarding this policy to: D. ADDRESS: / / Insured's Address / /Applicant's Address OR STREET OR PO BOX: ---------------------------------------------------------------------------------------- CITY, STATE, ZIP (Country if other than U.S.A.): ----------------------------------------------------------------------- E-MAIL ADDRESS: ---------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------
4-7 (Reserved) - ---------------------------------------------------------------------------------------------------------------------------------- 8. SPECIAL DATE PREPAID: / / Short term - Policy Date will coincide with ISA Payment Date. (For monthly ISA only) / / Short term to: / / Date to save age / / ---------------------------- -------------------------- MONTH DAY YEAR MONTH DAY YEAR NON-PREPAID: / / Specified future date: / / Date to save age / / -------------------- -------------------------- MONTH DAY YEAR MONTH DAY YEAR - ---------------------------------------------------------------------------------------------------------------------------------- POLICY APPLIED FOR - ---------------------------------------------------------------------------------------------------------------------------------- 9. FIRST POLICY INFORMATION SECOND POLICY INFORMATION / / APPLICATION SUPPLEMENT (REQUIRED FOR COMPLIFE AND / / APPLICATION SUPPLEMENT (REQUIRED FOR COMPLIFE AND ALL VARIABLE LIFE PRODUCTS) ALL VARIABLE LIFE PRODUCTS) OR OR A. PLAN: A. PLAN: ------------------------------------------- ------------------------------------------- AMOUNT: $ AMOUNT: $ ----------------------------------------- ----------------------------------------- B. ADDITIONAL BENEFITS: B. ADDITIONAL BENEFITS: / / Waiver of Premium / / Waiver of Premium / / Accidental Death $ (BENEFIT AMOUNT) / / Accidental Death $ (BENEFIT AMOUNT) ---------- ---------- / / Other / / Other ------------------------------------- ------------------------------------- C. ANNUAL DIVIDENDS: C. ANNUAL DIVIDENDS: / / Reduce current premium / / Reduce current premium / / Purchase paid-up additions / / Purchase paid-up additions / / Accumulate at interest / / Accumulate at interest / / Be paid in cash / / Be paid in cash / / Be used for a combination of options above / / Be used for a combination of options above (COMPLETE FORM 18-1364-01) (COMPLETE FORM 18-1364-01) D. POLICY LOAN INTEREST RATE OPTION: D. POLICY LOAN INTEREST RATE OPTION: / / 8% / / Variable Rate / / 8% / / Variable Rate 10. If an additional benefit cannot be approved, should 10. If an additional benefit cannot be approved, should the company issue a policy without the benefit? the company issue a policy without the benefit? / / Yes / / No / / Yes / / No 11. Shall the Premium Loan provision, if available, be- 11. Shall the Premium Loan provision, if available, be- come operative according to its terms? come operative according to its terms? / / Yes / / No / / Yes / / No 12. PREMIUM FREQUENCY: 12. PREMIUM FREQUENCY: / / Annually / / Semiannually / / Quarterly / / Annually / / Semiannually / / Quarterly / / Single / / Single - ---------------------------------------------------------------------------------------------------------------------------------- 13-14 (Reserved) BENEFICIARY OWNER - ---------------------------------------------------------------------------------------------------------------------------------- 15. A. DIRECT BENEFICIARY 16. The OWNER will be: (SELECT ONLY ONE) ----------------------------------------------------- / / A. Insured FIRST MIDDLE INITIAL LAST / / B. Applicant RELATIONSHIP TO INSURED / / C. Other ------------------------------------- FIRST MIDDLE INITIAL LAST ----------------------------------------------------- FIRST MIDDLE INITIAL LAST RELATIONSHIP TO INSURED ------------------------------------- RELATIONSHIP TO INSURED ----------------------------------------------------- FIRST MIDDLE INITIAL LAST / / D. SEE ATTACHED SUPPLEMENT FORM. RELATIONSHIP TO INSURED (To be used in place of designations above.) RESIDENCE OF OWNER B. CONTINGENT BENEFICIARY / / Insured's address in 1F. / / Premium Payer's address in 3D or ----------------------------------------------------- ------------------------------------------------ FIRST MIDDLE INITIAL LAST STREET OR PO BOX RELATIONSHIP TO INSURED ------------------------------------------------ CITY, STATE AND ZIP CODE (COUNTRY IF OTHER ----------------------------------------------------- THAN U.S.A.) FIRST MIDDLE INITIAL LAST RELATIONSHIP TO INSURED / / and all (other) children of the insured. (SELECT TO INCLUDE ALL OF THE CHILDREN OR TO ADD TO OWNER'S TAXPAYER IDENTIFICATION NUMBER THE CONTINGENT BENEFICIARIES NAMED. NOTE: THE WORD CHILDREN INCLUDES CHILD OR ANY LEGALLY ADOPTED CHILD.) (See TIN Instructions) C. / / SEE ATTACHED SUPPLEMENT FORM ----------------------------- (TO BE USED IN PLACE OF DESIGNATIONS ABOVE)
INSURED ---------------------------------------------------------------- FIRST MIDDLE INITIAL LAST CONDITIONAL LIFE INSURANCE AGREEMENT - -------------------------------------------------------------------------------- 17. Has the premium for the policy applied for been given to the agent in exchange for the Conditional Life Insurance Agreement with the same number as this application? . . . . . . . . / /Yes / /No 18-19 (Reserved) INSURANCE HISTORY - -------------------------------------------------------------------------------- 20. Does the Insured have any other life insurance in force, pending or contemplated in other companies?. . . . . . . . . . . . . / /Yes / /No If yes, indicate Company Name, Individual (Ind) or Group (Grp) and identify the amount of In Force, Pending or Contemplated.
LIFE INSURANCE AMOUNTS ----------------------------------------------------------------------------------------------------------------- Ind or Contemplated Accidental Death Company Name Grp In Force Amount Pending Amount Amount Amount ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- -----------------------------------------------------------------------------------------------------------------
21 As a result of this purchase will the values or benefits of any other life insurance policy or annuity contract, on any life, be affected in any way? . . . . . . . . . . . . . . . . . . ./ /Yes / /No NOTE TO AGENT: VALUES OR BENEFITS ARE AFFECTED IF ANY QUESTION ON THE DEFINITION OF REPLACEMENT SUPPLEMENT COULD BE ANSWERED "YES." If "yes", this transaction is a replacement of life insurance or annuity. The agent must: - submit required papers and sale materials AND - provide required disclosure notices to the applicant. The applicant must answer the questions: - on the Definition of Replacement Supplement AND - A, B, and C below. Will this insurance: A. replace Northwestern Mutual Life? . . . . . . . . . ./ /Yes / /No B. replace other Companies?. . . . . . . . . . . / /Yes / /No C. result in 1035 exchange?. . . . . . . . . . . . . . ./ /Yes / /No - -------------------------------------------------------------------------------- It is agreed that: (1) If the premium is not paid when the application is signed, no insurance will be in effect. The insurance will take effect at the time the policy is delivered and the premium is paid, if: the Insured is living at the time; and the answers and statements in the underwriting questionnaire are then true to the best of the Insured's knowledge and belief. (2) If the premium is paid when the application is taken, no life insurance will be in effect except as provided in the Conditional Life Insurance Agreement. (3) If the policy is issued in an extra premium class, acceptance of the policy will amend it so that extended term insurance can be in force only if: the Company gives its consent; or the loan value is not large enough to grant a premium loan. If a premium is not paid within the grace period and extended term insurance cannot be in force, paid-up insurance will be selected. (4) No agent is authorized to make or alter contracts or to waive any of the Company's rights or requirements. - -------------------------------------------------------------------------------- THE OWNER OF THE POLICY APPLIED FOR HEREIN CERTIFIES, UNDER PENALTIES OF PERJURY, (1) THAT THE TAXPAYER IDENTIFICATION NUMBER GIVEN FOR THE OWNER ON THE SECOND PAGE OF THIS APPLICATION IS THE OWNER'S CORRECT TAXPAYER IDENTIFICATION NUMBER (OR THE OWNER IS WAITING FOR A NUMBER TO BE ISSUED) AND (2) THE OWNER IS NOT SUBJECT TO BACKUP WITHHOLDING EITHER BECAUSE THE OWNER HAS NOT BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE (IRS) THAT THE OWNER IS SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR THE IRS HAS NOTIFIED THE OWNER THAT THE OWNER IS NO LONGER SUBJECT TO BACKUP WITHHOLDING. (SEE TAXPAYER IDENTIFICATION NUMBER INSTRUCTIONS.) THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING. - -------------------------------------------------------------------------------- THE SIGNATURES BELOW APPLY TO THE APPLICATION, POLICY APPLICATION SUPPLEMENT AND THE CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER. - ------------------------------------ --------------------------------------- SIGNATURE OF APPLICANT SIGNATURE OF OWNER (IF OTHER THAN APPLICANT) Signed by Applicant at: --------------------- --------------------------------------- CITY, COUNTY, & STATE SIGNATURE OF LICENSED AGENT Date signed by Applicant ------------------------ MONTH DAY YEAR IT IS RECOMMENDED THAT YOU ... read your policy. notify your Northwestern Mutual agent or the Company at 720 East Wisconsin Avenue, Milwaukee, WI 53202, of an address change. call your Northwestern Mutual agent for information--particularly on a suggestion to terminate or exchange this policy for another policy or plan. ELECTION OF TRUSTEES The members of The Northwestern Mutual Life Insurance Company are its policyholders of insurance policies and deferred annuity contracts. The members exercise control through a Board of Trustees. Elections to the Board are held each year at the annual meeting of members. Members are entitled to vote in person or by proxy. FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY ELIGIBLE FOR ANNUAL DIVIDENDS Insurance payable at death of Insured. Flexible premiums. Benefits reflect investment results. Variable benefits described in Sections 1, 3, 6, 7 and 8. THE DEATH BENEFIT MAY INCREASE OR DECREASE DAILY DEPENDING ON INVESTMENT RESULTS. THERE IS NO GUARANTEED MINIMUM DEATH BENEFIT. THE CASH VALUE UNDER THIS POLICY MAY INCREASE OR DECREASE DAILY DEPENDING ON INVESTMENT RESULTS. THERE IS NO GUARANTEED MINIMUM CASH VALUE. RR.VEL.(0398) EX-99.A(5)(B) 3 EXHIBIT 99.A(5)(B) Exhibit A(5)(b) - ------------------------------------------------------------------------------- The Northwestern Mutual Life Insurance Company agrees to pay the benefits provided in this policy, subject to its terms and conditions. Signed at Milwaukee, Wisconsin on the Date of Issue. /s/ /s/ PRESIDENT AND CEO SECRETARY FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY ELIGIBLE FOR ANNUAL DIVIDENDS Insurance payable at death of Insured. Flexible premiums. Benefits reflect investment results. Variable benefits described in Sections 1, 3, 6, 7 and 8. THE DEATH BENEFIT MAY INCREASE OR DECREASE DAILY DEPENDING ON INVESTMENT RESULTS. THERE IS NO GUARANTEED MINIMUM DEATH BENEFIT. THE CASH VALUE UNDER THIS POLICY MAY INCREASE OR DECREASE DAILY DEPENDING ON INVESTMENT RESULTS. THERE IS NO GUARANTEED MINIMUM CASH VALUE. RIGHT TO RETURN POLICY. Please read this policy carefully. The policy may be returned by the Owner for any reason within (1) ten days after it was received or (2) forty-five days after the application was signed, whichever is later. The policy may be returned to your agent or to the Home Office of the Company at 720 East Wisconsin Avenue, Milwaukee, WI 53202. If returned, the policy will be considered void from the beginning. The Company will refund the sum of (a) the difference between any premium paid and the amount allocated to the Separate Account plus (b) the value of the policy in the Separate Account on the date the returned policy is received. RR.VEL.(0398) [LOGO] - ------------------------------------------------------------------------------- INSURED John J. Doe AGE AND SEX 35 Male POLICY DATE March 1, 1998 POLICY NUMBER 10 000 000 PLAN Flexible Premium SPECIFIED AMOUNT $1,000,000 Variable Life RR.VEL.(0398) THIS POLICY IS A LEGAL CONTRACT BETWEEN THE OWNER AND THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY. READ YOUR POLICY CAREFULLY. GUIDE TO POLICY PROVISIONS BENEFITS AND PREMIUMS SECTION 1. THE CONTRACT Life Insurance Benefit payable on death of Insured. Incontestability. Suicide. Definition of dates. Insurability requirements. Reports to Owner. SECTION 2. OWNERSHIP Rights of the Owner. Assignment as collateral. SECTION 3. DEATH BENEFIT Description of death benefit options. Changes to death benefits. SECTION 4. PREMIUMS, TRANSFERS AND REINSTATEMENT Payment of premiums. Calculation and allocation of net premiums. Transfer of assets. Premium limitations. Grace period of 61 days to pay premium. How to reinstate the policy. SECTION 5. DIVIDENDS Annual dividends. Use of dividends. Dividend at death. SECTION 6. THE SEPARATE ACCOUNT The Separate Account and the Divisions. Valuation of assets. SECTION 7. DETERMINATION OF VALUES Policy Value. Monthly Policy Charge. SECTION 8. CASH VALUE AND SURRENDER Cash value. Surrender. Deferral of payments. SECTION 9. LOANS AND WITHDRAWALS Policy loans. Interest on loans. Withdrawals. SECTION 10. BENEFICIARIES Naming and change of beneficiaries. Marital deduction provision for spouse of Insured. Succession in interest of beneficiaries. APPLICATION BENEFITS AND PREMIUMS DATE OF ISSUE - MARCH 1, 1998 Plan: Flexible Premium Variable Life Specified Amount: $1,000,000 Death Benefit Option: Specified Amount (Option A) Definition of Life Insurance Test: Guideline Premium/Cash Value Corridor Test The minimum premium (Section 4.4) is $25.00. The maximum premium under the Guideline Premium/Cash Value Corridor Test: Guideline Single Premium = $ 175,920.00 Guideline Annual Level Premium = $ 14,400.00 The minimum withdrawal amount (Section 9.5) is $250.00. This policy is issued in a select premium class. DIRECT BENEFICIARY XYZ Corporation OWNER XYZ Corporation INSURED John J. Doe AGE AND SEX 35 Male POLICY DATE March 1, 1998 POLICY NUMBER 10 000 000 PLAN Flexible Premium SPECIFIED AMOUNT $1,000,000 Variable Life Page 3 POLICY NUMBER 10 000 000 SCHEDULE OF MAXIMUM CHARGES The Premium Expense Charge (Section 4.2) is the sum of the following: 1. Sales Load:
Premium Paid First Policy Year Policy Years 2+ ------------ ----------------- --------------- Up to $ 40,260.00 15% 3% In Excess of $ 40,260.00 3% 3%
2. Federal Deferred Acquisition Cost Charge l.25% of premium 3. Premium Tax Charge 2.35% of premium The Premium Expense Charge for Deferred Acquisition Cost and Premium Tax may change to reflect changes in tax law. Maximum Monthly Policy Charges: The maximum Monthly Administrative Charge (Section 7.3) is $15 in the first policy year and $10 thereafter. The maximum Monthly Mortality and Expense Risk Charge (Section 7.4) is .075% of the amount invested for this policy in the Separate Account. Maximum Transaction Charges: The maximum charge for death benefit option changes (Section 3.2) is $250.00 per change. The maximum charge for Specified Amount changes (Section 3.3) is $25.00 per change for more than one change during any policy year. The maximum transfer fee (Section 4.3) is $25.00 per transfer for more than 12 transfers during any policy year. The maximum withdrawal charge (Section 9.5) is $25.00 per withdrawal. Page 4 POLICY NUMBER 10 000 000 TABLE OF GUARANTEED MAXIMUM COST OF INSURANCE RATES MONTHLY RATES PER $1.00 (Section 7.5)
Attained Age Monthly Rate Attained Age Monthly Rate Attained Age Monthly Rate 35 .00018 60 .00134 85 .01275 36 .00019 61 .00146 86 .01384 37 .00020 62 .00160 87 .01496 38 .00022 63 .00175 88 .01611 39 .00023 64 .00193 89 .01727 40 .00025 65 .00212 90 .01848 41 .00027 66 .00232 91 .01975 42 .00030 67 .00254 92 .02112 43 .00032 68 .00277 93 .02268 44 .00035 69 .00301 94 .02466 45 .00038 70 .00329 95 .02750 46 .00041 71 .00361 96 .03205 47 .00044 72 .00397 97 .04002 48 .00048 73 .00439 98 .05483 49 .00052 74 .00485 99 .08333 50 .00056 75 .00535 51 .00061 76 .00588 52 .00066 77 .00643 53 .00073 78 .00699 54 .00080 79 .00759 55 .00087 80 .00824 56 .00096 81 .00896 57 .00104 82 .00977 58 .00113 83 .01069 59 .00123 84 .01169
Page 5 POLICY NUMBER 10 000 000 GUIDELINE PREMIUM/CASH VALUE CORRIDOR PERCENTAGES The Corridor Percentages are used to determine the Minimum Death Benefit under the Guideline Premium/Cash Value Corridor Test (Section 3.1).
Attained Age Attained Age Attained Age Corridor % Corridor % Corridor % 35 250 60 130 85 105 36 250 61 128 86 105 37 250 62 126 87 105 38 250 63 124 88 105 39 250 64 122 89 105 40 250 65 120 90 105 41 243 66 119 91 104 42 236 67 118 92 103 43 229 68 117 93 102 44 222 69 116 94 101 45 215 70 115 95+ 100 46 209 71 113 47 203 72 111 48 197 73 109 49 191 74 107 50 185 75 105 51 178 76 105 52 171 77 105 53 164 78 105 54 157 79 105 55 150 80 105 56 146 81 105 57 142 82 105 58 138 83 105 59 134 84 105
POLICY NUMBER 10 000 000 SEPARATE ACCOUNT DIVISIONS (Section 6) Select Bond Division International Equity Division Money Market Division Balanced Division Index 500 Stock Division Aggressive Growth Stock Division High Yield Bond Division Growth Stock Division Growth & Income Stock Division Index 400 Stock Division Small Cap Growth Stock Division Russell Multi-Style Equity Division Russell Aggressive Equity Division Russell Non-US Division Russell Real Estate Securities Division Russell Core Bond Division The Initial Allocation Date (Section 4.3) is July 1, 1999. RR.VEL.(0799) Page 7 SECTION 1. THE CONTRACT 1.1 LIFE INSURANCE BENEFIT The Northwestern Mutual Life Insurance Company will pay a benefit on the death of the Insured while this policy is in force. Subject to the terms and conditions of the policy: - payment of the death proceeds will be made after proof of the death of the Insured is received at the Home Office; and - payment will be made to the beneficiary or other payee under Section 10. The amount of the death proceeds will be: - the death benefit (Section 3.1); less - the amount of any policy debt (Section 9.3); less - any Monthly Policy Charges due and unpaid if the Insured dies during the grace period (Section 4.5). These amounts will be determined as of the date of death. The Company will pay interest on the death proceeds from the date of death until the proceeds are withdrawn in cash. Interest will be at a rate of not less than 2%, or at any higher rate required by state law. 1.2 ENTIRE CONTRACT; CHANGES This policy, including the attached application and any amendments, endorsements or riders, is the entire contract. Statements in the application are representations and not warranties. A change in the policy is valid only if it is approved in writing by an officer of the Company. The Company may require that the policy be sent to it for endorsement to show a change. No agent has the authority to change the policy or to waive any of its terms. 8 1.3 INCONTESTABILITY The Company will not contest this policy after the policy has been in force, during the lifetime of the Insured, for two years from the Date of Issue. An increase in the amount of insurance after the Date of Issue, which occurred upon the request of the Owner and was subject to the Company's insurability requirements, will be incontestable after the increase has been in force, during the lifetime of the Insured, for two years from the date of issuance of the increase. In issuing the insurance, the Company has relied on the application. While the insurance is contestable, the Company, on the basis of a misstatement in the application, may rescind the insurance or deny a claim. 1.4 SUICIDE If the Insured dies by suicide within one year from the Date of Issue, the amount payable by the Company will be limited to the premiums paid, less the amount of any policy debt and withdrawals. If the Insured dies by suicide within one year from the date of issuance of an increase in the amount of insurance, which occurred upon the request of the Owner and was subject to the Company's insurability requirements, the amount payable with respect to such increase will be limited to the Monthly Policy Charges attributable to the increase. 1.5 POLICY DATE AND DATE OF ISSUE Monthly processing dates and policy months, years and anniversaries are computed from the Policy Date. The contestable and suicide periods begin with the Date of Issue. These dates are shown on page 3. 1.6 MISSTATEMENT OF AGE OR SEX If the age or sex of the Insured has been misstated, the policy will be modified by recalculating all Monthly Policy Charges based on the correct age and sex. 1.7 PAYMENTS BY THE COMPANY All payments by the Company under this policy are payable at its Home Office. 1.8 INSURABILITY REQUIREMENTS To make some changes under this policy, the Insured must meet the Company's insurability requirements. These requirements are as follows: - evidence of insurability must be given that is satisfactory to the Company; and - under the Company's underwriting standards, the Insured is in an underwriting classification that is the same as, or is better than, the one for this policy. 1.9 REPORTS TO OWNER At least once each policy year, the Company will send to the Owner: - a statement of the death benefit, the Policy Value, and any policy debt, including loan interest. - a report of the Separate Account, including financial statements. - any other information required by law. SECTION 2. OWNERSHIP 2.1 THE OWNER The Owner is named on page 3. The Owner, the Owner's successor or the Owner's transferee may exercise policy rights without the consent of any beneficiary, except to the extent the Owner's rights are restricted by a designation of an irrevocable beneficiary. 2.2 TRANSFER OF OWNERSHIP The Owner may transfer the ownership of this policy. Written proof of transfer satisfactory to the Company must be received at its Home Office. The transfer will then take effect as of the date that it was signed. The Company may require that the policy be sent to it for endorsement to show the transfer. 2.3 COLLATERAL ASSIGNMENT The Owner may assign this policy as collateral security. The Company is not responsible for the validity or effect of the collateral assignment. The Company will not be responsible to an assignee for any payment or other action taken by the Company before receipt of the assignment in writing at its Home Office. The interest of any beneficiary will be subject to any collateral assignment made either before or after the beneficiary is named. The collateral assignee is not an Owner. The collateral assignment is not a transfer of ownership. Ownership can be transferred only by complying with Section 2.2. 9 SECTION 3. DEATH BENEFIT 3.1 DEATH BENEFIT OPTIONS This policy provides for three death benefit options. The option in effect is shown on page 3. SPECIFIED AMOUNT (OPTION A) - The death benefit before the policy anniversary nearest the Insured's 100th birthday is the greater of: - the Specified Amount; or - the Minimum Death Benefit. SPECIFIED AMOUNT PLUS POLICY VALUE (OPTION B) - The death benefit before the policy anniversary nearest the Insured's 100th birthday is the greater of: - the Specified Amount plus the Policy Value; or - the Minimum Death Benefit. SPECIFIED AMOUNT PLUS PREMIUMS PAID (OPTION C) - The death benefit before the policy anniversary nearest the Insured's 100th birthday is the greater of: -the Specified Amount plus the sum of the premiums paid; or - the Minimum Death Benefit. MINIMUM DEATH BENEFIT. The Minimum Death Benefit is the amount required by the Internal Revenue Code (IRC), as amended, to maintain this policy as life insurance. The test in effect for determining compliance with the IRC definition of life insurance is shown on page 3 and will be either: (1) the Guideline Premium/Cash Value Corridor Test: the Minimum Death Benefit equals the Policy Value multiplied by the corridor percentage shown on page 6 at the Insured's attained age; or (2) the Cash Value Accumulation Test: the Minimum Death Benefit equals the Policy Value divided by the Net Single Premium shown on page 6 at the Insured's attained age. AGE 100 AND LATER. The death benefit on and after the policy anniversary nearest the Insured's 100th birthday will be equal to the Policy Value regardless of the death benefit option in effect. 3.2 DEATH BENEFIT OPTION CHANGES Subject to approval by the Company, the Owner may change the death benefit option upon written request. This change will be effective on the first monthly processing date following receipt of the request at the Home Office. The Company reserves the right to charge for a death benefit option change. This charge will be deducted from the Policy Value and will not exceed the amount shown on page 4. A change will not be allowed if the Specified Amount following a change would be less than the minimum amount the Company would issue at the time of change. CHANGES TO OPTION A. The death benefit option may be changed to Option A at any time. On the effective date of change, the Specified Amount will be changed as follows: (1) If the change is from Option B to Option A, the Specified Amount after the change will be equal to the Specified Amount before the change plus the Policy Value on the effective date of the change. (2) If the change is from Option C to Option A, the Specified Amount after the change will be equal to the Specified Amount before the change plus the sum of the premiums paid as of the effective date of the change. CHANGES TO OPTION B OR OPTION C. The death benefit option may be changed to Option B or Option C at any time before the policy anniversary nearest the Insured's 75th birthday. All changes to Option B or Option C will be subject to the Company's insurability requirements (Section 1.8). On the effective date of change, the Specified Amount will be changed as follows: (1) If the change is from Option A to Option B, the Specified Amount after the change will be equal to the Specified Amount before the change minus the Policy Value on the effective date of the change. (2) If the change is from Option A to Option C, the Specified Amount after the change will be equal to the Specified Amount before the change minus the sum of the premiums paid as of the effective date of the change. (3) If the change is from Option B to Option C, the Specified Amount after the change will be equal to the Specified Amount before the change plus (a) the Policy Value on the effective date of the change, minus (b) the sum of the premiums paid as of the effective date of the change. (4) If the change is from Option C to Option B, the Specified Amount after the change will be equal to the Specified Amount before the change plus (a) the sum of the premiums paid as of the effective date of the change, minus (b) the Policy Value on the effective date of the change. 10 3.3 SPECIFIED AMOUNT CHANGES Subject to approval by the Company, the Owner may change the Specified Amount upon written request. This change will be effective on the first monthly processing date following receipt of the request at the Home Office. The Company reserves the right to charge for more than one Specified Amount change in a policy year. This charge will be deducted from the Policy Value and will not exceed the amount shown on page 4. INCREASES. An increase will be made only if, at the time the increase is applied for: - the insurance in force, as increased, will be within the Company's issue limits; - the Company's insurability requirements (Section 1.8) are met; and - the increase request is received prior to the policy anniversary nearest the Insured's 75th birthday. DECREASES. A decrease will not be allowed if the Specified Amount following the decrease would be less than the minimum amount the Company would issue at the time of change. SECTION 4. PREMIUMS, TRANSFERS AND REINSTATEMENT 4.1 PREMIUM PAYMENT All premiums after the first are payable at the Home Office or to an authorized agent. Premiums may be paid to the Company at any time and in any amount subject to the limitations described in Section 4.4. A receipt signed by an officer of the Company will be furnished on request. 4.2 NET PREMIUM The net premium is the amount of each premium paid that is available for allocation to the Divisions of the Separate Account. The amount of the net premium will be: - the premium paid; less - the Premium Expense Charge. The Premium Expense Charge will consist of the amounts shown on page 4. 4.3 ALLOCATION OF NET PREMIUMS AND SUBSEQUENT TRANSFERS The initial net premium and any additional net premiums received prior to the Initial Allocation Date will be allocated to the Money Market Division on the date the premiums are received in the Home Office. The Initial Allocation Date is shown on page 7. On the Initial Allocation Date, amounts in the Money Market Division will be allocated in accordance with the application. This allocation will remain in effect for later net premiums unless changed by the Owner by written request. Any change in allocation will be in effect for net premiums credited to the policy following the receipt of the written request at the Home Office. Allocations must be in whole percentages. On or after the Initial Allocation Date, the Owner may transfer the amounts invested in any of the Divisions. The transfer will take effect on the date a written request is received in the Home Office. The Company reserves the right to charge for more than twelve transfers in a policy year. This charge will be deducted from the Policy Value and will not exceed the amount shown on page 4. 4.4 PREMIUM LIMITATIONS Premiums may be paid to the Company at any time before the policy anniversary that is nearest the Insured's 95th birthday. The minimum premium the Company will accept is shown on page 3. The Company will not accept any premium that causes this policy not to qualify as a life insurance policy under the Internal Revenue Code, as amended. Further, the Company reserves the right to make distributions from this policy as necessary to continue to qualify the policy as life insurance under the Internal Revenue Code. A premium payment that would increase the policy's death benefit more than it increases the Policy Value will be accepted only if: - the insurance in force, as increased, will be within the Company's issue limits; - the Company's insurability requirements (Section 1.8) are met; and - the premium payment is received prior to the policy anniversary nearest the Insured's 75th birthday. 4.5 GRACE PERIOD If the Policy Value less the amount of any policy debt on a monthly processing date is not sufficient to cover the current Monthly Policy Charge, a grace period of 61 days will be allowed for the payment of sufficient premium to keep the policy in force. The minimum premium that must be paid is three times the Monthly Policy Charge due when the insufficiency occurred. The grace period will begin on the date the Company sends written notice of the insufficiency. The grace period will end 61 days after the notice is sent. The notice will state the date the grace period ends and the amount of premium required to keep the policy in force. Upon receipt of payment, the Company will allocate the net premium, less any Monthly Policy Charges due and unpaid, to the Divisions of the Separate Account according to the allocation of net premiums currently in effect. The policy will remain in force during the grace period. If sufficient premium is not paid by the end of the grace period, the policy will terminate with no value. If the Insured dies during the grace period, any Monthly Policy Charges due and unpaid will be deducted from the death proceeds of the policy. 11 4.6 REINSTATEMENT If it has terminated under Section 4.5, the policy may be reinstated not more than one year after the end of the grace period, subject to approval by the Company. To reinstate the policy the Company's insurability requirements (Section 1.8) must be met and sufficient premium to cover the following must be paid: - all Monthly Policy Charges that were due and unpaid before the end of the grace period; plus - three times the Monthly Policy Charge due on the effective date of reinstatement. On the date the policy is reinstated, the Policy Value will be equal to the net premium less the sum of all Monthly Policy Charges that were due and unpaid before the end of the grace period and the Monthly Policy Charge on the effective date of reinstatement. The Company will allocate the Policy Value to the Divisions of the Separate Account according to the allocation of net premiums currently in effect. Any policy debt on the date of termination will also be reinstated and added to the Policy Value. If the Company approves the application for reinstatement, the effective date of the reinstated policy will be the first monthly processing date following receipt at the Home Office of the reinstatement application. This policy may not be reinstated if the policy was surrendered. SECTION 5. DIVIDENDS 5.1 ANNUAL DIVIDENDS This policy will share in the divisible surplus of the Company to the extent it contributes to this surplus. This surplus is determined each year. This policy's share will be credited as a dividend on the policy anniversary. Since this policy is not expected to contribute to divisible surplus, it is not expected that any dividends will be paid. 5.2 USE OF DIVIDENDS Annual dividends may be paid in cash or used to increase the Policy Value. Dividends used to increase the Policy Value will be allocated to the Divisions of the Separate Account according to the allocation of net premiums currently in effect. If no direction is given for the use of dividends, they will be used to increase the Policy Value. 5.3 DIVIDEND AT DEATH If a dividend is payable for the period from the beginning of the policy year to the date of the Insured's death, the dividend is payable as part of the policy proceeds. 12 SECTION 6. THE SEPARATE ACCOUNT 6.1 DESCRIPTION Northwestern Mutual Variable Life Account (the Separate Account) is registered as a unit investment trust under the Investment Company Act of 1940. The Separate Account has several Divisions, as shown on page 7. Assets of the Separate Account are invested in shares of Northwestern Mutual Series Fund, Inc. (the Fund). The Fund is registered under the Investment Company Act of 1940 as an open-end, diversified investment company. The Fund has one Portfolio for each Division. Assets of each Division of the Separate Account are invested in shares of the corresponding Portfolio of the Fund. Shares of the Fund are purchased for the Separate Account at their net asset value. The Company may make available additional Divisions and Portfolios. Assets will be allocated to the Separate Account to support the operation of this and other variable life insurance policies. Assets may also be allocated for other purposes, but not to support the operation of any contracts or policies other than variable life insurance. Income and realized and unrealized gains and losses from assets in the Separate Account are credited to or charged against it without regard to other income, gains or losses of the Company. The assets of the Separate Account will be valued on each valuation day. They are the property of the Company. The portion of these assets equal to policy reserves and liabilities will not be charged with liabilities arising out of any other business the Company may conduct. The Company reserves the right to transfer assets of the Separate Account in excess of these reserves and liabilities to its General Account. The Owner may exchange this policy for a fixed benefit life insurance policy if the Fund changes its investment advisor or if a Portfolio has a material change in its investment objectives or restrictions. The Company will notify the Owner if there is any such change. The Owner may exchange this policy within 60 days after the notice or the effective date of the change, whichever is later. If, in the judgment of the Company, a Portfolio no longer suits the purposes of this policy due to a change in its investment objectives or restrictions, the Company may substitute shares of another Portfolio of the Fund or shares of another mutual fund. Any such substitution will be subject to any required approval of the Securities and Exchange Commission (SEC), the Wisconsin Commissioner of Insurance or other regulatory authority. The Company also may, to the extent permitted by applicable laws and regulations (including any order of the SEC), make changes as follows: - the Separate Account or a Division may be operated as a management company under the Investment Company Act of 1940, or in any other form permitted by law, if deemed by the Company to be in the best interest of the policyowners. - the Separate Account may be deregistered under the Investment Company Act of 1940 in the event registration is no longer required. - the provisions of this and other policies may be modified to comply with any other applicable federal or state laws. In the event of a substitution or change, the Company may make appropriate endorsement of this and other policies having an interest in the Separate Account and take other actions as may be necessary to effect the substitution or change. 6.2 VALUATION DAY AND VALUATION PERIOD A valuation day is any day on which the assets of the Separate Account are valued. A valuation period is a valuation day and any immediately preceding days which are not valuation days. Assets are valued as the close of trading on the New York Stock Exchange on each day the Exchange is open. Each Division's share of amounts allocated, transferred or added to a Division or deducted, loaned, transferred or withdrawn from a Division, on any day, will be determined as of the end of the valuation period that contains that day. SECTION 7. DETERMINATION OF VALUES 7.1 POLICY VALUE On the Policy Date, the Policy Value is equal to the net premium less the Monthly Policy Charge. On any day after that, the Policy Value is equal to what it was on the previous day plus any of these items applicable on that day: - any increase due to investment results of all amounts invested in all Divisions for the Policy Value; - interest on the policy debt at an annual rate equal to the loan interest rate; - the net premium, if a premium is paid; - any policy dividend directed to increase the Policy Value; and minus any of these items applicable on that day: - any decrease due to investment results of all amounts invested in all Divisions for the Policy Value; - the Monthly Policy Charge; - on any monthly processing date on which there is a policy debt, a charge for expenses and taxes associated with the debt; - any withdrawals; and - any transaction charges that may result from a withdrawal, a transfer, a change in the Specified Amount or a change in the death benefit option. The Monthly Policy Charge, any charge for expenses and taxes associated with policy debt, withdrawals and any transaction charges will be deducted from the Policy Value. The deduction will be allocated to each Division in proportion to the amounts in each Division. 7.2 MONTHLY POLICY CHARGE A Monthly Policy Charge is deducted from the Policy Value on each monthly processing date and is equal to the sum of the following: - the Monthly Administrative Charge; - the Mortality and Expense Risk Charge; and - the Cost of Insurance Charge. 13 7.3 MONTHLY ADMINISTRATIVE CHARGE A Monthly Administrative Charge is deducted from the Policy Value on each monthly processing date as part of the Monthly Policy Charge. The maximum Monthly Administrative Charge is shown on page 4. 7.4 MORTALITY AND EXPENSE RISK CHARGE A charge for the mortality and expense risk the Company assumes is deducted from the Policy Value on each monthly processing date as part of the Monthly Policy Charge. The maximum Monthly Mortality and Expense Risk Charge is shown on page 4. 7.5 COST OF INSURANCE CHARGE A Cost of Insurance Charge is deducted from the Policy Value on each monthly processing date as part of the Monthly Policy Charge. The Cost of Insurance Charge is the cost of insurance rate times the net amount at risk. The cost of insurance rate is based on the attained age of the Insured. The maximum cost of insurance rates are shown on page 5. The net amount at risk is (a) minus (b) where: (a) is the death benefit on the monthly processing date, after deduction of the Monthly Administrative Charge and the Mortality and Expense Risk Charge, divided by 1.0032737; and (b) is the Policy Value on the monthly processing date after deduction of the Monthly Administrative Charge and the Mortality and Expense Risk Charge. SECTION 8. CASH VALUE AND SURRENDER 8.1 CASH VALUE The cash value of this policy is equal to: - the Policy Value; less - any policy debt. 8.2 SURRENDER The Owner may surrender this policy for its cash value. A written surrender of all claims, satisfactory to the Company, will be required. The date of surrender will be the date of receipt at the Home Office of the written surrender. The policy will terminate, and the cash value will be determined, as of the end of the valuation period which includes the date of surrender. The Company may require that the policy be sent to it. 8.3 DEFERRAL OF PAYMENTS The Company reserves the right: - to defer determination of the cash value and payment of the cash value; - to defer payment of a loan or withdrawal; and - to defer determination of a change in the amount of variable insurance or other variable amounts payable on death, and, if such determination has been deferred, to defer payment of the death benefit; during any period when: - the New York Stock Exchange is closed or trading on the New York Stock Exchange is restricted as determined by the SEC; or - the SEC declares that an emergency exists as a result of which the sale or determination of investment results is not reasonably practicable; or - the SEC, by order, permits deferral for the protection of the Company's policyowners. 14 SECTION 9. LOANS AND WITHDRAWALS 9.1 POLICY LOANS The Owner may obtain a loan from the Company in an amount that, when added to existing policy debt, is not more than the loan value. On the date a loan is made, the amount invested for this policy in the Separate Account will be reduced by the amount of the loan. The reduction will be allocated to each Division in proportion to the amounts in each Division. On the date a loan repayment is made, or the date accrued interest is paid, the amount invested for this policy in the Separate Account will be increased by the amount of the payment. The increase will be allocated to the Divisions of the Separate Account according to the allocation of net premiums currently in effect. 9.2 LOAN VALUE The loan value is 90% of the Policy Value on the date of the loan. 9.3 POLICY DEBT Policy debt consists of all outstanding loans and accrued interest. It may be paid to the Company at any time. Any policy debt will be deducted from the policy proceeds. If the policy debt equals or exceeds the Policy Value on a monthly processing date, the policy will terminate with no value subject to the conditions of the Grace Period (Section 4.5). 9.4 LOAN INTEREST Interest accrues and is payable on a daily basis from the date of the loan. Unpaid interest is added to policy debt. Interest is payable at an annual effective rate of 5%. 9.5 WITHDRAWALS The Owner may make a withdrawal of the Policy Value. The Company reserves the right to charge for withdrawals. This charge will be deducted from the Policy Value and will not exceed the amount shown on page 4. However, the Owner may not: - withdraw an amount which would reduce the loan value to less than the policy debt; - withdraw an amount which would reduce the death benefit to less than the minimum amount the Company would issue at the time of withdrawal; - withdraw an amount which would reduce the cash value to less than three times the most recent Monthly Policy Charge; - withdraw less than the minimum withdrawal amount shown on page 3; or - make more than four withdrawals in a policy year. When a withdrawal from the Policy Value is made, the amount invested for this policy in the Separate Account will be reduced by the amount of the withdrawal. The reduction will be allocated to each Division in proportion to the amounts in each Division. If the death benefit option in effect at the time of withdrawal is either Option A or Option C, the Specified Amount will be reduced by the lesser of: - the amount of the withdrawal; or - the excess, if any, of the Specified Amount over the result of (a) minus (b) where: (a) is the death benefit immediately prior to the withdrawal; and (b) is the amount of the withdrawal. 15 SECTION 10. BENEFICIARIES 10.1 DEFINITION OF BENEFICIARIES The term "beneficiaries" as used in this policy includes direct beneficiaries, contingent beneficiaries and further payees. 10.2 NAMING AND CHANGE OF BENEFICIARIES BY OWNER. The Owner may name and change the beneficiaries of death proceeds: - while the Insured is living. - during the first 60 days after the date of death of the Insured, if the Insured was not the Owner immediately prior to the Insured's death. A change made during this 60 days may not be revoked. BY DIRECT BENEFICIARY. A direct beneficiary may name and change the contingent beneficiaries and further payees of the direct beneficiary's share of the proceeds: - if the direct beneficiary is the Owner; or - if, at any time after the death of the Insured, no contingent beneficiary or further payee of that share is living. These direct beneficiary rights are subject to the Owner's rights during the 60 days after the date of death of the Insured. BY SPOUSE (MARITAL DEDUCTION PROVISION). - POWER TO APPOINT. The spouse of the Insured will have the power alone and in all events to appoint all amounts payable to the spouse under the policy if: a. immediately before the Insured's death, the Insured was the Owner; and b. the spouse is a direct beneficiary; and c. the spouse survives the Insured. Under this power, the spouse can appoint: a. to the estate of the spouse; or b. to any other persons as contingent beneficiaries and further payees. - EFFECT OF EXERCISE. As to the amounts appointed, the exercise of this power will: c. revoke any other designation of beneficiaries; d. revoke any election of payment plan as it applies to them; and e. cause any provision to the contrary in Section 10 of the policy to be of no effect. EFFECTIVE DATE. A naming or change of a beneficiary will be made on receipt at the Home Office of a written request that is acceptable to the Company. The request will then take effect as of the date that it was signed. The Company is not responsible for any payment or other action that is taken by it before the receipt of the request. The Company may require that the policy be sent to it to be endorsed to show the naming or change. 10.3 SUCCESSION IN INTEREST OF BENEFICIARIES DIRECT BENEFICIARIES. The proceeds of this policy will be payable in equal shares to the direct beneficiaries who survive and receive payment. If a direct beneficiary dies before receiving all or part of the direct beneficiary's full share, the unpaid portion will be payable in equal shares to the other direct beneficiaries who survive and receive payment. CONTINGENT BENEFICIARIES. At the death of all of the direct beneficiaries, the proceeds will be payable in equal shares to the contingent beneficiaries who survive and receive payment. If a contingent beneficiary dies before receiving all or part of the contingent's full share, the unpaid portion will be payable in equal shares to the other contingent beneficiaries who survive and receive payment. FURTHER PAYEES. At the death of all of the direct and contingent beneficiaries, the proceeds will be paid in one sum: - in equal shares to the further payees who survive and receive payment; or - if no further payees survive and receive payment, to the estate of the last to die of all of the direct and contingent beneficiaries who survive the Insured. OWNER OR THE OWNER'S ESTATE. If no beneficiaries are alive when the Insured dies, the proceeds will be paid to the Owner or to the Owner's estate. 10.4 GENERAL TRANSFER OF OWNERSHIP. A transfer of ownership of itself will not change the interest of a beneficiary. CLAIMS OF CREDITORS. So far as allowed by law, no amount payable under this policy will be subject to the claims of creditors of a beneficiary. AMENDMENT TO FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY AS OF THE DATE OF ISSUE, SECTION 8.1 CASH VALUE, IS AMENDED AS FOLLOWS: During the first policy year, if the policy is not in a grace period, the cash value of this policy is equal to: - the Policy Value; plus - [100%] of the sum of Sales Loads (page 4) deducted from premiums paid to date; less - any policy debt. During the second policy year, if the policy is not in a grace period, the cash value of this policy is equal to: - the Policy Value; plus - [50%] of the sum of Sales Loads (page 4) deducted from premiums paid to date; less - any policy debt. During the third and later policy years and any time the policy is in a grace period; the cash value of this policy is equal to: - the Policy Value; less - any policy debt. Secretary THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY (page 21) AMENDMENT TO SECTION 6 THE SEPARATE ACCOUNT FOR FLEXIBLE PREMIUM VARIABLE LIFE AS OF THE DATE OF ISSUE, THE FIRST PARAGRAPH OF SECTION 6.1 IS AMENDED TO READ AS FOLLOWS: Northwestern Mutual Variable Life Account (the Separate Account) is registered as a unit investment trust under the Investment Company Act of 1940. The Separate Account has several Divisions, as shown on page 7. Assets of the Separate Account are invested in shares of mutual funds or portfolios of mutual funds, both of which are referred to in this policy as Portfolios. Shares of the Portfolios are purchased for the Separate Account at their net asset value. The Company may make available additional Divisions and Portfolios. AS OF THE DATE OF ISSUE, THE FOURTH AND FIFTH PARAGRAPHS OF SECTION 6.1 ARE AMENDED TO READ AS FOLLOWS: The Owner may exchange this policy for a fixed benefit life insurance policy being offered at that time by the Company if the Portfolio changes its investment advisor or has a material change in its investment objectives or restrictions. The Company will notify the Owner if there is any such change. The Owner may exchange this policy within 60 days after the notice or the effective date of the change, whichever is later. If, in the judgment of the Company, a Portfolio no longer suits the purposes of this policy due to a change in its investment objectives or restrictions, the Company may substitute shares of another Portfolio. Any such substitution will be subject to any required approval of the Securities and Exchange Commission (SEC), the Wisconsin Commissioner of Insurance or other regulatory authority. Secretary NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY VEL.FUNDS.(0799) POLICY APPLICATION SUPPLEMENT FOR FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY 720 East Wisconsin Avenue Milwaukee, Wisconsin 53202 INSURED: ---------------- POLICY: Specified Amount: $ --------------- Death Benefit Option: --------------- Definition of Life Insurance Test: --------------- Initial Premium: $ --------------- Reminder Premium: $ --------------- Reminder Mode: --------------- - -------------------------------------------------------------------------------- For Home Office Use Only Underwriting Amount: $ --------------- Illustrated Cumulative Premiums: Year 5: $ Year 15: $ --------------- --------------- Year 10: $ Year 20: $ --------------- --------------- VEL, --------------- - -------------------------------------------------------------------------------- Illustration No. -------------- 90-1 VEL.Supp.(0799) Page 1 of 3 THE DEATH BENEFIT MAY INCREASE OR DECREASE DAILY DEPENDING ON INVESTMENT RESULTS. THERE IS NO GUARANTEED MINIMUM DEATH BENEFIT. THE CASH VALUE UNDER THIS POLICY MAY INCREASE OR DECREASE DAILY DEPENDING ON INVESTMENT RESULTS. THERE IS NO GUARANTEED MINIMUM CASH VALUE. ALLOCATION OF NET PREMIUMS This allocation will apply to all net premiums and loan repayments. Use whole percentages only. If monthly dollar cost averaging is desired, complete both this section and the monthly dollar cost averaging section below. Only allocations to the Money Market Division are utilized for dollar cost averaging purposes.
Money Market Division % Growth & Income Stock Division % ----- ----- Select Bond Division % Index 400 Stock Division % ----- ----- International Equity Division % Small Cap Growth Stock Division % ----- ----- Balanced Division % Russell Multi-Style Equity Division % ----- ----- Index 500 Stock Division % Russell Aggressive Equity Division % ----- ----- Aggressive Growth Stock Division % Russell Non-US Division % ----- ----- High Yield Bond Division % Russell Real Estate Securities Division % ----- ----- Growth Stock Division % Russell Core Bond Division % ----- ----- Total 100% ---- ----
MONTHLY DOLLAR COST AVERAGING To elect monthly dollar cost averaging complete the following section. Transfer the following amount from the Money Market Division on each monthly processing date and allocate it among the other Divisions as specified below: $__________. If the amount specified is larger than the balance in the Money Market Division, the entire balance will be transferred. Use whole percentages only.
Select Bond Division % Growth & Income Stock Division % ----- ----- International Equity Division % Index 400 Stock Division % ----- ----- Balanced Division % Small Cap Growth Stock Division % ----- ----- Index 500 Stock Division % Russell Multi-Style Equity Division % ----- ----- Aggressive Growth Stock Division % Russell Aggressive Equity Division % ----- ----- High Yield Bond Division % Russell Non-US Division % ----- ----- Growth Stock Division % Russell Real Estate Securities Division % ----- ----- Russell Core Bond Division % ----- Total 100% ---- ----
Insured: --------------------- Illustration No. -------------- 90-1 VEL.Supp.(0799) Page 2 of 3 THIS PAGE WILL BE REQUIRED ONLY IF THE INSURED HAS INVESTMENT RESPONSIBILITY. SUITABILITY Northwestern Mutual Life is required to make the following inquiries for purposes of determining the suitability of this sale. Responses will be kept confidential. TOTAL ANNUAL INCOME (all sources) $ -------------------- TOTAL NET WORTH $ -------------------------------------- YEARS OF EXPERIENCE WITH THE FOLLOWING: Less than Five or Five More None Years Years ---------- --------- ---------- Mutual Funds ---------- --------- ---------- Individual Common Stocks ---------- --------- ---------- Variable Annuities ---------- --------- ---------- Variable Life Insurance ---------- --------- ---------- Signature of Insured: ------------------------------------------------- Insured: ---------------------- Illustration No. -------------- 90-1 VEL.Supp.(0799) Page 3 of 3 Insured: Illustration No. HOL03 116608
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY / / / / / / / / / 720 E. WISCONSIN AVENUE, MILWAUKEE, WISCONSIN 53202 POLICY NUMBER EMPLOYER SPONSORED LIFE INSURANCE APPLICATION / / / / / / / / / / / / / / Companion policies PLAN GROUP NUMBER INSURED - ------------------------------------------------------------------------------------------------------------------------------------ 1 Has an application or informal inquiry ever been made to Northwestern Mutual Life for annuity, life, long term care, or disability insurance on the life of the Insured? / / Yes / / No If yes, the last policy number is ------------------------------------------------------------------------------------------------------------------------------- A. / / Mr. / / Mrs. / / Ms. / / Dr. / / Other B. / / MALE -------------------------- / / FEMALE / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / ------------------------------------------------------------------------------------------------------------------------------- C. BIRTHDATE: (Month, Day Year) D. STATE OF BIRTH (or Foreign Country): E. TAXPAYER IDENTIFICATION NUMBER: / / / / / / / / / / / / / / / / / / - / / / - / / / / / ------------------------------------ ------------------------------------------------------------------------------------------------------------------------------- F. PRIMARY RESIDENCE: STREET OR PO BOX: -------------------------------------------------------------------------------------------- CITY, STATE, ZIP (Country if other than U.S.A.): ------------------------------------------------------------------------ E-MAIL ADDRESS: -------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ APPLICANT - ------------------------------------------------------------------------------------------------------------------------------------ 2 Select ONLY ONE: / / Insured at Insured's Address OR / / Other (Complete A, B and C) A. / / Mr. / / Mrs. / / Ms. / / Dr. / / Other ---------------------------------------- / / MALE PERSONAL NAME: / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / FEMALE (FIRST, MIDDLE INITIAL, LAST) RELATIONSHIP TO INSURED: BIRTHDATE: / / / / / / / / / / / OR --------------------------------------------------- MONTH DAY YEAR BUSINESS/TRUST NAME: / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / TYPE OF ORGANIZATION: / / Trust / / Corporation / / Partnership / / Other type of Business ------------ AUTHORIZED COMPANY REP/TRUSTEE NAME: ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ B. TAXPAYER IDENTIFICATION NUMBER: / / / / / / / / / / / / / / / / / / ------------------------------------------------------------------------------------------------------------------------------- C. ADDRESS: STREET OR PO BOX: --------------------------------------------------------------------------------------- CITY, STATE, ZIP (Country if other than U.S.A.): ------------------------------------------------------------------------ E-MAIL ADDRESS: --------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ PREMIUM PAYER - ------------------------------------------------------------------------------------------------------------------------------------ 3 Select ONLY ONE: / / ISA (Omit A through D below) OR / / Insured (Complete D only) / / Applicant (Complete D only) / / Owner (Complete D only) / / Other (Complete A, B, C and D) A. / / Mr. / / Mrs. / / Ms. / / Dr. / / Other ------------------------------ / / MALE PERSONAL NAME: / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / FEMALE (FIRST, MIDDLE INITIAL, LAST) BIRTHDATE / / / / / / / / / / MONTH DAY YEAR OR BUSINESS/TRUST NAME: / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / ------------------------------------------------------------------------------------------------------------------------------- B. TAXPAYER IDENTIFICATION NUMBER: C. DAYTIME TELEPHONE NUMBER: / / / / / / / / / / / / / / / / Area Code ( ) ------------------------------------------
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------------------------------------------------------------------------------------------------------------------------------- Send premium and other notices regarding this policy to: D. ADDRESS: / / Insured's Address / / Applicant's Address OR STREET OR PO BOX: --------------------------------------------------------------------------------------- CITY, STATE, ZIP (Country if other than U.S.A.): ------------------------------------------------------------------------ E-MAIL ADDRESS: --------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------
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4-7 (Reserved) - ------------------------------------------------------------------------------------------------------------------------------------ 8. SPECIAL DATE PREPAID: / / Short term - Policy Date will coincide with ISA Payment Date. (For monthly ISA only) / / Short term to: / / / / / / / / / / / / Date to save age / / / / / / / / / / / / MONTH DAY YEAR MONTH DAY YEAR NON-PREPAID / / Specified future date: / / / / / / / / / / / / Date to save age / / / / / / / / / / / / MONTH DAY YEAR MONTH DAY YEAR - ------------------------------------------------------------------------------------------------------------------------------------ POLICY APPLIED FOR - ------------------------------------------------------------------------------------------------------------------------------------ 9. FIRST POLICY INFORMATION / / APPLICATION SUPPLEMENT (REQUIRED FOR COMPLIFE AND ALL VARIABLE LIFE PRODUCTS) OR A. PLAN: --------------------------------------------------------------------------------------------------------------------- AMOUNT: $ ---------------------------------------------------------------------------------------------------------------- B. ADDITIONAL BENEFITS: / / Waiver of Premium / / Accidental Death $ ____________ (BENEFIT AMOUNT) / / Other ---------------------------------------------------------------------------------------------------------------- C. ANNUAL DIVIDENDS: / / Reduce current premium / / Purchase paid-up additions / / Accumulate at interest / / Be paid in cash / / Be used for a combination of options above (COMPLETE FORM 18-1364-01) D. POLICY LOAN INTEREST RATE OPTION: / / 8% / / Variable Rate 10. If an additional benefit cannot be approved, should the company issue a policy without the benefit? / / Yes / / No 11. Shall the Premium Loan provision, if available, become operative according to its terms? / / Yes / / No 12. PREMIUM FREQUENCY: / / Annually / / Semiannually / / Quarterly / / Single - ------------------------------------------------------------------------------------------------------------------------------------ SECOND POLICY INFORMATION / / APPLICATION SUPPLEMENT (REQUIRED FOR COMPLIFE AND ALL VARIABLE LIFE PRODUCTS) OR A. PLAN: --------------------------------------------------------------------------------------------------------------------- AMOUNT: $ ---------------------------------------------------------------------------------------------------------------- B. ADDITIONAL BENEFITS: / / Waiver of Premium / / Accidental Death $ ____________ (BENEFIT AMOUNT) / / Other ---------------------------------------------------------------------------------------------------------------- C. ANNUAL DIVIDENDS: / / Reduce current premium / / Purchase paid-up additions / / Accumulate at interest / / Be paid in cash / / Be used for a combination of options above (COMPLETE FORM 18-1364-01) D. POLICY LOAN INTEREST RATE OPTION: / / 8% / / Variable Rate 10. If an additional benefit cannot be approved, should the company issue a policy without the benefit? / / Yes / / No 11. Shall the premium Loan provision, if available, become operative according to its terms? / / Yes / / No 12. PREMIUM FREQUENCY: / / Annually / / Semiannually / / Quarterly / / Single - ------------------------------------------------------------------------------------------------------------------------------------ 13-14 (Reserved) BENEFICIARY - ------------------------------------------------------------------------------------------------------------------------------------ 15. A. DIRECT BENEFICIARY ------------------------------------------------------------------------------------------------------------------------------- FIRST MIDDLE INITIAL LAST RELATIONSHIP TO INSURED ------------------------------------------------------------------------------------------------------------------------------- FIRST MIDDLE INITIAL LAST RELATIONSHIP TO INSURED ------------------------------------------------------------------------------------------------------------------------------- FIRST MIDDLE INITIAL LAST RELATIONSHIP TO INSURED B. CONTINGENT BENEFICIARY ------------------------------------------------------------------------------------------------------------------------------- FIRST MIDDLE INITIAL LAST RELATIONSHIP TO INSURED ------------------------------------------------------------------------------------------------------------------------------- FIRST MIDDLE INITIAL LAST RELATIONSHIP TO INSURED / / and all (other) children of the insured. (SELECT TO INCLUDE ALL OF THE CHILDREN OR TO ADD TO THE CONTINGENT BENEFICIARIES NAMED. NOTE: THE WORD "CHILDREN" INCLUDES CHILD OR ANY LEGALLY ADOPTED CHILD.) C. / / SEE ATTACHED SUPPLEMENT FORM (TO BE USED IN PLACE OF DESIGNATIONS ABOVE) - ------------------------------------------------------------------------------------------------------------------------------------ OWNER - ------------------------------------------------------------------------------------------------------------------------------------ 16. The OWNER will be: (SELECT ONLY ONE) / / A. Insured / / B. Applicant / / C. Other ---------------------------------------------------------------------------------------------------------------- FIRST MIDDLE INITIAL LAST ---------------------------------------------------------------------------------------------------------------- RELATIONSHIP TO INSURED / / D. SEE ATTACHED SUPPLEMENT FORM. (To be used in place of designations above.) RESIDENCE OF OWNER / / Insured's address in 1F. / / Premium Payer's address in 3D or (page 24) -------------------------------------------------------------------------------------------------------------------------- STREET OR PO BOX -------------------------------------------------------------------------------------------------------------------------- CITY, STATE AND ZIP CODE (COUNTRY IF OTHER THAN U.S.A.) OWNER'S TAXPAYER IDENTIFICATION NUMBER / / / / / / / / / / / / (See TIN Instructions) - ------------------------------------------------------------------------------------------------------------------------------------
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INSURED / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / FIRST MIDDLE INITIAL LAST CONDITIONAL LIFE INSURANCE COMPANY - ------------------------------------------------------------------------------------------------------------------------------------ 17. Has the premium for the policy applied for been given to the agent in exchange for the Conditional Life Insurance Agreement with the same number as this application? / / Yes / / No 18-19 (Reserved) INSURANCE HISTORY - ------------------------------------------------------------------------------------------------------------------------------------ 20. Does the Insured have any other life insurance in force, pending or contemplated in other companies? / / Yes / / No If yes, indicate Company Name, Individual (Ind) or Group (Grp) and identify the amount of In Force, Pending or Contemplated. LIFE INSURANCE AMOUNTS ------------------------------------------------------------------------------------------------------------------------------- Ind or Contemplated Accidental Death Company Name Grp In Force Amount Pending Amount Amount Amount ------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------- 21. As a result of this purchase will the values or benefits of any other life insurance policy or annuity contract, on any life, be affected in any way?....................................................................................../ / Yes / / No NOTE TO AGENT: VALUES OR BENEFITS ARE AFFECTED IF ANY QUESTION ON THE DEFINITION OF REPLACEMENT SUPPLEMENT COULD BE ANSWERED "YES." If "yes", this transaction is a replacement of life insurance or annuity. The agent must: - submit required papers and sale materials AND - provide required disclosure notices to the applicant. The applicant must answer the questions: - on the Definition of Replacement Supplement AND - A, B, and C below. Will this insurance: A. replace Northwestern Mutual Life?........................................................................./ / Yes / / No B. replace other Companies?................................................................................../ / Yes / / No C. result in 1035 exchange?................................................................................../ / Yes / / No
- -------------------------------------------------------------------------------- It is agreed that: (1) If the premium is not paid when the application is signed, no insurance will be in effect. The insurance will take effect at the time the policy is delivered and the premium is paid, if: the Insured is living at the time; and the answers and statements in the underwriting questionnaire are then true to the best of the Insured's knowledge and belief. (2) If the premium is paid when the application is taken, no life insurance will be in effect except as provided in the Conditional Life Insurance Agreement. (3) If the policy is issued in an extra premium class, acceptance of the policy will amend it so that extended term insurance can be in force only if: the Company gives its consent; or the loan value is not large enough to grant a premium loan. If a premium is not paid within the grace period and extended term insurance cannot be in force, paid-up insurance will be selected. (4) No agent is authorized to make or alter contracts or to waive any of the Company's rights or requirements. - -------------------------------------------------------------------------------- THE OWNER OF THE POLICY APPLIED FOR HEREIN CERTIFIES, UNDER PENALTIES OF PERJURY, (1) THAT THE TAXPAYER IDENTIFICATION NUMBER GIVEN FOR THE OWNER ON THE SECOND PAGE OF THIS APPLICATION IS THE OWNER'S CORRECT TAXPAYER IDENTIFICATION NUMBER (OR THE OWNER IS WAITING FOR A NUMBER TO BE ISSUED) AND (2) THE OWNER IS NOT SUBJECT TO BACKUP WITHHOLDING EITHER BECAUSE THE OWNER HAS NOT BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE (IRS) THAT THE OWNER IS SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR THE IRS HAS NOTIFIED THE OWNER THAT THE OWNER IS NO LONGER SUBJECT TO BACKUP WITHHOLDING. (SEE TAXPAYER IDENTIFICATION NUMBER INSTRUCTIONS.) THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING. - -------------------------------------------------------------------------------- THE SIGNATURES BELOW APPLY TO THE APPLICATION, POLICY APPLICATION SUPPLEMENT AND THE CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER. - ---------------------------------------- ----------------------------------- SIGNATURE OF APPLICANT SIGNATURE OF OWNER (IF OTHER THAN APPLICANT) Signed by Applicant at: --------------------- ----------------------------------- CITY, COUNTY, & STATE SIGNATURE OF LICENSED AGENT Date signed by Applicant / / / / / / / / / / MONTH DAY YEAR IT IS RECOMMENDED THAT YOU ... read your policy. notify your Northwestern Mutual agent or the Company at 720 East Wisconsin Avenue, Milwaukee, WI 53202, of an address change. call your Northwestern Mutual agent for information--particularly on a suggestion to terminate or exchange this policy for another policy or plan. ELECTION OF TRUSTEES The members of The Northwestern Mutual Life Insurance Company are its policyholders of insurance policies and deferred annuity contracts. The members exercise control through a Board of Trustees. Elections to the Board are held each year at the annual meeting of members. Members are entitled to vote in person or by proxy. FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY ELIGIBLE FOR ANNUAL DIVIDENDS Insurance payable at death of Insured. Flexible premiums. Benefits reflect investment results. Variable benefits described in Sections 1, 3, 6, 7 and 8. THE DEATH BENEFIT MAY INCREASE OR DECREASE DAILY DEPENDING ON INVESTMENT RESULTS. THERE IS NO GUARANTEED MINIMUM DEATH BENEFIT. THE CASH VALUE UNDER THIS POLICY MAY INCREASE OR DECREASE DAILY DEPENDING ON INVESTMENT RESULTS. THERE IS NO GUARANTEED MINIMUM CASH VALUE. EX-99.A(5)(C) 4 EXHIBIT 99.A(5)(C) Exhibit A(5)(c) NORTHWESTERN MUTUAL LIFE 720 EAST WISCONSIN AVENUE MILWAUKEE, WISCONSIN 53202 John A. Doe December 31, 1998 123 Main Street Anytown, Wisconsin 53000 RE: 14 567 890 John A. Doe FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY NOTICE OF CANCELLATION RIGHT In order to comply with the laws administered by the Securities and Exchange Commission, we are sending you this notice. Please read it carefully. You have recently purchased a variable life insurance policy from Northwestern Mutual Life. The benefits of this policy depend on the investment experience of Northwestern Mutual Variable Life Account. The prospectus that was given to you at the time of sale describes the Account and gives an illustration reflecting various investment performances. You have the right to examine and cancel this policy. Upon its return, you are entitled to a refund. The cancellation deadline is the latest of: 1. 10 days after you have received the policy. 2. 45 days from December 15, 1998, the date you completed part 1 of the application. 3. 10 days after you have received this notice. In determining whether or not to exercise your right, you should consider, along with other factors, the projected cost and your ability to make premium payments. Please consult and review the prospectus you have received. The prospectus describes the deductions from premiums before amounts are allocated to the Account mentioned above. These are: A charge for state premium taxes equal to 2.35% of premiums paid. A charge for federal income taxes measured by premiums equal to 1.25% of premiums paid. A charge for sales cost. The charge is 15% of premiums paid up to the Target Premium and 3% of all other premiums. If you decide to cancel your policy, complete the form on the reverse side and return it along with your policy. The postmark of the returned policy must be on or before the deadline described above. VARIABLE LIFE INSURANCE CANCELLATION INSTRUCTIONS PLEASE READ CAREFULLY If, after reading the Notice of Cancellation Right on the reverse side, you decide to return your policy for cancellation, you must: 1. Sign and date the bottom of this form. 2. Mail this notice together with your policy to either YOUR AGENT: OR THE HOME OFFICE: NORM WESTON, CLU NORTHWESTERN MUTUAL LIFE 200 PARK DRIVE NEW BUSINESS DEPARTMENT ANYTOWN, WI 53000 720 EAST WISCONSIN AVENUE MILWAUKEE, WI 53202 3. The postmark of the envelope must be on or before the latest date permitted for cancellation as described on the reverse side. 4. Please check the box at the bottom if you have not yet received your policy when mailing this form. - -------------------------------------------------------------------------------- TO BE FILLED OUT BY OWNER IF CANCELLATION IS DESIRED TO: Northwestern Mutual Life New Business Department Central Region Pursuant to the terms of the Notice of Cancellation Right printed on the reverse side of these instructions, I hereby return the policy numbered to allow for cancellation and request a refund. I release Northwestern Mutual Life from any claims in connection with the sale or issuance of this policy. I acknowledge that Northwestern Mutual Life's only liability is a refund equal to the sum of (a) the difference between any premium paid and the amount allocated to the Separate Account plus (b) the value of the policy in the Separate Account on the date the returned policy is received. STATE VARIATION NUMBER ONE, ADD THE FOLLOWING SENTENCE: The amount of the refund will not be less than the premium paid. STATE VARIATION NUMBER TWO, ADD THE FOLLOWING SENTENCE: If the policy is returned within 10 days of the date it was delivered, the amount of the refund will not be less than the premium paid. ------------------------------ ----------------------------------- Date of Signature Signature of Policy Owner ------------------------------ ----------------------------------- Date of Receipt of Our Policy Policy Number And This Notice of Cancellation Right ----------------------------------- Name of Insured (if other than the Owner) _____ I have not yet received the policy. Should it be received, I will return it to Northwestern Mutual Life. ----------------------------------- Signature of Agent ----------------------------------- Date EX-99.A(9)(A) 5 EXHIBIT 99.A(9)(A) EXHIBIT A(9)(a) PARTICIPATION AGREEMENT AMONG RUSSELL INSURANCE FUNDS, RUSSELL FUND DISTRIBUTORS, INC. AND THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY THIS AGREEMENT is made and entered into as of this ____ day of ______________,by and among THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY a Wisconsin life insurance company (hereinafter the "Company"), on its own behalf and on behalf of each segregated asset account of the Company set forth on Schedule A hereto as such schedule may be amended from time to time (each such account hereinafter referred to as the "Account" and collectively as the "Accounts"), and RUSSELL INSURANCE FUNDS, a Massachusetts Business Trust (hereinafter the "Investment Company"), and RUSSELL FUND DISTRIBUTORS, INC. a Washington corporation (hereinafter the "Underwriter"). WHEREAS, Investment Company engages in business as a diversified open-end management investment company and is available to act as the investment vehicle for separate accounts established for variable life insurance policies and variable annuity contracts (collectively, the "Variable Insurance Products"); and WHEREAS, the beneficial interest in the Investment Company is divided into several series of shares, referred to individually as "Funds" and representing the interest in a particular managed portfolio of securities and other assets; and WHEREAS, Investment Company is registered as an open-end management investment company under the 1940 Act, and its shares are registered under the Securities Act of 1933, as amended (hereinafter the "1933 Act"); and WHEREAS, Frank Russell Investment Management Company (the "Adviser") is registered as an investment adviser under the federal Investment Advisers Act of 1940 and any applicable state securities law; and WHEREAS, the Company has registered or will register certain variable life or annuity contracts or both under the 1933 Act, and offers or will offer for sale certain variable life or annuity contracts or both which are or will be exempt from registration; and WHEREAS, each Account is a duly organized, validly existing, segregated asset account, established by resolution of the Board of Trustees of the Company, on the date shown for such Account on Schedule A hereto, to set aside and invest assets attributable to one or more variable life or annuity contracts; and WHEREAS, the Company has registered or will register some of the Accounts as unit investment trusts under the 1940 Act and other Accounts are exempt from registration; and 1 WHEREAS, Investment Company has received "mixed and shared funding" exemptive relief from the Securities and Exchange Commission permitting it to offer its shares to life insurers in connection with variable annuity contracts and variable life insurance policies offered by such insurers which may or may not be affiliated with each other (SEC Release IC-16160, Dec. 7, 1987); and WHEREAS, the Underwriter is registered as a broker/dealer with the SEC under the Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act") and is a member in good standing of the National Association of Securities Dealers, Inc. (hereinafter the "NASD"); and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares in the Funds on behalf of each Account to fund certain of the aforesaid variable life or annuity contracts or both, and the Underwriter is authorized to sell such shares to unit investment trusts such as each Account at net asset value. NOW THEREFORE, in consideration of the premises and of the mutual covenants herein contained and other good and valuable consideration the receipt of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE 1. SALE OF INVESTMENT COMPANY SHARES 1.1 The Underwriter agrees to sell to the Company those shares of Investment Company which each Account orders, executing such orders on a daily basis at the net asset value next computed after receipt by the Investment Company or its designee of the order for the shares of the Investment Company. For purposes of this Section 1.1, the Company shall be the designee of the Investment Company for receipt of such orders from each Account and receipt by such designee shall constitute receipt by the Investment Company; provided that the Investment Company receives notice of such order by 8:00 a.m. Pacific time on the next following Business Day. "Business Day" shall mean any day on which the New York Stock Exchange is open for trading and on which Investment Company calculated its net asset value pursuant to the rules of the Securities and Exchange Commission. 1.2 The Investment Company agrees to make its shares available indefinitely for purchase at the applicable net asset value per share by the Company and its Accounts on those days on which the Investment Company calculates its net asset value pursuant to rules of the Securities and Exchange Commission, and the Investment Company shall use reasonable efforts to calculate such net asset value on each day on which the New York Stock Exchange is open for trading. Notwithstanding the foregoing, the Board of Directors of the Investment Company (hereinafter the "Board") may refuse to sell shares of any Fund, or suspend or terminate the offering of shares of any Fund if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the Board acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, necessary in the best interests of the shareholders of such Fund. 1.3 The Investment Company and the Underwriter agree that no shares of any Fund will be sold to the general public. 2 1.4 The Investment Company agrees to redeem for cash, on the Company's request, any full or fractional shares of the Investment Company held by the Company, executing such requests on a daily basis at the net asset value next computed after receipt by the Investment Company or its designee of the request for redemption. For purposes of this Section 1.4, the Company shall be the designee of the Investment Company for receipt of requests for redemption from each Account, and receipt by such designee shall constitute receipt by the Investment Company; provided that the Investment Company receives notice of such request for redemption by 8:00 a.m. Pacific time on the next following Business Day. 1.5 The Company agrees to purchase and redeem the shares of selected Funds offered by the then-current prospectus of the Investment Company and in accordance with the provisions of such prospectus. The parties agree that all net amounts available under the variable life and annuity contracts with the form number(s) which are listed on Schedule B attached hereto and incorporated herein by this reference, as such Schedule B may be amended from time to time hereafter by mutual written agreement of all the parties hereto (the "Contracts"), may be invested in the Investment Company, in other separate accounts of the Company, in other investment companies, in the Company's general account, or in other funding vehicles. 1.6 The Company shall pay for Investment Company shares on the next Business Day after an order to purchase Investment Company shares is made in accordance with the provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire. 1.7 Issuance and transfer of the Investment Company's shares will be by book entry only. Stock certificates will not be issued to the Company or any Account. Shares ordered from the Investment Company will be recorded in an appropriate title for each Account. 1.8 The Investment Company shall furnish same day notice (by wire or telephone, followed by written confirmation) to the Company of any income dividends or capital gain distributions payable on the Investment Company's shares. The Company hereby elects to receive all such income dividends and capital gain distributions as are payable on the Fund shares in additional shares of that Fund. The Company reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash. Investment Company shall furnish same day notice to the Company of the number of shares so issued as payment of such dividends and distributions. 1.9 The Investment Company shall make the net asset value per share for each Fund available to the Company on a daily basis as soon as reasonably practical after the net asset value per share is calculated. ARTICLE II. REPRESENTATIONS AND WARRANTIES 2.1 The Company represents and warrants that the Contracts are registered under the 1933 Act or are exempt from registration thereunder; that the Contracts will be issued and sold in compliance in all material respects with all applicable Federal and State laws and that the sale of the Contracts shall comply in all material respects with state insurance suitability requirements. The Company further represents and warrants that it is an insurance company duly organized and in good standing under applicable law and that it has legally and validly established each 3 Account prior to any issuance or sale of Contracts funded thereby as a segregated asset account under applicable state insurance law and that each Account is or will be registered as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated investment account for the Contracts or is exempt from registration thereunder. 2.2 The Investment Company represents and warrants that Investment Company shares sold pursuant to this Agreement shall be registered under the 1933 and 1940 Acts, duly authorized for issuance and sold in compliance with the laws of the State of Washington and all applicable federal and state securities laws and that the Investment Company is and shall remain registered under the 1940 Act. The Investment Company shall amend the Registration Statement for its shares under the 1933 and the 1940 Acts from time to time as required in order to effect the continuous offering of its shares. The Investment Company shall register and qualify the shares for sale in accordance with the laws of the various states only if and to the extent deemed advisable by the Investment Company or the Underwriter. 2.3 The Investment Company represents that it is currently qualified as a Regulated Investment Company under Subchapter M of the Internal Revenue Code of 1986, as amended, (the "Code") and that it will make every effort to maintain such qualification (under Subchapter M or any successor or similar provision) and that it will notify the Company immediately upon having a reasonable basis for believing that it has ceased to so qualify or that it might not so qualify in the future. 2.4 The Company represents that the Contracts are currently treated as endowment, annuity or life insurance contracts, under applicable provisions of the Code and that it will make every effort to maintain such treatment and that it will notify the Investment Company and the Underwriter immediately upon having a reasonable basis for believing that the Contracts have ceased to be so treated or that they might not be so treated in the future. 2.5 The Investment Company currently does not intend to make any payments to finance distribution expenses pursuant to Rule l2b-1 under the 1940 Act or otherwise, although it may make such payments in the future. To the extent that it decides to finance distribution expenses pursuant to Rule 12b-1, the Investment Company undertakes to have its board of trustees, a majority of whom are not interested persons of the Investment Company, formulate and approve any plan under Rule l2b-1 to finance distribution expenses. 2.6 The Investment Company makes no representation as to whether any aspect of its operations (including, but not limited to, fees and expenses and investment policies) complies with the insurance laws or regulations of the various states. 2.7 The Underwriter represents and warrants that it is a member in good standing of the NASD and is registered as a broker-dealer with the SEC. The Underwriter further represents that it will sell and distribute the Investment Company shares in accordance with any applicable state laws and federal securities laws, including without limitation the 1933 Act, the 1934 Act, and the 1940 Act. 2.8 The Investment Company represents that it is lawfully organized and validly existing under the laws of the Commonwealth of Massachusetts and that it does and will comply in all material respects with the 1940 Act. 4 2.9 The Underwriter represents and warrants that the Adviser is and shall remain duly registered in all material respects under all applicable federal and state securities laws and that the Adviser shall perform its obligations for the Investment Company in compliance in all material respects any applicable state laws and federal securities laws. 2.10 The Investment Company and Underwriter represent and warrant that all of their directors, officers, employees, investment advisers, and other individuals/entities dealing with the money or securities of the Investment Company are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Investment Company in an amount not less than the minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid Bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. 2.11 The Company represents and warrants that all of its directors, officers, employees, investment advisers, and other entities dealing with the money or securities of the Investment Company are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Investment Company in an amount not less than five million dollars ($5 million). The aforesaid Bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS: VOTING 3.1 The Underwriter shall provide the Company with as many printed copies of the Investment Company's current prospectus and Statement of Additional Information as the Company may reasonably request. If requested by the Company in lieu thereof, the Investment Company shall provide camera-ready film or computer diskettes containing the Investment Company's prospectus and Statement of Additional Information and such other assistance as is reasonably necessary in order for the Company once each year (or more frequently if the prospectus and/or Statement of Additional Information for the Investment Company is amended during the year) to have the prospectus for the Contracts and the Investment Company's prospectus printed together in one document, and to have the Statement of Additional Information for the Investment Company and the Statement of Additional Information for the Contracts printed together in one document. Alternatively, the Company may print the Investment Company's prospectus and/or its Statement of Additional Information in combination with other fund companies' prospectuses and statements of additional information. Except as provided in the following three sentences, all expenses of printing and distributing Investment Company prospectuses and Statements of Additional Information distributed by the Company shall be the expense of the Company. For Prospectuses and Statement of Additional Information provided by the Company to its existing owners of Contracts in order to update disclosure as required by the 1933 Act and/or the 1940 Act, the cost of printing shall be borne by the Investment Company. If the Company chooses to receive camera-ready film or computer diskettes in lieu of receiving printed copies of the Investment Company's prospectus, the Investment Company will reimburse the Company in an amount equal to the product of A and B where A is the number of such prospectuses distributed to owners of the Contracts, and B is the Investment Company's per unit cost of typesetting and printing the Invstment Company's 5 prospectus. The same procedures shall be followed with respect to the Investment Company's Statement of Additional Information. The Company agrees to provide the Investment Company or its designee with such information as may be reasonably requested by the Investment Company to assure that the Investment Company's expenses do not include the cost of printing any prospectuses or Statements of Additional Information other than those actually distributed to existing owners of the Contracts. 3.2 The Investment Company's prospectus shall state that the Statement of Additional Information for the Investment Company is available from the Underwriter or the Company (or in the Fund's discretion, the Prospectus shall state that such Statement is available from the Investment Company). 3.3 The Investment Company, at its expense, shall provide the Company with copies of its proxy statements, reports to shareholders, and other required communications (except for prospectuses and Statement of Additional Information, which are covered in Section 3.1) to shareholders in such quantity as the Company shall reasonably require for distributing to Contract owners. 3.4 The Company will provide pass-through voting privileges to all Contract owners to the extent that and so long as the SEC continues to interpret the Investment Company Act of 1940 as requiring pass-through voting privileges for Contract owners. Accordingly, the Company, where applicable, will vote shares of the Fund held in its Separate Accounts in a manner consistent with voting instructions timely received from its Contract owners. The Company will be responsible for assuring that each of its separate accounts that participates in the Investment Company calculates voting privileges in a manner consistent with other participating insurance companies. The Company will vote shares for which it has not received timely voting instructions, as well as shares it owns, in the same proportion as it votes those shares for which it has received voting instructions. 3.5 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or if Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Investment Company Act of 1940 or the rules thereunder with respect to mixed and shared funding on terms and conditions materially different from any exemptions granted in the Investment Company's mixed and shared funding exemptive order, then the Investment Company, and/or the Company, as appropriate, shall take such steps as may be necessary to comply with Rule 6e-2 and Rule 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such Rules are applicable. 3.6 The Investment Company will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular the Investment Company will either provide for annual or special meetings or comply with the requirements of Section 16(c) of the 1940 Act (although the Investment Company is not one of the trusts described in Section 16(c) of that Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further, the Investment Company will act in accordance with the SEC's interpretation of the requirements of Section 16(a) with respect to periodic elections of directors and with whatever rules the SEC may promulgate with respect thereto. 6 ARTICLE IV. SALES MATERIAL AND INFORMATION 4.1 The Company shall furnish, or shall cause to be furnished, to the Investment Company or its designee, each piece of sales literature or other promotional material, or component thereof, in which the Investment Company, the Adviser, or the Underwriter is named, at least fifteen Business Days prior to its use. No such material shall be used if the Investment Company or its designee object to such use within fifteen Business Days after receipt of such material. Once any such material has been so furnished to the Investment Company or its designee and fifteen Business days have elapsed, such materials need not again be so furnished absent any subsequent changes to such material that affect the materials' discussion or presentation relating to the Investment Company, its advisor, the Underwriter, or any of their affiliates (other than the Company or persons that are deemed affiliates only by virtue of being controlled by the Company). In particular, materials that have been changed merely to update performance or financial information need not be so furnished. 4.2 The Company shall not give any information or make any representations or statements on behalf of the Investment Company or concerning the Investment Company in connection with the sale of the Contracts other than the information or representations contained in the registration statement or prospectus for the Investment Company shares, as such registration statement and prospectus may be amended or supplemented from time to time, or in reports or proxy statements for the Investment Company, or in sales literature or other promotional material approved by the Investment Company or its designee or by the Underwriter, except with the permission of the Investment Company or the Underwriter or the designee of either. 4.3 The Investment Company, the Underwriter, or their designees shall furnish, or shall cause to be furnished, to the Company or its designee, each piece of sales literature or other promotional material, or component thereof, in which the Company or its separate Accounts are named at least fifteen Business Days prior to its use. No such material shall be used if the Company or its designee objects to such use within fifteen Business Days after receipt of such material. 4.4 The Investment Company and the Underwriter shall not give any information or make any representations on behalf of the Company or concerning the Company, each Account, or the Contracts other than the information or representations contained in a registration statement, prospectus or offering materials for the Contracts, as such may be amended or supplemented from time to time, or in published reports for each Account which are in the public domain or approved by the Company for distribution to Contract owners, or in sales literature or other promotional material approved by the Company or its designee, except with the permission of the Company. 4.5 The Investment Company will provide to the Company at least one complete copy of all registration statements, prospectuses, Statements of Additional Information, reports, proxy statements, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Investment Company or its shares, contemporaneously with the filing of such document with the Securities and Exchange Commission or other regulatory authorities. 7 4.6 The Company will provide to the Investment Company at least one complete copy of all registration statements, prospectuses, Statements of Additional Information, reports, solicitations for voting instructions, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Contracts or each Account, contemporaneously with the filing of such document with the SEC or other regulatory authorities. In the case of unregistered Contracts, in lieu of providing prospectuses and Statements of Additional Information, the Company shall provide the Investment Company with one complete copy of the offering materials for the Contracts. 4.7 For purposes of this Article IV, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, electronic media, or other public media), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, and registration statements, prospectuses, Statements of Additional Information, shareholder reports, and proxy materials. ARTICLE V. POTENTIAL CONFLICTS 5.1 The parties acknowledge that Investment Company has received a "mixed and shared funding "exemptive order from the SEC granting relief from various provisions of the Investment Company Act of 1940 and the rules thereunder to the extent necessary to permit Investment Company shares to be sold to and held by Variable Insurance Products separate accounts of both affiliated and unaffiliated participating insurance companies. The exemptive order requires the Investment Company and each participating insurance company to comply with conditions and undertakings substantially as provided in this Article V. The Investment Company will not enter into a participation agreement with any other participating insurance company unless it imposes the same conditions and undertakings as are imposed on the Company. 5.2 The Investment Company's Board of Trustees ("Board") will monitor the Investment Company for the existence of any material irreconcilable conflict between the interests of Contract owners of all separate accounts investing in the Investment Company. An irreconcilable material conflict may arise for a variety of reasons, which may include: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling or any similar action by insurance, tax or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of the Investment Company are being managed; (e) a difference in voting instructions given by Contract owners; and (f) a decision by a participating insurance company to disregard the voting instructions of Contract owners. 5.3 The Company will report any potential or existing conflicts to the Investment Company's Board. The Company will be responsible for assisting the Board in carrying out its duties in this regard by providing the Board with all information reasonably necessary for the Board to 8 consider any issues raised. The responsibility includes, but is not limited to, an obligation by the Company to inform the Board whenever it has determined to disregard Contract owner voting instructions. These responsibilities of the Company will be carried out with a view only to the interests of the Contract owners. 5.4 If a majority of the Board or majority of its disinterested Trustees, determines that a material irreconcilable conflict exists affecting the Company, then the Company, at its expense and to the extent reasonably practicable (as determined by a majority of the Board's disinterested Trustees), will take any steps necessary to remedy or eliminate the irreconcilable material conflict, including: (a) withdrawing the assets allocable to some or all of the separate accounts from the Investment Company or any Fund thereof and reinvesting those assets in a different investment medium, which may include another Fund of the Investment Company, or another investment company; (b) submitting the question as to whether such segregation should be implemented to a vote of all affected Contract owners and as appropriate, segregating the assets of any appropriate group (i.e., variable annuity or variable life insurance contract owners of one or more participating insurance companies) that votes in favor of such segregation, or offering to the affected Contract owners the option of making such a change; and (c) establishing a new registered management investment company (or series thereof) or managed separate account. If a material irreconcilable conflict arises because of the Company's decision to disregard Contract owner voting instructions, and that decision represents a minority position or would preclude a majority vote, the Company may be required at the election of the Investment Company, to withdraw its separate accounts' investment in the Investment Company, and no charge or penalty will be imposed as a result of such withdrawal. The responsibility to take such remedial action shall be carried out with a view only to the interests of the Contract owners. For the purposes of this Section 5.4, a majority of the disinterested members of the Board shall determine whether or not any proposed action adequately remedies any irreconcilable material conflict but in no event will the Investment Company or any investment adviser of the Investment Company be required to establish a new funding medium for any Contract. Further, the Company shall not be required by this Section 5.4 to establish a new funding medium for any Contract if any offer to do so has been declined by a vote of a majority of Contract owners materially and adversely affected by the irreconcilable material conflict. 5.5 The Board's determination of the existence of an irreconcilable material conflict and its implications shall be made known promptly and in writing to the Company. 5.6 No less than annually, the Company shall submit to the Board such reports, materials or data as the Board may reasonably request so that the Board may fully carry out its obligations. Such reports, materials, and data shall be submitted more frequently if deemed appropriate by the Board. ARTICLE VI. FEES AND EXPENSES 6.1 The Investment Company and the Underwriter shall pay no fee or other compensation to the Company under this Agreement, except that if the Investment Company or any Fund adopts and implements a plan pursuant to Rule l2b-1 to finance distribution expenses, then the Underwriter may make payments to the Company or to the underwriter for the Contracts if and in amounts agreed to by the Underwriter in writing and such payments will be made out of 9 existing fees otherwise payable to the Underwriter, past profits of the Underwriter, or other resources available to the Underwriter. No such payments shall be made directly by the Investment Company. Currently, no such payments are contemplated. 6.2 All expenses incident to performance by the Investment Company under this Agreement shall be paid by the Investment Company. The Investment Company shall ensure that all its shares are registered and authorized for issuance in accordance with applicable federal law and, if and to the extent deemed advisable by the Investment Company, in accordance with applicable state laws prior to their sale. The Investment Company shall bear the expenses for the cost of registration and qualification of the Investment Company's shares, preparation and filing of the Investment Company's prospectus and registration statement, proxy materials and reports, setting the prospectus in type, setting in type and printing the proxy materials and reports to shareholders (including the costs of printing a prospectus that constitutes an annual report), the preparation of all statements and notices required by any federal or state law, and all taxes and fees on the issuance or transfer of the Investment Company's shares. 6.3 The Company shall bear the expenses of distributing the Investment Company's prospectus, proxy materials, and reports to owners of Contracts issued by the Company. ARTICLE VII. DIVERSIFICATION 7.1 The Investment Company will at all times invest money from the Contracts in such a manner as to ensure that the Contracts will be treated as variable contracts under the Internal Revenue Code and the regulations issued thereunder. Without limiting the scope of the foregoing, the Investment Company will at all times comply with Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the diversification requirements for variable annuity, endowment, or life insurance contracts and any amendments or other modifications to such Section or Regulations. ARTICLE VIII. INDEMNIFICATION 8.1 INDEMNIFICATION BY THE COMPANY 8.1(a). The Company agrees to indemnify and hold harmless the Investment Company and each member of the Board and officers and each person, if any, who controls the Investment Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company) or litigation (including legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or action in respect thereof) or settlements are related to the Company's sale or acquisition of the Investment Company's shares or the Contracts and: (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in any Registration Statement, prospectus or other offering materials for the Contracts or contained in the Contracts or sales literature for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or 10 necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Company by or on behalf of the Investment Company for use in any Registration Statement or prospectus for the Contracts or in the Contracts or sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Investment Company's shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the Registration Statement, prospectus or sales literature of the Investment Company not supplied by the Company, or persons under its control) or wrongful conduct of the Company or persons under its control, with respect to the sale or distribution of the Contracts or Investment Company shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement, prospectus, or sales literature of the Investment Company or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon information furnished to the Investment Company by or on behalf of the Company; or (iv) arise as a result of any failure by the Company to provide the services and furnish the materials under the terms of this Agreement; or (v) arise out of a result from any material breach of any representation or warranty made by the Company in this Agreement or arise out of or result from any other material breach of this Agreement by the Company, as limited by and in accordance with the provisions of Sections 8.1(b) and 8.1(c) hereof. 8.1(b). The Company shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation incurred or assessed against an Indemnified Party as such may arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to the Investment Company, whichever is applicable. 8.1(c). The Company shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Company in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Company of any such claim shall not relieve the Company from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Company shall be entitled to participate, at its own expense, in the defense of such action. The Company also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Company to such party of the Company's election to assume the defense thereof, the Indemnified Party shall 11 bear the fees and expenses of any additional counsel retained by it, and the Company will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.1(d). The Indemnified Parties will promptly notify the Company of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the Investment Company shares or the Contracts or the operation of the Investment Company. 8.2 INDEMNIFICATION BY THE UNDERWRITER 8.2(a). The Underwriter agrees to indemnify and hold harmless the Company and each of its directors and officers and each person, if any, who controls or is controlled by the Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Underwriter) or litigation expenses (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Investment Company's shares or the Contracts and; (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement or prospectus or sales literature of the Investment Company (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Underwriter or Investment Company by or on behalf of the Company for use in the Registration Statement or prospectus for the Investment Company or in the sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Investment Company shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in any Registration Statement, prospectus, other offering materials or sales literature for the Contracts not supplied by the Underwriter or persons under its control) or wrongful conduct of the Investment Company, Adviser, or Underwriter or persons under their control, with respect to the sale or distribution of the Contracts or Investment Company shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, prospectus, other offering materials or sales literature covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Company by or on behalf of the Investment Company; or 12 (iv) arise as a result of any failure by the Investment Company to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification requirements specified in Article VII of this Agreement); or (v) arise out of or result from any material breach of any representation or warranty made by the Underwriter in this Agreement or arise out of or result from any other material breach of this Agreement by the Underwriter; as limited by and in accordance with the provisions of Sections 8.2(b) and 8.2(c) hereof. 8.2(b). The Underwriter shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to the Company or each Account, whichever is applicable. 8.2(c). The Underwriter shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Underwriter in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Underwriter of any such claim shall not relieve the Underwriter from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Underwriter will be entitled to participate, at its own expense, in the defense thereof. The Underwriter also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Underwriter to such party of the Underwriter's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Underwriter will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.2(d). The Company agrees promptly to notify the Underwriter of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts or the operation of any Account. 8.3 INDEMNIFICATION BY THE INVESTMENT COMPANY 8.3(a). The Investment Company agrees to indemnify and hold harmless the Company and each of its directors and officers and each person, if any, who controls or is controlled by the Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.3) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Investment Company) or litigation expenses (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, at common law or otherwise, insofar as such losses, claims, 13 damages, liabilities or expenses (or actions in respect thereof) or settlements result from the gross negligence, bad faith or willful misconduct of the Board or any member thereof, are related to the operations of the Investment Company and: (i) arise as a result of any failure by the Investment Company to provide the services and furnish the materials under the terms of this Agreement (including a failure to comply with the diversification requirements specified in Article VII of this Agreement); or (ii) arise out of or result from any material breach of any representation or warranty made by the Investment Company in this Agreement or arise out of or result from any other material breach of this Agreement by the Investment Company, as limited by and in accordance with the provisions of Sections 8.3(b) and 8.3(c) hereof. 8.3(b). The Investment Company shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation incurred or assessed against an Indemnified Party as such may arise from such Indemnified Party's will misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to the Company, the Investment Company, the Underwriter or any Account, which ever is applicable. 8.3(c). The Investment Company shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Investment Company in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Investment Company of any such claim shall not relieve the Investment Company from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Investment Company will be entitled to participate, at its own expense, in the defense thereof. The Investment Company also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Investment Company to such party of the Investment Company's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Investment Company will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.3(d). The Company and the Underwriter agree promptly to notify the Investment Company of the commencement of any litigation or proceeding against it or any of its respective officers or directors in connection with this Agreement, the issuance or sale of the Contracts, with respect to the operation of any Account, or the sale or acquisition of shares of the Investment Company. 14 ARTICLE IX. APPLICABLE LAW 9.1 This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of Washington. 9.2 To the extent they are applicable, this Agreement shall be subject to the provisions of the 1933, 1934 and 1940 acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the Securities and Exchange Commission may grant and the terms hereof shall be interpreted and construed in accordance therewith. ARTICLE X. TERMINATION OF AGREEMENT 10.1 This Agreement shall continue in full force and effect until the first to occur of: (a) termination by any party for any reason by sixty (60) days advance written notice delivered to the other parties; or (b) termination by the Company by written notice to the Investment Company and the Underwriter with respect to any fund based upon the Company's determination that shares of such Fund are not reasonably available to meet the requirements of the Contracts; or (c) termination by the Company by written notice to the Investment Company and the Underwriter with respect to any Fund in the event any of the Fund's shares are not registered, issued, or sold materially in accordance with applicable state or federal law or such law precludes the use of such shares as the underlying investment media of the Contracts issued or to be issued by the Company; or (d) Termination by the Company by written notice to the Investment Company and the Underwriter with respect to any Fund in the event that such Fund ceases to qualify as a Regulated Investment Company under Subchapter M of the Code or under any successor or similar provision, or if the Company reasonably believes that the Investment Company may fail to so qualify; or (e) termination by the Company by written notice to the Investment Company and the Underwriter with respect to any Fund in the event that such Fund fails to meet the diversification requirements specified in Article VII hereof; or (f) termination by either the Investment Company or the Underwriter by written notice to the Company, if either one or both of the Investment Company or the Underwriter respectively, shall determine, in their sole judgment exercised in good faith, that the Company or its affiliated companies has suffered a material adverse change in its business, operations, financial condition, or prospects since the date of this Agreement or is the subject of material adverse publicity; or (g) termination by the Company by written notice to the Investment Company and the Underwriter, if the Company shall determine, in its sole judgment exercised in good faith, that either the Investment Company or the Underwriter has suffered a material adverse change in its 15 business, operations, financial condition, or prospects since the date of this Agreement or is the subject of material adverse publicity. 10.2 Notwithstanding any termination of this Agreement, the Investment Company and the Underwriter shall at the option of the Company, continue to make available additional shares of the Investment Company pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"). Specifically, without limitation, the owners of the Existing Contracts shall be permitted to reallocate investment in the Investment Company, redeem investments in the Investment Company, or invest in the Investment Company upon the making of additional purchase payments under the Existing Contracts. 10.3 The Company shall not redeem Investment Company shares attributable to the Contracts (as opposed to Investment Company shares attributable to the Company's assets held in any of the Accounts) except (i) as necessary to implement Contract Owner initiated transactions, or (ii) as required by state or federal laws or regulations or judicial or other legal precedent of general application (hereinafter referred to as a "Legally Required Redemption"). Upon request, the Company will promptly furnish to the Investment Company and the Underwriter the opinion of counsel for the Company (which counsel shall be reasonably satisfactory to the Investment Company and the Underwriter) to the effect that any redemption pursuant to clause (ii) above is a Legally Required Redemption. Furthermore, except in cases where permitted under the terms of the Contracts, the Company shall not prevent Existing Contract Owners from allocating payments to a Fund that was otherwise available under the Contracts without first giving the Investment Company or the Underwriter sixty (60) days notice of its intention to do so. ARTICLE XI. NOTICES Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Investment Company: 909 A. Street Tacoma, Washington 98402 Attention: Karl J. Ege, Esq. If to the Company: 720 East Wisconsin Avenue Milwaukee, Wisconsin 53202-4797 Attention: ------------------------- If to the Underwriter: 909 A. Street Tacoma, Washington 98402 Attention: Karl J. Ege, Esq. 16 ARTICLE XII. MISCELLANEOUS 12.1 All persons dealing with the Investment Company must look solely to the property of the Investment Company for the enforcement of any claims against the investment Company as neither the Board, officers, agents or shareholders assume any personal liability for obligations entered into on behalf of the Investment Company. 12.2 Subject to the requirements of legal process and regulatory authority, each party hereto shall treat as confidential the names and addresses of the owners of the Contracts and all information reasonably identified as confidential in writing by any other party hereto and, except as permitted by this Agreement, shall not disclose, disseminate or utilize such names and addresses and other confidential information until such time as it may come into the public domain without the express written consent of the affected party. 12.3 The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 12.4 This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 12.5 If any provisions of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 12.6 Each party hereto shall cooperate with each other party and all appropriate governmental authorities (including without limitation the SEC, the NASD and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. Notwithstanding the generality of the foregoing, each party hereto further agrees to furnish the California Insurance Commissioner with any information or reports in connection with services provided under this Agreement which such Commissioner may request in order to ascertain whether the variable life insurance operations of the Company are being conducted in a manner consistent with the California Variable Life Insurance Regulations and any other applicable law or regulations. 12.7 The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. 12.8 This Agreement or any of the rights and obligations hereunder may not be assigned by any party without the prior written consent of all parties hereto; provided, however, that the Underwriter may assign this Agreement or any rights or obligations hereunder to any affiliate of or company under common control with the Underwriter, if such assignee is duly licensed and registered to perform the obligations of the Underwriter under this Agreement. 17 12.9 The Company shall furnish, or shall cause to be furnished, to the Investment Company or its designee copies of the following reports: (a) the Company's annual statement prepared under statutory accounting principles, as soon as practical and in any event within 90 days after the end of each fiscal year; (b) the Company's quarterly statement (statutory), as soon as practical and in any event within 45 days after the end of each quarterly period; and (c) any financial statement, proxy statement, notice or report of the Company sent to stockholders or policyholders, as soon as practical after the delivery thereof; and 12.10 The Master Trust Agreement dated 11 July 1996, as amended from time to time, establishing the Investment Company, which is hereby referred to and a copy of which is on file with the Secretary of The Commonwealth of Massachusetts, provides that the name Russell Insurance Funds means the Trustees from time to time serving (as Trustees but not personally) under said Master Trust Agreement. It is expressly acknowledged and agreed that the obligations of the Investment Company hereunder shall not be binding upon any of the shareholders, Trustees, officers, employees or agents of the Investment Company, personally, but shall bind only the trust property of the Investment Company as provided in its Master Trust Agreement. The execution and delivery of this Agreement have been authorized by the Trustees of the Investment Company and signed by the President of the Investment Company, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the trust property of the Investment Company as provided in its Master Trust Agreement. IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement to be executed in its name and on behalf by its duly authorized representative and its seal to be hereunder affixed hereto as of the date first written above. THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY ATTEST: BY: - -------------------------------------- -------------------------------------- Secretary Title: RUSSELL INSURANCE FUNDS ATTEST: BY: - -------------------------------------- -------------------------------------- Secretary President RUSSELL FUND DISTRIBUTORS, INC. 18 ATTEST: BY: - -------------------------------------- -------------------------------------- Secretary President 19 SCHEDULE A ACCOUNTS Name of Account Date of Resolution of Company's Board that established the Account NML Variable Annuity Account A February 14, 1968 NML Variable Annuity Account B February 14, 1968 NML Variable Annuity Account C July 22, 1970 Northwestern Mutual Variable Life Account November 23, 1983 20 SCHEDULE B CONTRACTS 1. Contract Form Numbers: Variable Life: RR.VJL.(1298) RR Series Variable Joint Life RR.VEL.(0398) RR Series Variable Executive Life QQ.VCL QQ Series Variable CompLife MM 15 MM Series Variable Whole Life MM 16 MM Series Variable Single Premium Life MM 17 MM Series Variable Extraordinary Life Individual Variable Annuity: QQV.ACCT.A QQV.ACCT.B QQ Series VAs MM V 1A MM V 1B MM V 1 MM Series VAs LL V 1A LL V 1B LL V 1 LL Series VAs KK V 1A KK V 1B KK V 1 KK Series VAs JJ V 1A JJ V 1B JJ Series VAs Group Variable Annuity NPV.1C NN Series GPA MP V 1C MM Series GPA LL V 1C LL Series GPA KK V 1C KK Series GPA JJ V 1C JJ Series GPA 2. Funds currently available to act as investment vehicles for the above-listed contracts: Russell Insurance Funds: Multi-Style Equity Fund Aggressive Equity Fund Non-U.S. Fund Core Bond Fund Russell Real Estate Securities Fund 21 EX-99.A(9)(B) 6 EXHIBIT 99.A(9)(B) Exhibit A(9)(b) February __, 1999 The Northwestern Mutual Life Insurance Company 720 East Wisconsin Avenue Milwaukee, WI 53202 Re: Administrative Service Fee Gentlemen: The purpose of this letter is to confirm certain financial arrangements between Frank Russell Investment Management Company ("FRIMCo"), the investment adviser to Russell Insurance Funds, a registered investment company (the "Trust"), and The Northwestern Mutual Life Insurance Company ("NML") in connection with NML's investment in the Trust. FRIMCo or its affiliates will pay an administrative services fee to NML equal, on an annualized basis, to 0.10% of the aggregate net assets of the Trust attributable to NML (other than assets attributable to NML employee and agent qualified plans). Such fee shall be paid quarterly (on a calendar year basis) in arrears for as long as NML owns shares in the Trust. Sincerely, FRANK RUSSELL INVESTMENT MANAGEMENT COMPANY By: ---------------------------- Lynn L. Andersen Chief Executive Officer Agreed to and accepted: THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY By: ------------------------- Mark G. Doll Senior Vice President EX-99.C(1) 7 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. 2 to the Registration Statement on Form S-6 (the "Registration Statement") of our report dated January 25, 1999, relating to the financial statements of The Northwestern Mutual Life Insurance Company, and of our report dated January 25, 1999, relating to the financial statements of Northwestern Mutual Variable Life Account, which appear in such Prospectus. We also consent to the reference to us under the heading "Experts" in such Prospectus. PricewaterhouseCoopers LLP Milwaukee, Wisconsin February 25, 1999 EX-99.C(6) 8 EXHIBIT 99.C(6) Exhibit C(6) February 25, 1999 The Northwestern Mutual Life Insurance Company 720 East Wisconsin Milwaukee, WI 53202 Gentlemen: This opinion is furnished in connection with Post-Effective Amendment No. 2 to the Registration Statement on Form S-6, Registration No. 333-36865, of Northwestern Mutual Variable Life Account. The prospectus included in Post-Effective Amendment No. 2 ("Prospectus") describes the Flexible Premium Variable Life Insurance Policy to be issued in connection with the Account ("Policy"). The Policy form was prepared under my direction, and I am familiar with the Registration Statement and Exhibits thereto. In my opinion: 1. The illustrations of cash values and death benefits included on pages 39 through 46 of the Prospectus, in the Appendix thereto, based on the assumptions stated in the illustrations, are consistent with the provisions of the Policies and current charges and experience. The Policy has not been designed so as to make the illustration appear more favorable for a prospective purchaser, age 45 on the sex-neutral basis shown, than for purchasers at other ages on a sex-neutral basis or for a male or a female. 2. With respect to the charge of 1.25% of premiums for federal income taxes measured by premiums, described on page 8 of the Prospectus, (a) the charge is reasonable in relation to the issuer's increased federal tax burden under Section 848 of the Internal Revenue Code of 1986; (b) the targeted rate of return (11%) used in calculating the charge is reasonable; and (c) the factors taken into account in determining such targeted rate of return are appropriate. I hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the reference to my name under the heading "Experts" in the Prospectus. Sincerely, WILLIAM C. KOENIG William C. Koenig Senior Vice President and Chief Actuary EX-27 9 EXHIBIT 27
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT DECEMBER 31, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 587,479 749,935 423 0 0 750,358 328 0 95 423 749,935 0 0 0 0 0 0 0 0 749,935 24,922 0 0 3,933 20,989 4,332 68,780 94,101 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3,933 0 0 0 0 0 0 0 0 0 0 0
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