-----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, B6WWbduxcofLqgtzNKwvPKz0+cpQX2AYBfbf3wt+l5bB9zip3sNzdV4ksOqNvLNI 0RMoZWTiTa7trKv9I1LrAg== 0000950124-02-001116.txt : 20020415 0000950124-02-001116.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950124-02-001116 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWESTERN MUTUAL LIFE INSURANCE CO CENTRAL INDEX KEY: 0000073076 IRS NUMBER: 390509570 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 002-64683 FILM NUMBER: 02593677 BUSINESS ADDRESS: STREET 1: 720 E WISCONSIN AVENUE CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4142992508 MAIL ADDRESS: STREET 1: 720 EAST WISCONSIN AVENUE CITY: MILWAUKEE STATE: WI ZIP: 53202 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NML VARIABLE ANNUITY ACCT C OF NORTHWESTERN MUT LIFE INS CO CENTRAL INDEX KEY: 0000790163 IRS NUMBER: 390509570 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 002-89905-01 FILM NUMBER: 02593678 BUSINESS ADDRESS: STREET 1: 720 E WISCONSIN AVE CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4142992508 MAIL ADDRESS: STREET 1: 720 EAST WISCONSIN AVENUE CITY: MILWAUKEE STATE: WI ZIP: 53202 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NML VARIABLE ANNUITY ACCOUNT A CENTRAL INDEX KEY: 0000790162 IRS NUMBER: 390509570 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 333-72913 FILM NUMBER: 02593679 BUSINESS ADDRESS: STREET 1: 720 EAST WISCONSIN AVE CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4142992508 MAIL ADDRESS: STREET 1: 720 EAST WISCONSIN AVENUE CITY: MILWAUKEE STATE: WI ZIP: 53202 10-K405 1 c68174e10-k405.txt FORM 10-K PURSUANT TO ITEM 405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 COMMISSION FILE NUMBERS 333-72913 AND 2-89905-01 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY IN RESPECT OF NML VARIABLE ANNUITY ACCOUNT A & NML VARIABLE ANNUITY ACCOUNT C (Exact name of registrant as specified in its charter) WISCONSIN 39-0509570 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 720 EAST WISCONSIN AVENUE MILWAUKEE, WISCONSIN 53202 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 414/271-1444 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED NONE NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No | | Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this form 10-K or any amendment to this Form 10-K. |X| State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. NOT APPLICABLE Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. NONE DOCUMENTS INCORPORATED BY REFERENCE NONE THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY IN RESPECT OF NML VARIABLE ANNUITY ACCOUNT A AND NML VARIABLE ANNUITY ACCOUNT C FORM 10-K PART I ITEM 1. BUSINESS Accounts A & C NML Variable Annuity Account A ("Account A") and NML Variable Annuity Account C ("Account C") are segregated asset accounts of The Northwestern Mutual Life Insurance Company ("Northwestern Mutual") formed to provide retirement annuity benefits for (i) self-employed individuals (and their eligible employees) who adopt plans ("HR-10 Plans") meeting the requirements of Sections 401 or 403(a) of the Internal Revenue Code of 1986, as amended (the "Code") and (ii) employees of corporate employers who adopt pension or profit sharing plans meeting the requirements of Section 401(a) of the Code, or annuity purchase plans meeting the requirements of Section 403(a) of the Code (collectively, "Corporate Plans"). Account A receives payments under individual variable annuity contracts issued by Northwestern Mutual in connection with HR-10 Plans and Corporate Plans. Account C receives payments under group combination variable annuity contracts issued by Northwestern Mutual in connection with HR-10 Plans and Corporate Plans. The variable annuity contracts issued by Northwestern Mutual in connection with HR-10 Plans and Corporate Plans are hereinafter referred to as the "Contracts." Account A and Account C were established on February 14, 1968 and July 22, 1970, respectively, by action of the Board of Trustees of Northwestern Mutual in accordance with the provisions of Wisconsin insurance law. Neither Account A nor Account C is registered as an investment company under the Investment Company Act of 1940. The Contracts provide for the accumulation of funds and the payment of retirement benefits to participants and their beneficiaries ("Annuitants"). Account A and Account C each have 20 divisions. Money invested to provide variable benefits under the Contracts is placed in one or more divisions of the applicable Account which are in turn invested in 15 portfolios of Northwestern Mutual Series Fund, Inc. (Small Cap Growth Stock Portfolio, T. Rowe Price Small Cap Value Portfolio, Aggressive Growth Stock Portfolio, International Growth Portfolio, Franklin Templeton International Equity Portfolio, Index 400 Stock Portfolio, Growth Stock Portfolio, J. P. Morgan Select Growth and Income Stock Portfolio, Capital Guardian Domestic Equity Portfolio, Index 500 Stock Portfolio, Asset Allocation Portfolio, Balanced Portfolio, High Yield Bond Portfolio, Select Bond Portfolio and Money Market Portfolio) and 5 funds of Russell Insurance Funds (Multi-Style Equity Fund, Aggressive Equity Fund, Non-U.S. Fund, Real Estate Securities Fund and Core Bond Fund), each of which corresponds to one of the Account divisions, all as directed by the Annuitant. Northwestern Mutual Series Fund, Inc. and Russell Insurance Funds, which are affiliates of Northwestern Mutual, are registered as investment companies under the Investment Company Act of 1940. The Contracts are sold through individuals who, in addition to being licensed insurance agents of Northwestern Mutual, are registered representatives of Northwestern Mutual Investment Services, LLC ("NMIS"), a wholly-owned company of Northwestern Mutual and a registered broker-dealer under the Securities Exchange Act of 1934. Under Wisconsin law, the investment operations of each of Account A and Account C are kept separate from the operations of Northwestern Mutual. Northwestern Mutual and its creditors cannot reach assets in Account A or Account C to satisfy non-Contract related obligations until all obligations under the Contracts have been satisfied. See Item 8 herein for the audited financial statements of Account A and Account C. Northwestern Mutual Founded in 1857, Northwestern Mutual is a mutual insurance company organized under the laws of the State of Wisconsin. Northwestern Mutual's products consist of a complete range of permanent and term life insurance, disability income insurance and annuities for the personal, business, estate planning and pension markets. Mutual funds, equity and debt securities, long-term care insurance and trust services are offered and/or sold through subsidiaries. Northwestern Mutual markets its insurance products and services in all 50 states of the United States and in the District of Columbia through an exclusive network of approximately 7,800 financial representatives at December 31, 2001 associated with over 100 general agencies. At December 31, 2001, Northwestern Mutual had approximately 4,100 full- and part-time employees. 2 Northwestern Mutual's principal lines of business are: (i) life insurance, which provides a full range of individual life insurance products, including traditional whole life, CompLife, variable life and term policies to meet the needs of middle to upper income individuals, small business owners and professionals, estates and selected large corporations; (ii) disability income insurance, which provides a complete line of individual and group products, including individual non-cancelable, guaranteed renewable loss of earnings, buyout, key person, and short and long-term group coverages, marketed primarily to middle to upper income individuals, professionals, and small- to medium-sized businesses and their owners; (iii) annuity and accumulation products, which provide individual variable, fixed and immediate annuities offered in conjunction with qualified pension plans, retirement plans for self-employed individuals, individual retirement and personal non-tax qualified situations, group annuities and a family of retail mutual funds known as Mason Street Funds, marketed primarily to middle to upper income individuals, small business owners and professionals; and (iv) long-term care insurance, commenced in 1998 with the introduction of the QuietCare product, offered through its subsidiary Northwestern Long Term Care Insurance Company. For the years ended December 31, 2001, 2000, and 1999, Northwestern Mutual had total premiums of $9.4 billion, $8.9 billion, and $8.3 billion, respectively, of which $7.9 billion, $7.3 billion, and $6.8 billion, respectively, was attributable to life insurance, $.06 billion, $0.6 billion, and $0.5 billion, respectively was attributable to disability income insurance and $0.9 billion, $1.0 billion, and $1.0 billion, respectively, was attributable to annuity and accumulation products. The life insurance industry is mature and highly competitive. Competitiveness in the life insurance business is affected by various factors including, but not limited to, product quality, financial strength and stability, claims-paying ratings, size and competence of agency force, range of product lines, customer service, and reputation. During 2001, there were more than 1,000 life insurance companies in the United States and many of these companies offer individual life insurance and annuity products similar to those offered by Northwestern Mutual. In addition, Northwestern Mutual competes with banks, brokerage firms, investment advisers, mutual funds and other financial entities for investment and savings customers. In the individual and group disability markets, Northwestern Mutual competes with a limited number of major national and regional companies offering these specialized products. National banks, with their pre-existing customer bases for financial services products, may pose increasing competition in the future to insurers who sell life insurance and annuity products, including Northwestern Mutual. Recent United States Supreme Court decisions have expanded the authority of national banks to sell life insurance products and annuities. In addition, legislation to overturn Depression-era restrictions on bank affiliations, the Gramm-Leach-Bliley Act (the "Act"), was signed into law on November 12, 1999, implementing fundamental changes in the regulation of the financial services industry in the U.S. Generally effective March 11, 2000, the Act eliminated certain barriers to and restrictions on affiliations between banks, securities firms and insurance companies that were previously contained in the Glass-Steagall Act of 1933, as amended, and the Bank Holding Company Act of 1956, as amended. Under the Act, through the use of two new structures, financial holding companies and financial subsidiaries, qualifying bank holding companies and state and national banks are allowed to provide a wide variety of financial services, including the authority to engage in certain insurance activities (e.g., the sale and, in the case of qualifying bank holding companies only, the underwriting of insurance and annuities). As a result of the Act, among other things, bank holding companies may acquire insurers and insurance holding companies may acquire banks. The Act may change the competitive and regulatory environment in which Northwestern Mutual and its subsidiaries conduct their businesses and may result in additional competition in one or more markets in which they sell their products and services. Northwestern Mutual is licensed to transact its insurance business in, and is subject to regulation and supervision by, all 50 states of the United States and the District of Columbia. Northwestern Long Term Care Insurance Company, Northwestern Mutual's only insurance subsidiary, is authorized and regulated in all jurisdictions in which it conducts its long-term care business. The extent of such regulation varies, but most jurisdictions have laws and regulations governing the financial aspects of insurance companies, including standards of solvency, reserves, reinsurance, capital adequacy and the business conduct of insurance companies. In addition, statutes and regulations usually require the licensing of insurers and their agents, the approval of policy forms and related materials and, for certain lines of insurance, the approval of rates. Such statutes and regulations also prescribe the permitted types and concentration of investments. The Act reaffirms that the states are to remain responsible for regulating the business of insurance. However, subject to certain exceptions, no state authority can prevent or restrict depository institutions and their affiliates from affiliating with insurance companies as permitted under the Act. In addition, certain state laws and regulations that place restrictions on a depository institution's insurance sales activities would be preempted. Robert W. Baird & Co. Incorporated ("Baird"), a subsidiary of Northwestern Mutual, is an international asset management, investment banking, wealth management and private equity firm with operations in 16 states and five countries. Baird serves individuals, corporations, institutional investors and municipalities as financial advisor, asset manager, equity research specialist, investment banker, private equity and public finance specialist. It is a member of the New York Stock Exchange and other principal exchanges. 3 Frank Russell Company ("Russell"), a subsidiary of Northwestern Mutual, is a global investment services firm providing multi-manager investment products and services in more than 35 countries. Together with its subsidiaries, Russell managed $68.5 billion in assets at December 31, 2001 and advises clients representing more than $1.8 trillion worldwide. Frank Russell is also well known for its family of market indices, including the Russell 2000, which provide complete sets of performance benchmarks for investors in Canada, Japan, the United Kingdom and the United States. See Item 14 herein for the audited consolidated financial statements of Northwestern Mutual, including footnote 1 thereto which describes changes to statutory accounting rules required to be adopted effective January 1, 2001 that affect the comparability of certain financial information from prior periods. Purpose of Annual Report This Annual Report on Form 10-K of Northwestern Mutual is filed with respect to its Account A and Account C. While certain information in this Form 10-K relates to Northwestern Mutual as a whole, this Form 10-K is intended to provide information with respect to such Account A and Account C where relevant. ITEM 2. PROPERTIES Account A and Account C own no physical properties. Northwestern Mutual owns and occupies all of the space in its home office complex in Milwaukee, Wisconsin. Northwestern Mutual owns vacant land in Franklin, Wisconsin on which it will construct and occupy an additional home office campus. Until the Franklin Campus is completed, Northwestern Mutual, as lessee, is occupying temporary space in three buildings adjacent to its Milwaukee complex. Northwestern Mutual is the lessee of nine leases covering its real estate regional offices in locations throughout the United States. ITEM 3. LEGAL PROCEEDINGS Neither Account A nor Account C are parties to any pending legal proceedings. Northwestern Mutual is subject to various claims and proceedings, including claims or proceedings related to its investments, that occur in the ordinary course of its business. Based on information currently available to Northwestern Mutual, Northwestern Mutual believes that none of these current claims or proceedings, either individually or in the aggregate, will have a material adverse effect on the financial position of Northwestern Mutual. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS As segregated asset accounts, Account A and Account C do not issue common equity securities. As a mutual life insurance company, Northwestern Mutual does not issue common equity securities. The Contracts issued in connection with Account A and Account C, and interests in those Contracts, are offered on a continuous basis to Corporate Plans and HR-10 Plans. The Contracts for Corporate Plans are not registered under the Securities Act of 1933, in reliance on the exemption provided by Section 3(a)(2) thereof. All of the Contracts are offered exclusively by financial representatives of the Northwestern Mutual who are also registered representatives of NMIS. 4 During 2001, the following aggregate dollar amounts of such unregistered securities were sold to Corporate Plans, generating the aggregate commissions stated:
ACCOUNT A ACCOUNT C --------- --------- AMOUNT SOLD COMMISSIONS AMOUNT SOLD COMMISSIONS ----------- ----------- ----------- ----------- $33,090,418(A) $1,569,278(B) $93,337,097(A) $1,027,006(B)
(A) Reflects premiums paid by Contract holders as well as dividend additions. (B) Reflects an estimate of amounts paid to Northwestern Mutual financial representatives for sales to Corporate Plans based on a pro rata allocation of all Contract sales under the Account. Accumulation units in Account A and Account C represent the interests of Contract owners. Purchase payments are applied to credit additional accumulation units based on the accumulation unit value next determined after each payment is received. Accumulation units are valued as of the close of business on the New York Stock Exchange on each business day. ITEM 6. SELECTED FINANCIAL DATA The following tables set forth selected historical financial data for Account A for the five years in the period ended December 31, 2001. The data should be read in conjunction with the financial statements and notes thereto of Account A contained in Item 8 of this Annual Report. Results of Operations for Account A: (in thousands)
2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- Investment Income Dividend Income from Northwestern Mutual Series Fund, Inc. Small Cap Growth Stock Portfolio**.............. $ 1 $ 379 $ 149 N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. T. Rowe Price Small Cap Value Portfolio # ...... 1 N/A N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock Portfolio............... 19,094 13,412 2,871 $ 3,294 $ 5,047 Dividend Income from Northwestern Mutual Series Fund, Inc. International Growth Stock Portfolio #.......... - N/A N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Franklin Templeton International Equity Portfolio ............................... 3,729 3,228 6,194 2,855 1,628 Dividend Income from Northwestern Mutual Series Fund, Inc. Index 400 Stock Portfolio**..................... 97 801 30 N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Growth Stock Portfolio.......................... 1,497 1,855 1,225 461 770 Dividend Income from Northwestern Mutual Series Fund, Inc. J.P. Morgan Select Growth and Income Stock Portfolio................................. 876 1,774 4,191 294 5,155 Dividend Income from Northwestern Mutual Series Fund, Inc. Capital Guardian Domestic Equity Stock Portfolio #............................... 1 N/A N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Index 500 Stock Portfolio....................... 5,168 6,161 3,676 4,267 3,230
5 Dividend Income from Northwestern Mutual Series Fund, Inc. Asset Allocation Portfolio #.................... 6 N/A N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Balanced Portfolio.............................. 19,440 24,058 34,011 19,089 13,245 Dividend Income from Northwestern Mutual Series Fund, Inc. High Yield Bond Portfolio....................... 529 611 821 951 1,418 Dividend Income from Northwestern Mutual Series Fund, Inc. Select Bond Portfolio........................... 1,257 1,463 2,088 1,768 1,557 Dividend Income from Northwestern Mutual Series Fund, Inc. Money Market Portfolio.......................... 1,067 1,609 1,410 1,254 1,203 Dividend Income from Russell Insurance Funds Multi-Style Equity Fund**................. 91 134 76 N/A N/A Dividend Income from Russell Insurance Funds Aggressive Equity Fund**.................. 3 261 4 N/A N/A Dividend Income from Russell Insurance Funds Non-U.S. Fund**........................... 17 226 37 N/A N/A Dividend Income from Russell Insurance Funds Real Estate Securities Fund**............. 93 43 12 N/A N/A Dividend Income from Russell Insurance Funds Core Bond Fund**.......................... 78 50 22 N/A N/A ----------- --------- ---------- --------- --------- Total Dividend Income........................ 53,045 56,065 56,817 34,233 33,253 Annuity Rate and Expense Guarantees................ 7,425 8,884 8,722 8,067 7,047 ----------- --------- ---------- --------- --------- Net Investment Income.............................. $ 45,620 $ 47,181 $ 48,095 $ 26,166 $ 26,206 =========== ========= ========== ========= ========= Realized and Unrealized Gain (Loss) on Investments Realized Gain on Investments....................... $ 15,197 $ 56,764 $ 51,300 $ 37,625 $ 23,135 Unrealized Appreciation/(Depreciation) of Investments During the Year........................ (124,257) (120,838) 9,270 36,250 56,364 ----------- --------- ---------- --------- --------- Net Gain/(Loss) on Investments.................. (109,060) (64,074) 60,570 73,875 79,499 Increase/(Decrease) in Equity Derived from Investment Activity................................... $ (63,440) $ (16,893) $ 108,665 $ 100,041 $ 105,705 =========== ========= ========== ========= =========
**Became an investment option under the Contracts effective April 30, 1999. # Became an investment option under the Contracts effective July 31, 2001. Changes in Equity for Account A: (in thousands)
2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- Operations Net Investment Income...................... $ 45,620 $ 47,181 $ 48,095 $ 26,166 $ 26,206 Net Realized Gain ......................... 15,197 56,764 51,300 37,625 23,135 Net Change in Unrealized Appreciation/(Depreciation)................ (124,257) (120,838) 9,270 36,250 56,364 ---------- -------- --------- -------- -------- Increase (Decrease) in Equity Derived From Investment Activities......... (63,440) (16,893) 108,665 100,041 105,705 ---------- -------- --------- -------- -------- Equity Transactions Contract Owners' Net Payments.............. 46,213 54,157 55,489 62,325 61,965 Annuity Payments........................... (1,316) (1,472) (1,469) (1,306) (1,047) Surrenders and Other (Net)................. (83,649) (121,406) (102,935) (80,848) (64,552) Transfers from Other Divisions or Sponsor.. 83,322 137,543 125,332 95,967 63,046 Transfers to Other Divisions or Sponsor.... (84,772) (138,779) (126,511) (98,941) (64,242) ---------- -------- --------- -------- -------- Increase (Decrease) in Equity Derived from Equity Transactions........... (40,202) (69,957) (50,094) (22,803) (4,830) ---------- -------- --------- -------- -------- Net Increase/(Decrease) in Equity.......... (103,642) (86,850) 58,571 77,238 100,875 Equity Beginning of Year............................. 697,354 784,204 725,633 648,395 547,520 ---------- -------- --------- -------- -------- End of Year................................... $ 593,712 $697,354 $ 784,204 $725,633 $648,395 ========== ======== ========= ======== ========
6 Total Assets of Account A: (in thousands)
2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- Assets Investments at Market Value: Northwestern Mutual Series Fund, Inc. Small Cap Growth Stock Portfolio **.............. $ 15,624 $ 16,293 $ 4,847 N/A N/A Northwestern Mutual Series Fund, Inc. T. Rowe Price Small Cap Value Portfolio # ....... 585 N/A N/A N/A N/A Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock Portfolio ............... 77,633 106,815 104,344 $ 87,973 $ 89,429 Northwestern Mutual Series Fund, Inc. International Growth Stock Portfolio # .......... 157 N/A N/A N/A N/A Northwestern Mutual Series Fund, Inc. Franklin Templeton International Equity Portfolio 30,810 40,333 45,439 44,995 50,148 Northwestern Mutual Series Fund, Inc. Index 400 Growth Stock Portfolio **.............. 9,168 7,162 2,205 N/A N/A Northwestern Mutual Series Fund, Inc. Growth Stock Portfolio .......................... 32,717 38,037 39,031 26,774 17,261 Northwestern Mutual Series Fund, Inc. J.P. Morgan Select Growth and Income Stock Portfolio ................................. 23,058 26,081 35,735 36,440 23,576 Northwestern Mutual Series Fund, Inc. Capital Guardian Domestic Equity Portfolio # .... 291 N/A N/A N/A N/A Northwestern Mutual Series Fund, Inc. Index 500 Stock Portfolio ....................... 104,943 133,526 169,861 143,376 111,141 Northwestern Mutual Series Fund, Inc. Asset Allocation Portfolio # .................... 800 N/A N/A N/A N/A Northwestern Mutual Series Fund, Inc. Balanced Portfolio .............................. 229,239 266,410 319,678 325,287 302,750 Northwestern Mutual Series Fund, Inc. High Yield Bond Portfolio ....................... 5,018 5,135 6,940 9,287 8,743 Northwestern Mutual Series Fund, Inc. Select Bond Portfolio ........................... 23,983 20,275 22,162 25,970 25,253 Northwestern Mutual Series Fund, Inc. Money Market Portfolio .......................... 27,159 25,480 28,975 26,910 21,586 Russell Insurance Funds Multi-Style Equity Fund **....................... 4,111 4,097 2,500 N/A N/A Russell Insurance Funds Aggressive Equity Fund **........................ 2,947 2,497 1,142 N/A N/A Russell Insurance Funds Non-U.S. Fund **................................. 2,861 3,244 1,383 N/A N/A Russell Insurance Funds Real Estate Securities Fund **................... 1,820 1,328 332 N/A N/A Russell Insurance Funds Core Bond Fund **................................ 1,527 1,186 693 N/A N/A Due from Northwestern Mutual .......................... 8 0 1,012 22 323 Due from Sale of Fund Shares .......................... 39 665 1,329 1,408 1,555 -------- -------- -------- -------- -------- Total Assets .................................... $594,498 $698,564 $787,608 $728,442 $651,765 ======== ======== ======== ======== ========
**Became an investment option under the Contracts effective April 30, 1999. # Became an investment option under the Contracts effective July 31, 2001. 7 The following tables set forth selected historical financial data for Account C for the five years in the period ended December 31, 2001. The data should be read in conjunction with the financial statements and notes thereto of Account C contained in Item 8 of this Annual Report. Results of Operations for Account C: (in thousands)
2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- Investment Income Dividend Income from Northwestern Mutual Series Fund, Inc. Small Cap Growth Stock Portfolio **.............. $ 2 $ 99 $ 32 N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. T. Rowe Price Small Cap Value Portfolio # ....... -- N/A N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock Portfolio ............... 27,284 20,221 3,671 $ 4,152 $ 6,050 Dividend Income from Northwestern Mutual Series Fund, Inc. International Growth Stock Portfolio # .......... -- N/A N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Franklin Templeton International Equity Portfolio 5,914 5,036 8,184 3,732 1,946 Dividend Income from Northwestern Mutual Series Fund, Inc. Index 400 Stock Portfolio **..................... 194 1,180 6 N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Growth Stock Portfolio .......................... 1,614 2,101 1,223 447 712 Dividend Income from Northwestern Mutual Series Fund, Inc. J.P. Morgan Select Growth and Income Stock Portfolio ................................. 957 2,123 4,566 343 5,941 Dividend Income from Northwestern Mutual Series Fund, Inc. Capital Guardian Domestic Equity Portfolio # .... -- N/A N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Index 500 Stock Portfolio ....................... 6,550 8,370 4,675 5,271 3,756 Dividend Income from Northwestern Mutual Series Fund, Inc. Asset Allocation Portfolio # .................... -- N/A N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Balanced Portfolio .............................. 9,705 12,909 18,031 9,909 6,461 Dividend Income from Northwestern Mutual Series Fund, Inc. High Yield Bond Portfolio ....................... 487 558 759 883 1,028 Dividend Income from Northwestern Mutual Series Fund, Inc. Select Bond Portfolio ........................... 911 1,093 1,570 1,357 1,058 Dividend Income from Northwestern Mutual Series Fund, Inc. Money Market Portfolio .......................... 523 971 1,015 899 739 Dividend Income from Russell Insurance Funds Multi-Style Equity Fund **....................... 37 79 48 N/A N/A Dividend Income from Russell Insurance Funds Aggressive Equity Fund **........................ 1 74 1 N/A N/A Dividend Income from Russell Insurance Funds Non-U.S. Fund **................................. 4 61 13 N/A N/A
8 Dividend Income from Russell Insurance Funds Real Estate Securities Fund **................... 290 52 4 N/A N/A Dividend Income from Russell Insurance Funds Core Bond Fund **................................ 48 22 15 N/A N/A --------- --------- -------- ------- ------- Total Dividend Income ........................ 54,521 54,949 43,813 26,993 27,691 Annuity Rate and Expense Guarantees ................ 2,007 2,896 3,444 3,155 2,502 --------- --------- -------- ------- ------- Net Investment Income .............................. $ 52,514 $ 52,053 $ 40,369 $23,838 $25,189 ========= ========= ======== ======= ======= Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments ................ $ 8,705 $ 54,861 $ 41,106 $29,249 $18,686 Unrealized Appreciation (Depreciation) of Investments During the Year ...................... (133,527) (121,850) 36,856 37,108 44,242 --------- --------- -------- ------- ------- Net Gain (Loss) on Investments .................. (124,822) (66,989) 77,962 66,357 62,928 Increase (Decrease) in Equity Derived from Investment Activity ............................ $ (72,308) $ (14,936) $118,331 $90,195 $88,117 ========= ========= ======== ======= =======
**Became an investment option under the Contracts effective April 30, 1999. # Became an investment option under the Contracts effective July 31, 2001. Changes in Equity for Account C: (in thousands)
2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- Operations Net Investment Income ........................... $ 52,514 $ 52,053 $ 40,369 $ 23,838 $ 25,189 Net Realized Gain .............................. 8,705 54,861 41,106 29,249 18,686 Net Change in Unrealized Appreciation (Depreciation) (133,527) (121,850) 36,856 37,108 44,242 --------- --------- --------- --------- --------- Increase (Decrease) in Equity Derived from Investment Activity ............................. (72,308) (14,936) 118,331 90,195 88,117 --------- --------- --------- --------- --------- Equity Transactions Contract Owners' Net Payments ................... 90,774 103,967 74,900 93,657 91,195 Annuity Payments ................................ (64) (75) (67) (54) (50) Surrenders and Other (Net) ...................... (140,073) (135,735) (119,041) (87,761) (58,500) Transfers from Other Divisions or Sponsor ....... 55,326 91,474 70,710 72,485 46,344 Transfers to Other Divisions or Sponsor ......... (53,674) (92,576) (69,203) (71,425) (45,769) --------- --------- --------- --------- --------- Increase (Decrease) in Equity Derived From Equity Transactions ........................ (47,711) (32,945) (42,701) 6,902 33,220 --------- --------- --------- --------- --------- Net Increase (Decrease) in Equity .................. (120,019) (47,881) 75,630 97,097 121,337 Equity Beginning of Period ................................ 672,835 720,716 645,086 547,989 426,652 --------- --------- --------- --------- --------- End of Period ...................................... $ 552,816 $ 672,835 $ 720,716 $ 645,086 $ 547,989 ========= ========= ========= ========= =========
9 Total Assets of Account C: (in thousands)
2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- Assets Investments at Market Value: Northwestern Mutual Series Fund, Inc. Small Cap Growth Stock Portfolio **......... $ 21,098 $ 20,038 $ 949 N/A N/A Northwestern Mutual Series Fund, Inc. T. Rowe Price Small Cap Value Portfolio # .. 165 N/A N/A N/A N/A Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock Portfolio .......... 112,232 157,369 139,739 $112,355 $111,587 Northwestern Mutual Series Fund, Inc. International Growth Stock Portfolio # ..... 38 N/A N/A N/A N/A Northwestern Mutual Series Fund, Inc. Franklin Templeton International Equity Portfolio ........................ 48,902 65,489 64,556 59,265 63,877 Northwestern Mutual Series Fund, Inc. Index 400 Stock Portfolio **................ 16,849 11,399 473 N/A N/A Northwestern Mutual Series Fund, Inc. Growth Stock Portfolio ..................... 33,016 42,696 39,776 27,819 15,850 Northwestern Mutual Series Fund, Inc. J.P. Morgan Select Growth and Income Stock Portfolio ......................... 25,473 29,723 41,105 40,354 27,485 Northwestern Mutual Series Fund, Inc. Capital Guardian Domestic Equity Portfolio # 211 N/A N/A N/A N/A Northwestern Mutual Series Fund, Inc. Index 500 Stock Portfolio .................. 131,489 173,398 220,075 183,326 133,928 Northwestern Mutual Series Fund, Inc. Asset Allocation Portfolio # ............... 46 N/A N/A N/A N/A Northwestern Mutual Series Fund, Inc. Balanced Portfolio ......................... 115,972 136,009 167,444 172,972 153,734 Northwestern Mutual Series Fund, Inc. High Yield Bond Portfolio .................. 4,583 4,239 6,380 8,611 6,568 Northwestern Mutual Series Fund, Inc. Select Bond Portfolio ...................... 17,379 14,027 17,537 20,755 18,060 Northwestern Mutual Series Fund, Inc. Money Market Portfolio ..................... 15,185 12,102 19,341 19,629 16,900 Russell Insurance Funds Multi-Style Equity Fund **.................. 1,403 1,745 1,706 N/A N/A Russell Insurance Funds Aggressive Equity Fund **................... 710 643 352 N/A N/A Russell Insurance Funds Non-U.S. Fund **............................ 672 818 565 N/A N/A Russell Insurance Funds Real Estate Securities Fund **.............. 6,600 2,654 102 N/A N/A Russell Insurance Funds Core Bond Fund **........................... 793 486 384 N/A N/A Due from Northwestern Mutual ..................... 37 16 395 356 197 Due from Sale of Fund Shares ..................... 13 195 798 495 2,927 Due from Participants ............................ 0 0 232 0 0 -------- -------- -------- -------- -------- Total Assets ..................................... $552,866 $673,046 $721,909 $645,937 $551,113 ======== ======== ======== ======== ========
**Became an investment option under the Contracts effective April 30, 1999. # Became an investment option under the Contracts effective July 31, 2001 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity The assets of Account A and Account C are invested solely in shares of Northwestern Mutual Series Fund, Inc. ("Series Fund") and the Russell Insurance Funds ("Russell Funds," and collectively with the Series Fund, the "Funds"). The Series Fund consists of the Small Cap Growth Stock Portfolio, T. Rowe Price Small Cap Value Portfolio, Aggressive Growth Stock Portfolio, International Growth Stock Portfolio, Franklin Templeton International Equity Portfolio, Index 400 Stock Portfolio, Growth Stock Portfolio, J.P. Morgan Select Growth and Income Stock Portfolio, Capital Guardian Domestic Equity Portfolio, Index 500 Stock Portfolio, Asset Allocation Portfolio, Balanced Portfolio, High Yield Bond Portfolio, Select Bond Portfolio and the Money Market Portfolio. The Russell Funds consist of the Multi-Style Equity Fund, Aggressive Equity Fund, Non-U.S. Fund, Real Estate Securities Fund and Core Bond Fund. The Funds are open-end investment companies registered under the Investment Company Act of 1940. In order to pay annuity benefits and expenses, the Accounts redeem shares in the Funds. Capital Resources All payments from Contract owners of Account A and Account C are invested in shares of the Funds. The capital resources of Account A and Account C are the equity in the respective Accounts. This consists of payments from the Contract owners, plus unrealized and realized appreciation on the investment of these payments, plus investment income received from the Funds, minus payment of annuity benefits and expenses. Results of Operations Accumulation units in Account A and Account C represent the interests of Contract owners. The value of an accumulation unit in each division varies with the investment experience of the division, which in turn is determined by the investment experience of the corresponding portfolio or fund. Set forth below for each of Account A and Account C are accumulation unit values at December 31, 2001, 2000, and 1999 for each division, and the percentage change in such values from year to year. ACCOUNT A Accumulation Unit Values Contracts Issued Prior to December 17, 1981:
DIVISION 12/31/01 % CHANGE 12/31/00* % CHANGE 12/31/99 - -------- -------- -------- --------- -------- -------- Small Cap Growth Stock .................. $ 1.873388 -4.49% $ 1.961375 5.92% $ 1.851783 T. Rowe Price Small Cap Value # ......... 1.014387 1.44 1.000000 N/A N/A Aggressive Growth Stock ................. 4.742335 -20.48 5.963354 5.39 5.658407 International Growth Stock # ............ 0.903153 -9.68 1.000000 N/A N/A Franklin Templeton International Equity . 1.996677 -14.64 2.339241 -1.53 2.375600 Index 400 Stock ......................... 1.287807 -1.40 1.306094 16.34 1.122676 Growth Stock ............................ 2.554121 -14.86 2.999890 -3.21 3.099518 J.P. Morgan Select Growth and Income Stock ......................... 2.198364 -8.46 2.401649 -7.66 2.600855 Capital Guardian Domestic Equity # ...... 0.975051 -2.49 1.000000 N/A N/A Index 500 Stock ......................... 3.994853 -12.54 4.567635 -9.43 5.043329 Asset Allocation # ...................... 0.975908 -2.41 1.000000 N/A N/A Balanced ................................ 7.750204 -3.88 8.062822 -0.91 8.136959 High Yield Bond ......................... 1.543249 4.24 1.480422 -5.30 1.563339 Select Bond ............................. 9.086342 9.54 8.294952 9.39 7.582833 Money Market ............................ 3.004024 3.14 2.912624 5.50 2.760791 Russell Multi-Style Equity .............. 0.793888 -14.85 0.932346 -12.91 1.070614 Russell Aggressive Equity ............... 1.054435 -3.10 1.088117 -1.40 1.103591 Russell Non-U.S ......................... 0.819680 -22.61 1.059216 -15.07 1.247160 Russell Real Estate Securities .......... 1.247315 7.03 1.165389 26.29 0.922768 Russell Core Bond ....................... 1.148123 6.60 1.077032 9.18 0.986452
# Became an investment option under the Contracts effective July 31, 2001. * Includes accumulation unit values at inception date in 2001 for portfolios becoming effective after December 31, 2000. 11 Accumulation Unit Values Contracts Issued After December 16, 1981 and Prior to March 31, 1995:
DIVISION 12/31/01 % CHANGE 12/31/00* % CHANGE 12/31/99 - -------- -------- -------- --------- -------- -------- Small Cap Growth Stock .................. $ 1.848493 -4.97% $ 1.945087 5.39% $ 1.845580 T. Rowe Price Small Cap Value # ......... 1.012260 1.23 1.000000 N/A N/A Aggressive Growth Stock ................. 4.487184 -20.88 5.671037 4.86 5.407959 International Growth Stock # ............ 0.901258 -9.87 1.000000 N/A N/A Franklin Templeton International Equity ............................... 1.911919 -15.07 2.251266 -2.02 2.297694 Index 400 Stock ......................... 1.270690 -1.90 1.295242 15.76 1.118909 Growth Stock ............................ 2.458020 -15.29 2.901600 -3.70 3.012947 J.P. Morgan Select Growth and Income Stock ......................... 2.115675 -8.92 2.322995 -8.12 2.528256 Capital Guardian Domestic Equity # ...... 0.973004 -2.70 1.000000 N/A N/A Index 500 Stock ......................... 3.780024 -12.98 4.343830 -9.88 4.820195 Asset Allocation # ...................... 0.973862 -2.61 1.000000 N/A N/A Balanced ................................ 7.012362 -4.36 7.332002 -1.40 7.436406 High Yield Bond ......................... 1.485164 3.72 1.431888 -5.78 1.519653 Select Bond ............................. 8.219594 8.99 7.541503 8.85 6.928532 Money Market ............................ 2.718250 2.62 2.648821 4.97 2.523294 Russell Multi-Style Equity .............. 0.783335 -15.28 0.924598 -13.35 1.067018 Russell Aggressive Equity ............... 1.040412 -3.58 1.079072 -1.89 1.099895 Russell Non-U.S ......................... 0.808779 -23.00 1.050412 -15.49 1.242993 Russell Real Estate Securities .......... 1.230726 6.49 1.155691 25.66 0.919674 Russell Core Bond ....................... 1.132872 6.07 1.068073 8.64 0.983142
# Became an investment option under the Contracts effective July 31, 2001 * Includes accumulation unit values at inception date in 2001 for portfolios becoming effective after December 31, 2000. Accumulation Unit Values Contracts Issued On or After March 31, 1995 and Prior to March 31, 2000 - Front Load Version:
DIVISION 12/31/01 % CHANGE 12/31/00* % CHANGE 12/31/99 - -------- -------- -------- --------- -------- -------- Small Cap Growth Stock .................. $ 1.890848 -4.15% $ 1.972747 6.29% $ 1.856086 T. Rowe Price Small Cap Value # ......... 1.015860 1.59 1.000000 N/A N/A Aggressive Growth Stock ................. 2.246524 -20.20 2.815081 5.75 2.661899 International Growth Stock # ............ 0.904464 -9.55 1.000000 N/A N/A Franklin Templeton International Equity ............................... 1.662501 -14.35 1.940943 -1.19 1.964300 Index 400 Stock ......................... 1.299809 -1.06 1.313674 16.74 1.125296 Growth Stock ............................ 2.404787 -14.56 2.814641 -2.88 2.898070 J. P. Morgan Select Growth and Income Stock ......................... 2.069175 -8.14 2.252648 -7.34 2.431081 Capital Guardian Domestic Equity # ...... 0.976476 -2.35 1.000000 N/A N/A Index 500 Stock ......................... 2.494890 -12.23 2.842665 -9.12 3.127888 Asset Allocation # ...................... 0.977328 -2.27 1.000000 N/A N/A Balanced ................................ 2.031286 -3.54 2.105871 -0.57 2.117903 High Yield Bond ......................... 1.474181 4.61 1.409248 -4.98 1.483036 Select Bond ............................. 1.606263 9.92 1.461268 9.77 1.331215 Money Market ............................ 1.379910 3.50 1.333271 5.86 1.259407 Russell Multi-Style Equity .............. 0.801293 -14.55 0.937760 -12.61 1.073107 Russell Aggressive Equity ............... 1.064253 -2.76 1.094433 -1.06 1.106159 Russell Non-U.S ......................... 0.827309 -22.34 1.065355 -14.78 1.250059 Russell Real Estate Securities .......... 1.258915 7.40 1.172137 26.73 0.924920 Russell Core Bond ....................... 1.158815 6.97 1.083276 9.56 0.988747
# Became an investment option under the Contracts effective July 31, 2001. * Includes accumulation unit values at inception date in 2001 for portfolios becoming effective after December 31, 2000. 12 Accumulation Unit Values Contracts Issued On or After March 31, 1995 and Prior to March 31, 2000 - Back Load Version:
DIVISION 12/31/01 % CHANGE 12/31/00* % CHANGE 12/31/99 - -------- -------- -------- --------- -------- -------- Small Cap Growth Stock .................. $ 1.848493 -4.97% $ 1.945087 5.39% $ 1.845580 T. Rowe Price Small Cap Value # ......... 1.012260 1.23 1.000000 N/A N/A Aggressive Growth Stock ................. 4.487184 -20.88 5.671037 4.86 5.407959 International Growth Stock # ............ 0.901258 -9.87 1.000000 N/A N/A Franklin Templeton International Equity ............................... 1.911919 -15.07 2.251266 -2.02 2.297694 Index 400 Stock ......................... 1.270690 -1.90 1.295242 15.76 1.118909 Growth Stock ............................ 2.458020 -15.29 2.901600 -3.70 3.012947 J.P. Morgan Select Growth and Income Stock ......................... 2.115675 -8.92 2.322995 -8.12 2.528256 Capital Guardian Domestic Equity # ...... 0.973004 -2.70 1.000000 N/A N/A Index 500 Stock ......................... 3.780024 -12.98 4.343830 -9.88 4.820195 Asset Allocation # ...................... 0.973862 -2.61 1.000000 N/A N/A Balanced ................................ 7.012362 -4.36 7.332002 -1.40 7.436406 High Yield Bond ......................... 1.485164 3.72 1.431888 -5.78 1.519653 Select Bond ............................. 8.219594 8.99 7.541503 8.85 6.928532 Money Market ............................ 2.718250 2.62 2.648821 4.97 2.523294 Russell Multi-Style Equity .............. 0.783335 -15.28 0.924598 -13.35 1.067018 Russell Aggressive Equity ............... 1.040412 -3.58 1.079072 -1.89 1.099895 Russell Non-U.S ......................... 0.808779 -23.00 1.050412 -15.49 1.242993 Russell Real Estate Securities .......... 1.230726 6.49 1.155691 25.66 0.919674 Russell Core Bond ....................... 1.132872 6.07 1.068073 8.64 0.983142
# Became an investment option under the Contract effective July 31, 2001. * Includes accumulation unit values at inception date in 2001 for portfolios becoming effective after December 31, 2000. Accumulation Unit Values Contracts Issued On or After March 31, 2000 - Front Load Version:
DIVISION 12/31/01 % CHANGE 12/31/00* % CHANGE 3/31/00 - -------- -------- -------- --------- -------- -------- Small Cap Growth Stock .................. $ 0.865935 -4.25% $ 0.904342 -9.57% $ 1.000000 T. Rowe Price Small Cap Value # ......... 1.015445 1.54 1.000000 N/A N/A Aggressive Growth Stock ................. 0.719033 -20.28 0.901909 -9.81 1.000000 International Growth Stock # ............ 0.904093 -9.59 1.000000 N/A N/A Franklin Templeton International Equity . 0.851962 -14.43 0.995643 -0.44 1.000000 Index 400 Stock ......................... 1.023646 -1.15 1.035589 3.56 1.000000 Growth Stock ............................ 0.782628 -14.65 0.916924 -8.31 1.000000 J.P. Morgan Select Growth and Income Stock 0.814020 -8.24 0.887072 -11.29 1.000000 Capital Guardian Domestic Equity # ...... 0.976072 -2.39 1.000000 N/A N/A Index 500 Stock ......................... 0.779001 -12.32 0.888477 -11.15 1.000000 Asset Allocation # ...................... 0.976926 -2.31 1.000000 N/A N/A Balanced ................................ 0.937735 -3.64 0.973123 -2.69 1.000000 High Yield Bond ......................... 1.006773 4.50 0.963375 -3.66 1.000000 Select Bond ............................. 1.184790 9.81 1.078901 7.89 1.000000 Money Market ............................ 1.079788 3.40 1.044325 4.43 1.000000 Russell Multi-Style Equity .............. 0.751294 -14.64 0.880119 -11.99 1.000000 Russell Aggressive Equity ............... 0.903873 -2.85 0.930436 -6.96 1.000000 Russell Non-U.S ......................... 0.659991 -22.42 0.850723 -14.93 1.000000 Russell Real Estate Securities .......... 1.331406 7.30 1.240862 24.09 1.000000 Russell Core Bond ....................... 1.148513 6.87 1.074705 7.47 1.000000
# Became an investment option under the Contracts effective July 31, 2001. * Includes accumulation unit values at inception date in 2001 for portfolios becoming effective after December 31, 2000. 13 Accumulation Unit Values Contracts Issued On or After March 31, 2000 - Back Load Version:
DIVISION 12/31/01 % CHANGE 12/31/00* % CHANGE 3/31/00 - -------- -------- -------- --------- -------- -------- Small Cap Growth Stock .................. $ 1.848493 -4.97% $ 1.945087 94.51% $ 1.000000 T. Rowe Price Small Cap Value # ......... 1.012260 1.23 1.000000 N/A N/A Aggressive Growth Stock ................. 4.487184 -20.88 5.671037 467.10 1.000000 International Growth Stock # ............ 0.901258 -9.87 1.000000 N/A N/A Franklin Templeton International Equity . 1.911919 -15.07 2.251266 125.13 1.000000 Index 400 Stock ......................... 1.270690 -1.90 1.295242 29.52 1.000000 Growth Stock ............................ 2.458020 -15.29 2.901600 190.16 1.000000 J.P. Morgan Select Growth and Income Stock 2.115675 -8.92 2.322995 132.30 1.000000 Capital Guardian Domestic Equity # ...... 0.973004 -2.70 1.000000 N/A N/A Index 500 Stock ......................... 3.780024 -12.98 4.343830 334.38 1.000000 Asset Allocation # ...................... 0.973862 -2.61 1.000000 N/A N/A Balanced ................................ 7.012362 -4.36 7.332002 633.20 1.000000 High Yield Bond ......................... 1.485164 3.72 1.431888 43.19 1.000000 Select Bond ............................. 8.219594 8.99 7.541503 654.15 1.000000 Money Market ............................ 2.718250 2.62 2.648821 164.88 1.000000 Russell Multi-Style Equity .............. 0.783335 -15.28 0.924598 -7.54 1.000000 Russell Aggressive Equity ............... 1.040412 -3.58 1.079072 7.91 1.000000 Russell Non-U.S ......................... 0.808779 -23.00 1.050412 5.04 1.000000 Russell Real Estate Securities .......... 1.230726 6.49 1.155691 15.57 1.000000 Russell Core Bond ....................... 1.132872 6.07 1.068073 6.81 1.000000
# Became an investment option under the Contracts effective July 31, 2001. * Includes accumulation unit values at inception date in 2001 for portfolios becoming effective after December 31, 2000. TOTAL EQUITY: (in thousands)
12/31/01 12/31/00 12/31/99 -------- -------- -------- $593,712 $697,354 $784,204
The decline in 2001's Total Equity was attributable primarily to investment activities within the Account: the net change in unrealized depreciation of $124,257 led to a decrease in equity derived from investment activities of $63,440 for the year ended December 31, 2001. The change in 2000's Total Equity was attributable primarily to equity transactions within the Account: a $69,957 decrease for the year ended December 31, 2000 was primarily driven by transfers to other divisions or sponsor and net surrenders and other. 14 ACCOUNT C Accumulation Unit Values Contracts Issued Prior to December 17, 1981 or between April 30, 1984 and December 31, 1991:
DIVISION 12/31/01 % CHANGE 12/31/00* % CHANGE 12/31/99 - -------- -------- -------- --------- -------- -------- Small Cap Growth Stock .................. $ 19.112629 -3.76% $ 19.859931 6.71% $ 18.610781 T. Rowe Price Small Cap Value # ......... 10.175772 1.76 10.000000 N/A N/A Aggressive Growth Stock ................. 48.753408 -19.87 60.845203 6.18 57.304251 International Growth Stock # ............ 9.060000 -9.40 10.000000 N/A N/A Franklin Templeton International Equity ............................. 2.130553 -14.00 2.477334 -0.79 2.497127 Index 400 Stock ......................... 13.138452 -0.65 13.224995 17.21 11.283278 Growth Stock ............................ 27.049526 -14.22 31.531943 -2.49 32.336967 J.P. Morgan Select Growth and Income Stock ....................... 23.281928 -7.77 25.243989 -6.97 27.134671 Capital Guardian Domestic Equity # ...... 9.781208 -2.19 10.000000 N/A N/A Index 500 Stock ......................... 45.228886 -11.88 51.325633 -8.75 56.249780 Asset Allocation # ...................... 9.789803 -2.10 10.000000 N/A N/A Balanced ................................ 91.372736 -3.15 94.345469 -0.17 94.505378 High Yield Bond ......................... 16.343831 5.03 15.560950 -4.59 16.310402 Select Bond ............................. 108.200259 10.37 98.036463 10.21 88.954059 Money Market ............................ 33.577318 3.92 32.311690 6.29 30.399653 Russell Multi-Style Equity .............. 8.099453 -14.21 9.440627 -12.26 10.760032 Russell Aggressive Equity ............... 10.757522 -2.36 11.017913 -0.66 11.091435 Russell Non-U.S ......................... 8.362558 -22.03 10.725190 -14.43 12.534266 Russell Real Estate Securities .......... 12.725061 7.84 11.800164 27.24 9.274172 Russell Core Bond ....................... 11.713217 7.41 10.905549 10.00 9.914196
# Became an investment option under the Contracts effective July 31, 2001. * Includes accumulation unit values at inception date in 2001 for portfolios becoming effective after December 31, 2000. Accumulation Unit Values Contracts Issued After December 16, 1981 and Prior to May 1, 1984:
DIVISION 12/31/01 % CHANGE 12/31/00* % CHANGE 12/31/99 - -------- -------- -------- --------- -------- -------- Small Cap Growth Stock .................. $ 18.858687 -4.25% $ 19.695066 6.18 $ 18.548596 T. Rowe Price Small Cap Value # ......... 10.154423 1.54 10.000000 N/A N/A Aggressive Growth Stock ................. 46.158193 -20.28 57.897540 5.65 54.800923 International Growth Stock # ............ 9.040958 -9.59 10.000000 N/A N/A Franklin Templeton International Equity ............................. 2.040110 -14.43 2.384172 -1.29 2.415234 Index 400 Stock ......................... 12.963870 -1.15 13.115131 16.63 11.245478 Growth Stock ............................ 26.031963 -14.65 30.498976 -2.97 31.433960 J.P. Morgan Select Growth and Income Stock ....................... 22.405970 -8.24 24.416867 -7.43 26.376796 Capital Guardian Domestic Equity # ...... 9.760679 -2.39 10.000000 N/A N/A Index 500 Stock ......................... 42.817258 -12.32 48.834231 -9.21 53.786850 Asset Allocation # ...................... 9.769272 -2.31 10.000000 N/A N/A Balanced ................................ 82.699005 -3.64 85.820221 -0.67 86.395292 High Yield Bond ......................... 15.728914 4.50 15.050970 -5.07 15.854730 Select Bond ............................. 97.881219 9.81 89.133511 9.66 81.280078 Money Market ............................ 30.425952 3.40 29.426661 5.76 27.823703 Russell Multi-Style Equity .............. 7.991801 -14.64 9.362193 -12.70 10.723983 Russell Aggressive Equity ............... 10.614527 -2.85 10.926333 -1.16 11.054275 Russell Non-U.S ......................... 8.251395 -22.42 10.636093 -14.86 12.492336 Russell Real Estate Securities .......... 12.556055 7.30 11.702144 26.60 9.243071 Russell Core Bond ....................... 11.557668 6.87 10.814951 9.45 9.880973
# Became an investment option under the Contracts effective July 31, 2001. * Includes accumulation unit values at inception date in 2001 for portfolios becoming effective after December 31, 2000. 15 Accumulation Unit Values Contracts Issued After December 31, 1991 - Front Load Version:
DIVISION 12/31/01 % CHANGE 12/31/00* % CHANGE 12/31/99 - -------- -------- -------- --------- -------- -------- Small Cap Growth Stock .................. $ 1.878336 -4.39% $ 1.964602 6.02% $ 1.853001 T. Rowe Price Small Cap Value # ......... 1.014805 1.48 1.000000 N/A N/A Aggressive Growth Stock ................. 3.013165 -20.40 3.785207 5.49 3.588119 International Growth Stock # ........... 0.903525 -9.65 1.000000 N/A N/A Franklin Templeton International Equity ............................ 2.013838 -14.56 2.357007 -1.43 2.391284 Index 400 Stock ......................... 1.291211 -1.30 1.308249 16.45 1.123423 Growth Stock ............................ 2.573522 -14.77 3.019678 -3.12 3.116901 J.P. Morgan Select Growth and Income Stock ...................... 2.215050 -8.37 2.417488 -7.57 2.615436 Capital Guardian Domestic Equity # ...... 0.975455 -2.45 1.000000 N/A N/A Index 500 Stock ......................... 3.125796 -12.45 3.570426 -9.34 3.938401 Asset Allocation # ...................... 0.976312 -2.37 1.000000 N/A N/A Balanced ................................ 2.405185 -3.78 2.499718 -0.81 2.520233 High Yield Bond ......................... 1.554978 4.35 1.490196 -5.21 1.572112 Select Bond ............................. 1.871532 9.65 1.706832 9.50 1.558775 Money Market ............................ 1.489628 3.24 1.442872 5.60 1.366307 Russell Multi-Style Equity .............. 0.795993 -14.77 0.933887 -12.83 1.071323 Russell Aggressive Equity ............... 1.057215 -3.00 1.089907 -1.30 1.104316 Russell Non-U.S ......................... 0.821829 -22.54 1.060950 -14.99 1.247967 Russell Real Estate Securities .......... 1.250590 7.14 1.167301 26.42 0.923380 Russell Core Bond ....................... 1.151142 6.71 1.078791 9.29 0.987105
# Became an investment option under the Contracts effective July 31, 2001. * Includes accumulation unit values at inception date in 2001 for portfolios becoming effective after December 31, 2000. Accumulation Unit Values Contracts Issued After December 31, 1991 - Simplified Load Version:
DIVISION 12/31/01 % CHANGE 12/31/00* % CHANGE 12/31/99 - -------- -------- -------- --------- -------- -------- Small Cap Growth Stock .................. $ 1.848493 -4.97% $ 1.945087 5.39% $ 1.845580 T. Rowe Price Small Cap Value # ......... 1.012260 1.23 1.000000 N/A N/A Aggressive Growth Stock ................. 4.503663 -20.88 5.691856 4.86 5.427804 International Growth Stock # ............ 0.901258 -9.87 1.000000 N/A N/A Franklin Templeton International Equity ............................. 1.911919 -15.07 2.251266 -2.02 2.297694 Index 400 Stock ......................... 1.270690 -1.90 1.295242 15.76 1.118909 Growth Stock ............................ 2.458020 -15.29 2.901600 -3.70 3.012947 J.P. Morgan Select Growth and Income Stock ....................... 2.115675 -8.92 2.322995 -8.12 2.528256 Capital Guardian Domestic Equity # ...... 0.973004 -2.70 1.000000 N/A N/A Index 500 Stock ......................... 3.857114 -12.98 4.432423 -9.88 4.918509 Asset Allocation # ...................... 0.973862 -2.61 1.000000 N/A N/A Balanced ................................ 7.047000 -4.36 7.368231 -1.40 7.473141 High Yield Bond ......................... 1.485164 3.72 1.431888 -5.78 1.519653 Select Bond ............................. 8.299723 8.99 7.615016 8.85 6.996057 Money Market ............................ 2.724154 2.62 2.654580 4.98 2.528768 Russell Multi-Style Equity .............. 0.783335 -15.28 0.924598 -13.35 1.067018 Russell Aggressive Equity ............... 1.040412 -3.58 1.079072 -1.89 1.099895 Russell Non-U.S ......................... 0.808779 -23.00 1.050412 -15.49 1.242993 Russell Real Estate Securities........... 1.230726 6.49 1.155691 25.66 0.919674 Russell Core Bond ....................... 1.132872 6.07 1.068073 8.64 0.983142
# Became an investment option under the Contracts effective July 31, 2001. * Includes accumulation unit values at inception date in 2001 for portfolios becoming effective after December 31, 2000. 16 TOTAL EQUITY: (in thousands)
12/31/01 12/31/00 12/31/99 -------- -------- -------- $552,816 $672,835 $720,716
The changes in 2001's Total Equity was attributable primarily to investment activities within the Account: the net change in unrealized depreciation of $133,527 led to a decrease in equity derived from investment activities of $72,308 for the year ended December 31, 2001. The change in 2000's Total Equity was attributable primarily to equity transactions within the Account: a $32,945 decrease for the year ended December 31, 2000 was primarily driven by surrenders and other (net) and transfers to other divisions or sponsor. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The assets of Account A and Account C consist entirely of shares of the 15 portfolios of the Series Fund and 5 portfolios of the Russell Funds, together with current amounts due from the sale of Series Fund and Russell Funds shares and due from Northwestern Mutual. The liabilities of each of Account A and Account C consist of current amounts due to Contract owners, due to Northwestern Mutual and due on purchase of Series Fund and Russell Funds shares. Neither of the Accounts enters into any market risk sensitive instruments, either for trading purposes or for purposes other than trading purposes. Derivative Financial Instruments In the normal course of business, the Series Fund and the Russell Funds enter into transactions to reduce their exposure to fluctuations in interest rates, foreign currency exchange rates and market volatility. These hedging strategies include the use of forwards, futures, and written options. The Series Fund and Russell Funds held the following positions for hedging purposes at December 31, 2001 and 2000:
SERIES FUND ----------- UNREALIZED APPRECIATION DERIVATIVE FINANCIAL INSTRUMENT NOTIONAL VALUE (DEPRECIATION) RISKS REDUCED - ------------------------------- -------------- -------------- ------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2001 2000 2001 2000 ---- ---- ---- ---- (IN THOUSANDS) (IN THOUSANDS) Stock Future Contracts $425,880 $455,971 $2,318 $1,664 Stock market price fluctuation Bond Future Contracts -- 7,237 -- (56) Bond market price fluctuation
RUSSELL FUNDS ------------- UNREALIZED APPRECIATION DERIVATIVE FINANCIAL INSTRUMENT NOTIONAL VALUE (DEPRECIATION) RISKS REDUCED - ------------------------------- -------------- -------------- ------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2001 2000 2001 2000 ---- ---- ---- ---- (IN THOUSANDS) (IN THOUSANDS) Stock Future Contracts $37,577 $30,801 $639 $(346) Stock market price fluctuation Bond Future Contracts 22,152 7,960 (45) (130) Bond market price fluctuation Foreign Currency Forward Contracts 20,041 12,615 (182) 379 Currency exposure on foreign denominated investments Foreign Currency Spot Contracts 142 10,346 1 2 Currency exposure on foreign denominated investments Written Options 1,224 2,109 372 6 Bond market price fluctuation
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. Stock and bond futures, foreign currency forwards and spot contracts, and written options are reported at fair value on a daily basis. Resulting gains and losses on these contracts are unrealized until expiration of the contract. All of the stock and bond futures, foreign currency forwards and spot contracts, and written options of the Funds at December 31, 2001 will expire or settle in 2002. Changes in the value of derivative investments are expected to offset gains and losses on the hedged investments. The effect of derivative instruments in 2001 and 2000 was not material to the Funds' results of operations. 17 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA NML VARIABLE ANNUITY ACCOUNT A STATEMENTS OF ASSETS AND LIABILITIES (IN THOUSANDS)
DECEMBER 31 2001 2000 ---- ---- ASSETS Investments at market value: Northwestern Mutual Series Fund, Inc. Small Cap Growth Stock 2001: 8,748 shares (cost $17,350) $ 15,624 2000: 8,778 shares (cost $17,681) $ 16,293 T. Rowe Price Small Cap Value # 2001: 576 shares (cost $543) 585 Aggressive Growth Stock 2001: 27,500 shares (cost $96,370) 77,633 2000: 23,891 shares (cost $84,660) 106,815 International Growth Stock # 2001: 173 shares (cost $165) 157 Franklin Templeton International Equity 2001: 24,394 shares (cost $39,250) 30,810 2000: 24,699 shares (cost $39,875) 40,333 Index 400 Stock 2001: 8,172 shares (cost $9,465) 9,168 2000: 6,260 shares (cost $7,422) 7,162 Growth Stock 2001: 16,139 shares (cost $37,094) 32,717 2000: 15,411 shares (cost $34,938) 38,037 J.P. Morgan Select Growth and Income Stock 2001: 18,915 shares (cost $27,776) 23,058 2000: 19,051 shares (cost $28,136) 26,081 Capital Guardian Domestic Equity # 2001: 298 shares (cost $277) 291 Index 500 Stock 2001: 36,502 shares (cost $93,314) 104,943 2000: 39,192 shares (cost $92,331) 133,526 Asset Allocation # 2001: 822 shares (cost $787) 800 Balanced 2001: 125,956 shares (cost $218,603) 229,239 2000: 130,979 shares (cost $221,089) 266,410 High Yield Bond 2001: 7,733 shares (cost $6,179) 5,018 2000: 7,432 shares (cost $6,677) 5,135 Select Bond 2001: 19,936 shares (cost $23,404) 23,983 2000: 17,524 shares (cost $20,615) 20,275 Money Market 2001: 27,159 shares (cost $27,159) 27,159 2000: 25,480 shares (cost $25,480) 25,480 Russell Insurance Funds Multi Style Equity 2001: 341 shares (cost $5,063) 4,111 2000: 290 shares (cost $4,600) 4,097 Aggressive Equity 2001: 258 shares (cost $3,182) 2,947 2000: 213 shares (cost $2,739) 2,497 Non-U.S 2001: 328 shares (cost $3,838) 2,861 2000: 291 shares (cost $3,769) 3,244
18 Real Estate Securities 2001: 169 shares (cost $1,794) 1,820 2000: 124 shares (cost $1,240) 1,328 Core Bond 2001: 151 shares (cost $1,497) 1,527 2000: 118 shares (cost $1,142) 1,186 -------- -------- 594,451 697,899 Due from Sales of Fund Shares 39 665 Due from The Northwestern Mutual Life Insurance Company 8 0 -------- -------- Total Assets $594,498 $698,564 ======== ======== LIABILITIES Due to Participants ...................................... $ 739 545 Due to The Northwestern Mutual Life Insurance Company 39 665 Due on Purchase of Fund Shares ........................... 8 0 -------- -------- Total Liabilities ........................................... $ 786 $ 1,210 ======== ======== EQUITY Contracts Issued Prior to December 17, 1981: ................ 46,841 59,961 Contracts Issued After December 16, 1981 and Prior to March 31, 1995: .......................................... 421,383 504,557 Contracts Issued On or After March 31, 1995 and Prior to March 31, 2000: Back Load Version ........................................ 96,699 108,157 Front Load Version ....................................... 20,123 22,698 Contracts Issued On or After March 31, 2000: Back Load Version: ....................................... 6,604 1,478 Front Load Version ....................................... 2,062 503 -------- -------- Total Equity ................................................ $593,712 $697,354 -------- -------- Total Liabilities and Equity ................................ $594,498 $698,564 ======== ========
# The initial investment was made July 31, 2001. The Accompanying Notes are an Integral Part of the Financial Statements. 19 NML VARIABLE ANNUITY ACCOUNT A STATEMENTS OF OPERATIONS (IN THOUSANDS)
Combined Small Cap Growth Stock Division** -------------------------------------------- ------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Period Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 -------------------------------------------- ------------------------------------------- Investment Income Dividend Income $ 53,045 $ 56,065 $ 56,817 $ 1 $ 379 $ 149 Annuity Rate and Expense Guarantees 7,425 8,884 8,722 179 153 13 ---------------------------------------- ---------------------------------------- Net Investment Income (Loss) 45,620 47,181 48,095 (178) 226 136 ---------------------------------------- ---------------------------------------- Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments 15,197 56,764 51,300 (343) 827 550 Unrealized Appreciation (Depreciation) During the Year (124,257) (120,838) 9,270 (338) (1,850) 464 ---------------------------------------- ---------------------------------------- Net Gain (Loss) on Investments (109,060) (64,074) 60,570 (681) (1,023) 1,014 ---------------------------------------- ---------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity ($ 63,440) ($ 16,893) $108,665 ($859) ($ 797) $1,150 ======================================== ========================================
**The initial investment in this Division was made on April 30, 1999. The Accompanying Notes are an Integral Part of the Financial Statements. 20 NML VARIABLE ANNUITY ACCOUNT A STATEMENTS OF OPERATIONS CONTINUED (IN THOUSANDS)
T. Rowe Price Small Cap International Value Growth Stock Division # Aggressive Growth Stock Division Division # -------------- ------------------------------------------------ ------------------ Period Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, Period Ended 2001 2001 2000 1999 December 31, 2001 -------------- ------------------------------------------------ ------------------ Investment Income Dividend Income $ 1 $ 19,094 $ 13,412 $ 2,871 $ -- Annuity Rate and Expense Guarantees 1 1,021 1,395 1,001 -- -------------- ------------------------------------------------ ------------------ Net Investment Income (Loss) -- 18,073 12,017 1,870 -- -------------- ------------------------------------------------ ------------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments -- 906 11,257 10,360 (8) Unrealized Appreciation (Depreciation) During the Year 41 (40,892) (18,313) 18,776 -- -------------- ------------------------------------------------ ------------------ Net Gain (Loss) on Investments 41 (39,986) (7,056) 29,136 (8) -------------- ------------------------------------------------ ------------------ Increase (Decrease) in Equity Derived from Investment Activity $ 41 $(21,913) $ 4,961 $ 31,006 $ (8) ============== ================================================ ==================
# The initial investment in this Division was made on July 31, 2001.
Franklin Templeton International Equity Division Index 400 Stock Division** ------------------------------------- --------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Period Ended December December December December December December 31, 2001 31, 2000 31, 1999 31, 2001 31, 2000 31, 1999 ------------------------------------- --------------------------------------- Investment Income Dividend Income $3,729 $3,228 $6,194 $ 97 $801 $30 Annuity Rate and Expense Guarantees 415 515 520 94 55 8 ------------------------------------- --------------------------------------- Net Investment Income (Loss) 3,314 2,713 5,674 3 746 22 ------------------------------------- --------------------------------------- Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments (245) 2,247 2,516 (41) 207 18 Unrealized Appreciation (Depreciation) During the Year (8,897) (5,914) 193 (36) (414) 154 ------------------------------------- --------------------------------------- Net Gain (Loss) on Investments (9,142) (3,667) 2,709 (77) (207) 172 ------------------------------------- --------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity $(5,828) $(954) $8,383 $(74) $539 $194 ===================================== =======================================
**The initial investment in this Division was made on April 30, 1999. 21
J.P. Morgan Select Growth and Income Growth Stock Division Stock Division ------------------------------------- --------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December December December December December December 31, 2001 31, 2000 31, 1999 31, 2001 31, 2000 31, 1999 ------------------------------------- --------------------------------------- Investment Income Dividend Income $1,497 $1,855 $1,225 $876 $1,774 $4,191 Annuity Rate and Expense Guarantees 403 473 397 286 362 442 ------------------------------------- --------------------------------------- Net Investment Income (Loss) 1,094 1,382 828 590 1,412 3,749 ------------------------------------- --------------------------------------- Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments 464 3,581 2,300 (278) (2) 1,705 Unrealized Appreciation (Depreciation) During the Year (7,478) (6,543) 3,411 (2,664) (3,775) (3,315) ------------------------------------- --------------------------------------- Net Gain (Loss) on Investments (7,014) (2,962) 5,711 (2,942) (3,777) (1,610) ------------------------------------- --------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity $(5,920) $(1,580) $6,539 $(2,352) $(2,365) $2,139 ===================================== =======================================
Capital Guardian Domestic Asset Equity Allocation Division # Index 500 Stock Division Division # ------------ -------------------------------------- ------------- Period Ended Year Ended Year Ended Year Ended Period Ended December 31, December December December 31, December 31, 2001 31, 2001 31, 2000 1999 2001 ------------ -------------------------------------- ------------- Investment Income Dividend Income $ 1 $ 5,168 $ 6,161 $ 3,676 $ 6 Annuity Rate and Expense Guarantees -- 1,297 1,722 1,766 2 -------- -------------------------------------- -------- Net Investment Income (Loss) 1 3,871 4,439 1,910 4 -------- -------------------------------------- -------- Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments -- 8,880 19,865 13,204 -- Unrealized Appreciation (Depreciation) During the Year 12 (29,565) (39,225) 13,045 11 -------- -------------------------------------- -------- Net Gain (Loss) on Investments 12 (20,685) (19,360) 26,249 11 -------- -------------------------------------- -------- Increase (Decrease) in Equity Derived from Investment Activity $ 13 $(16,814) $(14,921) $ 28,159 $ 15 ======== ====================================== ========
# The initial investment in this Division was made on July 31, 2001. 22
Balanced Division High Yield Bond Division -------------------------------------- -------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December December December December December December 31, 31, 2001 31, 2000 31, 1999 31, 2001 31, 2000 1999 -------------------------------------- -------------------------------------- Investment Income Dividend Income $ 19,440 $ 24,058 $ 34,011 $ 529 $ 611 $ 821 Annuity Rate and Expense Guarantees 2,955 3,494 3,881 62 68 94 ------------------------------------ ------------------------------------- Net Investment Income (Loss) 16,485 20,564 30,130 467 543 727 ------------------------------------ ------------------------------------- Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments 6,981 19,864 21,154 (655) (756) (847) Unrealized Appreciation (Depreciation) During the Year (34,686) (44,078) (21,022) 381 (119) (22) ------------------------------------ ------------------------------------- Net Gain (Loss) on Investments (27,705) (24,214) 132 (274) (875) (869) ------------------------------------ ------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity $(11,220) $ (3,650) $ 30,262 $ 193 $ (332) $ (142) ==================================== =====================================
Select Bond Division Money Market Division -------------------------------------- -------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December December December December December December 31, 31, 2001 31, 2000 31, 1999 31, 2001 31, 2000 1999 -------------------------------------- -------------------------------------- Investment Income Dividend Income $ 1,257 $ 1,463 $ 2,088 $ 1,067 $ 1,609 $ 1,410 Annuity Rate and Expense Guarantees 248 228 265 318 296 315 ----------------------------------- ------------------------------------- Net Investment Income (Loss) 1,009 1,235 1,823 749 1,313 1,095 ----------------------------------- ------------------------------------- Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments (65) (333) 370 -- -- -- Unrealized Appreciation (Depreciation) During the Year 919 830 (2,715) -- -- -- ----------------------------------- ------------------------------------- Net Gain (Loss) on Investments 854 497 (2,345) -- -- -- ----------------------------------- ------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity $ 1,863 $ 1,732 $ (522) $ 749 $ 1,313 $ 1,095 =================================== =====================================
23
Russell Multi-Style Equity Division ** Russell Aggressive Equity Division** ------------------------------------ ------------------------------------- Year Ended Year Ended Period Ended Year Ended Year Ended Period Ended December December December December December December 31, 2001 31, 2000 31, 1999 31, 2001 31, 2000 31, 1999 ------------------------------------ ------------------------------------- Investment Income Dividend Income $ 91 $ 134 $ 76 $ 3 $ 261 $ 4 Annuity Rate and Expense Guarantees 44 43 9 29 26 4 ----------------------------------- ---------------------------------- Net Investment Income (Loss) 47 91 67 (26) 235 -- ----------------------------------- ---------------------------------- Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments (154) (74) (3) (69) 43 (34) Unrealized Appreciation (Depreciation) During the Year (517) (564) 62 6 (359) 118 ----------------------------------- ---------------------------------- Net Gain (Loss) on Investments (671) (638) 59 (63) (316) 84 ----------------------------------- ---------------------------------- Increase (Decrease) in Equity Derived from Investment Activity $(624) $(547) $ 126 $ (89) $ (81) $ 84 =================================== ==================================
**The initial investment in this Division was made on April 30, 1999.
Russell Non-U.S. Division ** Russell Real Estate Securities Division** ------------------------------------ ----------------------------------------- Year Ended Year Ended Period Ended Year Ended Year Ended Period Ended December December December December December December 31, 2001 31, 2000 31, 1999 31, 2001 31, 2000 31, 1999 ------------------------------------ ----------------------------------------- Investment Income Dividend Income $ 17 $ 226 $ 37 $ 93 $ 43 $ 12 Annuity Rate and Expense Guarantees 34 33 4 21 9 1 ----------------------------------- ---------------------------------- Net Investment Income (Loss) (17) 193 33 72 34 11 ----------------------------------- ---------------------------------- Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments (287) 21 10 95 40 (2) Unrealized Appreciation (Depreciation) During the Year (480) (679) 154 (61) 97 (10) ----------------------------------- ---------------------------------- Net Gain (Loss) on Investments (767) (658) 164 34 137 (12) ----------------------------------- ---------------------------------- Increase (Decrease) in Equity Derived from Investment Activity $(784) $(465) $ 197 $ 106 $ 171 $ (1) =================================== ==================================
**The initial investment in this Division was made on April 30, 1999. 24
Russell Core Bond Division** ---------------------------------------- Year Ended Year Ended Period Ended December December December 31, 2001 31, 2000 31, 1999 ---------------------------------------- Investment Income Dividend Income $ 78 $ 50 $ 22 Annuity Rate and Expense Guarantees 16 12 2 ---------------------------------------- Net Investment Income (Loss) 62 38 20 ---------------------------------------- Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments 16 (23) (1) Unrealized Appreciation (Depreciation) During the Year (13) 68 (23) ---------------------------------------- Net Gain (Loss) on Investments 3 45 (24) ---------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity $ 65 $ 83 $ (4) ========================================
**The initial investment in this Division was made on April 30, 1999. The Accompanying Notes are an Integral Part of the Financial Statements. NML VARIABLE ANNUITY ACCOUNT A STATEMENTS OF CHANGES IN EQUITY (in thousands)
Combined Small Cap Growth Stock Division** --------------------------------------- ---------------------------------------- Year Ended Year Ended Period Ended Year Ended Year Ended Period Ended December December December December December December 31, 2001 31, 2000 31, 1999 31, 2001 31, 2000 31, 1999 --------------------------------------- ---------------------------------------- Operations: Net Investment Income $ 45,620 $ 47,181 $ 48,095 $ (178) $ 226 $ 136 Net Realized Gain (Loss) 15,197 56,764 51,300 (343) 827 550 Net Change in Unrealized Appreciation (Depreciation) (124,257) (120,838) 9,270 (338) (1,850) 464 -------------------------------------- ---------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity (63,440) (16,893) 108,665 (859) (797) 1,150 -------------------------------------- ---------------------------------------- Equity Transactions: Contract Owners' Net Payment 46,213 54,157 55,489 1,932 2,791 398 Annuity Payments (1,316) (1,472) (1,469) (7) (13) -- Surrenders and Other (Net) (83,649) (121,406) (102,935) (1,362) (1,308) (85) Transfers from Other Divisions or Sponsors 83,322 137,543 125,332 4,029 19,138 7,491 Transfers to Other Divisions or Sponsors (84,772) (138,779) (126,511) (4,403) (8,365) (4,107) -------------------------------------- ---------------------------------------- Increase (Decrease) in Equity Derived from Equity Transactions (40,202) (69,957) (50,094) 189 12,243 3,697 -------------------------------------- ---------------------------------------- Net Increase (Decrease) in Equity (103,642) (86,850) 58,571 (670) 11,446 4,847 Equity: Beginning of Period 697,354 784,204 725,633 16,293 4,847 -- End of Period $ 593,712 $ 697,354 784,204 $ 15,623 $ 16,293 $ 4,847 ====================================== ========================================
**The initial investment in this Division was made on April 30, 1999. 25
T. Rowe Price Small International Cap Value Growth Stock Division # Aggressive Growth Stock Division Division # ------------ ----------------------------------------- ------------ Period Ended Year Ended Year Ended Year Ended Period Ended December 31, December 31, December 31, December 31, December 31, 2001 2001 2000 1999 2001 ------------ ----------------------------------------- ------------ Operations: Net Investment Income $ -- $ 18,073 $ 12,017 $ 1,870 $ -- Net Realized Gain (Loss) -- 906 11,257 10,360 (8) Net Change in Unrealized Appreciation (Depreciation) 41 (40,892) (18,313) 18,776 -- --------- ----------------------------------------- ------------ Increase (Decrease) in Equity Derived from Investment Activity 41 (21,913) 4,961 31,006 (8) --------- ----------------------------------------- ------------ Equity Transactions: Contract Owners' Net Payment 87 6,978 8,119 6,945 24 Annuity Payments -- (37) (49) (36) -- Surrenders and Other (Net) -- (10,388) (19,221) (12,324) -- Transfers from Other Divisions or Sponsors 490 7,243 26,450 13,400 154 Transfers to Other Divisions or Sponsors (34) (10,995) (17,887) (22,500) (13) --------- ----------------------------------------- ------------ Increase (Decrease) in Equity Derived from Equity Transactions 543 (7,199) (2,588) (14,515) 165 --------- ----------------------------------------- ------------ Net Increase (Decrease) in Equity 584 (29,112) 2,373 16,491 157 Equity: Beginning of Period -- 106,743 104,370 87,879 -- End of Period $ 584 $ 77,631 $ 106,743 $ 104,370 $ 157 ========= ========================================= ============
# The initial investment in this Division was made on July 31, 2001
Franklin Templeton International Equity Division Index 400 Stock Division** ------------------------------------- --------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Period Ended December December December December December December 31, 2001 31, 2000 31, 1999 31, 2001 31, 2000 31, 1999 ------------------------------------- --------------------------------------- Operations: Net Investment Income $ 3,314 $ 2,713 $ 5,674 $ 3 $ 746 $ 22 Net Realized Gain (Loss) (245) 2,247 2,516 (41) 207 18 Net Change in Unrealized Appreciation (Depreciation) (8,897) (5,914) 193 (36) (414) 154 ------------------------------------ ------------------------------------ Increase (Decrease) in Equity Derived from Investment Activity (5,828) (954) 8,383 (74) 539 194 ------------------------------------ ------------------------------------ Equity Transactions: Contract Owners' Net Payment 2,894 3,890 3,455 1,347 1,061 410 Annuity Payments (17) (19) (25) (16) (22) -- Surrenders and Other (Net) (4,910) (6,674) (6,125) (708) 28 (93) Transfers from Other Divisions or Sponsors 3,316 7,129 3,673 4,453 5,651 2,621 Transfers to Other Divisions or Sponsors (4,969) (8,486) (8,861) (3,006) (2,290) (937) ------------------------------------ ------------------------------------ Increase (Decrease) in Equity Derived from Equity Transactions (3,686) (4,160) (7,883) 2,070 4,428 2,001 ------------------------------------ ------------------------------------ Net Increase (Decrease) in Equity (9,514) (5,114) 500 1,996 4,967 2,195 Equity: Beginning of Period 40,298 45,412 44,912 7,162 2,195 -- End of Period $ 30,784 $ 40,298 $ 45,412 $ 9,158 $ 7,162 $ 2,195 ==================================== ====================================
**The initial investment in this Division was made on April 30, 1999. 26
J.P. Morgan Select Growth Growth Stock Division and Income Stock Division ------------------------------------- --------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December December December December December December 31, 2001 31, 2000 31, 1999 31, 2001 31, 2000 31, 1999 ------------------------------------- --------------------------------------- Operations: Net Investment Income $ 1,094 $ 1,382 $ 828 $ 590 $ 1,412 $ 3,749 Net Realized Gain (Loss) 464 3,581 2,300 (278) (2) 1,705 Net Change in Unrealized Appreciation (Depreciation) (7,478) (6,543) 3,411 (2,664) (3,775) (3,315) ------------------------------------- --------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity (5,920) (1,580) 6,539 (2,352) (2,365) 2,139 ------------------------------------- --------------------------------------- Equity Transactions: Contract Owners' Net Payment 3,713 4,161 3,966 2,138 2,864 3,728 Annuity Payments (5) (5) (6) (66) (77) (71) Surrenders and Other (Net) (3,538) (6,808) (3,594) (3,087) (5,329) (3,578) Transfers from Other Divisions or Sponsors 5,424 14,158 13,108 3,370 3,239 8,139 Transfers to Other Divisions or Sponsors (4,981) (10,930) (7,589) (3,033) (7,981) (10,849) ------------------------------------- --------------------------------------- Increase (Decrease) in Equity Derived from Equity Transactions 613 576 5,885 (678) (7,284) (2,631) ------------------------------------- --------------------------------------- Net Increase (Decrease) in Equity (5,307) (1,004) 12,424 (3,030) (9,649) (492) Equity: Beginning of Period 38,024 39,028 26,604 26,087 35,736 36,228 End of Period $ 32,717 $ 38,024 $ 39,028 $ 23,057 $ 26,087 $ 35,736 ===================================== =======================================
Capital Guardian Domestic Asset Equity Allocation Division # Index 500 Stock Division Division # ------------ -------------------------------------- ------------- Period Ended Year Ended Year Ended Year Ended Period Ended December 31, December December December 31, December 31, 2001 31, 2001 31, 2000 1999 2001 ------------ -------------------------------------- ------------- Operations: Net Investment Income $ 1 $ 3,871 $ 4.439 $ 1,910 $ 4 Net Realized Gain (Loss) -- 8,880 19,865 13,204 -- Net Change in Unrealized Appreciation (Depreciation) 12 (29,565) (39,225) 13,045 11 ------------ -------------------------------------- ------------- Increase (Decrease) in Equity Derived from Investment Activity 13 (16,814) (14,921) 28,159 15 ------------ -------------------------------------- ------------- Equity Transactions: Contract Owners' Net Payment 25 7,565 9,486 11,822 86 Annuity Payments -- (337) (468) (489) -- Surrenders and Other (Net) (2) (15,093) (24,033) (19,188) 2 Transfers from Other Divisions or Sponsors 254 9,028 16,159 24,383 699 Transfers to Other Divisions or Sponsors -- (12,955) (22,419) (18,154) (2) ------------ -------------------------------------- ------------- Increase (Decrease) in Equity Derived from Equity Transactions 277 (11,792) (21,275) (1,626) 785 ------------ -------------------------------------- ------------- Net Increase (Decrease) in Equity 290 (28,606) (36,196) 26,533 800 Equity: Beginning of Period -- 133,513 169,709 143,176 -- End of Period $ 290 $ 104,907 $ 133,513 $ 169,709 $ 800 ============ ====================================== =============
# The initial investment in this Division was made on July 31, 2001. 27
Balanced Division High Yield Bond Division -------------------------------------- --------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December December December December December December 31, 2001 31, 2000 31, 1999 31, 2001 31, 2000 31, 1999 -------------------------------------- --------------------------------------- Operations: Net Investment Income $ 16,485 $ 20,564 $ 30,130 $ 467 $ 543 $ 727 Net Realized Gain (Loss) 6,981 19,864 21,154 (655) (756) (847) Net Change in Unrealized Appreciation (Depreciation) (34,686) (44,078) (21,022) 381 (119) (22) -------------------------------------- --------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity (11,220) (3,650) 30,262 193 (332) (142) -------------------------------------- --------------------------------------- Equity Transactions: Contract Owners' Net Payment 12,043 13,081 15,663 523 765 989 Annuity Payments (684) (715) (742) (11) (4) (5) Surrenders and Other (Net) (32,253) (44,386) (45,409) (888) (968) (1,234) Transfers from Other Divisions or Sponsors 9,588 8,372 17,537 1,921 746 1,293 Transfers to Other Divisions or Sponsors (14,552) (25,634) (23,181) (1,860) (2,016) (3,220) -------------------------------------- --------------------------------------- Increase (Decrease) in Equity Derived from Equity Transactions (25,858) (49,282) (36,132) (315) (1,477) (2,177) -------------------------------------- --------------------------------------- Net Increase (Decrease) in Equity (37,078) (52,932) (5,870) (122) (1,809) (2,319) Equity: Beginning of Period 266,001 318,933 324,803 5,130 6,939 9,258 End of Period $ 228,923 $ 266,001 $ 318,933 $ 5,008 $ 5,130 $ 6,939 ====================================== =======================================
Select Bond Division Money Market Division -------------------------------------- --------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December December December December December December 31, 2001 31, 2000 31, 1999 31, 2001 31, 2000 31, 1999 -------------------------------------- --------------------------------------- Operations: Net Investment Income $ 1,009 $ 1,235 $ 1,823 $ 749 $ 1,313 $ 1,095 Net Realized Gain (Loss) (65) (333) 370 -- -- -- Net Change in Unrealized Appreciation (Depreciation) 919 830 (2,715) -- -- -- -------------------------------------- --------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity 1,863 1,732 (522) 749 1,313 1,095 -------------------------------------- --------------------------------------- Equity Transactions: Contract Owners' Net Payment 1,760 1,609 1,638 2,973 3,498 5,147 Annuity Payments (84) (54) (55) (42) (44) (40) Surrenders and Other (Net) (3,070) (3,755) (4,343) (7,417) (8,367) (6,872) Transfers from Other Divisions or Sponsors 5,887 1,998 2,826 19,263 21,967 24,985 Transfers to Other Divisions or Sponsors (2,868) (3,403) (3,264) (13,859) (21,732) (22,381) -------------------------------------- --------------------------------------- Increase (Decrease) in Equity Derived from Equity Transactions 1,625 (3,605) (3,198) 918 (4,678) 839 -------------------------------------- --------------------------------------- Net Increase Decrease) in Equity 3,488 (1,873) (3,720) 1,667 (3,365) 1,934 Equity: Beginning of Period 20,269 22,142 25,862 25,480 28,845 26,911 End of Period $ 23,757 $ 20,269 $ 22,142 $ 27,147 $ 25,480 $ 28,845 ====================================== =======================================
28
Russell Multi-Style Equity Division ** Russell Aggressive Equity Division** -------------------------------------- --------------------------------------- Year Ended Year Ended Period Ended Year Ended Year Ended Period Ended December December December December December December 31, 2001 31, 2000 31, 1999 31, 2001 31, 2000 31, 1999 -------------------------------------- --------------------------------------- Operations: Net Investment Income $ 47 $ 91 $ 67 $ (26) $ 235 $ -- Net Realized Gain (Loss) (154) (74) (3) (69) 43 (34) Net Change in Unrealized Appreciation (Depreciation) (517) (564) 62 6 (359) 118 -------------------------------------- --------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity (624) (547) 126 (89) (81) 84 -------------------------------------- --------------------------------------- Equity Transactions: Contract Owners' Net Payment 675 1,088 750 447 556 285 Annuity Payments (6) (2) -- -- -- -- Surrenders and Other (Net) (216) (119) (36) (200) (198) (22) Transfers from Other Divisions or Sponsors 2,557 2,889 1,993 1,011 1,921 1,498 Transfers to Other Divisions or Sponsors (2,372) (1,712) (333) (792) (842) (703) -------------------------------------- --------------------------------------- Increase (Decrease) in Equity Derived from Equity Transactions 638 2,144 2,374 466 1,437 1,058 -------------------------------------- --------------------------------------- Net Increase (Decrease) in Equity 14 1,597 2,500 377 1,356 1,142 Equity: Beginning of Period 4,097 2,500 -- 2,498 1,142 -- End of Period $ 4,111 $ 4,097 $ 2,500 $ 2,875 $ 2,498 $ 1,142 ====================================== =======================================
**The initial investment in this Division was made on April 30, 1999.
Russell Non-U.S. Division ** Russell Real Estate Securities Division** -------------------------------------- --------------------------------------- Year Ended Year Ended Period Ended Year Ended Year Ended Period Ended December December December December December December 31, 2001 31, 2000 31, 1999 31, 2001 31, 2000 31, 1999 -------------------------------------- --------------------------------------- Operations: Net Investment Income $ (17) $ 193 $ 33 $ 72 $ 34 $ 11 Net Realized Gain (Loss) (287) 21 10 95 40 (2) Net Change in Unrealized Appreciation (Depreciation) (480) (679) 154 (61) 97 (10) -------------------------------------- --------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity (784) (465) 197 106 171 (1) Equity Transactions: Contract Owners' Net Payment 505 712 189 316 234 33 Annuity Payments -- -- -- (4) -- -- Surrenders and Other (Net) (270) (203) (31) (127) (17) (1) Transfers from Other Divisions or Sponsors 1,782 3,039 1,372 2,039 3,101 324 Transfers to Other Divisions or Sponsors (1,616) (1,221) (344) (1,838) (2,492) (24) -------------------------------------- --------------------------------------- Increase (Decrease) in Equity Derived from Equity Transactions 401 2,327 1,186 386 826 332 -------------------------------------- --------------------------------------- Net Increase (Decrease) in Equity (383) 1,862 1,383 492 997 331 Equity: Beginning of Period 3,245 1,383 -- 1,328 331 -- End of Period $ 2,862 $ 3,245 $ 1,383 $ 1,820 $ 1,328 $ 331 ====================================== =======================================
**The initial investment in this Division was made on April 30, 1999. 29
Russell Core Bond Division** -------------------------------------- Year Ended Year Ended Period Ended December December December 31, 2001 31, 2000 31, 1999 -------------------------------------- Operations: Net Investment Income $ 62 $ 38 $ 20 Net Realized Gain/(Loss) 16 (23) (1) Net Change in Unrealized Appreciation/(Depreciation) (13) 68 (23) -------------------------------------- Increase/(Decrease) in Equity Derived from Investment Activity 65 83 (4) -------------------------------------- Equity Transactions: Contract Owners' Net Payment 182 242 71 Annuity Payments -- -- -- Surrenders and Other (Net) (122) (48) -- Transfers from Other Divisions or Sponsors 814 1,586 689 Transfers to Other Divisions or Sponsors (624) (1,369) (64) -------------------------------------- Increase/(Decrease) in Equity Derived from Equity Transactions 250 411 696 -------------------------------------- Net Increase/(Decrease) in Equity 315 494 692 Equity: Beginning of Period 1,186 692 -- End of Period $ 1,501 $ 1,186 $ 692 ======================================
**The initial investment in this Division was made on April 30, 1999. The Accompanying Notes are an Integral Part of the Financial Statements. 30 FINANCIAL HIGHLIGHTS NML VARIABLE ANNUITY ACCOUNT A (For a unit outstanding during the period)
Year or Unit Value Increase Period Beginning of (Decrease) Unit Value End Total Expense Division Ended Period in Equity of Period Return(2) Ratio(3) - ------------------------------------------------------------------------------------------------------------------------ Front Load Contract (Series QQ) Small Cap Growth Stock ........... 12/31/01 $1.972747 $(0.081899) $1.890848 -4.15% 0.40% T. Rowe Price Small Cap Value(1).. 12/31/01 1.000000 0.015860 1.015860 1.59% 0.40% Aggressive Growth Stock .......... 12/31/01 2.815081 (0.568557) 2.246524 -20.20% 0.40% International Growth Stock(1)..... 12/31/01 1.000000 (0.095536) 0.904464 -9.55% 0.40% Franklin Templeton International Equity ............. 12/31/01 1.940943 (0.278442) 1.662501 -14.35% 0.40% Index 400 Stock .................. 12/31/01 1.313674 (0.013865) 1.299809 -1.06% 0.40% Growth Stock ..................... 12/31/01 2.814641 (0.409854) 2.404787 -14.56% 0.40% J.P. Morgan Select Growth and Income Stock ................. 12/31/01 2.252648 (0.183473) 2.069175 -8.14% 0.40% Capital Guardian Domestic Equity(1) ........................ 12/31/01 1.000000 (0.023524) 0.976476 -2.35% 0.40% Index 500 Stock .................. 12/31/01 2.842665 (0.347775) 2.494890 -12.23% 0.40% Asset Allocation(1) .............. 12/31/01 1.000000 (0.022672) 0.977328 -2.27% 0.40% Balanced ......................... 12/31/01 2.105871 (0.074585) 2.031286 -3.54% 0.40% High Yield Bond .................. 12/31/01 1.409248 0.064933 1.474181 4.61% 0.40% Select Bond ...................... 12/31/01 1.461268 0.144995 1.606263 9.92% 0.40% Money Market ..................... 12/31/01 1.333271 0.046639 1.379910 3.50% 0.40% Russell Multi-Style Equity ....... 12/31/01 0.937760 (0.136467) 0.801293 -14.55% 0.40% Russell Aggressive Equity ........ 12/31/01 1.094433 (0.030180) 1.064253 -2.76% 0.40% Russell Non-U.S .................. 12/31/01 1.065355 (0.238046) 0.827309 -22.34% 0.40% Russell Real Estate Securities.... 12/31/01 1.172137 0.086778 1.258915 7.40% 0.40% Russell Core Bond ................ 12/31/01 1.083276 0.075539 1.158815 6.97% 0.40%
Year or Unit Value Increase Period Beginning of (Decrease) Unit Value End Total Expense Division Ended Period in Equity of Period Return(2) Ratio(3) - ------------------------------------------------------------------------------------------------------------------------ Back Load Contract (Series QQ) Small Cap Growth Stock 12/31/01 $1.945087 $(0.096594) $1.848493 -4.97% 1.25% T. Rowe Price Small Cap Value(1) 12/31/01 1.000000 0.012260 1.012260 1.23% 1.25% Aggressive Growth Stock 12/31/01 5.671037 (1.183853) 4.487184 -20.88% 1.25% International Growth Stock(1) 12/31/01 1.000000 (0.098742) 0.901258 -9.87% 1.25% Franklin Templeton International Equity 12/31/01 2.251266 (0.339347) 1.911919 -15.07% 1.25% Index 400 Stock 12/31/01 1.295242 (0.024552) 1.270690 -1.90% 1.25% Growth Stock 12/31/01 2.901600 (0.443580) 2.458020 -15.29% 1.25% J.P. Morgan Select Growth and Income Stock 12/31/01 2.322995 (0.207320) 2.115675 -8.92% 1.25% Capital Guardian Domestic Equity(1) 12/31/01 1.000000 (0.026996) 0.973004 -2.70% 1.25% Index 500 Stock 12/31/01 4.343830 (0.563806) 3.780024 -12.98% 1.25% Asset Allocation(1) 12/31/01 1.000000 (0.026138) 0.973862 -2.61% 1.25% Balanced 12/31/01 7.332002 (0.319640) 7.012362 -4.36% 1.25% High Yield Bond 12/31/01 1.431888 0.053276 1.485164 3.72% 1.25% Select Bond 12/31/01 7.541503 0.678091 8.219594 8.99% 1.25% Money Market 12/31/01 2.648821 0.069429 2.718250 2.62% 1.25% Russell Multi-Style Equity 12/31/01 0.924598 (0.141263) 0.783335 -15.28% 1.25% Russell Aggressive Equity 12/31/01 1.079072 (0.038660) 1.040412 -3.58% 1.25% Russell Non-U.S 12/31/01 1.050412 (0.241633) 0.808779 -23.00% 1.25% Russell Real Estate Securities 12/31/01 1.155691 0.075035 1.230726 6.49% 1.25% Russell Core Bond 12/31/01 1.068073 0.064799 1.132872 6.07% 1.25%
(1) Portfolio commenced operations on July 31, 2001. (2) Total Return includes deductions for management and other expenses; excludes deductions for sales loads and other charges. Returns are not annualized for periods less than one year. (3) Computed on an annualized basis. Does not include expenses of the underlying portfolio. The Accompanying Notes are an Integral Part of the Financial Statements. 31 NML VARIABLE ANNUITY ACCOUNT A NOTES TO FINANCIAL STATEMENTS Note 1--NML Variable Annuity Account A (the "Account") is a segregated asset account of The Northwestern Mutual Life Insurance Company ("Northwestern Mutual") used to fund variable annuity contracts ("contracts") for HR-10 and corporate pension and profit-sharing plans which qualify for special tax treatment under the Internal Revenue Code. Currently, two versions of the contract are offered: Front Load contracts with a sales charge up to 4% of purchase payments and Back Load contracts with a withdrawal charge of 0-8%. Note 2--The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principal accounting policies are summarized below. Note 3--All assets of each Division of the Account are invested in shares of the corresponding Portfolio of Northwestern Mutual Series Fund, Inc. and the Russell Insurance Funds (collectively known as the "Funds"). The shares are valued at the Funds' offering and redemption price per share. The Funds are diversified open-end investment companies registered under the Investment Company Act of 1940. Note 4--Annuity reserves are based on published annuity tables with age adjustment and benefit payments which reflect actual investment experience. For variable payment plans issued prior to January 1, 1974, annuity reserves are based on the 1955 American Annuity Table with assumed interest rates of 3% or 5%. For variable payment plans issued on or after January 1, 1974 and before January 1, 1985, annuity reserves are based on the 1971 Individual Annuity Table with assumed interest rates of 3-1/2% or 5%. For variable payment plans issued on or after January 1, 1985, annuity reserves are based on the 1983 Annuity Table a adjusted with assumed interest rates of 3-1/2% or 5%. Note 5--Dividend income from the Funds is recorded on the ex-date of the dividends. Transactions in the Funds' shares are accounted for on the trade date. The basis for determining cost on sale of the Funds' shares is identified cost. Purchases and sales of the Funds' shares for the years ended December 31 by each Division are shown below:
Purchases 2001 2000 1999 - --------- ---- ---- ---- Small Cap Growth Stock Division .................... $ 3,119,762 $17,753,003 $ 7,208,705 T. Rowe Price Small Cap Value Division# ............ 544,334 N/A N/A Aggressive Growth Division ......................... 23,504,270 28,757,540 9,958,208 International Growth Stock Division# ............... 164,575 N/A N/A Franklin Templeton International Equity Division.... 5,754,067 7,202,129 7,974,310 Index 400 Stock Division ........................... 4,038,686 6,518,127 2,853,810 Growth Stock Division .............................. 6,550,789 10,541,938 11,793,727 J.P. Morgan Select Growth & Income Stock Division... 3,711,176 3,648,384 9,919,814 Capital Guardian Domestic Equity Division# ......... 277,299 N/A N/A Index 500 Stock Division ........................... 11,216,245 12,680,244 20,410,794 Asset Allocation# .................................. 787,179 N/A N/A Balanced Division .................................. 27,209,702 27,444,656 44,419,512 High Yield Bond Division ........................... 1,951,937 1,229,855 2,095,955 Select Bond Division ............................... 6,619,324 3,277,738 4,931,954 Money Market Division .............................. 15,154,072 17,944,328 20,905,226 Russell Multi-Style Division ....................... 1,097,267 3,100,268 2,666,402 Russell Aggressive Equity Division ................. 871,028 2,220,376 1,593,605 Russell Non-U.S. Division .......................... 973,304 3,003,918 1,498,221 Russell Real Estate Securities Division ............ 1,738,713 2,492,535 357,723 Russell Core Bond Division ......................... 586,923 1,780,876 758,431
# Initial investment in this division was made on July 31, 2001. 32
SALES 2001 2000 1999 - ----- ---- ---- ---- Small Cap Growth Stock Division .................... $ 3,107,912 $ 5,283,832 $ 3,374,541 T. Rowe Price Small Cap Value Division# ............ 1,251 N/A N/A Aggressive Growth Division ......................... 12,700,645 19,230,800 22,717,778 International Growth Stock Division# ............... 1 N/A N/A Franklin Templeton International Equity Division.... 6,134,228 8,640,998 10,228,782 Index 400 Stock Division ........................... 1,955,209 1,353,450 821,170 Growth Stock Division .............................. 4,859,534 8,573,786 5,237,895 J.P. Morgan Select Growth & Income Stock Division... 3,793,450 9,525,030 9,006,288 Capital Guardian Domestic Equity Division# ......... 36 N/A N/A Index 500 Stock Division ........................... 19,112,689 29,656,415 20,135,029 Asset Allocation Division# ......................... 8 N/A N/A Balanced Division .................................. 36,676,777 56,250,284 50,211,717 High Yield Bond Division ........................... 1,795,043 2,157,663 3,579,846 Select Bond Division ............................... 3,765,014 5,660,540 6,390,659 Money Market Division .............................. 13,474,404 21,431,894 18,848,756 Russell Multi-Style Division ....................... 483,989 864,610 225,476 Russell Aggressive Equity Division ................. 364,836 548,989 535,192 Russell Non-U.S. Division .......................... 616,921 484,146 279,802 Russell Real Estate Securities Division ............ 1,297,610 1,636,969 13,625 Russell Core Bond Division ......................... 249,167 1,332,763 41,756
# Initial Investment in this division was made on July 31, 2001. Note 6--A deduction for annuity rate and expense guarantees is determined daily and paid to Northwestern Mutual as compensation for assuming the risk that annuity payments will continue for longer periods than anticipated because the annuitants as a group live longer than expected, and the risk that the charges made by Northwestern Mutual may be insufficient to cover the actual costs incurred in connection with the contracts. For contracts issued prior to December 17, 1981, the deduction is at an annual rate of 3/4 of 1% of the net assets of each Division attributable to these contracts. For these contracts, the rate may be increased or decreased by the Board of Trustees of Northwestern Mutual not to exceed a 1% annual rate. For contracts issued after December 16, 1981 and prior to March 31, 1995, the deduction is at an annual rate of 1-1/4% of the net assets of each Division attributable to these contracts. For these contracts, the rate may be increased or decreased by the Board of Trustees of Northwestern Mutual not to exceed a 1-1/2% annual rate. For contracts issued on or after March 31, 1995 and prior to March 31, 2000, for the Front Load version and the Back Load version, the deduction for annuity rate and expense guarantees is determined daily at annual rates of 4/10 of 1% and 1-1/4%, respectively, of the net assets of each Division attributable to these contracts and is paid to Northwestern Mutual. For these contracts, the rates may be increased or decreased by the Board of Trustees of Northwestern Mutual not to exceed 3/4 of 1% and 1-1/2%, respectively. For contracts issued on or after March 31, 2000, for the Front Load version and the Back Load version, the deduction for annuity rate and expense guarantees is determined daily at annual rates of 5/10 of 1% and 1-1/4%, respectively, of the net assets of each Division attributable to these contracts and is paid to Northwestern Mutual. For these contracts, the rates may be increased or decreased by the Board of Trustees of Northwestern Mutual not to exceed 3/4 of 1% and 1-1/2% annual rates, respectively. The current charges will not be increased for five years from the date of the most recent Prospectus. Since 1995, Northwestern Mutual has paid a dividend to certain contracts. The dividend is reinvested in the Account and has been reflected as a Contract Owners' Net Payment in the accompanying financial statements. Note 7--Northwestern Mutual is taxed as a "life insurance company" under the Internal Revenue Code and the operations of the Account form a part of and are taxed with those of Northwestern Mutual. Under current law, no federal income taxes are payable with respect to the Account. Accordingly, no provision for any such liability has been made. 33 Note 8--Equity Values by Division for the year ended December 31, 2001 are shown below: (in thousands, except accumulation unit values)
Contracts Issued: Contracts Issued: After December 16, 1981 and Prior to December 17, 1981 Prior to March 31, 1995 ---------------------------------------------------------------------------------------- Accumulation Accumulation Division Unit Units Unit Units Value Outstanding Equity Value Outstanding Equity ---------------------------------------------------------------------------------------- Small Cap Growth Stock $1.873388 243 $ 454 $1.848493 5,700 $ 10,537 T. Rowe Price Small Cap Value 1.014387 11 11 1.012260 293 296 Aggressive Growth Stock 4.742335 305 1,444 4.487184 12,273 55,072 International Growth Stock 0.903153 11 10 0.901258 91 82 Franklin Templeton International Equity 1.996677 340 679 1.911919 11,504 21,995 Index 400 Stock 1.287807 335 431 1.270690 4,225 5,368 Growth Stock 2.554121 311 795 2.458020 8,243 20,262 J.P. Morgan Select Growth and Income 2.198364 182 400 2.115675 6,685 14,144 Capital Guardian Domestic Equity 0.975051 11 11 0.973004 193 188 Index 500 Equity 3.994853 4,934 19,712 3.780024 15,617 59,034 Asset Allocation 0.975908 11 11 0.973862 477 464 Balanced 7.750204 1,566 12,135 7.012362 26,333 184,658 High Yield Bond 1.543249 74 114 1.485164 1,881 2,794 Select Bond 9.086342 515 4,675 8.219594 1,651 13,573 Money Market 3.004024 766 2,301 2.718250 6,010 16,336 Russell Multi-Style Equity 0.793888 27 21 0.783335 2,727 2,136 Russell Aggressive Equity 1.054435 64 67 1.040412 1,623 1,689 Russell Non-U.S 0.819680 52 42 0.808779 2,184 1,767 Russell Real Estate Securities 1.247315 23 28 1.230726 812 999 Russell Core Bond 1.148123 17 19 1.132872 793 898 ------- -------- Equity 43,360 412,292 Annuity Reserves 3,481 9,091 ------- -------- Total Equity $46,841 $421,383 ======= ========
34
Contracts Issued: Contracts Issued: On or After March 31, 1995 and On or After March 31, 1995 and Prior to March 31, 2000 Prior to March 31, 2000 Front Load Version Back Load Version ---------------------------------------------------------------------------------------- Accumulation Accumulation Division Unit Units Unit Units Value Outstanding Equity Value Outstanding Equity ---------------------------------------------------------------------------------------- Small Cap Growth Stock $1.890848 324 $ 612 $1.848493 1,809 $3,344 T. Rowe Small Cap Value 1.015860 96 98 1.012260 151 153 Aggressive Growth Stock 2.246524 1,271 2,856 4.487184 3,733 16,752 International Growth Stock 0.904464 8 7 0.901258 31 28 Franklin Templeton International Equity 1.662501 870 1,446 1.911919 3,194 6,106 Index 400 Stock 1.299809 253 329 1.270690 1,706 2,167 Growth Stock 2.404787 677 1,628 2.458020 3,786 9,305 J.P. Morgan Select Growth and Income 2.069175 657 1,359 2.115675 2,910 6,156 Capital Guardian Domestic Equity 0.976476 7 6 0.973004 71 69 Index 500 Equity 2.494890 1,234 3,078 3.780024 5,051 19,091 Asset Allocation 0.977328 83 81 0.973862 215 209 Balanced 2.031286 1,745 3,545 7.012362 2,779 19,490 High Yield Bond 1.474181 211 312 1.485164 1,073 1,593 Select Bond 1.606263 301 483 8.219594 437 3,595 Money Market 1.379910 2,064 2,848 2.718250 1,759 4,782 Russell Multi-Style Equity 0.801293 609 488 0.783335 1,505 1,179 Russell Aggressive Equity 1.064253 278 296 1.040412 685 713 Russell Non-U.S. 0.827309 254 210 0.808779 820 663 Russell Real Estate Securities 1.258915 97 122 1.230726 395 486 Russell Core Bond 1.158815 21 24 1.132872 367 416 ------- -------- Equity 19,828 96,297 Annuity Reserves 295 402 ------- -------- Total Equity $20,123 $96,699 ======= ========
35
Contracts Issued: Contracts Issued: On or After March 31, 2000 On or After March 31, 2000 Front Load Version Back Load Version ---------------------------------------------------------------------------------------- Accumulation Accumulation Division Unit Units Unit Units Value Outstanding Equity Value Outstanding Equity ---------------------------------------------------------------------------------------- Small Cap Growth Stock $0.865935 140 $122 $1.848493 284 $525 T. Rowe Small Cap Value 1.015445 - - 1.012260 26 26 Aggressive Growth Stock 0.719033 168 120 4.487184 243 1,093 International Growth Stock 0.904093 18 16 0.901258 15 14 Franklin Templeton International Equity 0.851962 93 79 1.911919 146 279 Index 400 Stock 1.023646 164 167 1.270690 362 460 Growth Stock 0.782628 66 52 2.458020 253 622 J.P. Morgan Select Growth and Income 0.814020 138 113 2.115675 124 263 Capital Guardian Domestic Equity 0.976072 8 8 0.973004 8 8 Index 500 Equity 0.779001 231 180 3.780024 277 1,049 Asset Allocation 0.976926 - - 0.973862 35 34 Balanced 0.937735 819 768 7.012362 143 1,000 High Yield Bond 1.006773 70 71 1.485164 52 77 Select Bond 1.184790 96 114 8.219594 26 214 Money Market 1.079788 1 1 2.718250 180 489 Russell Multi-Style Equity 0.751294 77 58 0.783335 137 107 Russell Aggressive Equity 0.903873 48 43 1.040412 64 67 Russell Non-U.S. 0.659991 92 61 0.808779 114 92 Russell Real Estate Securities 1.331406 35 46 1.230726 69 85 Russell Core Bond 1.148513 38 43 1.132872 89 100 ------ -------- Equity 2,062 6,604 Annuity Reserves - - ------ -------- Total Equity $2,062 $6,604 ====== ========
36 Equity Values by Division for the year ended December 31, 2000 are shown below:
CONTRACTS ISSUED: CONTRACTS ISSUED: AFTER DECEMBER 16, 1981 AND PRIOR TO DECEMBER 17, 1981 PRIOR TO MARCH 31, 1995 -------------------------------------------------------------------- ACCUMULATION UNITS ACCUMULATION UNITS DIVISION UNIT VALUE OUTSTANDING EQUITY UNIT VALUE OUTSTANDING EQUITY - -------- ------------------------------------------------------------------------------- Small Cap Growth Stock........... $1.961375 261,141 $ 512,195 $1.945087 5,885,472 $ 11,447,755 Aggressive Growth Stock.......... 5.963354 388,193 2,314,933 5.671037 13,812,637 78,331,974 International Equity............. 2.339241 375,719 878,897 2.251266 13,283,821 29,905,413 Index 400 Stock.................. 1.306094 288,383 376,655 1.295242 3,499,606 4,532,837 Growth Stock..................... 2.999890 334,831 1,004,457 2.901600 8,296,584 24,073,369 Growth and Income................ 2.401649 180,854 434,349 2.322995 6,946,403 16,136,459 Index 500 Stock.................. 4.567635 5,706,738 26,066,296 4.343830 17,587,215 76,395,873 Balanced......................... 8.062822 2,213,090 17,843,753 7.332002 29,328,998 215,040,269 High Yield Bond.................. 1.480422 80,510 119,189 1.431888 2,029,262 2,905,676 Select Bond...................... 8.294952 495,713 4,111,913 7.541503 1,634,871 12,329,386 Money Market..................... 2.912624 732,845 2,134,502 2.648821 6,248,637 16,551,521 Russell Multi-Style Equity....... 0.932346 60,602 55,998 0.924598 2,365,883 2,187,490 Russell Aggressive Equity........ 1.088117 58,734 63,909 1.079072 1,455,003 1,570,053 Russell Non-U.S.................. 1.059216 51,562 54,615 1.050412 2,019,287 2,121,083 Russell Real Estate Securities... 1.165389 25,462 29,673 1.155691 652,555 754,152 Russell Core Bond................ 1.077032 22,616 24,358 1.068073 728,086 777,649 ------------ ------------ Equity........................... 56,025,692 495,060,959 ============ ============ Annuity Reserves................. 3,935,428 9,496,138 ------------ ------------ Total Equity..................... $ 59,961,120 $504,557,097 ============ ============
CONTRACTS ISSUED: ON OR AFTER MARCH 31, 1995 CONTRACTS ISSUED: ON OR AFTER MARCH 31, 1995 AND PRIOR TO MARCH 31, 2000 AND PRIOR TO MARCH 31, 2000 FRONT LOAD VERSION BACK LOAD VERSION ------------------ ----------------- ACCUMULATION UNITS ACCUMULATION UNITS DIVISION UNIT VALUE OUTSTANDING EQUITY UNIT VALUE OUTSTANDING EQUITY - -------- ---------- ----------- ------ ---------- ----------- ------ Small Cap Growth Stock........... $1.972747 321,211 $ 633,669 $1.945087 1,675,122 $ 3,258,259 Aggressive Growth Stock.......... 2.815081 1,322,419 3,722,716 5.671037 3,831,806 21,730,312 International Equity............. 1.940943 950,116 1,844,122 2.251266 3,242,296 7,299,271 Index 400 Stock.................. 1.313674 226,675 297,777 1.295242 1,069,393 1,385,123 Growth Stock..................... 2.814641 688,920 1,939,063 2.901600 3,697,631 10,729,045 Growth and Income................ 2.252648 721,964 1,626,331 2.322995 3,046,744 7,077,571 Index 500 Stock.................. 2.842665 1,267,405 3,602,808 4.343830 5,436,581 23,615,584 Balanced......................... 2.105871 1,936,776 4,078,602 7.332002 2,907,554 21,318,188 High Yield Bond.................. 1.409248 278,582 392,591 1.431888 1,154,997 1,653,826 Select Bond...................... 1.461268 352,753 515,467 7.541503 353,449 2,665,540 Money Market..................... 1.333271 1,852,761 2,470,232 2.648821 1,397,046 3,700,525 Russell Multi-Style Equity....... 0.937760 653,396 612,729 0.924598 1,250,824 1,156,510 Russell Aggressive Equity........ 1.094433 205,450 224,852 1.079072 558,206 602,345 Russell Non-U.S.................. 1.065355 239,460 255,110 1.050412 734,746 771,786 Russell Real Estate Securities... 1.172137 73,595 86,263 1.155691 324,452 374,967 Russell Core Bond................ 1.083276 35,410 38,359 1.068073 310,796 331,953 ------------ ------------ Equity........................ 22,340,691 107,670,805 Annuity Reserves.............. 357,122 485,706 ------------ ------------ Total Equity.................. $ 22,697,813 $108,156,511 ============ ============
37
CONTRACTS ISSUED: CONTRACTS ISSUED: ON OR AFTER MARCH 31, 2000 ON OR AFTER MARCH 31, 2000 FRONT LOAD VERSION BACK LOAD VERSION ------------------ ----------------- ACCUMULATION UNITS ACCUMULATION UNITS DIVISION UNIT VALUE OUTSTANDING EQUITY UNIT VALUE OUTSTANDING EQUITY - -------- ---------- ----------- ------ ---------- ----------- ------ Small Cap Growth Stock........... $0.904342 87,187 $ 78,847 $1.945087 69,946 $ 136,052 Aggressive Growth Stock.......... 0.901909 54,097 48,790 5.671037 35,017 198,585 International Equity............. 0.995643 24,076 23,971 2.251266 42,413 95,483 Index 400 Stock.................. 1.035589 114,473 118,547 1.295242 48,800 63,208 Growth Stock..................... 0.916924 30,267 27,752 2.901600 63,702 184,837 Growth and Income................ 0.887072 31,528 27,968 2.322995 15,035 34,927 Index 500 Stock.................. 0.888477 24,617 21,872 4.343830 54,215 235,499 Balanced......................... 0.973123 52,519 51,107 7.332002 46,538 341,214 High Yield Bond.................. 0.963375 - - 1.431888 6,687 9,576 Select Bond...................... 1.078901 537 580 7.541503 4,112 31,009 Money Market..................... 1.044325 538 562 2.648821 22,631 59,945 Russell Multi-Style Equity....... 0.880119 1,678 1,477 0.924598 17,408 16,096 Russell Aggressive Equity........ 0.930436 17,481 16,265 1.079072 18,584 20,053 Russell Non-U.S.................. 0.850723 11,781 10,022 1.050412 30,216 31,739 Russell Real Estate Securities... 1.240862 60,731 75,359 1.155691 5,539 6,401 Russell Core Bond................ 1.074705 - - 1.068073 12,988 13,872 ------------ ---------- Equity........................ 503,119 1,478,496 Annuity Reserves.............. - - ------------ ---------- Total Equity.................. $ 503,119 $1,478,496 ============ ==========
38 REPORT OF INDEPENDENT ACCOUNTANTS To The Northwestern Mutual Life Insurance Company and Contract Owners of NML Variable Annuity Account A In our opinion, the accompanying combined statements of assets and liabilities and the related combined and separate statements of operations and of changes in equity and the financial highlights, present fairly, in all material respects, the financial position of NML Variable Annuity Account A and its Small Cap Growth Stock Division, T. Rowe Price Small Cap Value Division, Aggressive Growth Stock Division, International Growth Stock Division, Franklin Templeton International Equity Division, Index 400 Stock Division, Growth Stock Division, J.P. Morgan Select Growth & Income Stock Division, Capital Guardian Domestic Equity Division, Index 500 Stock Division, Asset Allocation Division, Balanced Division, High Yield Bond Division, Select Bond Division, Money Market Division, Russell Multi-Style Equity Division, Russell Aggressive Equity Division, Russell Non-U.S. Division, Russell Real Estate Securities Division and Russell Core Bond Division thereof at December 31, 2001 and 2000, the results of each of their operations and the changes in each of their equity for each of the three years or the periods ended December 31, 2001 and each of their financial highlights for the year or period then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of The Northwestern Mutual Life Insurance Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, 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, 2001 and 2000 with Northwestern Mutual Series Fund, Inc., and the Russell Insurance Funds, provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Milwaukee, Wisconsin January 25, 2002 39 NML VARIABLE ANNUITY ACCOUNT C STATEMENTS OF ASSETS AND LIABILITIES (IN THOUSANDS)
DECEMBER 31 ----------- ASSETS 2001 2000 ---- ---- Investments at Market Value: Northwestern Mutual Series Fund, Inc. Small Cap Growth Stock 2001: 11,812 shares (cost $22,806) .............. $ 21,098 2000: 10,796 shares (cost $21,732) .............. $ 20,038 T. Rowe Price Small Cap Value# 2001: 162 shares (cost $159) .................... 165 Aggressive Growth Stock 2001: 39,756 shares (cost $140,948) ............. 112,232 2000: 35,198 shares (cost $127,672) ............. 157,369 International Growth Stock# 2001: 41 shares (cost $39) ...................... 38 Franklin Templeton International Equity 2001: 38,694 shares (cost $58,397) .............. 48,902 2000: 40,104 shares (cost $66,609) .............. 65,489 Index 400 Stock 2001: 15,015 shares (cost $17,465) .............. 16,849 2000: 9,964 shares (cost $12,291) ............... 11,399 Growth Stock 2001: 16,290 shares (cost $37,853) .............. 33,016 2000: 17,300 shares (cost $39,131) .............. 42,696 J.P. Morgan Select Growth and Income Stock 2001: 20,895 shares (cost $30,763) .............. 25,473 2000: 21,712 shares (cost $32,369) .............. 29,723 Capital Guardian Domestic Equity# 2001: 216 shares (cost $204) .................... 211 Index 500 Stock 2001: 47,737 shares (cost $124,634) ............. 131,489 2000: 50,895 shares (cost $127,244) ............. 173,398 Asset Allocation# 2001: 47 shares (cost $45) ...................... 46 Balanced 2001: 63,722 shares (cost $122,051) ............. 115,972 2000: 66,868 shares (cost $124,703) ............. 136,009 High Yield Bond 2001: 7,061 shares (cost $5,126) ................ 4,583 2000: 6,135 shares (cost $5,231) ................ 4,239 Select Bond 2001: 14,446 shares (cost $16,739) .............. 17,379 2000: 12,124 shares (cost $13,965) .............. 14,027 Money Market 2001: 15,185 shares (cost $15,185) .............. 15,185 2000: 12,102 shares (cost $12,102) .............. 12,102 Russell Insurance Funds Multi-Style Equity 2001: 118 shares (cost $1,766) .................. 1,403 2000: 124 shares (cost $1,964) .................. 1,745 Aggressive Equity 2001: 62 shares (cost $778) ..................... 710 2000: 55 shares (cost $720) ..................... 643 Non-U.S 2001: 78 shares (cost $957) ..................... 672 2000: 73 shares (cost $945) ..................... 818 Real Estate Securities 2001: 614 shares (cost $6,485) .................. 6,600 2000: 248 shares (cost $2,534) .................. 2,654 Core Bond 2001: 78 shares (cost $798) ..................... 793 2000: 48 shares (cost $477) ..................... 486 -------- -------- 552,816 672,835 Due from Sales of Fund Shares ......................... 13 195 Due from Northwestern Mutual Life Insurance Company ... 37 16 -------- -------- Total Assets .................................... $552,866 $673,046 ======== ======== LIABILITIES Due to Northwestern Mutual Life Insurance Company .. $ 13 $ 195 Due on Purchase of Fund Shares ..................... 37 16 -------- -------- Total Liabilities ............................... $ 50 $ 211 ======== ======== EQUITY Group Variable Annuity Contracts Issued: Before December 17, 1981 or between April 30, 1984 and December 31, 1991 ........................... 390,128 459,963 After December 16, 1981 and Prior to May 1, 1984 ... 3,636 4,160 After December 31, 1991 - Front Load Version ....... 29,953 42,946 After December 31, 1991 - Simplified Load Version .. 129,099 165,766 -------- -------- Total Equity .................................... $552,816 $672,835 -------- -------- Total Liabilities and Equity .................... $552,866 $673,046 ======== ========
# The initial investment was made on July 31, 2001. The Accompanying Notes are an Integral Part of the Financial Statements. 40 NML VARIABLE ANNUITY ACCOUNT C STATEMENTS OF OPERATIONS (IN THOUSANDS)
Combined Small Cap Growth Stock Division** -------------------------------------------- -------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Period Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 -------------------------------------------- -------------------------------------------- Investment Income Dividend Income $54,521 $54,949 $43,813 $2 $99 $32 Annuity Rate and Expense Guarantees 2,007 2,896 3,444 28 26 2 -------------------------------------------- -------------------------------------------- Net Investment Income (Loss) 52,514 52,053 40,369 (26) 73 30 -------------------------------------------- -------------------------------------------- Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments 8,705 54,861 41,106 (886) 295 1 Unrealized Appreciation (Depreciation) During the Year (133,527) (121,850) 36,856 (14) (1,897) 202 -------------------------------------------- -------------------------------------------- Net Gain (Loss) on Investments (124,822) (66,989) 77,962 (900) (1,602) 203 -------------------------------------------- -------------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity $72,308 $(14,936) $118,331 $(926) $(1,529) $233 ============================================ ============================================
**The initial investment in this Division was made on July 31, 2001. 41
T. Rowe Price Small Cap International Value Growth Stock Division # Aggressive Growth Stock Division Division # ------------- -------------------------------------------- ------------- Period Ended Year Ended Year Ended Year Ended Period Ended December 31, December 31, December 31, December 31, December 31, 2001 2001 2000 1999 2001 ------------ -------------------------------------------- -------------- Investment Income Dividend Income $-- $27,284 $20,221 $3,671 $-- Annuity Rate and Expense Guarantees -- 358 614 576 -- ------------ -------------------------------------------- ------------- Net Investment Income (Loss) -- 26,926 19,607 3,095 -- ------------ -------------------------------------------- ------------- Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments -- 511 9,000 10,070 -- Unrealized Appreciation (Depreciation) During the Year 5 (58,412) (20,677) 28,576 (2) ------------ -------------------------------------------- ------------- Net Gain (Loss) on Investments 5 (57,901) (11,677) 38,646 (2) ------------ -------------------------------------------- ------------- Increase (Decrease) in Equity Derived from Investment Activity $5 $(30,975) $7,930 $41,741 $(2) ============ ============================================ =============
# The initial investment in this Division was made on July 31, 2001
Franklin Templeton International Equity Division Index 400 Stock Division** -------------------------------------------- -------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Period Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 -------------------------------------------- -------------------------------------------- Investment Income Dividend Income $5,914 $5,036 $8,184 $194 $1,180 $6 Annuity Rate and Expense Guarantees 121 186 254 19 11 2 -------------------------------------------- -------------------------------------------- Net Investment Income (Loss) 5,793 4,850 7,930 175 1,169 4 -------------------------------------------- -------------------------------------------- Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments (6,258) 3,131 3,203 (575) 98 1 Unrealized Appreciation (Depreciation) During the Year (8,375) (8,616) 837 275 (923) 31 -------------------------------------------- -------------------------------------------- Net Gain (Loss) on Investments (14,633) (5,485) 4,040 (300) (825) 32 -------------------------------------------- -------------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity $(8,840) $(635) $11,970 $(125) $344 $36 ============================================ ============================================
**The initial investment in this Division was made on April 30, 1999. 42
J.P. Morgan Select Growth and Income Growth 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, 2001 2000 1999 2001 2000 1999 -------------------------------------------- --------------------------------------------- Investment Income Dividend Income $1,614 $2,101 $1,223 $957 $2,123 $4,566 Annuity Rate and Expense Guarantees 111 152 137 124 178 208 -------------------------------------------- --------------------------------------------- Net Investment Income (Loss) 1,503 1,949 1,086 833 1,945 4,358 -------------------------------------------- --------------------------------------------- Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments 777 2,717 2,143 (545) (276) 1,267 Unrealized Appreciation (Depreciation) During the Year (8,402) (5,875) 3,567 (2,643) (4,224) (3,007) -------------------------------------------- --------------------------------------------- Net Gain (Loss) on Investments (7,625) (3,158) 5,710 (3,188) (4,500) (1,740) -------------------------------------------- --------------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity $(6,122) $(1,209) $6,796 $(2,355) $(2,555) $2,618 ============================================ =============================================
Capital Guardian Domestic Asset Equity Allocation Division # Index 500 Stock Division Division # ------------ -------------------------------------------- ------------ Period Ended Year Ended Year Ended Year Ended Period Ended December 31, December 31, December 31, December 31, December 31, 2001 2001 2000 1999 2001 ------------ -------------------------------------------- ------------ Investment Income Dividend Income $-- $6,550 $8,370 $4,675 $-- Annuity Rate and Expense Guarantees -- 420 688 895 -- ------------ -------------------------------------------- ------------ Net Investment Income (Loss) -- 6,130 7,682 3,780 -- ------------ -------------------------------------------- ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments -- 12,916 27,391 13,954 -- Unrealized Appreciation (Depreciation) During the Year 6 (39,298) (53,361) 19,628 -- ------------ -------------------------------------------- ------------ Net Gain (Loss) on Investments 6 (26,382) (25,970) 33,582 -- ------------ -------------------------------------------- ------------ Increase (Decrease) in Equity Derived from Investment Activity $6 $(20,252) $(18,288) $37,362 $-- ============ ============================================ ============
# The initial investment in this Division was made on July 31, 2001 43
Balanced Division High Yield 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, 2001 2000 1999 2001 2000 1999 --------------------------------------------- --------------------------------------------- Investment Income Dividend Income $9,705 $12,909 $18,031 $487 $558 $759 Annuity Rate and Expense Guarantees 497 688 954 22 30 35 --------------------------------------------- --------------------------------------------- Net Investment Income (Loss) 9,208 12,221 17,077 465 528 724 --------------------------------------------- --------------------------------------------- Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments 3,486 14,398 11,189 (737) (1,290) (775) Unrealized Appreciation (Depreciation) During the Year (17,384) (27,427) (11,272) 448 501 (39) --------------------------------------------- --------------------------------------------- Net Gain (Loss) on Investments (13,898) (13,029) (83) (289) (789) (814) --------------------------------------------- --------------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity $(4,690) $(808) $16,994 $176 $(261) $(90) ============================================= =============================================
Select Bond Division Money Market 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, 2001 2000 1999 2001 2000 1999 --------------------------------------------- -------------------------------------------- Investment Income Dividend Income $911 $1,093 $1,570 $523 $971 $1,015 Annuity Rate and Expense Guarantees 99 109 136 163 174 236 --------------------------------------------- -------------------------------------------- Net Investment Income (Loss) 812 984 1,434 360 797 779 --------------------------------------------- -------------------------------------------- Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments 32 (655) 48 -- -- -- Unrealized Appreciation (Depreciation) During the Year 578 1,084 (1,810) -- -- -- --------------------------------------------- -------------------------------------------- Net Gain (Loss) on Investments 610 429 (1,762) -- -- -- --------------------------------------------- -------------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity $1,422 $1,413 $(328) $360 $797 $779 ============================================= ============================================
44
Russell Multi-Style Equity Division ** Russell Aggressive Equity Division** -------------------------------------------- -------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Period Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 -------------------------------------------- -------------------------------------------- Investment Income Dividend Income $37 $79 $48 $1 $74 $1 Annuity Rate and Expense Guarantees 14 19 5 7 7 1 -------------------------------------------- -------------------------------------------- Net Investment Income (Loss) 23 60 43 (6) 67 -- -------------------------------------------- -------------------------------------------- Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments (120) (20) -- (17) 24 5 Unrealized Appreciation (Depreciation) During the Year (144) (282) 64 9 (103) 26 -------------------------------------------- -------------------------------------------- Net Gain (Loss) on Investments (264) (302) 64 (8) (79) 31 -------------------------------------------- -------------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity $(241) $(242) $107 $(14) $(12) $31 ============================================ ============================================
**The initial investment in this Division was made on April 30, 1999.
Russell Non-U.S. Division ** Russell Real Estate Securities Division** -------------------------------------------- --------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Period Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 -------------------------------------------- --------------------------------------------- Investment Income Dividend Income $4 $61 $13 $290 $52 $4 Annuity Rate and Expense Guarantees 8 8 2 9 2 -- -------------------------------------------- --------------------------------------------- Net Investment Income (Loss) (4) 53 11 281 50 4 -------------------------------------------- --------------------------------------------- Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments (33) 15 -- 140 36 -- Unrealized Appreciation (Depreciation) During the Year (158) (199) 73 (4) 126 (6) -------------------------------------------- --------------------------------------------- Net Gain (Loss) on Investments (191) (184) 73 136 162 (6) -------------------------------------------- --------------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity $(195) $(131) $84 $417 $212 $(2) ============================================ =============================================
**The initial investment in this Division was made on April 30, 1999. 45
Russell Core Bond Division** --------------------------------------------- Year Ended Year Ended Period Ended December 31, December 31, December 31, 2001 2000 1999 --------------------------------------------- Investment Income Dividend Income $48 $22 $15 Annuity Rate and Expense Guarantees 7 4 1 --------------------------------------------- Net Investment Income (Loss) 41 18 14 --------------------------------------------- Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments 14 (3) -- Unrealized Appreciation (Depreciation) During the Year (12) 23 (14) --------------------------------------------- Net Gain (Loss) on Investments 2 20 (14) --------------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity $43 $38 $-- =============================================
**The initial investment in this Division was made on April 30, 1999. The Accompanying Notes are an Integral Part of the Financial Statements. NML VARIABLE ANNUITY ACCOUNT C STATEMENTS OF CHANGES IN EQUITY (IN THOUSANDS)
Combined Small Cap Growth Stock Division** --------------------------------------------- --------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Period Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 --------------------------------------------- --------------------------------------------- Operations: Net Investment Income $52,514 $52,053 $40,369 $(26) $73 $30 Net Realized Gain (Loss) 8,705 54,861 41,106 (886) 295 1 Net Change in Unrealized Appreciation (Depreciation) (133,527) (121,850) 36,856 (14) (1,897) 202 --------------------------------------------- --------------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity (72,308) (14,936) 118,331 (926) (1,529) 233 --------------------------------------------- --------------------------------------------- Equity Transactions: Contract Owners' Net Payment 90,774 103,967 74,900 3,160 4,045 184 Annuity Payments (64) (75) (67) -- -- -- Surrenders and Other (Net) (140,073) (135,735) (119,041) (3,044) (373) 1 Transfers from Other Divisions or Sponsors 55,326 91,474 70,710 4,837 17,508 581 Transfers to Other Divisions or Sponsors (53,674) (92,576) (69,203) (2,967) (562) (50) --------------------------------------------- --------------------------------------------- Increase (Decrease) in Equity Derived from Equity Transactions (47,711) (32,945) (42,701) 1,986 20,618 716 --------------------------------------------- --------------------------------------------- Net Increase (Decrease) in Equity (120,019) (47,881) 75,630 1,060 19,089 949 Equity: Beginning of Period 672,835 720,716 645,086 20,038 949 -- End of Period $552,816 $672,835 $720,716 $21,098 $20,038 $949 ============================================= =============================================
**The initial investment in this Division was made on April 30, 1999. 46
T. Rowe Price Small Cap International Value Growth Stock Division # Aggressive Growth Stock Divisions Division # ------------ --------------------------------------------- ------------- Period Ended Year Ended Year Ended Year Ended Period Ended December 31, December 31, December 31, December 31, December 31, 2001 2001 2000 1999 2001 ------------ --------------------------------------------- ------------- Operations: Net Investment Income $-- $26,926 $19,607 $3,095 -- Net Realized Gain (Loss) -- 511 9,000 10,070 -- Net Change in Unrealized Appreciation (Depreciation) 5 (58,412) (20,677) 28,576 (2) ------------ --------------------------------------------- ------------- Increase (Decrease) in Equity Derived from Investment Activity 5 (30,975) 7,930 41,741 (2) ------------ --------------------------------------------- ------------- Equity Transactions: Contract Owners' Net Payment 94 13,427 23,615 13,136 11 Annuity Payments -- (3) (5) (3) -- Surrenders and Other (Net) -- (23,656) (20,763) (22,025) -- Transfers from Other Divisions or Sponsors 66 4,001 16,356 4,719 29 Transfers to Other Divisions or Sponsors -- (7,931) (9,504) (10,185) -- ------------ --------------------------------------------- ------------- Increase (Decrease) in Equity Derived from Equity Transactions 160 (14,162) 9,699 (14,358) 40 ------------ --------------------------------------------- ------------- Net Increase (Decrease) in Equity 165 (45,137) 17,629 27,383 38 Equity: Beginning of Period -- 157,369 139,740 112,357 -- End of Period $165 $112,232 $157,369 $139,740 $38 ============ ============================================= =============
# The initial investment in this Division was made on July 31, 2001
Franklin Templeton International Equity Division Index 400 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, 2001 2000 1999 2001 2000 1999 --------------------------------------------- -------------------------------------------- Operations: Net Investment Income $5,793 $4,850 $7,930 $175 $1,169 $4 Net Realized Gain (Loss) (6,258) 3,131 3,203 (575) 98 1 Net Change in Unrealized Appreciation (Depreciation) (8,375) (8,616) 837 275 (923) 31 --------------------------------------------- -------------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity (8,840) (635) 11,970 (125) 344 36 --------------------------------------------- -------------------------------------------- Equity Transactions: Contract Owners' Net Payment 27,273 22,162 6,164 3,343 881 174 Annuity Payments (2) (2) (2) -- -- -- Surrenders and Other (Net) (32,422) (22,407) (9,838) (2,104) (366) (9) Transfers from Other Divisions or Sponsors 2,545 9,389 3,026 6,318 10,283 273 Transfers to Other Divisions or Sponsors (5,144) (7,571) (6,029) (1,982) (217) -- --------------------------------------------- -------------------------------------------- Increase (Decrease) in Equity Derived from Equity Transactions (7,750) 1,571 (6,679) 5,575 10,581 438 --------------------------------------------- -------------------------------------------- Net Increase (Decrease) in Equity (16,590) 936 5,291 5,450 10,925 474 Equity: Beginning of Period 65,492 64,556 59,265 11,399 474 -- End of Period $48,902 $65,492 $64,556 $16,849 $11,399 $474 ============================================= ============================================
**The initial investment in this Division was made on April 30, 1999. 47
J.P. Morgan Select Growth and Income Growth 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, 2001 2000 1999 2001 2000 1999 --------------------------------------------- --------------------------------------------- Operations: Net Investment Income $1,503 $1,949 $1,086 $ 833 $1,945 $4,358 Net Realized Gain (Loss) 777 2,717 2,143 (545) (276) 1,267 Net Change in Unrealized Appreciation (Depreciation) (8,402) (5,875) 3,567 (2,643) (4,224) (3,007) --------------------------------------------- --------------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity (6,122) (1,209) 6,796 (2,355) (2,555) 2,618 --------------------------------------------- --------------------------------------------- Equity Transactions: Contract Owners' Net Payment 4,918 6,941 3,912 3,353 4,010 5,168 Annuity Payments (4) (4) (4) -- -- -- Surrenders and Other (Net) (6,927) (6,269) (3,980) (5,302) (6,461) (7,856) Transfers from Other Divisions or Sponsors 2,504 6,640 10,514 2,133 2,472 7,271 Transfers to Other Divisions or Sponsors (4,049) (3,179) (5,282) (2,079) (8,848) (6,450) --------------------------------------------- --------------------------------------------- Increase (Decrease) in Equity Derived from Equity Transactions (3,558) 4,129 5,160 (1,895) (8,827) (1,867) --------------------------------------------- --------------------------------------------- Net Increase (Decrease) in Equity (9,680) 2,920 11,956 (4,250) (11,382) 751 Equity: Beginning of Period 42,696 39,776 27,820 29,723 41,105 40,354 End of Period $33,016 $42,696 $39,776 $25,473 $29,723 $41,105 ============================================= =============================================
Capital Guardian Domestic Asset Equity Allocation Division # Index 500 Stock Division Division # ------------- --------------------------------------------- ------------- Period Ended Year Ended Year Ended Year Ended Period Ended December 31, December 31, December 31, December 31, December 31, 2001 2001 2000 1999 2001 ------------ --------------------------------------------- ------------ Operations: Net Investment Income $-- $6,130 $7,682 $3,780 $-- Net Realized Gain (Loss) -- 12,916 27,391 13,954 -- Net Change in Unrealized Appreciation (Depreciation) 6 (39,298) (53,361) 19,628 -- ------------ --------------------------------------------- ------------ Increase (Decrease) in Equity Derived from Investment Activity 6 (20,252) (18,288) 37,362 -- ------------ --------------------------------------------- ------------ Equity Transactions: Contract Owners' Net Payment 103 15,810 20,521 20,768 15 Annuity Payments -- (4) (5) (5) -- Surrenders and Other (Net) -- (31,233) (31,320) (23,604) -- Transfers from Other Divisions or Sponsors 102 4,024 6,728 12,396 31 Transfers to Other Divisions or Sponsors -- (10,254) (24,313) (10,168) -- ------------ --------------------------------------------- ------------ Increase (Decrease) in Equity Derived from Equity Transactions 205 (21,657) (28,389) (613) 46 ------------ --------------------------------------------- ------------ Net Increase (Decrease) in Equity 211 (41,909) (46,677) 36,749 46 Equity: Beginning of Period -- 173,398 220,075 183,326 -- End of Period $211 $131,489 $173,398 $220,075 $46 ============ ============================================= ============
# The initial investment in this Division was made on July 31, 2001. 48
Balanced Division High Yield 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, 2001 2000 1999 2001 2000 1999 --------------------------------------------- --------------------------------------------- Operations: Net Investment Income $9,208 $12,221 $17,077 $465 $528 $ 724 Net Realized Gain (Loss) 3,486 14,398 11,189 (737) (1,290) (775) Net Change in Unrealized Appreciation (Depreciation) (17,384) (27,427) (11,272) 448 501 (39) --------------------------------------------- --------------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity (4,690) (808) 16,994 176 (261) (90) --------------------------------------------- --------------------------------------------- Equity Transactions: Contract Owners' Net Payment 8,917 13,295 12,945 1,643 698 947 Annuity Payments (28) (37) (46) (1) (1) (1) Surrenders and Other (Net) (18,268) (26,734) (31,240) (2,091) (1,212) (652) Transfers from Other Divisions or Sponsors 3,462 2,847 7,114 2,647 669 516 Transfers to Other Divisions or Sponsors (9,430) (19,997) (11,295) (2,030) (2,034) (2,951) --------------------------------------------- --------------------------------------------- Increase (Decrease) in Equity Derived from Equity Transactions (15,347) (30,626) (22,522) 168 (1,880) (2,141) --------------------------------------------- --------------------------------------------- Net Increase (Decrease) in Equity (20,037) (31,434) (5,528) 344 (2,141) (2,231) Equity: Beginning of Period 136,009 167,443 172,971 4,239 6,380 8,611 End of Period $115,972 $136,009 $167,443 $4,583 $4,239 $6,380 ============================================= =============================================
Select Bond Division Money Market 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, 2001 2000 1999 2001 2000 1999 --------------------------------------------- --------------------------------------------- Operations: Net Investment Income $812 $984 $1,434 $360 $797 $779 Net Realized Gain (Loss) 32 (655) 48 -- -- -- Net Change in Unrealized Appreciation (Depreciation) 578 1,084 (1,810) -- -- -- --------------------------------------------- --------------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity 1,422 1,413 (328) 360 797 779 --------------------------------------------- --------------------------------------------- Equity Transactions: Contract Owners' Net Payment 2,126 2,655 2,929 4,807 4,448 7,746 Annuity Payments (5) (4) (4) (17) (17) (2) Surrenders and Other (Net) (3,607) (4,440) (4,651) (10,053) (14,734) (15,180) Transfers from Other Divisions or Sponsors 5,722 2,504 1,606 12,104 11,630 20,425 Transfers to Other Divisions or Sponsors (2,306) (5,638) (2,769) (4,118) (9,596) (13,822) --------------------------------------------- --------------------------------------------- Increase (Decrease) in Equity Derived from Equity Transactions 1,930 (4,923) (2,889) 2,723 (8,269) (833) --------------------------------------------- --------------------------------------------- Net Increase (Decrease) in Equity 3,352 (3,510) (3,217) 3,083 (7,472) (54) Equity: Beginning of Period 14,027 17,537 20,754 12,102 19,574 19,628 End of Period $17,379 $14,027 $17,537 $15,185 $12,102 $19,574 ============================================= =============================================
49
Russell Multi-Style Equity Division ** Russell Aggressive Equity Division** --------------------------------------------- --------------------------------------------- Year Ended Year Ended Period Ended Year Ended Year Ended Period Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 --------------------------------------------- --------------------------------------------- Operations: Net Investment Income $23 $60 $43 ($6) $67 $-- Net Realized Gain (Loss) (120) (20) -- (17) 24 5 Net Change in Unrealized Appreciation (Depreciation) (144) (282) 64 9 (103) 26 --------------------------------------------- --------------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity (241) (242) 107 (14) (12) 31 --------------------------------------------- --------------------------------------------- Equity Transactions: Contract Owners' Net Payment 228 210 485 120 133 96 Annuity Payments -- -- -- -- -- -- Surrenders and Other (Net) (119) (243) 1 (72) (170) (5) Transfers from Other Divisions or Sponsors 61 672 1,230 84 472 244 Transfers to Other Divisions or Sponsors (271) (357) (118) (51) (131) (15) --------------------------------------------- --------------------------------------------- Increase (Decrease) in Equity Derived from Equity Transactions (101) 282 1,598 81 304 320 --------------------------------------------- --------------------------------------------- Net Increase (Decrease) in Equity (342) 40 1,705 67 292 351 Equity: Beginning of Period 1,745 1,705 -- 643 351 -- End of Period $1,403 $1,745 $1,705 $710 $643 $351 ============================================= =============================================
**The initial investment in this Division was made on April 30, 1999.
Russell Non-U.S. Division ** Russell Real Estate Securities Division** --------------------------------------------- --------------------------------------------- Year Ended Year Ended Period Ended Year Ended Year Ended Period Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 --------------------------------------------- --------------------------------------------- Operations: Net Investment Income ($4) $53 $11 $281 $50 $4 Net Realized Gain (Loss) (33) 15 -- 140 36 -- Net Change in Unrealized Appreciation (Depreciation) (158) (199) 73 (4) 126 (6) --------------------------------------------- --------------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity (195) (131) 84 417 212 (2) --------------------------------------------- --------------------------------------------- Equity Transactions: Contract Owners' Net Payment 114 125 124 1,245 151 16 Annuity Payments -- -- -- -- -- -- Surrenders and Other (Net) (86) (152) -- (1,081) (48) -- Transfers from Other Divisions or Sponsors 21 516 405 4,382 2,707 109 Transfers to Other Divisions or Sponsors -- (105) (48) (1,014) (473) (21) --------------------------------------------- --------------------------------------------- Increase (Decrease) in Equity Derived from Equity Transactions 49 384 481 3,532 2,337 104 --------------------------------------------- --------------------------------------------- Net Increase (Decrease) in Equity (146) 253 565 3,949 2,549 102 Equity: Beginning of Period 818 565 -- 2,651 102 -- End of Period $672 $818 $565 $6,600 $2,651 $102 ============================================= =============================================
**The initial investment in this Division was made on April 30, 1999. 50
Russell Core Bond Division** --------------------------------------------- Year Ended Year Ended Period Ended December 31, December 31, December 31, 2001 2000 1999 --------------------------------------------- Operations: Net Investment Income $41 $18 $14 Net Realized Gain (Loss) 14 (3) -- Net Change in Unrealized Appreciation (Depreciation) (12) 23 (14) --------------------------------------------- Increase (Decrease) in Equity Derived from Investment Activity 43 38 -- --------------------------------------------- Equity Transactions: Contract Owners' Net Payment 67 77 106 Annuity Payments -- -- -- Surrenders and Other (Net) (8) (43) (3) Transfers from Other Divisions or Sponsors 253 81 281 Transfers to Other Divisions or Sponsors (48) (51) -- --------------------------------------------- Increase (Decrease) in Equity Derived from Equity Transactions 264 64 384 --------------------------------------------- Net Increase (Decrease) in Equity 307 102 384 Equity: Beginning of Period 486 384 -- End of Period $793 $486 $384 =============================================
**The initial investment in this Division was made on April 30, 1999. The Accompanying Notes are an Integral Part of the Financial Statements. 51 FINANCIAL HIGHLIGHTS NML VARIABLE ANNUITY ACCOUNT C
(For a unit outstanding during the Year or Unit Value Increase Unit Value period) Period Beginning (Decrease) of End Total Expense Division Ended of Period in Equity Period Return(2) Ratio(3) - ----------------------------------------------------------------------------------------------------------------------- Front Load Contract (Series QQ) Small Cap Growth Stock 12/31/01 $1.964602 $(0.086266) $1.878336 -4.39% 0.65% T. Rowe Price Small Cap Value(1) 12/31/01 1.000000 0.014805 1.014805 1.48% 0.65% Aggressive Growth Stock 12/31/01 3.785207 (0.772042) 3.013165 -20.40% 0.65% International Growth Stock(1) 12/31/01 1.000000 (0.096475) 0.903525 -9.65% 0.65% Franklin Templeton International Equity 12/31/01 2.357007 (0.343169) 2.013838 -14.56% 0.65% Index 400 Stcok 12/31/01 1.308249 (0.017038) 1.291211 -1.30% 0.65% Growth Stock 12/31/01 3.019678 (0.446156) 2.573522 -14.77% 0.65% J.P. Morgan Select Growth and Income Stock 12/31/01 2.417488 (0.202438) 2.215050 -8.37% 0.65% Capital Guardian Domestic Equity(1) 12/31/01 1.000000 (0.024545) 0.975455 -2.45% 0.65% Index 500 Stock 12/31/01 3.570426 (0.444630) 3.125796 -12.45% 0.65% Asset Allocation(1) 12/31/01 1.000000 (0.023688) 0.976312 -2.37% 0.65% Balanced 12/31/01 2.499718 (0.094533) 2.405185 -3.78% 0.65% High Yield Bond 12/31/01 1.490196 0.064782 1.554978 4.35% 0.65% Select Bond 12/31/01 1.706832 0.164700 1.871532 9.65% 0.65% Money Market 12/31/01 1.442872 0.046756 1.489628 3.24% 0.65% Russell Multi-Style Equity 12/31/01 0.933887 (0.137894) 0.795993 -14.77% 0.65% Russell Aggressive Equity 12/31/01 1.089907 (0.032692) 1.057215 -3.00% 0.65% Russell Non-U.S 12/31/01 1.060950 (0.239121) 0.821829 -22.54% 0.65% Russell Real Estate Securities 12/31/01 1.167301 0.083289 1.250590 7.14% 0.65% Russell Core Bond 12/31/01 1.078791 0.072351 1.151142 6.71% 0.65%
Year or Unit Value Increase Unit Value Period Beginning (Decrease) of End Total Expense Division Ended of Period in Equity Period Return(2) Ratio(3) - ----------------------------------------------------------------------------------------------------------------------- Simplified Load Contract (Series QQ) Small Cap Growth Stock 12/31/01 $1.945087 $(0.096594) $1.848493 -4.97% 1.25% T. Rowe Price Small Cap Value(1) 12/31/01 1.000000 0.012260 1.012260 1.23% 1.25% Aggressive Growth Stock 12/31/01 5.691856 (1.188193) 4.503663 -20.88% 1.25% International Growth Stock(1) 12/31/01 1.000000 (0.098742) 0.901258 -9.87% 1.25% Franklin Templeton International Equity 12/31/01 2.251266 (0.339347) 1.911919 -15.07% 1.25% Index 400 Stcok 12/31/01 1.295242 (0.024552) 1.270690 -1.90% 1.25% Growth Stock 12/31/01 2.901600 (0.443580) 2.458020 -15.29% 1.25% J.P. Morgan Select Growth and Income Stock 12/31/01 2.322995 (0.207320) 2.115675 -8.92% 1.25% Capital Guardian Domestic Equity(1) 12/31/01 1.000000 (0.026996) 0.973004 -2.70% 1.25% Index 500 Stock 12/31/01 4.432423 (0.575309) 3.857114 -12.98% 1.25% Asset Allocation(1) 12/31/01 1.000000 (0.026138) 0.973862 -2.61% 1.25% Balanced 12/31/01 7.368231 (0.321231) 7.047000 -4.36% 1.25% High Yield Bond 12/31/01 1.431888 0.053276 1.485164 3.72% 1.25% Select Bond 12/31/01 7.615016 0.684707 8.299723 8.99% 1.25% Money Market 12/31/01 2.654580 0.069574 2.724154 2.62% 1.25% Russell Multi-Style Equity 12/31/01 0.924598 (0.141263) 0.783335 -15.28% 1.25% Russell Aggressive Equity 12/31/01 1.079072 (0.038660) 1.040412 -3.58% 1.25% Russell Non-U.S 12/31/01 1.050412 (0.241633) 0.808779 -23.00% 1.25% Russell Real Estate Securities 12/31/01 1.155691 0.075035 1.230726 6.49% 1.25% Russell Core Bond 12/31/01 1.068073 0.064799 1.132872 6.07% 1.25%
(1) Portfolio commenced operations on July 31, 2001. (2) Total Return includes deductions for management and other expenses; excludes deductions for sales loads and other charges. Returns are not annualized for periods less than one year. (3) Computed on an annualized basis. Does not include expenses of the underlying portfolio. The Accompanying Notes are an Integral Part of the Financial Statements. 52 NML VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS Note 1 -- NML Variable Annuity Account C (the "Account") is a segregated asset account of The Northwestern Mutual Life Insurance Company ("Northwestern Mutual") used to fund variable annuity contracts ("contracts") for HR-10 and corporate pension and profit-sharing plans which qualify for special tax treatment under the Internal Revenue Code. Currently, two versions of the contract are offered: Front Load contracts with a sales charge up to 4.5% of purchase payments and Simplified Load contracts with an installation fee of $750. Note 2 -- The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principal accounting policies are summarized below. Note 3 -- All assets of each Division of the Account are invested in shares of the corresponding Portfolio of Northwestern Mutual Series Fund, Inc. and the Russell Insurance Funds (collectively know as the "Funds"). The shares are valued at the Funds' offering and redemption price per share. The Funds are open-end investment companies registered under the Investment Company Act of 1940. Note 4 -- Annuity reserves are based on published annuity tables with age adjustments and benefit payments which reflect actual investment experience. Annuity reserves are based on the 1983 Table a adjusted with assumed interest rates of 3-1/2% or 5%. Note 5 -- Dividend income from the Funds is recorded on the ex-date of the dividends. Transactions in the Funds' shares are accounted for on the trade date. The basis for determining cost on sale of the Funds' shares is identified cost. Purchases and sales of the Funds' shares for the years ended December 31 by each Division are shown below: PURCHASES
2001 2000 1999 ---- ---- ---- Small Cap Growth Division ............................ $ 6,233,394 $21,822,710 $ 759,215 T. Rowe Price Small Cap Value Division# .............. 159,645 N/A N/A Aggressive Growth Division ........................... 36,767,770 47,835,326 12,206,930 International Growth Stock Division# ................. 39,524 N/A N/A Franklin.Templeton International Equity Division...... 31,683,628 31,939,632 13,196,712 Index 400 Stock Division ............................. 8,666,766 12,366,486 468,108 Growth Stock Division ................................ 6,414,454 12,950,757 11,622,415 J.P. Morgan Select Growth & Income Stock Division..... 4,403,338 5,847,806 12,666,073 Capital Guardian Domestic Equity Division# ........... 204,575 N/A N/A Index 500 Stock Division ............................. 17,138,782 21,135,615 24,489,112 Asset Allocation Division# ........................... 45,385 N/A N/A Balanced.Division .................................... 15,734,227 19,926,273 27,037,531 High Yield Bond Division ............................. 4,182,589 2,046,585 1,696,507 Select Bond Division ................................. 7,322,244 5,061,775 3,699,428 Money Market Division ................................ 14,787,625 14,029,450 22,540,096 Russell Multi-Style Division ......................... 401,949 851,426 1,676,900 Russell Aggressive Equity Division ................... 183,388 646,095 763,162 Russell Non-U.S. Division ............................ 134,575 646,150 494,961 Russell Real Estate Securities Division .............. 5,224,573 3,116,036 109,105 Russell Core Bond Division ........................... 752,848 179,473 403,049
# The initial investment made in this division was made on July 31, 2001. 53 SALES
2001 2000 1999 ---- ---- ---- Small Cap Growth Stock Division .................... $ 4,295,263 $ 1,131,840 $ 13,802 T. Rowe Price Small Cap Value Division# ............ 176 N/A N/A Aggressive Growth Division ......................... 24,003,411 18,536,546 23,468,462 International Growth Stock Division# ............... 123 N/A N/A Franklin Templeton International Equity Division.... 33,668,396 25,522,098 11,938,339 Index 400 Stock Division ........................... 2,918,757 615,601 26,390 Growth Stock Division .............................. 8,466,155 6,871,377 5,373,768 J.P. Morgan Select Growth & Income Stock Division... 5,467,056 12,730,171 10,170,106 Capital Guardian Domestic Equity Division# ......... 145 N/A N/A Index 500 Stock Division ........................... 32,662,751 42,005,726 21,511,153 Asset Allocation Division# ......................... 83 N/A N/A Balanced Division .................................. 21,870,333 38,332,517 32,467,107 High Yield Bond Division ........................... 3,549,767 3,398,369 3,114,104 Select Bond Division ............................... 4,580,899 9,000,392 5,152,171 Money Market Division .............................. 11,701,602 21,273,753 22,822,933 Russell Multi-Style Division ....................... 485,832 510,026 35,224 Russell Aggressive Equity Division ................. 114,505 276,105 443,034 Russell Non-U.S. Division .......................... 89,282 208,804 2,369 Russell Real Estate Securities Division ............ 1,382,753 736,889 569 Russell Core Bond Division ......................... 441,607 97,425 4,229
# The initial investment made in this division was on July 31, 2001. Note 6 -- A deduction for annuity rate and expense guarantees is determined daily and paid to Northwestern Mutual as compensation for assuming the risk that annuity payments will continue for longer periods than anticipated because the annuitants as a group live longer than expected and the risk that the charges made by Northwestern Mutual may be insufficient to cover the actual costs incurred in connection with the contracts. For contracts issued after December 16, 1981, and prior to May 1, 1984, the deduction is determined daily at an annual rate of 1/2 of 1% of the net assets of each Division attributable to these contracts and is paid to Northwestern Mutual. For these contracts, the rate may be increased or decreased by the Board of Trustees of Northwestern Mutual not to exceed a 3/4 of 1% annual rate. Generally, for contracts issued after December 31, 1991, for the Front Load Version and the Simplified Load Version, the deduction for annuity rate and expense guarantees is determined daily at annual rates of 6.5/10 of 1% and 1-1/4%, respectively, of the net assets of each Division attributable to these contracts and is paid to Northwestern Mutual. For these contracts, the rates may be increased or decreased by the Board of Trustees of Northwestern Mutual not to exceed 1% and 1-1/2% annual rates, respectively. Since 1996, Northwestern Mutual has paid a dividend to certain contracts. The dividend is re-invested in the Account and has been reflected as a Contract Owners' Net Payment in the accompanying financial statements. Note 7 -- Northwestern Mutual is taxed as a "life insurance company" under the Internal Revenue Code and the operations of the Account form a part of and are taxed with those of Northwestern Mutual. Under current law, no federal income taxes are payable with respect to the Account. Accordingly, no provision for any such liability has been made. 54 Note 8 -- Equity Values by Division for the year ended December 31, 2001 are shown below: (in thousands, except accumulation unit values)
CONTRACTS ISSUED: CONTRACTS ISSUED: PRIOR TO DECEMBER 17, 1981 OR BETWEEN AFTER DECEMBER 16, 1981 AND APRIL 30, 1984 AND DECEMBER 31, 1991 PRIOR TO MAY 1, 1984 ------------------------------------ -------------------- ACCUMULATION ACCUMULATION UNIT UNITS UNIT UNITS DIVISION VALUE OUTSTANDING EQUITY VALUE OUTSTANDING EQUITY - -------- ------------- ----------- ------------ ------------ ----------- ------------- Small Cap Growth Stock ................ $ 19.112629 974 $ 18,614 $ 18.858687 1 $ 10 T. Rowe Price Small Cap Value ......... 10.175772 1 15 10.154423 -- -- Aggressive Growth Stock ............... 48.753408 1,744 85,024 46.158193 2 95 International Growth Stock ............ 9.060000 2 15 9.040958 -- -- Franklin Templeton International Equity ............................. 2.130553 18,588 39,603 2.040110 34 70 Index 400 Stock ....................... 13.138452 1,137 14,937 12.963870 -- 4 Growth Stock .......................... 27.049526 903 24,420 26.031963 -- 3 J.P. Morgan Select Growth and Income Stock .......................... 23.281928 660 15,365 22.405970 2 55 Capital Guardian Domestic Equity....... 9.781208 3 31 9.760679 -- -- Index 500 Stock ....................... 45.228886 2,199 99,439 42.817258 9 390 Asset Allocation ...................... 9.789803 3 31 9.769272 -- -- Balanced .............................. 91.372736 814 74,381 82.699005 27 2,234 High Yield Bond ....................... 16.343831 177 2,893 15.728914 1 8 Select Bond ........................... 108.200259 81 8,810 97.881219 -- 23 Money Market .......................... 33.577318 14 466 30.425952 -- -- Russell Multi-Style Equity ............ 8.099453 24 197 7.991800 -- -- Russell Aggressive Equity ............. 10.757522 1 10 10.614527 -- -- Russell Non-U.S ....................... 8.362558 3 24 8.251395 -- -- Russell Real Estate Securities ........ 12.725061 460 5,853 12.556055 -- -- Russell Core Bond ..................... 11.713217 -- -- 11.557668 -- -- ------------ ------------ Equity ............................. 390,128 2,892 Annuity Reserves ................... -- 744 ------------ ------------ Total Equity ....................... $ 390,128 $ 3,636 ============ ============
CONTRACTS ISSUED: CONTRACTS ISSUED: AFTER DECEMBER 31, 1991 AFTER DECEMBER 31, 1991 FRONT LOAD VERSION SIMPLIFIED LOAD VERSION ------------------ ----------------------- ACCUMULATION ACCUMULATION UNIT UNITS UNIT UNITS DIVISION VALUE OUTSTANDING EQUITY VALUE OUTSTANDING EQUITY - -------- ------------- ----------- ------------ ------------ ----------- ------------- Small Cap Growth Stock ............... $ 1.878336 267 $ 502 $ 1.848493 1,067 $ 1,972 T. Rowe Price Small Cap Value ........ 1.014805 7 7 1.012260 141 142 Aggressive Growth Stock .............. 3.013165 1,501 4,522 4.503663 5,015 22,584 International Growth Stock ........... 0.903525 -- -- 0.901258 25 22 Franklin Templeton International Equity ............................ 2.013838 1,090 2,194 1.911919 3,670 7,017 Index 400 Stock ...................... 1.291211 301 389 1.270690 1,182 1,503 Growth Stock ......................... 2.573522 558 1,435 2.458020 2,897 7,120 J.P. Morgan Select Growth and Income Stock ...................... 2.215050 1,013 2,244 2.115675 3,691 7,810 Capital Guardian Domestic Equity...... 0.975455 66 64 0.973004 119 116 Index 500 Stock ...................... 3.125796 1,895 5,922 3.857114 6,662 25,694 Asset Allocation ..................... 0.976312 5 5 0.973862 11 10 Balanced ............................. 2.405185 3,594 8,644 7.047000 4,314 30,398 High Yield Bond ...................... 1.554978 148 230 1.485164 967 1,437 Select Bond .......................... 1.871532 573 1,072 8.299723 892 7,404 Money Market ......................... 1.489628 927 1,380 2.724154 4,816 13,120 Russell Multi-Style Equity ........... 0.795993 476 379 0.783335 1,056 827 Russell Aggressive Equity ............ 1.057215 173 183 1.040412 497 517 Russell Non-U.S ...................... 0.821829 205 168 0.808779 592 479 Russell Real Estate Securities ....... 1.250590 180 225 1.230726 424 522 Russell Core Bond .................... 1.151142 337 388 1.132872 358 405 ------------ ------------ Equity ............................ 29,953 129,099 Annuity Reserves ............. -- -- ------------ ------------ Total Equity ...................... $ 29,953 $ 129,099 ============ ============
55 Equity Values by Division for the year ended December 31, 2000 are shown below:
CONTRACTS ISSUED: CONTRACTS ISSUED: PRIOR TO DECEMBER 17, 1981 OR BETWEEN AFTER DECEMBER 16, 1981 AND APRIL 30, 1984 AND DECEMBER 31, 1991 PRIOR TO MAY 1, 1984 ------------------------------------ -------------------- ACCUMULATION ACCUMULATION UNIT UNITS UNIT UNITS DIVISION VALUE OUTSTANDING EQUITY VALUE OUTSTANDING EQUITY - -------- ------------- ----------- ------------ ------------ ----------- ------------- Small Cap Growth Stock .......... $ 19.859931 859,005 $ 17,059,771 $ 19.695066 420 $ 8,276 Aggressive Growth Stock ......... 60.845203 1,855,240 112,882,454 57.897540 1,574 91,112 International Equity ............ 2.477334 20,581,223 50,986,564 2.384172 26,354 62,833 Index 400 Stock ................. 13.224995 756,727 10,007,706 13.115131 -- -- Growth Stock .................... 31.531943 978,021 30,838,902 30.498976 104 3,159 Growth and Income ............... 25.243989 650,867 16,430,474 24.416867 1,820 44,438 Index 500 Stock ................. 51.325633 2,463,257 126,428,232 48.834231 9,467 462,299 Balanced ........................ 94.345469 884,725 83,469,825 85.820221 30,736 2,637,770 High Yield Bond ................. 15.560950 151,658 2,359,941 15.050970 342 5,151 Select Bond ..................... 98.036463 59,938 5,876,077 89.133511 229 20,403 Money Market .................... 32.311690 33,651 1,087,330 29.426661 -- -- Russell Multi-Style Equity ...... 9.440627 24,295 229,356 9.362193 -- -- Russell Aggressive Equity ....... 11.017913 939 10,341 10.926333 -- -- Russell Non-U.S ................. 10.725190 2,822 30,262 10.636093 -- -- Russell Real Estate Securities .. 11.800164 191,981 2,265,407 11.702144 -- -- Russell Core Bond ............... 10.905549 -- -- 10.814951 -- -- ------------ ------------ Equity ....................... 459,962,642 3,335,441 Annuity Reserves ............. -- 825,048 ------------ ------------ Total Equity ................. $459,962,642 $ 4,160,489 ============ ============
CONTRACTS ISSUED: CONTRACTS ISSUED: AFTER DECEMBER 31, 1991 AFTER DECEMBER 31, 1991 FRONT LOAD VERSION SIMPLIFIED LOAD VERSION ------------------ ----------------------- ACCUMULATION ACCUMULATION UNIT UNITS UNIT UNITS DIVISION VALUE OUTSTANDING EQUITY VALUE OUTSTANDING EQUITY - -------- ------------- ----------- ------------ ------------ ----------- ------------- Small Cap Growth Stock .......... $ 1.964602 326,150 $ 640,755 $ 1.945087 1,197,387 $ 2,329,022 Aggressive Growth Stock ......... 3.785207 2,114,652 8,004,397 5.691856 6,384,710 36,340,852 International Equity ............ 2.357007 1,653,777 3,897,964 2.251266 4,672,038 10,517,999 Index 400 Stock ................. 1.308249 295,347 386,387 1.295242 775,791 1,004,838 Growth Stock .................... 3.019678 814,788 2,460,397 2.901600 3,220,718 9,345,235 Growth and Income ............... 2.417488 1,319,721 3,190,410 2.322995 4,329,641 10,057,734 Index 500 Stock ................. 3.570426 2,724,196 9,726,539 4.432423 8,286,039 36,727,230 Balanced ........................ 2.499718 4,447,958 11,118,640 7.368231 5,215,778 38,431,060 High Yield Bond ................. 1.490196 166,175 247,633 1.431888 1,125,550 1,611,661 Select Bond ..................... 1.706832 736,742 1,257,494 7.615016 895,503 6,819,270 Money Market .................... 1.442872 640,788 924,575 2.654580 3,715,872 9,864,080 Russell Multi-Style Equity ...... 0.933887 381,014 355,824 0.924598 1,254,417 1,159,831 Russell Aggressive Equity ....... 1.089907 139,940 152,522 1.079072 444,666 479,827 Russell Non-U.S ................. 1.060950 207,716 220,377 1.050412 540,064 567,290 Russell Real Estate Securities .. 1.167301 69,412 81,025 1.155691 263,698 304,753 Russell Core Bond ............... 1.078791 259,803 280,274 1.068073 192,428 205,527 ------------ ------------ Equity ....................... 42,945,213 165,766,209 Annuity Reserves ............. -- -- ------------ ------------ Total Equity ................. $ 42,945,213 $165,766,209 ============ ============
56 REPORT OF INDEPENDENT ACCOUNTANTS To The Northwestern Mutual Life Insurance Company and Contract Owners of NML Variable Annuity Account C In our opinion, the accompanying combined statements of assets and liabilities and the related combined and separate statements of operations and of changes in equity and the financial highlights, present fairly, in all material respects, the financial position of NML Variable Annuity Account C and its Small Cap Growth Stock Division, T. Rowe Price Small Cap Value Division, Aggressive Growth Stock Division, International Growth Stock Division, Franklin Templeton International Equity Division, Index 400 Stock Division, Growth Stock Division, J.P. Morgan Select Growth & Income Stock Division, Capital Guardian Domestic Equity Division, Index 500 Stock Division, Asset Allocation Division, Balanced Division, High Yield Bond Division, Select Bond Division, Money Market Division, Russell Multi-Style Equity Division, Russell Aggressive Equity Division, Russell Non-U.S. Division, Russell Real Estate Securities Division and Russell Core Bond Division thereof at December 31, 2001 and 2000, the results of each of their operations and the changes in each of their equity for each of the three years or the periods ended December 31, 2001 and each of their financial highlights for the year or period then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of The Northwestern Mutual Life Insurance Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, 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, 2001 and 2000 with Northwestern Mutual Series Fund, Inc., and the Russell Insurance Funds, provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Milwaukee, Wisconsin January 25, 2002 57 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 58 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Neither Account A nor Account C have any directors or executive officers. The following information, as of March 1, 2002, is provided with respect to each director, including persons chosen to become directors, of Northwestern Mutual. Northwestern Mutual uses the title of Trustee to denote the directors.
YEAR EXPIRATION OF OTHER POSITIONS PRESENTLY TRUSTEE AGE ELECTED TERM OF OFFICE HELD WITH REGISTRANT - ------- --- ------- -------------- -------------------- Edward E. Barr................. 65 1991 May 2003 Member, Human Resources and Public Policy Committee Gordon T. Beaham, III.......... 70 1988 May 2005(1) Member, Operations and Technology Committee John M. Bremer................. 54 2001 May 2002(2) Member, Executive Committee Peter W. Bruce................. 56 2001 May 2002(2) Member, Executive Committee Robert C. Buchanan............. 61 1991 May 2003 Member, Audit, Executive and Finance Committees George A. Dickerman............ 63 1994 May 2004 Member, Agency and Marketing Committee Pierre S. du Pont.............. 67 1985 May 2002(2) Member, Agency and Marketing Committee James D. Ericson............... 66 1989 May 2004 Member, Agency and Marketing, Executive and Finance Committees J. E. Gallegos................. 66 1985 May 2004 Member, Audit Committee Stephen N. Graff............... 67 1996 May 2004 Member, Audit, Executive, and Finance Committees Patricia Albjerg Graham........ 67 1980 May 2004 Member, Human Resources and Public Policy Committee James P. Hackett............... 46 2000 May 2002(2) Member, Operations and Technology Committee Stephen F. Keller.............. 63 1984 May 2003 Member, Human Resources and Public Policy Committee Barbara A. King................ 55 1996 May 2002(2) Member, Agency and Marketing Committee J. Thomas Lewis................ 65 1978 May 2002(2) Chair, Human Resources and Public Policy Committee Daniel F. McKeithan, Jr........ 66 1988 May 2003 Member, Executive, Finance, and Human Resources and Public Policy Committees Guy A. Osborn.................. 66 1994 May 2005 Member, Executive, Finance, and Operations and Technology Committees Timothy D. Proctor............. 52 1997 May 2005 Member, Audit Committee H. Mason Sizemore, Jr.......... 60 1993 May 2003 Member, Agency and Marketing Committee Harold B. Smith................ 68 1973 May 2004 Member, Operations and Technology Committee Sherwood H. Smith, Jr.......... 67 1992 May 2002(2) Chair, Agency and Marketing Committee Peter M. Sommerhauser.......... 59 1999 May 2002(2) Member, Executive, Finance, and Human Resources and Public Policy Committees John E. Steuri................. 62 1994 May 2003 Chair, Operations and Technology Committee John J. Stollenwerk............ 62 1993 May 2005 Member, Agency and Marketing, Executive and Finance Committees Barry L. Williams.............. 57 1987 May 2005 Member, Audit Committee Kathryn D. Wriston............. 63 1986 May 2005 Chair, Audit Committee Edward J. Zore................. 56 2000 May 2005 President and CEO; Member, Agency and Marketing, Operations and Technology Committees; Chair, Executive and Finance Committees
(1) Mr. Beaham is retiring from the Board of Trustees effective May 22, 2002. (2) Candidate proposed for re-election by the Board of Trustees for the election to be held at the May 2002 Annual meeting of Policyowners. If re-elected, these Trustees' terms will expire in May 2006, except that Mr. Bruce's term will expire in May 2004. 59 The business experience and directorships of Northwestern Mutual's Trustees as of March 1, 2002 are as follows:
PRINCIPAL OCCUPATION TRUSTEE DURING PAST FIVE YEARS DIRECTORSHIPS ------- ---------------------- ------------- Edward E. Barr Chairman, Sun Chemical Group, B.V. (graphic arts), Fort Lee, New Jersey, since 1998. Chairman and CEO, 1997-1998. Prior thereto, President and Chief Executive Officer, 1987-1997. Gordon T. Beaham, III Chairman and Chief Executive Officer, Faultless Starch/Bon Ami Company (consumer products manufacturer), Kansas City, MO, since 2001. Prior thereto, Chairman and President. John M. Bremer Senior Executive Vice President and Chief Operating Officer (Chief Compliance Officer) of Northwestern Mutual since June 2001; from March 2000 to June 2001, Senior Executive Vice President and Secretary; from February 1998 to March 2000, Executive Vice President, General Counsel and Secretary. Senior Vice President, General Counsel and Secretary from 1995-1998. Peter W. Bruce Senior Executive Vice President (Insurance) of Northwestern Mutual since March 2000. From February 1998 to March 2000, Executive Vice President (Accumulation Products and Long Term Care). Prior thereto, Executive Vice President (Operations and Administration). Robert C. Buchanan President and Chief Executive Officer, Fox Brady Corporation Valley Corporation (manufacturer of gift wrap and writing paper), Appleton, Wisconsin, since 1980. George A. Dickerman Chairman Emeritus, Spalding Sports Worldwide (manufacturer of sporting equipment), Chicopee, Massachusetts, since 1999. Prior thereto, Chairman, 1997-1998, and President, 1981-1997. Pierre S. du Pont Partner with Richards, Layton & Finger PepsiAmericas, Inc (law firm); Wilmington, Delaware, since 1985 James D. Ericson Retired Chairman of Northwestern Mutual since Green Bay Packaging, Inc. 2001; Chairman, 2001; Chairman and Chief Kohl's Corporation Executive Officer from 2000 to 2001. Prior thereto, Mason Street Funds, Inc. President and Chief Executive Officer. Northwestern Mutual Series Fund, Inc. The Marcus Corporation J. E. Gallegos Attorney, Gallegos Law Firm, Santa Fe, New Mexico, since 1988. Stephen N. Graff Office Managing Partner (retired), Arthur Mason Street Funds, Inc. Andersen LLP, Milwaukee, Wisconsin, Northwestern Mutual Series 1981-1994. Fund, Inc. Regal-Beloit Corporation
60
PRINCIPAL OCCUPATION TRUSTEE DURING PAST FIVE YEARS DIRECTORSHIPS ------- ---------------------- ------------- Patricia Albjerg Professor of the History of American Graham Education, Harvard University, Cambridge, Massachusetts, since 1974; President, Spencer Foundation (social and behavioral sciences), Chicago, Illinois, 1991-2000. James P. Hackett President and Chief Executive Officer of Fifth Third Bancorp Steelcase Inc. since 1994. Steelcase, Inc. Stephen F. Keller Attorney, Los Angeles, California, since 1962. Chairman, The Santa Anita Companies, Arcadia, California, 1993-1996. Barbara A. King President, Landscape Structures, Inc. (manufacturer of playground equipment), Delano, Minnesota, since 1973. J. Thomas Lewis Attorney (sole practitioner), New Orleans, Louisiana, since 1998. Prior thereto, associated with Monroe & Lemann (law firm), New Orleans, Louisiana, 1965-1998. Daniel F. McKeithan, Jr. President, Tamarack Petroleum Co., Inc. The Marcus Corporation (operator of oil and gas wells), U.S. Bancorp Milwaukee, Wisconsin, since 1982. Guy A. Osborn Retired Chairman, Universal Foods Corp., Fleming Companies, Inc. Milwaukee, Wisconsin, since 1997. Chairman, 1996-1997. Timothy D. Proctor Group General Counsel, Diageo PLC (manufacturer, marketer and distributor of food and beverage products), London, England, since 2000. Prior thereto, Director, Worldwide Human Resources, Glaxo Wellcome plc, 1998-1999; Senior Vice President Human Resources, General Counsel and Secretary, Glaxo Wellcome Inc., 1996-1998. H. Mason Sizemore, Jr. President and Chief Operating Officer, The Seattle Times, Seattle, Washington, since 1985. Harold B. Smith Chairman, Executive Committee, Illinois Illinois Tool Works Inc. Tool Works Inc. (engineered components Northern Trust Corporation and industrial systems and consumables), W. W. Grainger, Inc. Glenview, Illinois, since 1982. Sherwood H. Smith, Jr. Chairman Emeritus, Carolina Power & Light Nortel Networks Corporation Company, Raleigh, North Carolina, since May 1999. Prior thereto, Chairman, 1996-1999. Peter M. Sommerhauser Attorney, Shareholder, Vice President and Kohl's Corporation Member of the Management Committee, Godfrey & Kahn, S.C. (law firm), Milwaukee, Wisconsin, since 1969.
61
PRINCIPAL OCCUPATION TRUSTEE DURING PAST FIVE YEARS DIRECTORSHIPS ------- ---------------------- ------------- John E. Steuri Chairman (retired), Superior Financial Corp. Advanced Thermal Technologies (heating, air conditioning and humidity control), Little Rock, Arkansas, 1997-2001. John J. Stollenwerk President and Chief Executive Officer, Badger Meter, Inc. Allen-Edmonds Shoe Corporation, Port Koss Corporation Washington, Wisconsin, since 1998. Prior U.S. Bancorp thereto, President and Owner, 1980-1998. Barry L. Williams President and Chief Executive Officer, CH2M Hill Companies Ltd. Williams Pacific Ventures, Inc. (venture R. H. Donnelly Corporation capital), San Francisco, California, since Pacific Gas & Electric Company 1993. Simpson Manufacturing Co., Inc. Synavant Inc. The Newhall Land and Farming Company USA Education Inc. Kathryn D. Wriston Director of various corporations. The Goodyear Tire & Rubber Company The Stanley Works Edward J. Zore President and Chief Executive Officer of Manpower, Inc. Northwestern Mutual since 2001; President Mason Street Funds, Inc. from 2000 to 2001. Prior thereto, Northwestern Mutual Series Executive Vice President (Life and Disability Fund, Inc. Income Insurance), 1998-2000 and Executive Vice President (Finance and Investments), 1995-1998
62 The following information as of March 1, 2002, is provided with respect to each Executive Officer of Northwestern Mutual. The term of office for all Executive Officers is one year expiring May 31, 2002.
NAME AGE POSITION - ---- --- -------- Edward J. Zore 56 President and Chief Executive Officer John M. Bremer 54 Senior Executive Vice President and Chief Operating Officer (Chief Compliance Officer) Peter W. Bruce 56 Senior Executive Vice President (Insurance) Deborah A. Beck 54 Executive Vice President (Planning and Technology) William H. Beckley 54 Executive Vice President (Agencies) Bruce L. Miller 59 Executive Vice President (Marketing) Mason G. Ross 58 Executive Vice President and Chief Investment Officer Mark G. Doll 52 Senior Vice President (Public Markets) Richard L. Hall 56 Senior Vice President (Life Insurance) William C. Koenig 54 Senior Vice President and Chief Actuary Gary A. Poliner 48 Senior Vice President and Chief Financial Officer Charles D. Robinson 57 Senior Vice President (Investment Products and Services) John E. Schlifske 42 Senior Vice President (Securities and Real Estate) Leonard F. Stecklein 55 Senior Vice President (Annuity and Accumulation Products) Frederic H. Sweet 58 Senior Vice President (Corporate and Government Relations) Walt J. Wojcik 62 Senior Vice President (Information Systems) Robert J. Berdan 55 Vice President, General Counsel and Secretary Steven T. Catlett 52 Vice President and Controller Thomas E. Dyer 56 Vice President (Corporate Services) Christina H. Fiasca 47 Vice President (Field Systems Administration) Susan A. Lueger 48 Vice President (Human Resources) Jean M. Maier 47 Vice President (Field Services and Support) Meridee J. Maynard 46 Vice President (Disability Income) Gregory C. Oberland 44 Vice President (New Business) Barbara F. Piehler 51 Vice President (Information Systems) James F. Reiskytl 64 Vice President (Tax and Financial Planning) Marcia Rimai 46 Vice President (Policyowner Services) Lora A. Rosenbaum 45 Vice President (Compliance/Best Practices) J. Edward Tippetts 57 Vice President (Marketing) Martha M. Valerio 55 Vice President (Information Systems) David B. Wescoe 47 Vice President (Northwestern Mutual Investment Services) W. Ward White 62 Vice President (Communications) Michael L. Youngman 50 Vice President (Government Relations)
All of the Executive Officers, except David B. Wescoe and Charles D. Robinson, have been associated with Northwestern Mutual, although not necessarily in their present positions, for more than five years. Mr. Wescoe joined Northwestern Mutual in August 1999 and was named to his current position in March 2000. Mr. Wescoe is also currently President and CEO of Northwestern Mutual Investment Services LLC, the broker-dealer subsidiary of Northwestern Mutual. From 1994 to 1999, Mr. Wescoe was employed by Manpower, Inc. as Vice President and General Counsel. Mr. Robinson joined Northwestern Mutual in February 2001 as Senior Vice President (Investment Products and Services). Prior thereto he was with AIG, Global Retirement Services Division as Chief Marketing Officer and Senior Vice President from 1999 to 2000. From 1980 to 1999, Mr. Robinson served in various positions of increasing responsibility with VALIC/American General Group, most recently as Senior Vice President, Institutional Marketing. 63 ITEM 11. EXECUTIVE COMPENSATION Not applicable. Account A and Account C have no directors or executive officers, the Executive Officers and Trustees of Northwestern Mutual spend no substantial portion of their time on matters relating to Accounts A and C, and the amounts of compensation received by the Executive Officers and Trustees of Northwestern Mutual have no bearing on the values associated with the Contracts issued in connection with Accounts A and C. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Not applicable. As segregated asset accounts, Account A and Account C have no shareholders. As a mutual life insurance company, Northwestern Mutual has no shareholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Effective January 1, 2002, Northwestern Mutual's subsidiary, Mason Street Advisors, LLC ("MSA"), commenced serving as the investment advisor to the Series Fund. The Board of the Series Fund approved the assignment of the investment advisory agreement to MSA in 2001. Various Trustees and Executive Officers of Northwestern Mutual serve as directors and officers of the Series Fund and/or MSA and may be deemed to have a direct or indirect material interest in the existence of the investment advisory agreement. Northwestern Mutual's subsidiary, Frank Russell Company, provides the Russell Funds and its investment adviser, Frank Russell Investment Management Company ("FRIMCo"), a subsidiary of Frank Russell Company, with asset management consulting services that it provides to its other consulting clients. The Russell Funds do not compensate Russell for these services. FRIMCo is party to an investment advisory agreement with the Russell Funds, the renewal of which was approved in 2001. Certain Trustees and Executive Officers of Northwestern Mutual serve as directors of Frank Russell Company and may be deemed to have a direct or indirect material interest in the existence of the investment management agreement. Various Trustees and Executive Officers of Northwestern Mutual (and their family members and associates) may have securities accounts with Baird and/or NMIS and may have effected transactions through such accounts during 2001 and through the date hereof, including transactions in mutual funds sponsored by Russell. Trustees and executive officers of Northwestern Mutual (and their family members and associates) own insurance policies and/or other contracts issued by Northwestern Mutual or an insurance affiliate in the ordinary course of business. Loans are made to Northwestern Mutual's Trustees and Executive Officers (and their family members and associates) in accordance with the provisions of insurance policies or other contracts which they may own. Such loans are made in the ordinary course of business and are administered solely in accordance with the terms of such policies. In the ordinary course of its business, Northwestern Mutual makes loans to its general agents in connection with their business operations. Interest on such loans is tied to Northwestern Mutual's cost of funds or the prime rate, depending upon the purpose of the loan. On occasion, a general agent who has incurred such loans may assume an Executive Officer position at Northwestern Mutual. In such circumstances, the outstanding loans remain in place and are satisfied in accordance with the terms of the underlying loan documentation. At December 31, 2001, Peter M. Sommerhauser, a Northwestern Mutual Trustee since May 1999, was the beneficial owner of approximately 10.8% of the outstanding common stock of Kohl's Corporation, primarily by virtue of his serving as a trustee of several trusts for the benefit of the families of current and former executive officers of Kohl's Corporation and as a director of charitable foundations established by executive officers of Kohl's Corporation. While Mr. Sommerhauser has sole or shared voting and investment power over such shares held in the trusts and foundations, he has no pecuniary interest in those shares. In 1994, a number of years prior to Mr. Sommerhauser becoming a Northwestern Mutual Trustee, Northwestern Mutual lent as part of its normal portfolio investment activities to Kohl's Department Stores, Inc., a subsidiary of Kohl's Corporation, $40,000,000 and received a 6.57% Senior Note, guaranteed by Kohl's Corporation, due March 31, 2004. The principal amount of such indebtedness was reduced to $23,333,333 during 2001, which remains outstanding at March 1, 2002. 64 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements and Exhibits
PAGE ---- (1) NML Variable Annuity Account A (in Part II, Item 8).................................... 18 Statements of Assets and Liabilities at December 31, 2001 and 2000 Statements of Operations for years ended December 31, 2001, 2000 and 1999 Statements of Changes in Equity for years ended December 31, 2001, 2000 and 1999 Financial Highlights Notes to Financial Statements Report of Independent Accountants (2) NML Variable Annuity Account C (in Part II, Item 8).................................... 40 Statements of Assets and Liabilities at December 31, 2001 and 2000 Statements of Operations for years ended December 31, 2001, 2000 and 1999 Statements of Changes in Equity for years ended December 31, 2001, 2000 and 1999 Financial Highlights Notes to Financial Statements Report of Independent Accountants (3) The Northwestern Mutual Life Insurance Company......................................... 66 Immediately following this page are: Report of Independent Accountants Consolidated Statement of Financial Position at December 31, 2001 and 2000 Consolidated Statement of Operations for years ended December 31, 2001, 2000 and 1999 Consolidated Statement of Changes in Surplus for years ended December 31, 2001, 2000 and 1999 Consolidated Statement of Cash Flows for years ended December 31, 2001, 2000 and 1999 Notes to Consolidated Statutory Financial Statements (b) No reports on Form 8-K have been filed during the last quarter of the year ended December 31, 2001. (c) See Index to Exhibits which is incorporated herein by reference................................ 89
65 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 ("the Company") as of December 31, 2001 and 2000, 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, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note 1 to the financial statements, the Company prepared these consolidated financial statements using accounting practices prescribed or permitted by the Office of the Commissioner of Insurance of the State of Wisconsin (statutory basis of accounting), which practices differ from accounting principles generally accepted in the United States of America. Accordingly, the consolidated financial statements are not intended to represent a presentation in accordance with generally accepted accounting principles. The effects on the consolidated financial statements of the variances between the statutory basis of accounting and generally accepted accounting principles, although not reasonably determinable, are presumed to be material. In our opinion, the consolidated financial statements audited by us (1) do not present fairly in conformity with generally accepted accounting principles, the financial position of The Northwestern Mutual Life Insurance Company and its subsidiary as of December 31, 2001 and 2000, or the results of their operations or their cash flows for each of the three years in the period ended December 31, 2001 because of the effects of the variances between the statutory basis of accounting and generally accepted accounting principles referred to in the preceding paragraph, and (2) do present fairly, in all material respects, the financial position of The Northwestern Mutual Life Insurance Company and its subsidiary as of December 31, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, on the basis of accounting described in Note 1. As discussed in Note 1 to the financial statements, the Company adopted the accounting policies in the revised National Association of Insurance Commissioners "Accounting Practices and Procedures Manual" - Effective January 1, 2001, as required by the Office of the Commissioner of Insurance of the State of Wisconsin. The effect of adoption is recorded as an adjustment to surplus as of January 1, 2001. /S/ PRICEWATERHOUSECOOPERS LLP January 22, 2002 66 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF FINANCIAL POSITION (IN MILLIONS)
DECEMBER 31, -------------------- 2001 2000 --------- --------- ASSETS ------ Bonds $44,306 $40,607 Common and preferred stocks 5,369 6,216 Mortgage loans 15,164 14,431 Real estate 1,671 1,627 Policy loans 9,028 8,504 Other investments 4,817 4,508 Cash and temporary investments 2,018 1,217 --------- --------- Total investments 82,373 77,110 Due and accrued investment income 1,048 1,008 Net deferred tax assets 1,602 -- Deferred premium and other assets 1,583 1,510 Separate account assets 11,786 12,497 --------- --------- Total assets $98,392 $92,125 ========= ========= LIABILITIES AND SURPLUS ----------------------- Reserves for policy benefits $68,432 $62,816 Policyowner dividends payable 3,650 3,350 Interest maintenance reserve 375 378 Asset valuation reserve 2,034 2,298 Income taxes payable 1,329 1,228 Other liabilities 3,894 3,662 Separate account liabilities 11,786 12,497 --------- --------- Total liabilities 91,500 86,229 Surplus 6,892 5,896 --------- --------- Total liabilities and surplus $98,392 $92,125 ========= =========
The accompanying notes are an integral part of these financial statements. 67 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF OPERATIONS (IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, --------------------------------- 2001 2000 1999 ---------- -------- ----------- REVENUE: Premiums $ 9,408 $ 8,925 $ 8,344 Net investment income 5,532 5,339 4,766 Other income 405 1,118 970 ---------- -------- ----------- Total revenue 15,345 15,382 14,080 ---------- -------- ----------- BENEFITS AND EXPENSES: Benefit payments to policyowners and beneficiaries 3,808 4,541 4,023 Net additions to policy benefit reserves 5,367 4,815 4,469 Net transfers to separate accounts 502 469 516 ---------- -------- ----------- Total benefits 9,677 9,825 9,008 Commissions and operating expenses 1,453 1,416 1,287 ---------- -------- ----------- Total benefits and expenses 11,130 11,241 10,295 ---------- -------- ----------- Gain from operations before dividends and taxes 4,215 4,141 3,785 Policyowner dividends 3,651 3,334 3,091 ---------- -------- ----------- Gain from operations before taxes 564 807 694 Income tax expense 173 125 203 ---------- -------- ----------- Net gain from operations 391 682 491 Net realized capital gains 259 1,147 846 ---------- -------- ----------- Net income $ 650 $ 1,829 $ 1,337 ========== ======== ===========
The accompanying notes are an integral part of these financial statements. 68 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF CHANGES IN SURPLUS (IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, -------------------------------- 2001 2000 1999 ---------- --------- --------- Beginning of year balance $ 5,896 $ 5,069 $ 4,741 Net income 650 1,829 1,337 Increase (decrease) in net unrealized gains (555) (1,043) 213 (Increase) decrease in asset valuation reserve 264 73 (377) Charge-off of goodwill (Note 11) (9) (12) (842) Cumulative effect of changes in accounting principles (Note 1) 749 -- -- Increase in net deferred tax assets 73 -- -- Change in reserve valuation basis (Note 5) (61) -- -- Other net decreases (115) (20) (3) ---------- --------- --------- Net increase in surplus 996 827 328 ---------- --------- --------- End of year balance $ 6,892 $ 5,896 $ 5,069 ========== ========= =========
The accompanying notes are an integral part of these financial statements. 69 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, ----------------------------------- 2001 2000 1999 ----------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Premiums and other income received $ 6,607 $ 6,279 $ 5,881 Investment income received 5,527 5,000 4,476 Disbursement of policy loans, net of repayments (524) (566) (358) Payments to policyowners and beneficiaries (3,996) (3,967) (3,495) Net transfers to separate accounts (534) (469) (516) Commissions, expenses and taxes paid (1,708) (1,845) (1,699) Other, net 202 224 (56) ----------- ---------- ---------- Net cash provided by operating activities 5,574 4,656 4,233 ----------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from investments sold or matured: Bonds 35,318 29,539 20,788 Common and preferred stocks 15,465 9,437 13,331 Mortgage loans 1,174 1,198 1,356 Real estate 244 302 216 Other investments 413 659 830 ----------- ---------- ---------- 52,614 41,135 36,521 ----------- ---------- ---------- Cost of investments acquired: Bonds 38,915 33,378 22,849 Common and preferred stocks 15,014 8,177 13,794 Mortgage loans 2,003 2,261 2,500 Real estate 353 224 362 Other investments 1,106 1,535 1,864 ----------- ---------- ---------- 57,391 45,575 41,369 ----------- ---------- ---------- Net increase (decrease) due to securities lending and other 4 (158) 499 ----------- ---------- ---------- Net cash used in investing activities (4,773) (4,598) (4,349) ----------- ---------- ---------- Net increase (decrease) in cash and temporary investments 801 58 (116) Cash and temporary investments, beginning of year 1,217 1,159 1,275 ----------- ---------- ---------- Cash and temporary investments, end of year $ 2,018 $ 1,217 $ 1,159 =========== ========== ==========
The accompanying notes are an integral part of these financial statements. 70 THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2001, 2000 AND 1999 1. BASIS OF PRESENTATION AND CHANGES IN ACCOUNTING PRINCIPLES The accompanying consolidated statutory financial statements include the accounts of The Northwestern Mutual Life Insurance Company and its wholly-owned subsidiary, Northwestern Long Term Care Insurance Company (together, "the Company"). All intercompany balances and transactions have been eliminated. The Company offers life, annuity, disability income and long-term care insurance products to the personal, business, estate and tax-qualified markets. The 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"). Effective January 1, 2001, insurance companies domiciled in Wisconsin are required to prepare statutory basis financial statements in accordance with the new National Association of Insurance Commissioners ("NAIC") Accounting Practices and Procedures Manual, subject to any deviations prescribed or permitted by the Office of the Commissioner of Insurance of the State of Wisconsin ("OCI"). These new requirements differ from those used prior to January 1, 2001, primarily because under the new statutory accounting principles: (1) deferred tax balances are established for temporary differences between book and tax bases of certain assets and liabilities, (2) investment valuation adjustments on impaired assets are measured differently and are reported as realized losses, (3) pension and other employee benefit obligations are accounted for based on the funded status of the related plans, (4) recognition of earnings from unconsolidated subsidiaries and affiliates as net investment income is limited to dividends received, (5) certain software costs can be capitalized and amortized to expense over a maximum of five years, and (6) premiums, benefits and reserve changes for policies that do not have significant mortality or morbidity risks ("deposit-type contracts") are not included in revenue or benefits as reported in the consolidated statement of operations. The cumulative effect of adoption of these new accounting principles was reported as an adjustment to surplus as of January 1, 2001, with no restatement of prior periods permitted. This cumulative effect was the difference in the amount of surplus that would have been reported at that date if the new accounting principles had been retroactively applied to all prior periods. The cumulative effect of these accounting changes increased surplus by $749 million at that date, and included the following (in millions): Deferred tax accounting $ 850 Pension plan liabilities (74) Investment valuation changes, net (27) ----- $ 749 =====
Financial statements prepared on the statutory basis of accounting differ from financial statements prepared in accordance with generally accepted accounting principles ("GAAP"), primarily because on a GAAP basis: (1) certain policy acquisition costs are deferred and amortized, (2) investment valuations and insurance reserves use different methods and assumptions, (3) deposit-type contracts, for which premiums, benefits and reserve changes are not included in revenue or benefits as reported in the statement of operations, are defined differently, (4) majority-owned, non-insurance subsidiaries are consolidated, (5) changes in deferred taxes are reported as a component of net income, and (6) no deferral of realized gains and losses is permitted. The effects on the financial statements of the Company from the differences between the statutory basis of accounting and GAAP are material. 71 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in conformity with the statutory basis of accounting requires management to use assumptions or make estimates 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 assumptions and estimates. INVESTMENTS See Note 3 regarding the reported statement value and estimated fair value of the Company's investments in bonds, common and preferred stocks, mortgage loans and real estate. POLICY LOANS Policy loans primarily represent amounts borrowed from the Company by life insurance policyowners, secured by the cash value of the related policies. They are reported in the financial statements at unpaid principal balance. OTHER INVESTMENTS Other investments consist primarily of joint venture and partnership investments. These investments are valued at the Company's share of equity in the partnerships' or ventures' net assets, which approximates fair value. Other investments also include derivative financial instruments. See Note 4 regarding the Company's use of derivatives. TEMPORARY INVESTMENTS Temporary investments represent debt securities that have maturities of one year or less at purchase. They are reported at amortized cost, which approximates fair value. NET INVESTMENT INCOME Net investment income primarily represents interest and dividends received or accrued on bonds, mortgage loans, policy loans and other investments. It also includes amortization of any purchase premium or discount using the interest method, adjusted prospectively for any change in estimated yield-to-maturity. Investment income due and accrued that is deemed uncollectible is charged against net investment income in the period such determination is made, while investment income greater than 90 days past due is nonadmitted and charged directly to surplus. Beginning January 1, 2001, net investment income also includes dividends paid to the Company from accumulated earnings of unconsolidated subsidiaries, affiliates, partnerships and joint ventures. Prior to 2001, the Company's share of undistributed earnings in these entities was recognized as net investment income using the equity method. Net investment income is reduced by investment management expenses, real estate depreciation, depletion related to energy assets and interest 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 estimated remaining term-to-maturity of the investment sold. INVESTMENT CAPITAL GAINS AND LOSSES Realized investment gains and losses are recognized based upon specific identification of securities sold. Beginning January 1, 2001 realized investment gains and losses also include valuation adjustments for impairment of bonds, stocks, mortgage loans and other investments with a decline in value that management considers to be other than temporary. Prior to 2001, these valuation adjustments were classified as unrealized investment losses and only realized upon disposition. Realized capital gains and losses as reported in the consolidated statement of operations are net of any IMR deferrals and current income tax expense. See Note 3 regarding details of reported realized capital gains and losses. Unrealized investment gains and losses primarily represent changes in the reported fair value of common stocks. Beginning January 1, 2001 changes in the Company's share of undistributed earnings in unconsolidated subsidiaries, affiliates, partnerships and joint ventures are classified as changes in unrealized capital gains and losses. Prior to 2001, the Company's share of undistributed earnings in these entities was recognized as net investment income using the equity method. See Note 3 regarding details of reported changes in unrealized capital gains and losses. 72 ASSET VALUATION RESERVE 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 the NAIC. The AVR is designed to protect surplus against potential declines in the value of the Company's investments. Increases or decreases in AVR are reported as direct adjustments to surplus. SEPARATE ACCOUNTS See Note 7 regarding separate account assets and liabilities reported by the Company. PREMIUM REVENUE Life insurance premiums are recognized as revenue at the beginning of each policy year. Annuity, disability income and long-term care insurance premiums are recognized as revenue when received by the Company. Premium revenue is reported net of ceded reinsurance, see Note 9. OTHER INCOME Other income includes considerations received on supplementary annuity contracts, ceded reinsurance expense allowances and various insurance policy charges. Beginning January 1, 2001, considerations received on supplementary contracts without life contingencies are classified as deposit-type transactions and thereby excluded from revenue. Prior to 2001, these considerations were reported as revenue. BENEFIT PAYMENTS TO POLICYOWNERS AND BENEFICIARIES Benefit payments to policyowners and beneficiaries include death, surrender and disability benefits, as well as matured endowments and supplementary contract payments. Beginning January 1, 2001 benefit payments on supplementary contracts without life contingencies are classified as deposit-type transactions and thereby excluded from expense. Prior to 2001, these payments were reported as benefit expense. Benefit payments are reported net of ceded reinsurance recoveries, see Note 9. RESERVES FOR POLICY BENEFITS See Note 5 regarding the methods and assumptions used to establish the Company's reserves for future insurance policy benefits. COMMISSIONS AND OPERATING EXPENSES Commissions and other operating costs, including costs of acquiring new insurance policies, are generally charged to expense as incurred. ELECTRONIC DATA PROCESSING EQUIPMENT AND SOFTWARE Electronic data processing ("EDP") equipment and software used in the Company's business are reported at cost less accumulated depreciation. Beginning January 1, 2001 certain software costs are capitalized and depreciated over a maximum of five years, while EDP equipment is capitalized and depreciated over three years. Most unamortized software costs are nonadmitted assets and thereby excluded from surplus. Prior to 2001, the Company expensed all software costs, while EDP equipment was capitalized and amortized over its useful life. EDP equipment and software of $18 million and $16 million at December 31, 2001 and 2000, respectively, were net of accumulated depreciation of $44 million and $43 million, respectively, and included in other assets in the consolidated statement of financial position. Depreciation expense is recorded using the straight-line method and totaled $14 million, $8 million and $9 million for the years ended December 31, 2001, 2000 and 1999, respectively. 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. Participating policyowners generally have the option to direct their dividends to be paid in cash, used to reduce future premiums due or used to purchase additional insurance. A majority of dividends are used by policyowners to purchase additional insurance and are reported as premiums in the consolidated statement of operations, but are not included in premiums received or policy benefits paid in the consolidated statement of cash flows. 73 NONADMITTED ASSETS Certain assets are designated as nonadmitted and thereby not permitted as a component of surplus on the statutory basis of accounting. Such assets, principally pension-related assets, amounts advanced to or due from the Company's financial representatives, and fixed assets, EDP equipment and software net of accumulated depreciation, are excluded from the consolidated statement of financial position. Changes in nonadmitted assets are reported as direct adjustments to surplus. RECLASSIFICATION Certain financial statement balances for 2000 and 1999 have been reclassified to conform to the current year presentation. 3. INVESTMENTS BONDS Investments in bonds are reported in the financial statements at amortized cost, except for bonds in default, which are reported at the lower of amortized cost or fair value. Statement value and estimated fair value of these securities at December 31, 2001 and 2000 were as follows:
December 31, 2001 Reconciliation to Estimated Fair Value - ----------------- ------------------------------------------------ Gross Gross Estimated Statement Unrealized Unrealized Fair Value Gains Losses Value ----------- ---------- ----------- ---------- (in millions) U.S. Government $ 4,271 $ 221 $ (84) $ 4,408 States, territories and possessions 262 29 -- 291 Special revenue and assessments 6,032 185 (23) 6,194 Public utilities 2,748 86 (19) 2,815 Banks, trust and insurance companies 1,306 46 (18) 1,334 Industrial and miscellaneous 29,685 1,026 (555) 30,156 Parent, subsidiaries and affiliates 2 -- -- 2 -------- ------ ----- ------- Total $44,306 $1,593 $(699) $45,200 ======== ====== ===== =======
December 31, 2000 Reconciliation to Estimated Fair Value - ----------------- ------------------------------------------------ Gross Gross Estimated Statement Unrealized Unrealized Fair Value Gains Losses Value ----------- ---------- ----------- ---------- (in millions) U.S. Government $ 3,870 $ 241 $ (44) $ 4,067 States, territories and possessions 261 18 -- 279 Special revenue and assessments 5,830 190 (26) 5,994 Public utilities 2,669 37 (77) 2,629 Banks, trust and insurance companies 1,128 29 (3) 1,154 Industrial and miscellaneous 26,846 542 (888) 26,500 Parent, subsidiaries and affiliates 3 -- -- 3 ------- ------ ------- ------- Total $40,607 $1,057 $(1,038) $40,626 ======= ====== ======= =======
74 Estimated fair value is based upon values published by the Securities Valuation Office ("SVO") of the NAIC. In the absence of SVO-published values, estimated fair value is based upon quoted market prices, if available. For bonds without quoted market prices, fair value is estimated using independent pricing services or internally developed pricing models. Statement value and estimated fair value by contractual maturity at December 31, 2001 is shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Statement Estimated Value Fair Value -------- ---------- (in millions) Due in one year or less $ 823 $ 812 Due after one year through five years 5,931 6,062 Due after five years through ten years 13,923 14,186 Due after ten years 10,604 10,730 ------- ------- 31,281 31,790 Structured securities 13,025 13,410 ------- ------- Total $44,306 $45,200 ======= =======
COMMON AND PREFERRED STOCKS Common stocks are reported in the financial statements at fair value, which is based upon quoted market prices, if available. For common stock without quoted market prices, fair value is estimated using independent pricing services or internally developed pricing models. Preferred stocks rated "1" (highest quality), "2" (high quality), or "3" (medium quality) by the SVO are reported in the financial statements at amortized cost. All other preferred stock is reported at the lower of cost or fair value. Estimated fair value is based upon quoted market prices, if available. For preferred stock without quoted market prices, fair value is estimated using independent pricing services or internally developed pricing models. For any decline in the fair value of a common or preferred stock that is considered to be other than temporary, a valuation adjustment is made to reduce the cost of the security to fair value and recognized as a realized capital loss. MORTGAGE LOANS AND REAL ESTATE Mortgage loans are reported in the financial statements at unpaid principal balance, less any valuation allowance or unamortized commitment or origination fees. These fees are generally deferred and amortized into investment income using the interest method. 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 borrowers, geographic locations and types of collateral properties. The maximum and minimum interest rates for mortgage loans originated during 2001 were 9.8% and 6.4%, respectively. The aggregate average ratio of loaned amounts to the value of collateral for mortgage loans originated during 2001 was 68%, with a maximum of 100% for any single loan. Mortgage loans are considered impaired when, based on current information, management considers it probable that the Company will be unable to collect all principal and interest due according to the contractual terms of the loan. If necessary, a valuation adjustment is made to reduce the carrying value of an impaired loan to the lower of unpaid principal balance or estimated net realizable value based on appraisal of the collateral property. If the impairment is considered to be temporary, the change in valuation adjustment is classified as an unrealized gain or loss. Beginning January 1, 2001 valuation adjustments for impairments considered to be other than temporary are classified as realized losses. Prior to 2001, all changes in valuation adjustments were classified as unrealized gains and losses. At December 31, 2001, reported value of mortgage loans was reduced by $112 million in valuation adjustments. 75 Real estate investments are reported in the financial statements at cost, less encumbrances and accumulated depreciation of buildings or other improvements using a straight-line method over the estimated useful life of the improvements. An investment in real estate is considered impaired when the projected undiscounted net cash flow from the investment is less than depreciated cost. When the Company determines that an investment in real estate is impaired, a valuation adjustment is made to reduce the carrying value to estimated fair value, after encumbrances, based on appraisal of the property. At December 31, 2001, reported value of real estate investments was reduced by $52 million in valuation adjustments. CAPITAL GAINS AND LOSSES Realized investment gains and losses for the years ended December 31, 2001, 2000 and 1999 were as follows:
For the year ended For the year ended For the year ended December 31, 2001 December 31, 2000 December 31, 1999 ------------------------------- ----------------------------- ------------------------------- 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 $ 537 $ (674) $ (137) $ 369 $ (416) $ (47) $ 219 $ (404) $ (185) Common and preferred stocks 863 (569) 294 1,534 (333) 1,201 1,270 (255) 1,015 Mortgage loans -- (10) (10) -- (25) (25) 22 (12) 10 Real estate 85 (11) 74 101 -- 101 92 -- 92 Other invested assets 296 (149) 147 395 (177) 218 308 (189) 119 -------- ------- ------ ------ ------- ------- ------- ------ ------- $ 1,781 $(1,413) 368 $2,399 $ (951) 1,448 $ 1,911 $ (860) 1,051 ======== ======= ====== ======= ======= ====== Less: Capital gains taxes 98 353 244 Less: IMR gains (losses) 11 (52) (39) ------ ------- ------ Net realized capital gains $ 259 $ 1,147 $ 846 ====== ======= ======
Proceeds on the sale of securities totaled $30 billion, $25 billion, and $16 billion for the years ended December 31, 2001, 2000 and 1999, respectively. Changes in net unrealized investment gains and losses for the years ended December 31, 2001, 2000 and 1999 were as follows:
For the year ended December 31, --------------------------- 2001 2000 1999 ------- ------- ----- (in millions) Bonds $ (15) $ (208) $(178) Common and preferred stocks (699) (851) 415 Mortgage loans -- (2) (10) Real estate -- (4) (2) Other investments (193) 22 (12) ------- ------- ----- (907) $(1,043) $ 213 ======= ===== Change in deferred taxes 352 ------- $ (555) =======
See Note 10 regarding the accounting change in 2001 for deferred taxes. 76 SECURITIES LENDING The Company has entered into securities lending agreements whereby certain securities are loaned to third parties, primarily major brokerage firms. The Company's policy requires a minimum of 102% of the fair value of the loaned securities as collateral, calculated on a daily basis in the form of either cash or securities. Collateral assets held and the related liability due to counterparties of $1.3 billion and $1.4 billion are included in the consolidated statement of financial position at December 31, 2001 and 2000, respectively, and approximate the statement value of securities loaned at those dates. 4. 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. Market risk arises from changes in the fair value of the underlying instruments. The Company is also exposed to credit risk in the event of nonperformance of the counterparties. Derivative investments are classified as other investments in the consolidated statement of financial position. Derivative financial instruments that hedge specific assets and liabilities are reported in a manner consistent with the hedged item (e.g. at amortized cost or fair value), while derivative financial instruments that hedge a portfolio of assets or liabilities are reported at fair value. Fair value is estimated as the amount that the Company would expect to receive or pay upon termination of the contract at the reporting date. Changes in the carrying value of derivatives that hedge a portfolio of assets or liabilities are reported as realized capital gains and losses. The Company held the following positions for hedging purposes at December 31, 2001 and 2000:
December 31, 2001 December 31, 2000 ---------------------------------------------------------- Carrying Notional Fair Carrying Notional Fair Derivative Instrument Value Amount Value Value Amount Value - --------------------- -------- -------- -------- --------- -------- ------- (in millions) Specific Hedges: - ---------------- Foreign currency swaps $ 1 $ 70 $11 $ 6 $118 $ 5 Forward contracts -- 200 3 -- 400 10 Interest rate swaps 1 88 6 -- 83 2 Swaptions/interest rate floors 14 829 32 16 977 16 Default swaps -- 57 -- -- 52 -- Portfolio Hedges: - ---------------- Common stock futures and equity swaps $ 9 $221 $ 9 $ 28 $565 $28 Financial futures (2) 203 (2) -- -- -- Foreign currency forward contracts -- 502 -- (26) 803 (3)
The carrying value of derivative financial instruments includes receivables of $9 million and $23 million at December 31, 2001 and 2000, respectively. The notional or contractual amounts of derivative financial instruments are used to denominate the transactions and do not represent the amounts exchanged between the parties. The Company uses foreign currency swaps, which are traded over-the-counter, to hedge its exposure to bond cash-flows denominated in foreign currencies. A foreign currency swap is a contractual agreement to exchange the currencies of two different countries at a specified rate of exchange in the future. 77 The Company uses forward contracts to buy or sell a financial instrument at a specified future date. Forward contracts fix the price, quantity, quality and date of the purchase and sale. Some forward contracts involve the initial payment of cash and may be settled in cash instead of physical delivery of the underlying instrument. The Company uses interest rate swap agreements to hedge its exposure to floating rate bond coupon payments. An interest rate swap is a contractual agreement to exchange payments based on the actual or expected price level, performance or value of one or more underlying interest rates. The Company is required to pay the counterparty the stream of variable interest payments based on the coupon payments from the hedged bonds, and in turn, receives a fixed payment from the counterparty, at a predetermined interest rate. The net receipts/payments from these interest rate swaps are recorded in net investment income. The Company uses swaptions and interest rate floors to hedge against the negative impact of a significant and sustained increase or decrease in interest rates. The purpose of the Company's swaption program is to protect against the effect of rising interest rates. Swaptions entitle the Company to receive settlement payments from the counterparties on specified expiration date, contingent on future interest rates. For each swaption, the amount of such settlement payments, if any, is determined by the present value of the difference between the fixed rate on a market rate swap and the strike rate multiplied by the notional amount. The premium paid for the swaptions is included in other investments and is amortized into interest income over the term of the agreements. Floors are option contracts in which the floor seller, in return for a premium, agrees to limit the risk associated with a decline in a reference rate or index. The Company uses default swaps to hedge against a drop in bond prices due to credit concerns of certain bond issuers. A credit swap allows the Company to put the bond back to the counterparty at par upon a credit event by the bond issuer. A credit event is defined as bankruptcy, failure to pay, or obligation acceleration. The Company uses common stock futures and equity swaps to mitigate its exposure to equity market fluctuations. Futures are standardized forward contracts traded on organized exchanges. Swaps are contracts to exchange, for a period of time, the investment performance of one underlying instrument for the investment performance of another underlying instrument, typically without exchanging the instruments themselves. The Company uses financial futures contracts to hedge against interest rate risks on a portion of its fixed maturity securities. These contracts obligate the Company to buy or sell a financial instrument at a specified future date for a specified price. They may be settled in cash or through delivery of the financial instrument. Cash settlements on the change in market value of financial futures contracts are made daily. The Company uses foreign currency forward contracts, which are traded over-the-counter, to hedge some of the foreign exchange risk of investments denominated in foreign currencies. The foreign currency forward contracts obligate the Company to deliver a specified amount of foreign currency at a future date at a specified exchange rate. 5. RESERVES FOR POLICY BENEFITS Reserves for policy benefits represent the estimated net present value of future policy benefits, less future policy premiums, established using actuarial methods based on mortality and morbidity experience tables and valuation interest rates prescribed by the OCI. Use of these actuarial tables and methods involves estimation of future mortality and morbidity. Actual future experience could differ from the assumptions used to make these estimates. Life insurance reserves on substantially all policies issued since 1978 are based on the Commissioner's Reserve Valuation Method ("CRVM") with interest rates ranging from 3-1/2% to 5-1/2%. Other life policy reserves are primarily based on the net level premium method, employing various mortality tables at interest rates ranging from 2% to 4-1/2%. As of December 31, 2001, the Company has $690 billion of total life insurance in-force, including $7 billion of life insurance in-force for which the gross premiums are less than the net premiums according to the standard valuation methods and assumptions set by the OCI. 78 As of January 1, 2001, the Company changed the valuation basis for reserves on certain term life insurance policies. The impact of this change increased policy benefit reserves by $61 million, and is reported as a direct reduction of surplus for the year ended December 31, 2001. Tabular cost has been determined from the basic data for the calculation of policy reserves. Tabular less actual reserves released has been determined from the basic data for the calculation of reserves and reserves released. Tabular interest has been determined from the basic data for the calculation of policy reserves. Tabular interest on funds not involving life contingencies is calculated as the product of the valuation rate of interest times the mean of the amount of funds subject to such rate held at the beginning and end of the year of valuation. Additional premiums are charged for substandard lives for policies issued after January 1, 1956. Net level premium or CRVM mean reserves are based on multiple mortality tables or one-half the net flat or other extra mortality charge. The Company waives deduction of fractional premiums upon death of insured and returns any portion of the final premium beyond the date of death. Surrender values are not promised in excess of the legally computed reserves. Deferred annuity reserves on contracts issued since 1985 are primarily valued using the Commissioner's Annuity Reserve Valuation Method with interest rates ranging from 3-1/2% to 6-1/4%. Other deferred annuity reserves are based on 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%. Beginning January 1, 2001 changes in future policy benefits on supplementary contracts without life contingencies are classified as deposit-type transactions and thereby excluded from net additions to policy benefit reserves in the consolidated statement of operations. Prior to 2001, these reserve changes were reported as a component of operations. At December 31, 2001, the withdrawal characteristics of the Company's annuity reserves and deposit liabilities were as follows:
Amount Percent ---------- ----------- (in millions) Subject to discretionary withdrawal - with market value adjustment $ 8,936 63.5% Subject to discretionary withdrawal - without market value adjustment 2,260 16.1% Not subject to discretionary withdrawal provision 2,869 20.4% ---------- ------ $ 14,065 100.0% ==========
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, interest rates ranging from 3% to 4% and the 1964 Commissioner's Disability Table for morbidity. Disabled life reserves for DI policies are based on the present values of expected benefit payments, primarily using the 1985 CIDA (modified for Company experience in the first four years of disability) and interest rates ranging from 3% to 5-1/2%. 6. PREMIUM AND ANNUITY CONSIDERATIONS DEFERRED AND UNCOLLECTED Gross deferred and uncollected insurance premiums represent premiums due to be received from policyowners through the next policy anniversary date. Net deferred and uncollected premiums represent only the portion of gross premiums related to mortality charges and interest. Deferred and uncollected premiums at December 31, 2001 were as follows:
Type of Business Gross Net ------- ------ (in millions) Ordinary new business $ 145 $ 77 Ordinary renewal 1,351 1,103 ------- ------ $ 1,496 $1,180 ======= ======
79 7. 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 mutual fund options. Variable annuity 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 based primarily on quoted market prices. All separate accounts liabilities are non-guaranteed. Following is a summary of separate account liabilities by withdrawal characteristic at December 31, 2001 (in millions):
At market value $ 9,780 Not subject to discretionary withdrawal 1,762 Non-policy liabilities 244 ------- Total $11,786 =======
Separate account premiums and other considerations received during the year ended December 31, 2001 were $1,419 million and reported as revenues in the consolidated statement of operations. Following is a summary reconciliation of amounts reported as transfers to and from separate accounts in the summary of operations of the Company's NAIC Separate Account Annual Statement and the amount reported as net transfers to separate accounts in the accompanying statement of operations for the year ended December 31, 2001 (in millions):
From Separate Account Annual Statement: Transfers to Separate Accounts $ 1,419 Transfers from Separate Accounts (1,128) ------- 291 Reconciling adjustments: Investment management and administrative charges 72 Mortality, breakage and taxes 139 ------- Net transfers to separate accounts $ 502 =======
8. EMPLOYEE AND REPRESENTATIVE BENEFIT PLANS The Company sponsors noncontributory defined benefit retirement plans for all eligible employees and field representatives. These include tax-qualified plans, as well as nonqualified plans that provide benefits to certain participants in excess of ERISA limits for qualified plans. The Company's policy is to fully fund the obligations of qualified plans in accordance with ERISA requirements. Beginning January 1, 2001 the costs associated with these retirement benefits are expensed over the period that the participant provides services to the Company, including recognition of pension assets and liabilities based on the funded status of the related plans. Pension assets are nonadmitted and thereby excluded from surplus. Prior to 2001, the Company recognized pension expense only in the periods in which contributions to plan assets were made. In addition to pension benefits, the Company provides certain health care and life insurance benefits ("postretirement benefits") to retired employees, representatives and eligible dependents. Substantially all employees and representatives will become eligible for these benefits if they reach retirement age while working for the Company. 80 The funded status of the Company's defined benefit plans, both funded and unfunded, and postretirement benefits at December 31, 2001 were as follows:
Unfunded Postretirement Funded Plans plans Benefits ------------ -------- -------------- (in millions) Accumulated benefit obligation: Vested participants $ 874 $ 169 $ 96 Nonvested participants 10 1 -- ------- ----- ---- 884 170 96 Effect of future salary increases 240 71 -- ------- ----- ---- Projected benefit obligation 1,124 241 96 Plan assets at fair value 1,819 (4) 24 ------- ----- ---- Funded status 695 (245) (72) Unrecognized transition (asset) liability (657) -- -- ------- ----- ---- Net pension asset (liability) $ 38 $(245) $(72) ======= ===== ====
The projected benefit obligations were estimated using a discount rate of 7%, an assumed long-term rate of return on plan assets of 9%, and assumptions regarding future employee turnover and compensation trends based on Company experience. Plan assets are invested primarily in common stocks and corporate debt securities through a separate account of the Company. Fair value of plan assets is based primarily on quoted market value. Changes in projected benefit obligations and plan assets during the year ended December 31, 2001 were as follows:
Pension Postretirement Plans Benefits ------- -------------- (in millions) Benefit obligation at January 1 $ 1,259 $ 89 Changes in benefit obligation: Service cost 50 7 Interest cost 86 6 Benefits paid (30) (6) ------- ---- Benefit obligation at December 31 $ 1,365 $ 96 ======= ==== Fair value of plan assets at January 1 $ 1,694 $ 23 Changes in plan assets: Expected return on plan assets 151 2 Benefits paid (30) (1) ------- ---- Fair value of plan assets at December 31 $ 1,815 $ 24 ======= ====
81 The components of net periodic pension expense (benefit) for the year ended December 31, 2001 were as follows (in millions):
Service cost of benefits earned $ 50 Interest cost on projected obligations 86 Expected return on plan assets (151) ------ Net periodic pension expense (benefit) $ (15) ======
The components of net periodic postretirement expense (benefit) for the year ended December 31, 2001 were as follows (in millions):
Service cost of benefits earned $ 7 Interest cost on projected obligations 6 Expected return on plan assets (2) ------ Net periodic postretirement expense $ 11 ======
The accumulated postretirement benefit obligation was estimated using a discount rate of 7%, an assumed rate of return on plan assets of 9%, and assumptions regarding participant retirement, morbidity and mortality based on Company experience. The estimate also assumes a health care cost rate increase of 10% per year, grading down 1% to an ultimate rate of 5% after 5 years. A further increase in the assumed healthcare cost trend of 1% in each year would increase the accumulated postretirement benefit obligation as of December 31, 2001 by $8 million and net periodic postretirement benefit expense during 2001 by $1 million. A decrease in the assumed healthcare cost trend of 1% in each year would decrease the accumulated postretirement benefit obligation as of December 31, 2001 by $8 million and net periodic postretirement benefit expense during 2001 by $1 million. The Company also sponsors a contributory 401(k) plan for eligible employees and a noncontributory defined contribution plan for full-time representatives. For the years ended December 31, 2001, 2000 and 1999 the Company expensed total contributions to these plans of $20 million, $19 million and $18 million, respectively. 9. REINSURANCE In the normal course of business, the Company seeks to limit its life insurance exposure to loss on any single insured and to recover a portion of benefits paid by ceding insurance coverage to reinsurers under excess 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 also has an excess reinsurance contract for certain disability income policies with retention limits varying based upon coverage type. The amounts shown in the consolidated financial statements are reported net of reinsurance. Reserves for policy benefits at December 31, 2001 and 2000 were reported net of ceded reserves of $757 million and $663 million, respectively. 82 The effect of reinsurance on premium revenue and benefits expense for the years ended December 31, 2001, 2000 and 1999 was as follows:
For the year ended December 31, -------------------------------- 2001 2000 1999 -------- -------- ------- (in millions) Direct premium revenue $ 9,956 $ 9,419 $ 8,785 Premiums ceded (548) (494) (441) -------- -------- ------- Net premium revenue $ 9,408 $ 8,925 $ 8,344 ======== ======== ======= Direct benefits expense 10,109 10,140 9,270 Benefits ceded (432) (315) (262) -------- -------- ------- Net benefits expense $ 9,677 $ 9,825 $ 9,008 ======== ======== =======
In addition, the Company received $161 million, $146 million and $133 million for the years ended December 31, 2001, 2000 and 1999, respectively, from reinsurers as allowances for reimbursement of commissions and other expenses on ceded business. 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. The Company attempts to minimize this risk by diversifying its reinsurance coverage among a number of reinsurers that meet its standards for strong financial condition. 10. INCOME TAXES The Company files a consolidated federal income tax return with the following entities: Northwestern Mutual Investment Services, LLC Northwestern International Holdings, Inc. NML Real Estate Holdings, LLC and subsidiaries NML Securities Holdings, LLC and subsidiaries Northwestern Investment Management Company, LLC Northwestern Securities Holdings, LLC Northwestern Mutual Trust Company Baird Holding Company Frank Russell Company Bradford, Inc. Network Planning Advisors, LLC Mason Street Advisors, LLC NML - CBO, LLC Under written tax sharing agreements, the Company collects from or refunds to these subsidiaries income taxes determined as if the subsidiaries filed separate tax returns. Federal income tax returns for years through 1997 are closed as to further assessment of tax. Adequate provision has been made in the financial statements for any additional taxes that may become due with respect to the open years. Beginning January 1, 2001 the Company accounts for deferred tax assets and liabilities, which reflect the financial statement impact of cumulative temporary differences between the tax and financial statement bases of assets and liabilities. Prior to 2001, no deferred tax balances were reported. The components of the net deferred tax asset at December 31, 2001 were as follows (in millions):
Deferred tax assets $ 3,053 Deferred tax liabilities (1,451) ------- Net deferred tax assets $ 1,602 =======
83 Deferred tax assets relate primarily to temporary differences between the tax and financial statement bases of policy benefit liabilities, as well as the temporary difference created by unamortized policy acquisition costs capitalized for tax purposes. Deferred tax assets increased by $374 million for the year ended December 31, 2001 due primarily to increases in these same temporary differences. Deferred tax liabilities relate primarily to temporary differences between the tax and financial statement bases of investments. Deferred tax liabilities decreased by $51 million for the year ended December 31, 2001 due primarily to changes in temporary differences relating to investments. Changes in deferred tax assets and liabilities related to changes in unrealized gains and losses on investments are reported as a component of changes in unrealized capital gains and losses in the consolidated statement of changes in surplus. Other changes in deferred tax assets and liabilities are direct adjustments to surplus and separately reported in the consolidated statement of changes in surplus. The Company's taxable income can vary significantly from gain from operations before taxes due to differences between book and tax valuation of assets and liabilities. Also, the Company must capitalize and amortize for tax purposes, as opposed to immediately deducting, an amount deemed to represent the cost of acquiring new business ("DAC tax"). Further, the Company pays an "equity tax" that is assessed only on the surplus of mutual life insurance companies. The Company's effective tax rate of 21%, for the year ended December 31, 2001, is determined as the relationship between the sum of total taxes, including those that affect net income and changes in deferred taxes not related to unrealized gains and losses on investments, to the sum of gain from operations before taxes and pretax net realized gains. This rate was less than the federal corporate tax rate of 35% due primarily to differences between book and tax basis amounts of net investment income and realized capital gains and losses. Prior to 2001, the Company's effective tax rate was based only on tax expense attributed to net gain from operations and its relationship to gain from operations before taxes. Effective tax rates for the years ended December 31, 2000, and 1999 were 16% and 29%, respectively. The effective rates were less than the federal corporate rate of 35% due primarily to differences between book and tax investment income and, in 2000, prior year adjustments. 11. FRANK RUSSELL COMPANY ACQUISITION AND GOODWILL The Company acquired Frank Russell Company ("Russell") effective January 1, 1999 for a purchase price of approximately $955 million. Russell is a leading investment management and consulting firm, providing investment advice, analytical tools and investment vehicles to institutional and individual investors in more than 30 countries. This investment is accounted for using the equity method, adjusted for the charge-off of acquisition goodwill, and is included in common stocks in the consolidated statement of financial position. During the three years ended December 31, 2001, the Company charged-off directly from surplus approximately $863 million, representing the goodwill associated with the acquisition. The Company has received permission from the OCI for this charge-off. As part of the acquisition, the Company has unconditionally guaranteed certain debt obligations of Russell, including $350 million of senior notes and up to $150 million of other credit facilities. 12. CONTINGENCIES The Company has also guaranteed certain obligations of other affiliates. These guarantees totaled approximately $135 million at December 31, 2001 and are generally supported by the underlying net asset values of the affiliates. In addition, the Company routinely makes commitments to fund mortgage loans or other investments in the normal course of business. These commitments aggregated to $1.9 billion at December 31, 2001 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 results of operations or financial position. 13. RELATED PARTY TRANSACTIONS During 2001, 2000 and 1999, the Company transferred appreciated equity investments to wholly-owned subsidiaries as a capital contribution to the subsidiaries. Realized capital gains of $244 million, $220 million and $287 million for 2001, 2000 and 1999, respectively, were reported based on the fair value of the assets at transfer. 84 14. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of financial instruments, represented by investment assets (including derivatives) and certain policy liabilities at December 31, 2001 was as follows (in millions):
December 31, 2001 ----------------------- Statement Fair Value Value ----------- ---------- ASSETS Bonds $44,306 $45,200 Common and preferred stocks 5,369 7,072 Mortgage loans 15,164 15,875 Real estate 1,671 2,406 Policy loans 9,028 9,375 Other investments, including derivatives 4,817 5,244 Cash and short-term investments 2,018 2,018 LIABILITIES Investment-type insurance reserves $ 3,417 $ 3,191
Fair value of bonds, common and preferred stocks and derivative financial instruments were based upon quoted market prices, when available. For those not actively traded, fair values were estimated using independent pricing services or internally developed pricing models. The fair value of mortgage loans was estimated by discounting estimated future cash flows using market interest rates for debt with comparable credit risk and maturities. Real estate fair value was determined by discounting estimated future cash flows using market interest rates. Policy loan fair value was estimated based on discounted projected cash flows using market interest rates and assumptions regarding future loan repayments based on Company experience. Other investments include joint ventures and partnerships, valued using the equity method, which approximates fair value. The fair value of investment-type insurance reserves was estimated by discounting estimated future cash flows at market interest rates for similar instruments with comparable maturities. 85 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY In respect of NML Variable Annuity Account A and NML Variable Annuity Account C (Registrant) By /s/ EDWARD J. ZORE --------------------------------------- Edward J. Zore President and Chief Executive Officer Date: March 25, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. TITLE /s/ EDWARD J. ZORE - -------------------------------------------- Trustee, President and Edward J. Zore Chief Executive Officer /s/ GARY A. POLINER - -------------------------------------------- Senior Vice President and Gary A. Poliner Chief Financial Officer /s/ STEVEN T. CATLETT - -------------------------------------------- Vice President and Steven T. Catlett Controller /s/ JOHN M. BREMER - -------------------------------------------- Trustee John M. Bremer /s/ PETER W. BRUCE - -------------------------------------------- Trustee Peter W. Bruce EDWARD E. BARR* - -------------------------------------------- Trustee Edward E. Barr GORDON T. BEAHAM, III* - -------------------------------------------- Trustee Gordon T. Beaham, III ROBERT C. BUCHANAN* - -------------------------------------------- Trustee Robert C. Buchanan GEORGE A. DICKERMAN* - -------------------------------------------- Trustee George A. Dickerman PIERRE S. DU PONT* - -------------------------------------------- Trustee Pierre S. du Pont JAMES D. ERICSON* - -------------------------------------------- Trustee James D. Ericson 86 J.E. GALLEGOS* - -------------------------------------------- Trustee J. E. Gallegos STEPHEN N. GRAFF* - -------------------------------------------- Trustee Stephen N. Graff PATRICIA ALBJERG GRAHAM* - -------------------------------------------- Trustee Patricia Albjerg Graham JAMES P. HACKETT* - -------------------------------------------- Trustee James P. Hackett 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 - ------------------------------------------- Trustee Timothy D. Proctor H. MASON SIZEMORE, JR.* - -------------------------------------------- Trustee H. Mason Sizemore, Jr. HAROLD B. SMITH* - -------------------------------------------- Trustee Harold B. Smith - -------------------------------------------- Trustee Sherwood H. Smith, Jr. PETER M. SOMMERHAUSER* - -------------------------------------------- Trustee Peter M. Sommerhauser 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 87 Each of the above signatures is affixed as of March 25, 2002 *By /s/ EDWARD J. ZORE ------------------- Edward J. Zore, Attorney in Fact, pursuant to the Power of Attorney attached as exhibit 24.1 hereto. 88
INDEX TO EXHIBITS EXHIBIT DESCRIPTION PAGE ------- ----------- ---- 3.1 Restated Articles of Incorporation of The Northwestern Mutual Life Insurance Company. (This exhibit was filed in electronic format with Post-Effective Amendment No. 6 on Form N-4 for NML Variable Annuity Account A, File No. 33-58476, CIK 0000790162, dated November 13, 1995, and is incorporated herein by reference.) 3.2 Amended By-Laws of The Northwestern Mutual Life Insurance Company. (This 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.) 3.3 Resolution of the Board of Trustees of The Northwestern Mutual Life Insurance Company creating "Northwestern Mutual Variable Annuity Account A". (This exhibit was filed in electronic format with the Registration Statement on Form N-4 for NML Variable Annuity Account A, File No. 333-22455, CIK 0000790162, dated February 27, 1997, and is incorporated herein by reference.) 3.4 Resolution of the Board of Trustees of The Northwestern Mutual Life Insurance Company creating Separate Account C. (This exhibit was filed in electronic format with the Annual Report on Form 10-K for the fiscal year ended December 31, 1999 of The Northwestern Mutual Life Insurance Company in respect of NML Variable Annuity Account A and NML Variable Annuity Account C, dated March 28, 2000 ("1999 Form 10-K"), and is incorporated herein by reference.) 3.5 Resolution of the Board of Trustees of The Northwestern Mutual Life Insurance Company to use Separate Account C to facilitate the issuance and maintenance of the Contracts and renaming the Account "NML Variable Annuity Account C". (This exhibit was filed in electronic format with the 1999 Form 10-K and is incorporated herein by reference.) 10.1 Flexible Payment Variable Annuity Front Load Contract, RR.V.A. (032000) (sex neutral). (This exhibit was filed in electronic format with Post-Effective Amendment No. 4 on Form N-4 for NML Variable Annuity Account A, File No. 333-72913, CIK 0000790162, dated May 31, 2001, and is incorporated herein by reference.) 10.2 Flexible Payment Variable Annuity Back Load Contract, RR.V.A. (032000) (sex neutral). (This exhibit was filed in electronic format with Post-Effective Amendment No. 4 on Form N-4 for NML Variable Annuity Account A, File No. 333-72913, CIK 0000790162, dated May 31, 2001, and is incorporated herein by reference.) 10.3 Variable Annuity Front Load and Back Load Contract Payment Rate Tables, RR.V.A.B (032000), included in Exhibits 10.1 and 10.2 above (sex distinct). 10.4 Enhanced Death Benefit for Front Load and Back Load Contracts, VA. EDB. (032000), included in Exhibits 10.1 and 10.2 above. 10.5 Waiver of Withdrawal Charge for Back Load Contract, VA.WWC. (032000), included in Exhibit 10.2 above.
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EXHIBIT DESCRIPTION PAGE ------- ----------- ---- 10.6 Amended Application forms for Front Load and Back Load Contracts, included in Exhibits 10.1 and 10.2 above. 10.7 Form of Participation Agreement Among Russell Insurance Funds, Russell Fund Distributors, Inc. and The Northwestern Mutual Life Insurance Company. (This exhibit was filed in electronic format with the Registration Statement on Form N-4 for NML Variable Annuity Account A, File No. 333-72913, CIK 0000790162, dated February 25, 1999, and is incorporated herein by reference.) 10.8 Form of Administrative Service Fee Agreement between The Northwestern Mutual Life Insurance Company and Frank Russell Company. (This exhibit was filed in electronic format with the Registration Statement on Form N-4 for NML Variable Annuity Account A, File No. 333-72913, CIK 0000790162, dated February 25, 1999, and is incorporated herein by reference.) 10.9 Distribution Contract. (This exhibit was filed in electronic format with the Registration Statement on Form N-4 for NML Variable Annuity Account A, File No. 333-22455, CIK 0000790162, dated February 27, 1997, and is incorporated herein by reference.) 10.10 Group Combination Annuity Contract, NVP.1C.(0594), with amended application, including Contract amendment (sex neutral). (This exhibit was filed in electronic format with Post-Effective Amendment No. 22 on Form N-4 for NML Variable Annuity Account C, File No. 2-89905-01, CIK 0000790163, dated May 31, 2001, and is incorporated herein by reference.) 10.11 Amended Application Form for Group Combination Annuity Contract, included in Exhibit 10.10 above. 21.1 Subsidiaries of The Northwestern Mutual Life Insurance Company 91 24.1 Power of Attorney 94
90 EX-21.1 3 c68174ex21-1.txt SUBSIDIARIES EXHIBIT 21.1 SUBSIDIARIES OF THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY (as of December 31, 2001) The following sets forth the name and jurisdiction of incorporation of the subsidiaries of The Northwestern Mutual Life Insurance Company. Account A and Account C have no subsidiaries.
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION - ------------------ ----------------------------- Alexandra International Sales, Inc. U.S. Virgin Islands Amber, Inc. Delaware Baird Financial Corporation Wisconsin Baird Holding Company Wisconsin Baraboo, Inc. Delaware Bayridge, Inc. Delaware Bradford, Inc. Delaware Brendan International Sales, Inc. U.S. Virgin Islands Brian International Sales, Inc. U.S. Virgin Islands Burgundy, Inc. Delaware Carlisle Ventures, Inc. Delaware Cass Corporation Delaware Chateau, Inc. Delaware Coral, Inc. Delaware Diversey, Inc. Delaware Elderwood International Sales, Inc. U.S. Virgin Islands Elizabeth International Sales, Inc. U.S. Virgin Islands Elizabeth Lakes Associates Michigan Frank Russell Company Washington Frank Russell Investment Management Company Washington Green Room Properties, LLC Delaware Greenway Sports, Inc. Texas Hazel, Inc. Delaware Higgins, Inc. Delaware Highbrook International Sales, Inc. U.S. Virgin Islands Hobby, Inc. Delaware IL-Ironhorse, LLC Delaware INV Corp. Delaware Jack International Sales, Inc. U.S. Virgin Islands Justin International FSC, Inc. U.S. Virgin Islands KerryAnne International Sales, Inc. U.S. Virgin Islands Klode, Inc. Delaware Kristiana International Sales, Inc. U.S. Virgin Islands Lake Bluff, Inc. Delaware Larkin, Inc. Delaware Logan, Inc. Delaware Lydell, Inc. Delaware Mallon International Sales, Inc. U.S. Virgin Islands Marina Pacific, Ltd. California Maroon, Inc. Delaware
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NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION - ------------------ ----------------------------- Mason & Marshall, Inc. Delaware Mason Street Advisors, LLC Delaware Mason Street Funds, Inc. Maryland Mitchell, Inc. Delaware NMIS Alabama Agency, LLC Alabama NMIS Massachusetts Insurance Agency, LLC Massachusetts NMIS Georgia Agency, LLC Georgia NML Buffalo Agency, Inc. New York NML-CBO, LLC Delaware NML Development Corporation Delaware NML/Mid-Atlantic, Inc. New Jersey NML Real Estate Holdings, LLC Wisconsin NML Securities Holdings, LLC Wisconsin NML/Tallahassee, Inc. Florida NW Greenway #1, Inc. Texas NW Greenway #9, Inc. Texas NW Pipeline, Inc. Texas Network Planning Advisors, LLC Wisconsin New Arcade, LLC Wisconsin New Arcade Parking, LLC Wisconsin Nicolet, Inc. Delaware North Van Buren, Inc. Delaware Northwestern Foreign Holdings B.V. Netherlands Northwestern International Holdings, Inc. Delaware Northwestern Investment Management Company, LLC Delaware Northwestern Long Term Care Insurance Company Illinois Northwestern Mutual Investment Services, LLC Wisconsin Northwestern Mutual Las Vegas, Inc. Nevada Northwestern Mutual Life International, Inc. Delaware Northwestern Mutual Series Fund, Inc. Maryland Northwestern Mutual Trust Company Federal Savings Bank (subject to jurisdiction of the Office of Thrift Supervision) Northwestern Real Estate Partnership Holdings, LLC Delaware Northwestern Reinsurance Holdings N.V. Netherlands Northwestern Securities Holdings, LLC Delaware Northwestern Securities Partnership Holdings, LLC Delaware Olive, Inc. Delaware PBClub, Inc. Delaware Painted Rock Development Corporation Arizona Park Forest Northeast, Inc. Delaware Pembrook, Inc. Delaware RE Corporation Delaware Regina International Sales, Inc. U.S. Virgin Islands Robert W. Baird & Co. Incorporated Wisconsin Rocket Sports, Inc. Texas Russet, Inc. Delaware Ryan, Inc. Delaware Saskatoon Centre, Limited Ontario, Canada
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NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION - ------------------ ----------------------------- Sean International Sales, Inc. U.S. Virgin Islands Solar Resources, Inc. Wisconsin St. James Apartments, LLC Delaware Stadium and Arena Management, Inc. Delaware Summerhill Management, LLC Delaware Summerhill Property, LLC Delaware Summit Mall, LLC Delaware The Grand Avenue Corporation Wisconsin Travers International Sales, Inc. U.S. Virgin Islands Tupelo, Inc. Delaware White Oaks, Inc. Delaware
Certain non-insurance subsidiaries are omitted on the basis that, considered in the aggregate, they did not constitute a significant subsidiary as defined by Regulation S-X at December 31, 2001. 93 EX-24.1 4 c68174ex24-1.txt POWER OF ATTORNEY EXHIBIT 24.1 POWER OF ATTORNEY The undersigned Trustees of THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY hereby constitute and appoint Edward J. Zore and John M. Bremer, 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, 2001 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 25th day of July, 2001. /s/ EDWARD E. BARR Trustee ----------------------------------- Edward E. Barr /s/ GORDON T. BEAHAM III Trustee ----------------------------------- Gordon T. Beaham III /s/ ROBERT C. BUCHANAN Trustee ---------------------------------- Robert C. Buchanan /s/ GEORGE A. DICKERMAN Trustee ---------------------------------- George A. Dickerman /s/ PIERRE S. du PONT Trustee ----------------------------------- Pierre S. du Pont /s/ JAMES D. ERICSON Trustee ----------------------------------- James D. Ericson /s/ J. E. GALLEGOS Trustee ----------------------------------- J. E. Gallegos /s/ STEPHEN N. GRAFF Trustee ----------------------------------- Stephen N. Graff 94 /s/ PATRICIA ALBJERG GRAHAM Trustee ----------------------------------- Patricia Albjerg Graham /s/ JAMES P. HACKETT Trustee ------------------------------------- James P. Hackett /s/ STEPHEN F. KELLER Trustee ----------------------------------- Stephen F. Keller /s/ BARBARA A. KING Trustee ----------------------------------- Barbara A. King /s/ J. THOMAS LEWIS Trustee ----------------------------------- J. Thomas Lewis /s/ DANIEL F. McKEITHAN, JR. Trustee ----------------------------------- Daniel F. McKeithan, Jr. /s/ GUY A. OSBORN Trustee ----------------------------------- Guy A. Osborn Trustee ----------------------------------- Timothy D. Proctor /s/ H. MASON SIZEMORE, JR. Trustee ----------------------------------- H. Mason Sizemore, Jr. /s/ HAROLD B. SMITH Trustee ----------------------------------- Harold B. Smith 95 Trustee ----------------------------------- Sherwood H. Smith, Jr. /s/ PETER M. SOMMERHAUSER Trustee ----------------------------------- Peter M. Sommerhauser /s/ JOHN E. STEURI Trustee ----------------------------------- John E. Steuri /s/ JOHN J. STOLLENWERK Trustee ----------------------------------- John J. Stollenwerk /s/ BARRY L. WILLIAMS Trustee ----------------------------------- Barry L. Williams /s/ KATHRYN D. WRISTON Trustee ----------------------------------- Kathryn D. Wriston /s/ EDWARD J. ZORE Trustee ----------------------------------- Edward J. Zore 96 -----END PRIVACY-ENHANCED MESSAGE-----