================================================================================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,
20022003COMMISSION 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(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
WISCONSIN 39-0509570 (State or other jurisdiction of
incorporation or organization)(I.R.S. Employer
Identification No.)720 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN53202 (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
TITLE OF EACH CLASS
NAME OF EACH EXCHANGE
ON WHICH REGISTEREDNONE 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]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'sregistrant’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]xIndicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes
[ ]¨ No[X]xState 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 last sold, or the average bid and asked price of such common equity, as of the last business day of the
registrant'sregistrant’s most recently completed second fiscal quarter. NOT APPLICABLEIndicate the number of shares outstanding of each of the
registrant'sregistrant’s classes of common stock, as of the latest practicable date. NONEDOCUMENTS 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
ITEM 1. BUSINESS ACCOUNTS A & C
NML Variable Annuity Account A
("(“AccountA"A”) and NML Variable Annuity Account C("(“AccountC"C”) are segregated asset accounts of The Northwestern Mutual Life Insurance Company("(“NorthwesternMutual"Mutual”) formed to provide retirement annuity benefits for (i) self-employed individuals (and their eligible employees) who adopt plans("(“HR-10Plans"Plans”) meeting the requirements of Sections 401 or 403(a) of the Internal Revenue Code of 1986, as amended (the"Code"“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"“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."“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"(“Annuitants”). Account A and Account C each have2024 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 in1518 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, AllianceBernstein Mid Cap Value Portfolio, Index 400 Stock Portfolio, Janus Capital Appreciation Portfolio, Growth Stock Portfolio, Large Cap Core Stock Portfolio,(formerly known as the J.P. Morgan Select Growth and Income Stock Portfolio until January 31, 2003),Capital Guardian Domestic Equity Portfolio, T. Rowe Price Equity Income Portfolio, Index 500 Stock Portfolio, Asset Allocation Portfolio, Balanced Portfolio, High Yield Bond Portfolio, Select Bond Portfolio, and Money Market Portfolio), the Fidelity VIP Mid Cap Portfolio (a fund of Variable Insurance Products Fund III), and 5 funds of RussellInsuranceInvestment 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 RussellInsuranceInvestment Funds, which areaffiliates ofsponsored by Northwestern Mutual and a Northwestern Mutual affiliate, respectively, and Variable Insurance Products Fund III, which is not affiliated with Northwestern Mutual, are each registered as investment companies under the Investment Company Act of 1940. The Contracts also permit investment on a fixed basis, at rates determined by Northwestern Mutual. 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"(“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 (other than those Contract investments on a fixed basis) 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 6 herein for Account A and Account C historical financial information regarding results of operations, changes in equity and total assets. See Item 8 herein for the audited financial statements of Account A and Account C.
2NORTHWESTERN MUTUAL
Founded in 1857, Northwestern Mutual is a mutual insurance company organized under the laws of the State of Wisconsin. Northwestern
Mutual'sMutual’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 ofmore than2
approximately 7,900 financial representatives at December 31,
20022003 located inmore thanapproximately 350 offices nationwide. At December 31,2002,2003, Northwestern Mutual had approximately4,3004,400 full- and part-time employees. NorthwesternMutual'sMutual’s website address iswww.northwesternmutual.com.www.nmfn.com.Northwestern
Mutual'sMutual’s principal lines of business are: (i) life insurance, which provides afullwide range of individual life insurance products, including traditional whole life, permanent and term combination, 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 acompleteline of individual and group products, including individual non-cancelable, guaranteed renewable loss of earnings, buyout, key person, and short-term and long-term group coverages, marketed primarily to middle to upper income individuals, professionals, and small- to medium-sized businesses and their owners; (iii) investment products and services, 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, retail mutual funds (including associated funds offered by Mason Street Funds, Inc. and Frank Russell Investment Company), brokerage services (offered through its subsidiary Northwestern Mutual Investment Services, LLC) and trust services (offered through its subsidiary Northwestern Mutual Trust Company), marketed primarily to middle to upper income individuals, business owners and professionals; and (iv) long-term care insurance, offered through its subsidiary Northwestern Long Term Care Insurance Company, marketed primarily to middle to upper income individuals, small business owners and professionals. For the years ended December 31, 2003, 20022001,and2000,2001, Northwestern Mutual had (a) total premiums of $10.3 billion, $10.1 billion$9.4 billionand$9.0$9.4 billion, respectively, of which $8.7 billion, $8.6 billion$7.9 billionand$7.3$7.9 billion, respectively, was attributable to life insurance, $0.7 billion, $0.6 billionfor each yearand $0.6 billion, respectively, was attributable to disability income insurance, and $0.9 billion$0.9 billion and $1.1 billion, respectively,for each year was attributable to annuity products in the investment products and services line of business; (b) net income of $692 million, $158 million and $650 million,and $1.8 billion,respectively, of which $493 million, $(18) million and $440 million,and $1.5 billion,respectively, was attributable to life insurance, $179 million, $149 million and $147 million,and $0.2 billion,respectively, was attributable to disability income insurance, $29 million, $44 million and $74 million,and $0.1 billion,respectively, was attributable to annuity products in the investment products and services line of business, and $(9) million, $(17) million and $(11) million,and $0.0 billion,respectively, was attributable to long term care insurance; and (c) total assets of $113.8 billion, $102.9 billion$98.4 billionand$92.1$98.4 billion, respectively, of which $92.2 billion, $82.8 billion$77.2 billionand$70.6$77.2 billion, respectively, was attributable to life insurance, $6.1 billion, $5.9 billion$5.8 billionand$5.4$5.8 billion, respectively, was attributable to disability income insurance, and $15.5 billion, $14.2 billion$15.4 billionand$16.1$15.4 billion, respectively, was attributable to annuity products in the investment products and services line of business.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, third party ratings, size and competence of agency force, range of product lines, customer service, and reputation. Based on total admitted statutory assets at
December 31, 2001,September 30, 2003 (the most recent data available), Northwestern Mutual was the 4th largest U.S. domiciled life insurance company on an individual company basis and the 9th largest on a corporate family basis. During2002,2003, there were more than 1,000 life insurance companies doing business 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. In the long-term care business, Northwestern Mutual competes primarily with a limited number of national companies. 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. United States Supreme Court decisions have expanded3the authority of national banks to sell life insurance products and annuities. In addition, legislation enacted in 1999 to overturn Depression-era restrictions on bank affiliations, the Gramm-Leach-Bliley Act (the "Act"“Act”), implemented fundamental changes in the regulation of the financial services industry in the U.S. 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. Over time, 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, and its insurance subsidiary Northwestern Long Term Care Insurance Company, are licensed to transact their insurance business in, and are subject to regulation and supervision by, all 50 states of the United States and the District of Columbia. 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
3
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 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'sinstitution’s insurance sales activities are preempted.Frank Russell Company
("Russell"(“Russell”), a subsidiary of Northwestern Mutual, is a global investment services firm providing multi-manager investment products and services in 35 countries. Together with its subsidiaries, Russell managed$67.0$94.5 billion in assets at December 31,20022003 andadvisesadvised clients representing $1.6 trillion worldwide.FrankRussell is also well known for its family of market indices, including the Russell 2000, which provide complete sets of performance benchmarks for investors in the United States.Robert W. Baird & Co. Incorporated
("Baird"(“Baird”), a subsidiary of Northwestern Mutual, is a registered broker-dealer providing (through it and its affiliates) asset management, investment banking, wealth management and private equity services via offices in the United States, United KingdomFrance, Spainand Germany. Baird serves individuals, corporations, institutional investors and municipalities as financial advisor, asset manager, equity research specialist, investment banker, private equity investor and public finance specialist. It is a member of the New York StockExchange and other principal exchanges.Exchange.NMIS, a wholly-owned company of Northwestern Mutual, is a full-service registered broker-dealer serving the investment planning and product needs of individuals and businesses. Through its registered representatives, NMIS offers mutual funds, variable annuities, variable life insurance products, stocks and bonds to its customers in more than 60 cities nationwide. NMIS is a member of the National Association of Securities Dealers, Inc.
See Item 15 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.Mutual.PURPOSE OF ANNUAL REPORT
This Annual Report on Form 10-K
of Northwestern Mutualis filed with respect toitsAccount A and AccountC.C of Northwestern Mutual. 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.4ITEM 2. PROPERTIES
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 land in Franklin, Wisconsin on which it has
begun construction ofbeen constructing an additional office campuswhichthat itwill occupy. Untilexpects to occupy in theFranklin Campus is completed,second quarter of 2004. Northwestern Mutual, as lessee,is occupyingalso occupies temporary space in three buildings adjacent to its Milwaukee complex. Northwestern Mutual is the lessee of eight leases covering its real estate regional offices in locations throughout the United States. Russell and Baird lease their principal office space located in Tacoma, Washington and Milwaukee, Wisconsin, respectively. Northwestern Mutual believes that its owned and leased properties are suitable and adequate for its current operations.ITEM 3. LEGAL PROCEEDINGS
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
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable.
4
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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
theNorthwestern Mutual who are also registered representatives of NMIS.During
2002,2003, 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
----------------- ----------- --------------- ------------$
32,577,19628,315,608 (A)$ 1,447,3321,309,746 (B)$ 83,190,07154,467,123 (A)$ 725,711472,769 (B)- ---------- (A) Reflects premiums paid by Contract holders, dividend additions and Northwestern Mutual plan contributions, as applicable. (B) Reflects an estimate of amounts paid to Northwestern Mutual financial representatives for sales to Corporate Plans based on a pro rata allocation of Contract sales generating commissions under the Account.
(A) Reflects premiums paid by Contract holders, dividend additions and Northwestern Mutual plan contributions, as applicable.
(B) Reflects an estimate of amounts paid to Northwestern Mutual financial representatives for sales to Corporate Plans based on a pro rata allocation of Contract sales generating commissions 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
onfor eachbusiness day. 5ITEM 6. SELECTED FINANCIAL DATAday the Exchange is open, and at any other time required by the Investment Act of 1940.
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,
2002.2003. 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.5
RESULTS OF OPERATIONS FOR ACCOUNT
A: (INA(IN THOUSANDS)
2003 2002 2001 2000 1999 Investment Income
Dividend Income from Small Cap Growth Stock Division **
$ — $ 26 $ 1 $ 379 $ 149 Dividend Income from T. Rowe Price Small Cap Value Division #
— 14 1 N/A N/A Dividend Income from Aggressive Growth Stock Division
— 61 19,094 13,412 2,871 Dividend Income from International Growth Stock Division #
14 3 — N/A N/A Dividend Income from Franklin Templeton International Equity Division
408 574 3,729 3,228 6,194 Dividend Income from AllianceBernstein Mid Cap Value Division ##
2 N/A N/A N/A N/A Dividend Income from Index 400 Stock Division **
66 76 97 801 30 Dividend Income from Janus Capital Appreciation Division ##
— N/A N/A N/A N/A Dividend Income from Growth Stock Division
194 324 1,497 1,855 1,225 Dividend Income from Large Cap Core Stock Division ^
139 170 876 1,774 4,191 Dividend Income from Capital Guardian Domestic Equity Division #
47 20 1 N/A N/A Dividend Income from T. Rowe Price Equity Income Division ##
4 N/A N/A N/A N/A Dividend Income from Index 500 Stock Division
1,074 1,197 5,168 6,161 3,676 Dividend Income from Asset Allocation Division #
78 45 6 N/A N/A Dividend Income from Balanced Division
6,026 7,949 19,440 24,058 34,011 Dividend Income from High Yield Bond Division
11 456 529 611 821 Dividend Income from Select Bond Division
1,248 1,181 1,257 1,463 2,088 Dividend Income from Money Market Division
300 440 1,067 1,609 1,410 Dividend Income from Fidelity VIP Mid Cap Division ##
— N/A N/A N/A N/A Dividend Income from Russell Multi-Style Equity Division **
26 22 91 134 76 Dividend Income from Russell Aggressive Equity Division **
3 — 3 261 4 Dividend Income from Russell Non-U.S. Division **
78 41 17 226 37 Dividend Income from Russell Core Bond Division **
92 55 78 50 22 Dividend Income from Russell Real Estate Securities Division **
227 142 93 43 12 Total Dividend Income
10,037 12,796 53,045 56,065 56,817 Annuity Rate and Expense Guarantees
(5,714 ) (6,269 ) (7,425 ) (8,884 ) (8,722 ) Net Investment Income
$ 4,323 $ 6,527 $ 45,620 $ 47,181 $ 48,095 Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investments
$ (13,067 ) $ (14,549 ) $ 15,197 $ 56,764 $ 51,300 Unrealized Appreciation (Depreciation) of Investments During the Year
98,006 (74,854 ) (124,257 ) (120,838 ) 9,270 Net Gain (Loss) on Investments
84,939 (89,403 ) (109,060 ) (64,074 ) 60,570 Increase (Decrease) in Equity Derived from Investment Activity
$ 89,262 $ (82,876 ) $ (63,440 ) $ (16,893 ) $ 108,665
2002 2001 2000 1999 1998 ----------- ----------- ----------- ----------- -----------Investment Income Dividend Income from Northwestern Mutual Series Fund, Inc. Small Cap Growth Stock Portfolio** ................... $ 26 $ 1 $ 379 $ 149 N/A Dividend Income from Northwestern Mutual Series Fund, Inc. T. Rowe Price Small Cap Value Portfolio # ............ 14 1 N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock Portfolio .................... 61 19,094 13,412 2,871 $ 3,294 Dividend Income from Northwestern Mutual Series Fund, Inc. International Growth Stock Portfolio # ............... 3 -- N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Franklin Templeton International Equity Portfolio .... 574 3,729 3,228 6,194 2,855 Dividend Income from Northwestern Mutual Series Fund, Inc. Index 400 Stock Portfolio**.......................... 76 97 801Became an investment option under the Contracts effective April 30, N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Growth Stock Portfolio ............................... 324 1,497 1,855 1,225 461 Dividend Income from Northwestern Mutual Series Fund, Inc.1999.
# Became an investment option under the Contracts effective July 31, 2001.
^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock Portfolio ............................................ 170 876 1,774 4,191 294 Dividend Income from Northwestern Mutual Series Fund, Inc. Capital Guardian Domestic Equity Portfolio # ......... 20Division.
## Became an investment option under the Contracts effective May 1, N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Index 500 Stock Portfolio ............................ 1,197 5,168 6,161 3,676 4,267 Dividend Income from Northwestern Mutual Series Fund, Inc. Asset Allocation Portfolio # ......................... 45 6 N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Balanced Portfolio ................................... 7,949 19,440 24,058 34,011 19,089 Dividend Income from Northwestern Mutual Series Fund, Inc. High Yield Bond Portfolio ............................ 456 529 611 821 951 Dividend Income from Northwestern Mutual Series Fund, Inc. Select Bond Portfolio ................................ 1,181 1,257 1,463 2,088 1,7682003.6
2002 2001 2000 1999 1998 ----------- ----------- ----------- ----------- -----------Dividend Income from Northwestern Mutual Series Fund, Inc. Money Market Portfolio ............................... 440 1,067 1,609 1,410 1,254 Dividend Income from Russell Insurance Funds Multi-Style Equity Fund** ............................ 22 91 134 76 N/A Dividend Income from Russell Insurance Funds Aggressive Equity Fund** ............................. -- 3 261 4 N/A Dividend Income from Russell Insurance Funds Non-U.S. Fund** ...................................... 41 17 226 37 N/A Dividend Income from Russell Insurance Funds Real Estate Securities Fund** ........................ 142 93 43 12 N/A Dividend Income from Russell Insurance Funds Core Bond Fund** ..................................... 55 78 50 22 N/A ----------- ----------- ----------- ----------- ----------- Total Dividend Income ............................. 12,796 53,045 56,065 56,817 34,233 Annuity Rate and Expense Guarantees ..................... (6,269) (7,425) (8,884) (8,722) (8,067) ----------- ----------- ----------- ----------- ----------- Net Investment Income ................................... $ 6,527 $ 45,620 $ 47,181 $ 48,095 $ 26,166 =========== =========== =========== =========== =========== Realized and Unrealized Gain (Loss) on Investments: Realized Gain (Loss) on Investments ..................... $ (14,549) $ 15,197 $ 56,764 $ 51,300 $ 37,625 Unrealized Appreciation (Depreciation) of Investments During the Year ........................ (74,854) (124,257) (120,838) 9,270 36,250 ----------- ----------- ----------- ----------- ----------- Net Gain (Loss) on Investments .................. (89,403) (109,060) (64,074) 60,570 73,875 ----------- ----------- ----------- ----------- ----------- Increase (Decrease) in Equity Derived from Investment Activity .............................................. $ (82,876) $ (63,440) $ (16,893) $ 108,665 $ 100,041 =========== =========== =========== =========== ===========- ---------- ** 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: (INA(IN THOUSANDS)
2002 2001 2000 1999 1998 ----------- ----------- ----------- ----------- -----------Operations Net Investment Income ................................. $ 6,527 $ 45,620 $ 47,181 $ 48,095 $ 26,166 Net Realized Gain (Loss) .............................. (14,549) 15,197 56,764 51,300 37,625 Net Change in Unrealized Appreciation (Depreciation) .. (74,854) (124,257) (120,838) 9,270 36,250 ----------- ----------- ----------- ----------- ----------- Increase (Decrease) in Equity Derived from Investment Activity .............................................. (82,876) (63,440) (16,893) 108,665 100,041 ----------- ----------- ----------- ----------- ----------- Equity Transactions Contract Owners' Net Payments ......................... 46,958 46,213 54,157 55,489 62,325 Annuity Payments ...................................... (1,186) (1,316) (1,472) (1,469) (1,306) Surrenders and Other (Net) ............................ (86,526) (83,649) (121,406) (102,935) (80,848) Transfers from Other Divisions or Sponsor ............. 89,970 83,322 137,543 125,332 95,967 Transfers to Other Divisions or Sponsor ............... (91,980) (84,772) (138,779) (126,511) (98,941) ----------- ----------- ----------- ----------- ----------- Increase (Decrease) in Equity Derived from Equity Transactions .......................................... (42,764) (40,202) (69,957) (50,094) (22,803) ----------- ----------- ----------- ----------- ----------- Net Increase (Decrease) in Equity ........................ (125,640) (103,642) (86,850) 58,571 77,238 Equity Beginning of Period ................................... 593,712 697,354 784,204 725,633 648,395 ----------- ----------- ----------- ----------- ----------- End of Period ......................................... $ 468,072 $ 593,712 $ 697,354 $ 784,204 $ 725,633 =========== =========== =========== =========== ===========
2003 2002 2001 2000 1999 Operations
Net Investment Income
$ 4,323 $ 6,527 $ 45,620 $ 47,181 $ 48,095 Net Realized Gain (Loss)
(13,067 ) (14,549 ) 15,197 56,764 51,300 Net Change in Unrealized Appreciation (Depreciation)
98,006 (74,854 ) (124,257 ) (120,838 ) 9,270 Increase (Decrease) in Equity Derived from Investment Activity
89,262 (82,876 ) (63,440 ) (16,893 ) 108,665 Equity Transactions
Contract Owners’ Net Payments
39,633 46,958 46,213 54,157 55,489 Annuity Payments
(1,111 ) (1,186 ) (1,316 ) (1,472 ) (1,469 ) Surrenders and Other (Net)
(70,519 ) (86,526 ) (83,649 ) (121,406 ) (102,935 ) Transfers from Other Divisions or Sponsor
92,326 89,970 83,322 137,543 125,332 Transfers to Other Divisions or Sponsor
(95,723 ) (91,980 ) (84,772 ) (138,779 ) (126,511 ) Increase (Decrease) in Equity Derived from Equity Transactions
(35,394 ) (42,764 ) (40,202 ) (69,957 ) (50,094 ) Net Increase (Decrease) in Equity
53,868 (125,640 ) (103,642 ) (86,850 ) 58,571 Equity
Beginning of Period
468,072 593,712 697,354 784,204 725,633 End of Period
$ 521,940 $ 468,072 $ 593,712 $ 697,354 $ 784,204 7
TOTAL ASSETS OF ACCOUNT
A: (INA(IN THOUSANDS)
2003 2002 2001 2000 1999 ASSETS
Investments at Market Value:
Northwestern Mutual Series Fund, Inc.
Small Cap Growth Stock
$ 18,478 $ 14,422 $ 15,624 $ 16,293 $ 4,847 Northwestern Mutual Series Fund, Inc.
T. Rowe Price Small Cap Value #
4,572 2,692 585 N/A N/A Northwestern Mutual Series Fund, Inc.
Aggressive Growth Stock
57,087 51,966 77,633 106,815 104,344 Northwestern Mutual Series Fund, Inc.
International Growth Stock #
2,232 598 157 N/A N/A Northwestern Mutual Series Fund, Inc.
Franklin Templeton International Equity
29,053 22,529 30,810 40,333 45,439 Northwestern Mutual Series Fund, Inc.
AllianceBernstein Mid Cap Value ##
444 N/A N/A N/A N/A Northwestern Mutual Series Fund, Inc.
Index 400 Stock
11,335 8,330 9,168 7,162 2,205 Northwestern Mutual Series Fund, Inc.
Janus Capital Appreciation ##
190 N/A N/A N/A N/A Northwestern Mutual Series Fund, Inc.
Growth Stock
24,542 23,486 32,717 38,037 39,031 Northwestern Mutual Series Fund, Inc.
Large Cap Core Stock ^
15,885 13,703 23,058 26,081 35,735 Northwestern Mutual Series Fund, Inc.
Capital Guardian Domestic Equity #
3,535 1,670 291 N/A N/A Northwestern Mutual Series Fund, Inc.
T. Rowe Price Equity Income ##
484 N/A N/A N/A N/A Northwestern Mutual Series Fund, Inc.
Index 500 Stock
80,656 69,524 104,943 133,526 169,861 Northwestern Mutual Series Fund, Inc.
Asset Allocation #
4,815 2,800 800 N/A N/A Northwestern Mutual Series Fund, Inc.
Balanced
195,524 181,610 229,239 266,410 319,678 Northwestern Mutual Series Fund, Inc.
High Yield Bond
5,419 4,280 5,018 5,135 6,940 Northwestern Mutual Series Fund, Inc.
Select Bond
29,252 31,441 23,983 20,275 22,162 Northwestern Mutual Series Fund, Inc.
Money Market
18,413 26,634 27,159 25,480 28,975 Fidelity Variable Insurance Products Fund III
VIP Mid Cap ##
1,031 N/A N/A N/A N/A Russell Investment Funds
Multi-Style Equity
4,547 3,042 4,111 4,097 2,500 Russell Investment Funds
Aggressive Equity
3,765 2,283 2,947 2,497 1,142 Russell Investment Funds
Non-U.S.
3,551 2,284 2,861 3,244 1,383 Russell Investment Funds
Core Bond
2,477 2,331 1,527 1,186 693 Russell Investment Funds
Real Estate Securities **
5,521 3,056 1,820 1,328 332 Due from Northwestern Mutual
21 211 8 — 1,012 Due from Sale of Fund Shares
— — 39 665 1,329 Total Assets
$ 522,829 $ 468,892 $ 594,498 $ 698,564 $ 787,608
2002 2001 2000 1999 1998 ----------- ----------- ----------- ----------- -----------ASSETS Investments at Market Value: Northwestern Mutual Series Fund, Inc. Small Cap Growth Stock Portfolio ** ............. $ 14,422 $ 15,624 $ 16,293 $ 4,847 N/A Northwestern Mutual Series Fund, Inc. T. Rowe Price Small Cap Value Portfolio# ....... 2,692 585 N/A N/A N/A Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock Portfolio ............... 51,966 77,633 106,815 104,344 $ 87,973 Northwestern Mutual Series Fund, Inc. International Growth Stock Portfolio # .......... 598 157 N/A N/A N/A Northwestern Mutual Series Fund, Inc. Franklin Templeton International Equity Portfolio 22,529 30,810 40,333 45,439 44,995 Northwestern Mutual Series Fund, Inc. Index 400 Stock Portfolio ** .................... 8,330 9,168 7,162 2,205 N/A Northwestern Mutual Series Fund, Inc. Growth Stock Portfolio .......................... 23,486 32,717 38,037 39,031 26,774 Northwestern Mutual Series Fund, Inc.Became an investment option under the Contracts effective July 31, 2001.
^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock Portfolio ................................. 13,703 23,058 26,081 35,735 36,440 Northwestern Mutual Series Fund, Inc. Capital Guardian Domestic Equity Portfolio # ... 1,670 291 N/A N/A N/A Northwestern Mutual Series Fund, Inc. Index 500 Stock Portfolio ....................... 69,524 104,943 133,526 169,861 143,376 Northwestern Mutual Series Fund, Inc. Asset Allocation Portfolio # .................... 2,800 800 N/A N/A N/A Northwestern Mutual Series Fund, Inc. Balanced Portfolio .............................. 181,610 229,239 266,410 319,678 325,287 Northwestern Mutual Series Fund, Inc. High Yield Bond Portfolio ....................... 4,280 5,018 5,135 6,940 9,287 Northwestern Mutual Series Fund, Inc. Select Bond Portfolio ........................... 31,441 23,983 20,275 22,162 25,970 Northwestern Mutual Series Fund, Inc. Money Market Portfolio .......................... 26,634 27,159 25,480 28,975 26,910 Russell Insurance Funds Multi-Style Equity Fund ** ...................... 3,042 4,111 4,097 2,500 N/A Russell Insurance Funds Aggressive Equity Fund ** ....................... 2,283 2,947 2,497 1,142 N/A Russell Insurance Funds Non-U.S. Fund ** ................................ 2,284 2,861 3,244 1,383 N/A Russell Insurance Funds Real Estate Securities Fund ** .................. 3,056 1,820 1,328 332 N/A Russell Insurance Funds Core Bond Fund ** ............................... 2,331 1,527 1,186 693 N/A Due from Northwestern Mutual .......................... 211 8 -- 1,012 22 Due from Sale of Fund Shares .......................... -- 39 665 1,329 1,408 ----------- ----------- ----------- ----------- ----------- Total Assets .......................................... $ 468,892 $ 594,498 $ 698,564 $ 787,608 $ 728,442 =========== =========== =========== =========== ===========Division.- ---------- ** Became an investment option under the Contracts effective April 30, 1999. # Became an investment option under the Contracts effective July 31, 2001.
## Became an investment option under the Contracts effective May 1, 2003. 8
The following tables set forth selected historical financial data for Account C for the five years in the period ended December 31,
2001.2003. 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: (INC(IN THOUSANDS)
2003 2002 2001 2000 1999 Investment Income
Dividend Income from Small Cap Growth Stock Division **
$ — $ 32 $ 2 $ 99 $ 32 Dividend Income from T. Rowe Price Small Cap Value Division #
— 2 — N/A N/A Dividend Income from Aggressive Growth Stock Division
— 90 27,284 20,221 3,671 Dividend Income from International Growth Stock Division #
1 — — N/A N/A Dividend Income from Franklin Templeton International Equity Division
618 906 5,914 5,036 8,184 Dividend Income from AllianceBernstein Mid Cap Value Division ##
1 N/A N/A N/A N/A Dividend Income from Index 400 Stock Division **
115 140 194 1,180 6 Dividend Income from Janus Capital Appreciation Division ##
— N/A N/A N/A N/A Dividend Income from Growth Stock Division
179 330 1,614 2,101 1,223 Dividend Income from Large Cap Core Stock Division ^
137 180 957 2,123 4,566 Dividend Income from Capital Guardian Domestic Equity Division #
17 7 — N/A N/A Dividend Income from T. Rowe Price Equity Income Division ##
1 N/A N/A N/A N/A Dividend Income from Index 500 Stock Division
1,167 1,468 6,550 8,370 4,675 Dividend Income from Asset Allocation Division #
21 24 — N/A N/A Dividend Income from Balanced Division
2,491 3,922 9,705 12,909 18,031 Dividend Income from High Yield Bond Division
11 415 487 558 759 Dividend Income from Select Bond Division
771 863 911 1,093 1,570 Dividend Income from Money Market Division
128 221 523 971 1,015 Dividend Income from Fidelity VIP Mid Cap Division ##
— N/A N/A N/A N/A Dividend Income from Russell Multi-Style Equity Division **
6 7 37 79 48 Dividend Income from Russell Aggressive Equity Division **
1 — 1 74 1 Dividend Income from Russell Non-U.S. Division **
25 9 4 61 13 Dividend Income from Russell Core Bond Division **
29 20 48 22 15 Dividend Income from Russell Real Estate Securities Division **
604 481 290 52 4 Total Dividend Income
6,323 9,117 54,521 54,949 43,813 Annuity Rate and Expense Guarantees
(1,026 ) (1,432 ) (2,007 ) (2,896 ) (3,444 ) Net Investment Income
$ 5,297 $ 7,685 $ 52,514 $ 52,053 $ 40,369 Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investments
$ (22,413 ) $ (35,241 ) $ 8,705 $ 54,861 $ 41,106 Unrealized Appreciation (Depreciation) of Investments During the Year
103,646 (58,211 ) (133,527 ) (121,850 ) 36,856 Net Gain (Loss) on Investments
81,233 (93,452 ) (124,822 ) (66,989 ) 77,962 Increase (Decrease) in Equity Derived from Investment Activity
$ 86,530 $ (85,767 ) $ (72,308 ) $ (14,936 ) $ 118,331
2002 2001 2000 1999 1998 ----------- ----------- ----------- ----------- -----------Investment Income Dividend Income from Northwestern Mutual Series Fund, Inc. Small Cap Growth Stock Portfolio ** ............. $ 32 $ 2 $ 99 $ 32 N/A Dividend Income from Northwestern Mutual Series Fund, Inc. T. Rowe Price Small Cap Value Portfolio** Became an investment option under the Contracts effective April 30, 1999.
# ....... 2 -- N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock Portfolio ............... 90 27,284 20,221 3,671 $ 4,152 Dividend Income from Northwestern Mutual Series Fund, Inc. International Growth Stock Portfolio # .......... -- -- N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Franklin Templeton International Equity Portfolio 906 5,914 5,036 8,184 3,732 Dividend Income from Northwestern Mutual Series Fund, Inc. Index 400 Stock Portfolio ** .................... 140 194 1,180 6 N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Growth Stock Portfolio .......................... 330 1,614 2,101 1,223 447 Dividend Income from Northwestern Mutual Series Fund, Inc.Became an investment option under the Contracts effective July 31, 2001.
^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock Portfolio ....................................... 180 957 2,123 4,566 343 Dividend Income from Northwestern Mutual Series Fund, Inc. Capital Guardian Domestic Equity Portfolio # .... 7 -- N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Index 500 Stock Portfolio ....................... 1,468 6,550 8,370 4,675 5,271 Dividend Income from Northwestern Mutual Series Fund, Inc. Asset Allocation Portfolio # .................... 24 -- N/A N/A N/A Dividend Income from Northwestern Mutual Series Fund, Inc. Balanced Portfolio .............................. 3,922 9,705 12,909 18,031 9,909 Dividend Income from Northwestern Mutual Series Fund, Inc. High Yield Bond Portfolio ....................... 415 487 558 759 883 Dividend Income from Northwestern Mutual Series Fund, Inc. Select Bond Portfolio ........................... 863 911 1,093 1,570 1,357 Dividend Income from Northwestern Mutual Series Fund, Inc. Money Market Portfolio .......................... 221 523 971 1,015 899Division.9
2002 2001 2000 1999 1998 ----------- ----------- ----------- ----------- -----------Dividend Income from Russell Insurance Funds Multi-Style Equity Fund ** .................... 7 37 79 48 N/A Dividend Income from Russell Insurance Funds Aggressive Equity Fund ** ..................... --## Became an investment option under the Contracts effective May 1, 74 1 N/A Dividend Income from Russell Insurance Funds Non-U.S. Fund ** .............................. 9 4 61 13 N/A Dividend Income from Russell Insurance Funds Real Estate Securities Fund ** ................ 481 290 52 4 N/A Dividend Income from Russell Insurance Funds Core Bond Fund ** ............................. 20 48 22 15 N/A ----------- ----------- ----------- ----------- ----------- Total Dividend Income ....................... 9,117 54,521 54,949 43,813 26,993 Annuity Rate and Expense Guarantees .............. (1,432) (2,007) (2,896) (3,444) (3,155) ----------- ----------- ----------- ----------- ----------- Net Investment Income ............................ $ 7,685 $ 52,514 $ 52,053 $ 40,369 $ 23,838 =========== =========== =========== =========== =========== Realized and Unrealized Gain (Loss) on Investments: Realized Gain (Loss) on Investments .............. $ (35,241) $ 8,705 $ 54,861 $ 41,106 $ 29,249 Unrealized Appreciation (Depreciation) of Investments During the Year ................... (58,211) (133,527) (121,850) 36,856 37,108 ----------- ----------- ----------- ----------- ----------- Net Gain (Loss) on Investments .............. (93,452) (124,822) (66,989) 77,962 66,357 ----------- ----------- ----------- ----------- ----------- Increase (Decrease) in Equity Derived from Investment Activity ......................................... $ (85,767) $ (72,308) $ (14,936) $ 118,331 $ 90,195 =========== =========== =========== =========== ===========2003.- ---------- ** Became an investment option under the Contracts effective April 30, 1999. # Became an investment option under the Contracts effective July 31, 2001.9
CHANGES IN EQUITY FOR ACCOUNT
C: (INC(IN THOUSANDS)
2002 2001 2000 1999 1998 ----------- ----------- ----------- ----------- -----------Operations Net Investment Income ................................ $ 7,685 $ 52,514 $ 52,053 $ 40,369 $ 23,838 Net Realized Gain (Loss) ............................. (35,241) 8,705 54,861 41,106 29,249 Net Change in Unrealized Appreciation (Depreciation) (58,211) (133,527) (121,850) 36,856 37,108 ----------- ----------- ----------- ----------- ----------- Increase (Decrease) in Equity Derived from Investment Activity ............................................. (85,767) (72,308) (14,936) 118,331 90,195 ----------- ----------- ----------- ----------- ----------- Equity Transactions Contract Owners' Net Payments ........................ 78,994 90,774 103,967 74,900 93,657 Annuity Payments ..................................... (58) (64) (75) (67) (54) Surrenders and Other (Net) ........................... (160,876) (140,073) (135,735) (119,041) (87,761) Transfers from Other Divisions or Sponsor ............ 49,213 55,326 91,474 70,710 72,485 Transfers to Other Divisions or Sponsor .............. (50,870) (53,674) (92,576) (69,203) (71,425) ----------- ----------- ----------- ----------- ----------- Increase (Decrease) in Equity Derived from Equity Transactions ......................................... (83,597) (47,711) (32,945) (42,701) 6,902 ----------- ----------- ----------- ----------- ----------- Net Increase (Decrease) in Equity ....................... (169,364) (120,019) (47,881) 75,630 97,097 Equity Beginning of Period .................................. 552,816 672,835 720,716 645,086 547,989 ----------- ----------- ----------- ----------- ----------- End of Period ........................................ $ 383,452 $ 552,816 $ 672,835 $ 720,716 $ 645,086 =========== =========== =========== =========== ===========
2003 2002 2001 2000 1999 Operations
Net Investment Income
$ 5,297 $ 7,685 $ 52,514 $ 52,053 $ 40,369 Net Realized Gain (Loss)
(22,413 ) (35,241 ) 8,705 54,861 41,106 Net Change in Unrealized Appreciation (Depreciation)
103,646 (58,211 ) (133,527 ) (121,850 ) 36,856 Increase (Decrease) in Equity Derived from Investment Activity
86,530 (85,767 ) (72,308 ) (14,936 ) 118,331 Equity Transactions
Contract Owners’ Net Payments
53,289 78,994 90,774 103,967 74,900 Annuity Payments
(58 ) (58 ) (64 ) (75 ) (67 ) Surrenders and Other (Net)
(87,264 ) (160,876 ) (140,073 ) (135,735 ) (119,041 ) Transfers from Other Divisions or Sponsor
35,966 49,213 55,326 91,474 70,710 Transfers to Other Divisions or Sponsor
(36,353 ) (50,870 ) (53,674 ) (92,576 ) (69,203 ) Increase (Decrease) in Equity Derived from Equity Transactions
(34,420 ) (83,597 ) (47,711 ) (32,945 ) (42,701 ) Net Increase (Decrease) in Equity
52,110 (169,364 ) (120,019 ) (47,881 ) 75,630 Equity
Beginning of Period
383,452 552,816 672,835 720,716 645,086 End of Period
$ 435,562 $ 383,452 $ 552,816 $ 672,835 $ 720,716 10
TOTAL ASSETS OF ACCOUNT
C: (INC(IN THOUSANDS)
2003 2002 2001 2000 1999 ASSETS
Investments at Market Value:
Northwestern Mutual Series Fund, Inc.
Small Cap Growth Stock
$ 24,418 $ 16,885 $ 21,098 $ 20,038 $ 949 Northwestern Mutual Series Fund, Inc.
T. Rowe Price Small Cap Value #
826 454 165 N/A N/A Northwestern Mutual Series Fund, Inc.
Aggressive Growth Stock
79,023 71,638 112,232 157,369 139,739 Northwestern Mutual Series Fund, Inc.
International Growth Stock #
146 58 38 N/A N/A Northwestern Mutual Series Fund, Inc.
Franklin Templeton International Equity
47,872 35,006 48,902 65,489 64,556 Northwestern Mutual Series Fund, Inc.
AllianceBernstein Mid Cap Value ##
229 N/A N/A N/A N/A Northwestern Mutual Series Fund, Inc.
Index 400 Stock
20,392 14,520 16,849 11,399 473 Northwestern Mutual Series Fund, Inc.
Janus Capital Appreciation ##
234 N/A N/A N/A N/A Northwestern Mutual Series Fund, Inc.
Growth Stock
25,380 22,261 33,016 42,696 39,776 Northwestern Mutual Series Fund, Inc.
Large Cap Core Stock ^
16,756 13,872 25,473 29,723 41,105 Northwestern Mutual Series Fund, Inc.
Capital Guardian Domestic Equity #
1,235 580 211 N/A N/A Northwestern Mutual Series Fund, Inc.
T. Rowe Price Equity Income ##
144 N/A N/A N/A N/A Northwestern Mutual Series Fund, Inc.
Index 500 Stock
89,325 77,810 131,489 173,398 220,075 Northwestern Mutual Series Fund, Inc.
Asset Allocation #
1,259 1,491 46 N/A N/A Northwestern Mutual Series Fund, Inc.
Balanced
78,027 82,213 115,972 136,009 167,444 Northwestern Mutual Series Fund, Inc.
High Yield Bond
6,206 3,894 4,583 4,239 6,380 Northwestern Mutual Series Fund, Inc.
Select Bond
18,448 19,561 17,379 14,027 17,537 Northwestern Mutual Series Fund, Inc.
Money Market
6,171 10,973 15,185 12,102 19,341 Fidelity Variable Insurance Products Fund III
VIP Mid Cap ##
377 N/A N/A N/A N/A Russell Investment Funds
Multi-Style Equity
1,087 751 1,403 1,745 1,706 Russell Investment Funds
Aggressive Equity
911 527 710 643 352 Russell Investment Funds
Non-U.S.
1,149 527 672 818 565 Russell Investment Funds
Core Bond
895 804 793 486 384 Russell Investment Funds
Real Estate Securities
15,029 9,566 6,600 2,654 102 Due from Northwestern Mutual
35 67 37 16 395 Due from Sale of Fund Shares
— — 13 195 798 Due from Participants
— — — — 232 Total Assets
$ 435,574 $ 383,458 $ 552,866 $ 673,046 $ 721,909
2002 2001 2000 1999 1998 ----------- ----------- ----------- ----------- -----------ASSETS Investments at Market Value: Northwestern Mutual Series Fund, Inc. Small Cap Growth Stock Portfolio** ................ $ 16,885 $ 21,098 $ 20,038 $ 949 N/A Northwestern Mutual Series Fund, Inc. T. Rowe Price Small Cap Value Portfolio# ......... 454 165 N/A N/A N/A Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock Portfolio ................. 71,638 112,232 157,369 139,739 $ 112,355 Northwestern Mutual Series Fund, Inc. International Growth Stock Portfolio # ............ 58 38 N/A N/A N/A Northwestern Mutual Series Fund, Inc. Franklin Templeton International Equity Portfolio.. 35,006 48,902 65,489 64,556 59,265 Northwestern Mutual Series Fund, Inc. Index 400 Stock Portfolio ** ...................... 14,520 16,849 11,399 473 N/A Northwestern Mutual Series Fund, Inc. Growth Stock Portfolio ............................ 22,261 33,016 42,696 39,776 27,819 Northwestern Mutual Series Fund, Inc.Became an investment option under the Contracts effective July 31, 2001.
^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock Portfolio ................................... 13,872 25,473 29,723 41,105 40,354 Northwestern Mutual Series Fund, Inc. Capital Guardian Domestic Equity Portfolio # ...... 580 211 N/A N/A N/A Northwestern Mutual Series Fund, Inc. Index 500 Stock Portfolio ......................... 77,810 131,489 173,398 220,075 183,326 Northwestern Mutual Series Fund, Inc. Asset Allocation Portfolio # ...................... 1,491 46 N/A N/A N/A Northwestern Mutual Series Fund, Inc. Balanced Portfolio ................................ 82,213 115,972 136,009 167,444 172,972 Northwestern Mutual Series Fund, Inc. High Yield Bond Portfolio ......................... 3,894 4,583 4,239 6,380 8,611 Northwestern Mutual Series Fund, Inc. Select Bond Portfolio ............................. 19,561 17,379 14,027 17,537 20,755 Northwestern Mutual Series Fund, Inc. Money Market Portfolio ............................ 10,973 15,185 12,102 19,341 19,629 Russell Insurance Funds Multi-Style Equity Fund ** ........................ 751 1,403 1,745 1,706 N/A Russell Insurance Funds Aggressive Equity Fund ** ......................... 527 710 643 352 N/A Russell Insurance Funds Non-U.S. Fund ** .................................. 527 672 818 565 N/A Russell Insurance Funds Real Estate Securities Fund ** .................... 9,566 6,600 2,654 102 N/A Russell Insurance Funds Core Bond Fund ** ................................. 804 793 486 384 N/A Due from Northwestern Mutual ............................ 67 37 16 395 356 Due from Sale of Fund Shares ............................ -- 13 195 798 495 Due from Participants ................................... -- -- -- 232 -- ----------- ----------- ----------- ----------- ----------- Total Assets ............................................ $ 383,458 $ 552,866 $ 673,046 $ 721,909 $ 645,937 =========== =========== =========== =========== ===========Division.- ---------- **
## Became an investment option under the Contracts effective May 1, 2003. 11
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION
The results of operations for Accounts A and C are primarily impacted by the investment results of the underlying Divisions. The investment results of the underlying Divisions are primarily driven by the investment results of the related Portfolio of the Northwestern Mutual Series Fund, Inc., Fidelity Variable Insurance Products Fund III or Russell Investment Funds. The pro-rata portion of the investment results of the related Portfolio attributable to Accounts A and C are reflected in the Statement of Operations and Statement of Changes in Equity as Dividend Income, Realized Gain (Loss) on Investments and Unrealized Appreciation (Depreciation) of Investments. The other item impacting the results of operations is the Annuity Rate and Expense Guarantees, which are owed to Northwestern Mutual and are an expense of the Division.
Sources of cash for Accounts A and Account C include premium payments which are reflected on the Statement of Changes in Equity, in the Equity Transactions section line item titled Contract Owners’ Net Payments. Uses of cash for Accounts A and C include annuity payments and policy surrenders. These are also reflected on the Statement of Changes in Equity.
The primary risks associated with assets of Accounts A and C are investment
option underrelated risks or market risk. It should be noted that Accounts A and C represent a small portion of theContracts effective April 30, 1999. # Became an investment option undernet assets of theContracts effective July 31, 2001. 11ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSrelated Portfolio for each Division.LIQUIDITY
The assets of
AccountAccounts A andAccountC are invested solely in shares of Northwestern Mutual Series Fund, Inc.("(“SeriesFund"Fund”), the Fidelity Variable Insurance Products Fund III (“Fidelity Fund”), and the RussellInsuranceInvestment Funds("(“Russell Funds,"” and collectively with the Series Fund and Fidelity Fund, the"Funds"“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 Portfolio, Franklin Templeton International Equity Portfolio, AllianceBernstein Mid Cap Value Portfolio, Index 400 Stock Portfolio, Janus Capital Appreciation Portfolio, Growth Stock Portfolio, Large Cap Core Stock Portfolio,(formerly known as the J.P. Morgan Select Growth and Income Stock Portfolio until January 31, 2003),Capital Guardian Domestic Equity Portfolio, T. Rowe Price Equity Income Portfolio, Index 500 Stock Portfolio, Asset Allocation Portfolio, Balanced Portfolio, High Yield Bond Portfolio, Select Bond Portfolio, andtheMoney Market Portfolio. The Fidelity Fund consists of the Fidelity VIP Mid Cap Portfolio (for purposes of Account A and C investment). The Russell Funds consist of the Multi-Style Equity Fund, Aggressive Equity Fund, Non-U.S. Fund, Core Bond Fund and Real Estate SecuritiesFund and Core BondFund. 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
SeparateAccounts A and C have no material commitments for capital expenditures as of December 31,
2002,2003, the end of the most recent fiscal year. All payments from Contract owners of Account A and Account C, less any sales load or installation fee, 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
divisionDivision varies with the investment experience of thedivision,Division, which in turn is determined by the investment experience of the correspondingportfolioPortfolio orfund.Fund. Set forth below for each of Account A and Account C are accumulation unit values at December 31, 2003, 2002,2001,and20002001 for eachdivision,Division, and the percentage change in such values from year to year.12
ACCOUNT A
ACCUMULATION UNIT VALUES
CONTRACTS ISSUED PRIOR TO DECEMBER 17, 1981:
DIVISION
12/31/03 % CHANGE 12/31/02* % CHANGE 12/31/01 Small Cap Growth Stock
$ 2.003241 32.07 % $ 1.516823 -19.03 % $ 1.873388 T. Rowe Price Small Cap Value
1.275243 34.15 % 0.950636 -6.28 % 1.014387 Aggressive Growth Stock
4.593218 23.76 % 3.711325 -21.74 % 4.742335 International Growth Stock
1.084083 37.95 % 0.785836 -12.99 % 0.903153 Franklin Templeton International Equity
2.282107 39.42 % 1.636881 -18.02 % 1.996677 AllianceBernstein Mid Cap Value ##
1.324927 32.49 % 1.000000 N/A N/A Index 400 Stock
1.463815 34.01 % 1.092338 -15.18 % 1.287807 Janus Capital Appreciation ##
1.193045 19.30 % 1.000000 N/A N/A Growth Stock
2.369404 18.06 % 2.006974 -21.42 % 2.554121 Large Cap Core Stock ^
1.929029 23.13 % 1.566688 -28.73 % 2.198364 Capital Guardian Domestic Equity
1.016839 33.41 % 0.762191 -21.83 % 0.975051 T. Rowe Price Equity Income ##
1.230194 23.02 % 1.000000 N/A N/A Index 500 Stock
3.938953 27.48 % 3.089894 -22.65 % 3.994853 Asset Allocation
1.040782 19.73 % 0.869281 -10.93 % 0.975908 Balanced
8.329807 17.11 % 7.112654 -8.23 % 7.750204 High Yield Bond
1.905353 28.10 % 1.487426 -3.62 % 1.543249 Select Bond
10.584441 4.70 % 10.108841 11.25 % 9.086342 Money Market
3.045469 0.48 % 3.030949 0.90 % 3.004024 Fidelity VIP Mid Cap ##
1.399684 39.97 % 1.000000 N/A N/A Russell Multi-Style Equity
0.774096 27.90 % 0.605230 -23.76 % 0.793888 Russell Aggressive Equity
1.224208 44.51 % 0.847132 -19.66 % 1.054435 Russell Non-U.S
0.950951 37.75 % 0.690333 -15.78 % 0.819680 Russell Core Bond
1.306711 5.36 % 1.240286 8.03 % 1.148123 Russell Real Estate Securities
1.750140 36.19 % 1.285091 3.03 % 1.247315
DIVISION 12/31/02 % CHANGE 12/31/01 % CHANGE 12/31/00* - -------- ----------- -------- --------- -------- ------------Small Cap Growth Stock........................... $ 1.516823 -19.03% $ 1.873388 -4.49% $ 1.961375 T. Rowe Price Small Cap Value # ................. 0.950636 -6.28 1.014387 1.44 1.000000 Aggressive Growth Stock ......................... 3.711325 -21.74 4.742335 -20.48 5.963354 International Growth Stock # .................... 0.785836 -12.99 0.903153 -9.68 1.000000 Franklin Templeton International Equity ......... 1.636881 -18.02 1.996677 -14.64 2.339241 Index 400 Stock ................................. 1.092338 -15.18 1.287807 -1.40 1.306094 Growth Stock .................................... 2.006974 -21.42 2.554121 -14.86 2.999890^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock ...... 1.566688 -28.73 2.198364 -8.46 2.401649 Capital Guardian Domestic Equity # .............. 0.762191 -21.83 0.975051 -2.49 1.000000 Index 500 Stock ................................. 3.089894 -22.65 3.994853 -12.54 4.567635 Asset Allocation # .............................. 0.869281 -10.93 0.975908 -2.41 1.000000 Balanced ........................................ 7.112654 -8.23 7.750204 -3.88 8.062822 High Yield Bond ................................. 1.487426 -3.62 1.543249 4.24 1.480422 Select Bond ..................................... 10.108841 11.25 9.086342 9.54 8.294952 Money Market .................................... 3.030949 0.90 3.004024 3.14 2.912624 Russell Multi-Style Equity ...................... 0.605230 -23.76 0.793888 -14.85 0.932346 Russell Aggressive Equity ....................... 0.847132 -19.66 1.054435 -3.10 1.088117 Russell Non-U.S ................................. 0.690333 -15.78 0.819680 -22.61 1.059216 Russell Real Estate Securities .................. 1.285091 3.03 1.247315 7.03 1.165389 Russell Core Bond ............................... 1.240286 8.03 1.148123 6.60 1.077032Division.- ---------- # 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.
* Includes accumulation unit values at inception date in 2003 for portfolios becoming effective after December 31, 2002.
## Became an investment option under the Contracts effective May 1, 2003. ACCUMULATION UNIT VALUES
CONTRACTS ISSUED AFTER DECEMBER 16, 1981 AND PRIOR TO MARCH 31, 1995:
DIVISION
12/31/03 % CHANGE 12/31/02* % CHANGE 12/31/01 Small Cap Growth Stock
$ 1.956937 31.41 % $ 1.489185 -19.44 % $ 1.848493 T. Rowe Price Small Cap Value
1.259912 33.48 % 0.943905 -6.75 % 1.012260 Aggressive Growth Stock
4.302813 23.15 % 3.494085 -22.13 % 4.487184 International Growth Stock
1.071062 37.27 % 0.780276 -13.42 % 0.901258 Franklin Templeton International Equity
2.163493 38.72 % 1.559571 -18.43 % 1.911919 AllianceBernstein Mid Cap Value ##
1.320512 32.05 % 1.000000 N/A N/A Index 400 Stock
1.429987 33.34 % 1.072428 -15.60 % 1.270690 Janus Capital Appreciation ##
1.189063 18.91 % 1.000000 N/A N/A Growth Stock
2.257547 17.47 % 1.921805 -21.81 % 2.458020 Large Cap Core Stock ^
1.837972 22.51 % 1.500218 -29.09 % 2.115675 Capital Guardian Domestic Equity
1.004585 32.74 % 0.756787 -22.22 % 0.973004 T. Rowe Price Equity Income ##
1.226098 22.61 % 1.000000 N/A N/A Index 500 Stock
3.690039 26.84 % 2.909123 -23.04 % 3.780024 Asset Allocation
1.028260 19.13 % 0.863125 -11.37 % 0.973862 Balanced
7.461780 16.53 % 6.403383 -8.68 % 7.012362 High Yield Bond
1.815388 27.46 % 1.424293 -4.10 % 1.485164 Select Bond
9.479507 4.18 % 9.098961 10.70 % 8.219594 Money Market
2.728314 -0.02 % 2.728924 0.39 % 2.718250 Fidelity VIP Mid Cap ##
1.395022 39.50 % 1.000000 N/A N/A Russell Multi-Style Equity
0.756197 27.26 % 0.594202 -24.14 % 0.783335 Russell Aggressive Equity
1.195908 43.79 % 0.831686 -20.06 % 1.040412 Russell Non-U.S
0.928976 37.07 % 0.677755 -16.20 % 0.808779 Russell Core Bond
1.276523 4.83 % 1.217720 7.49 % 1.132872 Russell Real Estate Securities
1.709672 35.51 % 1.261665 2.51 % 1.230726
DIVISION 12/31/02 % CHANGE 12/31/01 % CHANGE 12/31/00* - -------- ----------- -------- ---------- -------- ------------Small Cap Growth Stock........................... $ 1.489185 -19.44% $ 1.848493 -4.97% $ 1.945087 T. Rowe Price Small Cap Value # ................. 0.943905 -6.75 1.012260 1.23 1.000000 Aggressive Growth Stock ......................... 3.494085 -22.13 4.487184 -20.88 5.671037 International Growth Stock # .................... 0.780276 -13.42 0.901258 -9.87 1.000000 Franklin Templeton International Equity ......... 1.559571 -18.43 1.911919 -15.07 2.251266 Index 400 Stock ................................. 1.072428 -15.60 1.270690 -1.90 1.295242 Growth Stock .................................... 1.921805 -21.81 2.458020 -15.29 2.901600^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock ...... 1.500218 -29.09 2.115675 -8.92 2.322995 Capital Guardian Domestic Equity # .............. 0.756787 -22.22 0.973004 -2.70 1.000000 Index 500 Stock ................................. 2.909123 -23.04 3.780024 -12.98 4.343830 Asset Allocation # .............................. 0.863125 -11.37 0.973862 -2.61 1.000000 Balanced ........................................ 6.403383 -8.68 7.012362 -4.36 7.332002 High Yield Bond ................................. 1.424293 -4.10 1.485164 3.72 1.431888 Select Bond ..................................... 9.098961 10.70 8.219594 8.99 7.541503 Money Market .................................... 2.728924 0.39 2.718250 2.62 2.648821 Russell Multi-Style Equity ...................... 0.594202 -24.14 0.783335 -15.28 0.924598 Russell Aggressive Equity ....................... 0.831686 -20.06 1.040412 -3.58 1.079072 Russell Non-U.S ................................. 0.677755 -16.20 0.808779 -23.00 1.050412 Russell Real Estate Securities .................. 1.261665 2.51 1.230726 6.49 1.155691 Russell Core Bond ............................... 1.217720 7.49 1.132872 6.07 1.068073Division.- ---------- # 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.
* Includes accumulation unit values at inception date in 2003 for portfolios becoming effective after December 31, 2002.
## Became an investment option under the Contracts effective May 1, 2003. 13
ACCOUNT A
ACCUMULATION UNIT VALUES
CONTRACTS ISSUED ON OR AFTER MARCH 31, 1995 AND PRIOR TO MARCH 31, 2000 - FRONT LOAD VERSION:
DIVISION
12/31/03 % CHANGE 12/31/02* % CHANGE 12/31/01 Small Cap Growth Stock
$ 2.035993 32.53 % $ 1.536295 -18.75 % $ 1.890848 T. Rowe Price Small Cap Value
1.285976 34.61 % 0.955324 -5.96 % 1.015860 Aggressive Growth Stock
2.191030 24.19 % 1.764232 -21.47 % 2.246524 International Growth Stock
1.093220 38.43 % 0.789715 -12.69 % 0.904464 Franklin Templeton International Equity
1.913375 39.90 % 1.367662 -17.73 % 1.662501 AllianceBernstein Mid Cap Value ##
1.328001 32.80 % 1.000000 N/A N/A Index 400 Stock
1.487736 34.47 % 1.106344 -14.88 % 1.299809 Janus Capital Appreciation ##
1.195801 19.58 % 1.000000 N/A N/A Growth Stock
2.246405 18.47 % 1.896210 -21.15 % 2.404787 Large Cap Core Stock ^
1.828313 23.56 % 1.479747 -28.49 % 2.069175 Capital Guardian Domestic Equity
1.025423 33.87 % 0.765966 -21.56 % 0.976476 T. Rowe Price Equity Income ##
1.233047 23.30 % 1.000000 N/A N/A Index 500 Stock
2.477110 27.92 % 1.936439 -22.38 % 2.494890 Asset Allocation
1.049545 20.14 % 0.873571 -10.62 % 0.977328 Balanced
2.198372 17.52 % 1.870656 -7.91 % 2.031286 High Yield Bond
1.832738 28.54 % 1.425787 -3.28 % 1.474181 Select Bond
1.884108 5.07 % 1.793220 11.64 % 1.606263 Money Market
1.408673 0.83 % 1.397113 1.25 % 1.379910 Fidelity VIP Mid Cap ##
1.402932 40.29 % 1.000000 N/A N/A Russell Multi-Style Equity
0.786751 28.34 % 0.613006 -23.50 % 0.801293 Russell Aggressive Equity
1.244218 45.01 % 0.857996 -19.38 % 1.064253 Russell Non-U.S
0.966479 38.23 % 0.699179 -15.49 % 0.827309 Russell Core Bond
1.328054 5.72 % 1.256188 8.40 % 1.158815 Russell Real Estate Securities
1.778695 36.66 % 1.301549 3.39 % 1.258915
DIVISION 12/31/02 % CHANGE 12/31/01 % CHANGE 12/31/00* - -------- ----------- -------- ---------- -------- ------------Small Cap Growth Stock........................... $ 1.536295 -18.75% $ 1.890848 -4.15% $ 1.972747 T. Rowe Price Small Cap Value # ................. 0.955324 -5.96 1.015860 1.59 1.000000 Aggressive Growth Stock ......................... 1.764232 -21.47 2.246524 -20.20 2.815081 International Growth Stock # .................... 0.789715 -12.69 0.904464 -9.55 1.000000 Franklin Templeton International Equity ......... 1.367662 -17.73 1.662501 -14.35 1.940943 Index 400 Stock ................................. 1.106344 -14.88 1.299809 -1.06 1.313674 Growth Stock .................................... 1.896210 -21.15 2.404787 -14.56 2.814641 J. P.^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock ..... 1.479747 -28.49 2.069175 -8.14 2.252648 Capital Guardian Domestic Equity #............... 0.765966 -21.56 0.976476 -2.35 1.000000 Index 500 Stock ................................. 1.936439 -22.38 2.494890 -12.23 2.842665 Asset Allocation # .............................. 0.873571 -10.62 0.977328 -2.27 1.000000 Balanced ........................................ 1.870656 -7.91 2.031286 -3.54 2.105871 High Yield Bond ................................. 1.425787 -3.28 1.474181 4.61 1.409248 Select Bond ..................................... 1.793220 11.64 1.606263 9.92 1.461268 Money Market .................................... 1.397113 1.25 1.379910 3.50 1.333271 Russell Multi-Style Equity ...................... 0.613006 -23.50 0.801293 -14.55 0.937760 Russell Aggressive Equity ....................... 0.857996 -19.38 1.064253 -2.76 1.094433 Russell Non-U.S ................................. 0.699179 -15.49 0.827309 -22.34 1.065355 Russell Real Estate Securities .................. 1.301549 3.39 1.258915 7.40 1.172137 Russell Core Bond ............................... 1.256188 8.40 1.158815 6.97 1.083276Division.- ---------- # 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.
* Includes accumulation unit values at inception date in 2003 for portfolios becoming effective after December 31, 2002.
## Became an investment option under the Contracts effective May 1, 2003. ACCUMULATION UNIT VALUES
CONTRACTS ISSUED ON OR AFTER MARCH 31, 1995 AND PRIOR TO MARCH 31, 2000 - BACK LOAD VERSION:
DIVISION
12/31/03 % CHANGE 12/31/02* % CHANGE 12/31/01 Small Cap Growth Stock
$ 1.956937 31.41 % $ 1.489185 -19.44 % $ 1.848493 T. Rowe Price Small Cap Value
1.259912 33.48 % 0.943905 -6.75 % 1.012260 Aggressive Growth Stock
4.302813 23.15 % 3.494085 -22.13 % 4.487184 International Growth Stock
1.071062 37.27 % 0.780276 -13.42 % 0.901258 Franklin Templeton International Equity
2.163493 38.72 % 1.559571 -18.43 % 1.911919 AllianceBernstein Mid Cap Value ##
1.320512 32.05 % 1.000000 N/A N/A Index 400 Stock
1.429987 33.34 % 1.072428 -15.60 % 1.270690 Janus Capital Appreciation ##
1.189063 18.91 % 1.000000 N/A N/A Growth Stock
2.257547 17.47 % 1.921805 -21.81 % 2.458020 Large Cap Core Stock ^
1.837972 22.51 % 1.500218 -29.09 % 2.115675 Capital Guardian Domestic Equity
1.004585 32.74 % 0.756787 -22.22 % 0.973004 T. Rowe Price Equity Income ##
1.226098 22.61 % 1.000000 N/A N/A Index 500 Stock
3.690039 26.84 % 2.909123 -23.04 % 3.780024 Asset Allocation
1.028260 19.13 % 0.863125 -11.37 % 0.973862 Balanced
7.461780 16.53 % 6.403383 -8.68 % 7.012362 High Yield Bond
1.815388 27.46 % 1.424293 -4.10 % 1.485164 Select Bond
9.479507 4.18 % 9.098961 10.70 % 8.219594 Money Market
2.728314 -0.02 % 2.728924 0.39 % 2.718250 Fidelity VIP Mid Cap ##
1.395022 39.50 % 1.000000 N/A N/A Russell Multi-Style Equity
0.756197 27.26 % 0.594202 -24.14 % 0.783335 Russell Aggressive Equity
1.195908 43.79 % 0.831686 -20.06 % 1.040412 Russell Non-U.S
0.928976 37.07 % 0.677755 -16.20 % 0.808779 Russell Core Bond
1.276523 4.83 % 1.217720 7.49 % 1.132872 Russell Real Estate Securities
1.709672 35.51 % 1.261665 2.51 % 1.230726
DIVISION 12/31/02 % CHANGE 12/31/01 % CHANGE 12/31/00* - -------- ----------- -------- ---------- -------- ------------Small Cap Growth Stock........................... $ 1.489185 -19.44% $ 1.848493 -4.97% $ 1.945087 T. Rowe Price Small Cap Value # ................. 0.943905 -6.75 1.012260 1.23 1.000000 Aggressive Growth Stock ......................... 3.494085 -22.13 4.487184 -20.88 5.671037 International Growth Stock # .................... 0.780276 -13.42 0.901258 -9.87 1.000000 Franklin Templeton International Equity ......... 1.559571 -18.43 1.911919 -15.07 2.251266 Index 400 Stock ................................. 1.072428 -15.60 1.270690 -1.90 1.295242 Growth Stock .................................... 1.921805 -21.81 2.458020 -15.29 2.901600^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock ...... 1.500218 -29.09 2.115675 -8.92 2.322995 Capital Guardian Domestic Equity # .............. 0.756787 -22.22 0.973004 -2.70 1.000000 Index 500 Stock ................................. 2.909123 -23.04 3.780024 -12.98 4.343830 Asset Allocation # .............................. 0.863125 -11.37 0.973862 -2.61 1.000000 Balanced ........................................ 6.403383 -8.68 7.012362 -4.36 7.332002 High Yield Bond ................................. 1.424293 -4.10 1.485164 3.72 1.431888 Select Bond ..................................... 9.098961 10.70 8.219594 8.99 7.541503 Money Market .................................... 2.728924 0.39 2.718250 2.62 2.648821 Russell Multi-Style Equity ...................... 0.594202 -24.14 0.783335 -15.28 0.924598 Russell Aggressive Equity ....................... 0.831686 -20.06 1.040412 -3.58 1.079072 Russell Non-U.S ................................. 0.677755 -16.20 0.808779 -23.00 1.050412 Russell Real Estate Securities .................. 1.261665 2.51 1.230726 6.49 1.155691 Russell Core Bond ............................... 1.217720 7.49 1.132872 6.07 1.068073Division.- ---------- # 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.
* Includes accumulation unit values at inception date in 2003 for portfolios becoming effective after December 31, 2002.
## Became an investment option under the Contracts effective May 1, 2003. 14
ACCOUNT A
ACCUMULATION UNIT VALUES
CONTRACTS ISSUED ON OR AFTER MARCH 31, 2000 - FRONT LOAD VERSION:
DIVISION
12/31/03 % CHANGE 12/31/02* % CHANGE 12/31/01 Small Cap Growth Stock
$ 0.930572 32.40 % $ 0.702869 -18.83 % $ 0.865935 T. Rowe Price Small Cap Value
1.282924 34.48 % 0.953992 -6.05 % 1.015445 Aggressive Growth Stock
0.699892 24.07 % 0.564112 -21.55 % 0.719033 International Growth Stock
1.090626 38.30 % 0.788618 -12.77 % 0.904093 Franklin Templeton International Equity
0.978611 39.76 % 0.700185 -17.81 % 0.851962 AllianceBernstein Mid Cap Value ##
1.327125 32.71 % 1.000000 N/A N/A Index 400 Stock
1.169318 34.34 % 0.870423 -14.97 % 1.023646 Janus Capital Appreciation ##
1.195012 19.50 % 1.000000 N/A N/A Growth Stock
0.729643 18.35 % 0.616498 -21.23 % 0.782628 Large Cap Core Stock ^
0.717843 23.43 % 0.581563 -28.56 % 0.814020 Capital Guardian Domestic Equity
1.022974 33.74 % 0.764893 -21.64 % 0.976072 T. Rowe Price Equity Income ##
1.232233 23.22 % 1.000000 N/A N/A Index 500 Stock
0.771935 27.80 % 0.604035 -22.46 % 0.779001 Asset Allocation
1.047056 20.03 % 0.872356 -10.70 % 0.976926 Balanced
1.012887 17.40 % 0.862735 -8.00 % 0.937735 High Yield Bond
1.249172 28.41 % 0.972766 -3.38 % 1.006773 Select Bond
1.386996 4.96 % 1.321394 11.53 % 1.184790 Money Market
1.100118 0.73 % 1.092171 1.15 % 1.079788 Fidelity VIP Mid Cap ##
1.402004 40.20 % 1.000000 N/A N/A Russell Multi-Style Equity
0.736202 28.22 % 0.574187 -23.57 % 0.751294 Russell Aggressive Equity
1.054631 44.87 % 0.727980 -19.46 % 0.903873 Russell Non-U.S
0.769505 38.10 % 0.557227 -15.57 % 0.659991 Russell Core Bond
1.313645 5.62 % 1.243794 8.30 % 1.148513 Russell Real Estate Securities
1.877412 36.53 % 1.375137 3.28 % 1.331406
DIVISION 12/31/02 % CHANGE 12/31/01 % CHANGE 12/31/00* - -------- ----------- -------- ---------- -------- ------------Small Cap Growth Stock........................... $ 0.702869 -18.83% $ 0.865935 -4.25% $ 0.904342 T. Rowe Price Small Cap Value # ................. 0.953992 -6.05 1.015445 1.54 1.000000 Aggressive Growth Stock ......................... 0.564112 -21.55 0.719033 -20.28 0.901909 International Growth Stock # .................... 0.788618 -12.77 0.904093 -9.59 1.000000 Franklin Templeton International Equity ......... 0.700185 -17.81 0.851962 -14.43 0.995643 Index 400 Stock ................................. 0.870423 -14.97 1.023646 -1.15 1.035589 Growth Stock .................................... 0.616498 -21.23 0.782628 -14.65 0.916924^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock....... 0.581563 -28.56 0.814020 -8.24 0.887072 Capital Guardian Domestic Equity # .............. 0.764893 -21.64 0.976072 -2.39 1.000000 Index 500Stock................................. 0.604035 -22.46 0.779001 -12.32 0.888477 Asset Allocation # .............................. 0.872356 -10.70 0.976926 -2.31 1.000000 Balanced ........................................ 0.862735 -8.00 0.937735 -3.64 0.973123 High Yield Bond ................................. 0.972766 -3.38 1.006773 4.50 0.963375 Select Bond ..................................... 1.321394 11.53 1.184790 9.81 1.078901 Money Market .................................... 1.092171 1.15 1.079788 3.40 1.044325 Russell Multi-Style Equity ...................... 0.574187 -23.57 0.751294 -14.64 0.880119 Russell Aggressive Equity ....................... 0.727980 -19.46 0.903873 -2.85 0.930436 Russell Non-U.S ................................. 0.557227 -15.57 0.659991 -22.42 0.850723 Russell Real Estate Securities .................. 1.375137 3.28 1.331406 7.30 1.240862 Russell Core Bond ............................... 1.243794 8.30 1.148513 6.87 1.074705Division.- ---------- # 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.
* Includes accumulation unit values at inception date in 2003 for portfolios becoming effective after December 31, 2002.
## Became an investment option under the Contracts effective May 1, 2003. ACCUMULATION UNIT VALUES
CONTRACTS ISSUED ON OR AFTER MARCH 31, 2000 - BACK LOAD VERSION:
DIVISION
12/31/03 % CHANGE 12/31/02* % CHANGE 12/31/01 Small Cap Growth Stock
$ 1.956937 31.41 % $ 1.489185 -19.44 % $ 1.848493 T. Rowe Price Small Cap Value
1.259912 33.48 % 0.943905 -6.75 % 1.012260 Aggressive Growth Stock
4.302813 23.15 % 3.494085 -22.13 % 4.487184 International Growth Stock
1.071062 37.27 % 0.780276 -13.42 % 0.901258 Franklin Templeton International Equity
2.163493 38.72 % 1.559571 -18.43 % 1.911919 AllianceBernstein Mid Cap Value ##
1.320512 32.05 % 1.000000 N/A N/A Index 400 Stock
1.429987 33.34 % 1.072428 -15.60 % 1.270690 Janus Capital Appreciation ##
1.189063 18.91 % 1.000000 N/A N/A Growth Stock
2.257547 17.47 % 1.921805 -21.81 % 2.458020 Large Cap Core Stock ^
1.837972 22.51 % 1.500218 -29.09 % 2.115675 Capital Guardian Domestic Equity
1.004585 32.74 % 0.756787 -22.22 % 0.973004 T. Rowe Price Equity Income ##
1.226098 22.61 % 1.000000 N/A N/A Index 500 Stock
3.690039 26.84 % 2.909123 -23.04 % 3.780024 Asset Allocation
1.028260 19.13 % 0.863125 -11.37 % 0.973862 Balanced
7.461780 16.53 % 6.403383 -8.68 % 7.012362 High Yield Bond
1.815388 27.46 % 1.424293 -4.10 % 1.485164 Select Bond
9.479507 4.18 % 9.098961 10.70 % 8.219594 Money Market
2.728314 -0.02 % 2.728924 0.39 % 2.718250 Fidelity VIP Mid Cap ##
1.395022 39.50 % 1.000000 N/A N/A Russell Multi-Style Equity
0.756197 27.26 % 0.594202 -24.14 % 0.783335 Russell Aggressive Equity
1.195908 43.79 % 0.831686 -20.06 % 1.040412 Russell Non-U.S
0.928976 37.07 % 0.677755 -16.20 % 0.808779 Russell Core Bond
1.276523 4.83 % 1.217720 7.49 % 1.132872 Russell Real Estate Securities
1.709672 35.51 % 1.261665 2.51 % 1.230726
DIVISION 12/31/02 % CHANGE 12/31/01 % CHANGE 12/31/00* - -------- ----------- -------- ---------- -------- ------------Small Cap Growth Stock........................... $ 1.489185 -19.44% $ 1.848493 -4.97% $ 1.945087 T. Rowe Price Small Cap Value # ................. 0.943905 -6.75 1.012260 1.23 1.000000 Aggressive Growth Stock ......................... 3.494085 -22.13 4.487184 -20.88 5.671037 International Growth Stock # .................... 0.780276 -13.42 0.901258 -9.87 1.000000 Franklin Templeton International Equity ......... 1.559571 -18.43 1.911919 -15.07 2.251266 Index 400 Stock ................................. 1.072428 -15.60 1.270690 -1.90 1.295242 Growth Stock .................................... 1.921805 -21.81 2.458020 -15.29 2.901600^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock....... 1.500218 -29.09 2.115675 -8.92 2.322995 Capital Guardian Domestic Equity # .............. 0.756787 -22.22 0.973004 -2.70 1.000000 Index 500Stock................................. 2.909123 -23.04 3.780024 -12.98 4.343830 Asset Allocation # .............................. 0.863125 -11.37 0.973862 -2.61 1.000000 Balanced ........................................ 6.403383 -8.68 7.012362 -4.36 7.332002 High Yield Bond ................................. 1.424293 -4.10 1.485164 3.72 1.431888 Select Bond ..................................... 9.098961 10.70 8.219594 8.99 7.541503 Money Market .................................... 2.728924 0.39 2.718250 2.62 2.648821 Russell Multi-Style Equity ...................... 0.594202 -24.14 0.783335 -15.28 0.924598 Russell Aggressive Equity ....................... 0.831686 -20.06 1.040412 -3.58 1.079072 Russell Non-U.S ................................. 0.677755 -16.20 0.808779 -23.00 1.050412 Russell Real Estate Securities .................. 1.261665 2.51 1.230726 6.49 1.155691 Russell Core Bond ............................... 1.217720 7.49 1.132872 6.07 1.068073Division.- ---------- # Became an investment option under the Contracts effective July 31, 2001. * Includes accumulation unit values at inception date in 2001
* Includes accumulation unit values at inception date in 2003 for portfolios becoming effective after December 31, 2002.
## Became an investment option under the Contracts effective May 1, 2003. 15
ACCOUNT A
TOTAL EQUITY:
(IN THOUSANDS)
12/31/03
12/31/02
12/31/01
$521,940
$468,072 $593,712 The increase in 2003’s Total Equity was attributable primarily to investment activities within the Account A: the net change in unrealized appreciation of $98,006 led to an increase in equity derived from investment activities of $89,262 for the year ended December 31,
2000. 15TOTAL EQUITY: (IN THOUSANDS)2003. The remaining change in equity is attributed to the equity transactions for the year ended December 31, 2003. The decline in
12/31/02 12/31/01 12/31/00 -------- -------- --------$468,072 $593,712 $697,3542002's2002’s Total Equity was attributable primarily to investment activities within the Account: the net change in unrealized depreciation of $74,854 led to a decrease in equity derived from investment activities of $82,876 for the year ended December 31, 2002. Thedeclineremaining change in2001'sequity is attributed to the equity transactions for the year endedDecember 31, 2002.
ACCOUNT C
ACCUMULATION UNIT VALUES
CONTRACTS ISSUED PRIOR TO DECEMBER 17, 1981 OR BETWEEN APRIL 30, 1984 AND
DECEMBER 31, 1991:
DIVISION
12/31/03 % CHANGE 12/31/02* % CHANGE 12/31/01 Small Cap Growth Stock
$ 20.745671 33.06 % $ 15.591407 -18.42 % $ 19.112629 T. Rowe Price Small Cap Value
12.985287 35.15 % 9.607906 -5.58 % 10.175772 Aggressive Growth Stock
47.932675 24.69 % 38.441232 -21.15 % 48.753408 International Growth Stock
11.039080 38.99 % 7.942434 -12.34 % 9.060000 Franklin Templeton International Equity
2.471833 40.46 % 1.759773 -17.40 % 2.130553 AllianceBernstein Mid Cap Value ##
13.315544 33.16 % 10.000000 N/A N/A Index 400 Stock
15.159273 35.01 % 11.227976 -14.54 % 13.138452 Janus Capital Appreciation ##
11.990097 19.90 % 10.000000 N/A N/A Growth Stock
25.471804 18.94 % 21.414901 -20.83 % 27.049526 Large Cap Core Stock ^
20.737771 24.05 % 16.717038 -28.20 % 23.281928 Capital Guardian Domestic Equity
10.354264 34.41 % 7.703469 -21.24 % 9.781208 T. Rowe Price Equity Income ##
12.363579 23.64 % 10.000000 N/A N/A Index 500 Stock
45.268617 28.43 % 35.246385 -22.07 % 45.228886 Asset Allocation
10.598020 20.63 % 8.785751 -10.26 % 9.789803 Balanced
99.686821 17.99 % 84.486469 -7.54 % 91.372736 High Yield Bond
20.482734 29.06 % 15.870922 -2.89 % 16.343831 Select Bond
127.939507 5.49 % 121.279762 12.09 % 108.200259 Money Market
34.553668 1.23 % 34.132616 1.65 % 33.577318 Fidelity VIP Mid Cap ##
14.066904 40.67 % 10.000000 N/A N/A Russell Multi-Style Equity
8.016570 28.86 % 6.221208 -23.19 % 8.099453 Russell Aggressive Equity
12.677885 45.60 % 8.707578 -19.06 % 10.757522 Russell Non-U.S
9.848016 38.79 % 7.095865 -15.15 % 8.362558 Russell Core Bond
13.532112 6.15 % 12.748590 8.84 % 11.713217 Russell Real Estate Securities
18.123797 37.21 % 13.208871 3.80 % 12.725061
^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock Division.
* Includes accumulation unit values at inception date in 2003 for portfolios becoming effective after December 31, 2002.
## Became an investment option under the Contracts effective May 1, 2003. 16
ACCOUNT C
ACCUMULATION UNIT VALUES
CONTRACTS ISSUED AFTER DECEMBER 16, 1981 AND PRIOR TO MAY 1, 1984:
DIVISION
12/31/03 % CHANGE 12/31/02* % CHANGE 12/31/01 Small Cap Growth Stock
$ 20.266253 32.40 % $ 15.307344 -18.83 % $ 18.858687 T. Rowe Price Small Cap Value
12.829144 34.48 % 9.539874 -6.05 % 10.154423 Aggressive Growth Stock
44.929401 24.07 % 36.213065 -21.55 % 46.158193 International Growth Stock
10.906272 38.30 % 7.886164 -12.77 % 9.040958 Franklin Templeton International Equity
2.343355 39.76 % 1.676652 -17.82 % 2.040110 AllianceBernstein Mid Cap Value ##
13.271202 32.71 % 10.000000 N/A N/A Index 400 Stock
14.808985 34.34 % 11.023428 -14.97 % 12.963870 Janus Capital Appreciation ##
11.950148 19.50 % 10.000000 N/A N/A Growth Stock
24.269545 18.35 % 20.506308 -21.23 % 26.031963 Large Cap Core Stock ^
19.758825 23.43 % 16.007652 -28.56 % 22.405970 Capital Guardian Domestic Equity
10.229694 33.74 % 7.648889 -21.64 % 9.760679 T. Rowe Price Equity Income ##
12.322387 23.22 % 10.000000 N/A N/A Index 500 Stock
42.428293 27.80 % 33.200274 -22.46 % 42.817258 Asset Allocation
10.470560 20.03 % 8.723560 -10.70 % 9.769272 Balanced
89.326036 17.40 % 76.084739 -8.00 % 82.699005 High Yield Bond
19.516037 28.42 % 15.197603 -3.38 % 15.728914 Select Bond
114.586395 4.96 % 109.166340 11.53 % 97.881219 Money Market
30.999129 0.73 % 30.774871 1.15 % 30.425952 Fidelity VIP Mid Cap ##
14.020063 40.20 % 10.000000 N/A N/A Russell Multi-Style Equity
7.831294 28.22 % 6.107844 -23.57 % 7.991801 Russell Aggressive Equity
12.384892 44.87 % 8.548899 -19.46 % 10.614527 Russell Non-U.S
9.620430 38.09 % 6.966578 -15.57 % 8.251395 Russell Core Bond
13.219553 5.62 % 12.516564 8.30 % 11.557668 Russell Real Estate Securities
17.705263 36.53 % 12.968435 3.28 % 12.556055
^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock Division.
* Includes accumulation unit values at inception date in 2003 for portfolios becoming effective after December 31, 2002.
## Became an investment option under the Contracts effective May 1, 2003. ACCUMULATION UNIT VALUES
CONTRACTS ISSUED AFTER DECEMBER 31, 1991 – FRONT LOAD VERSION:
DIVISION
12/31/03 % CHANGE 12/31/02* % CHANGE 12/31/01 Small Cap Growth Stock
$ 2.012501 32.20 % $ 1.522337 -18.95 % $ 1.878336 T. Rowe Price Small Cap Value
1.278281 34.28 % 0.951956 -6.19 % 1.014805 Aggressive Growth Stock
2.924175 23.88 % 2.360410 -21.66 % 3.013165 International Growth Stock
1.086683 38.09 % 0.786940 -12.90 % 0.903525 Franklin Templeton International Equity
2.306261 39.55 % 1.652585 -17.94 % 2.013838 AllianceBernstein Mid Cap Value ##
1.325796 32.58 % 1.000000 N/A N/A Index 400 Stock
1.470580 34.14 % 1.096297 -15.10 % 1.291211 Janus Capital Appreciation ##
1.193818 19.38 % 1.000000 N/A N/A Growth Stock
2.392114 18.17 % 2.024216 -21.34 % 2.573522 Large Cap Core Stock ^
1.947509 23.25 % 1.580140 -28.66 % 2.215050 Capital Guardian Domestic Equity
1.019273 33.54 % 0.763266 -21.75 % 0.975455 T. Rowe Price Equity Income ##
1.231018 23.10 % 1.000000 N/A N/A Index 500 Stock
3.088134 27.60 % 2.420098 -22.58 % 3.125796 Asset Allocation
1.043259 19.85 % 0.870499 -10.84 % 0.976312 Balanced
2.590151 17.23 % 2.209502 -8.14 % 2.405185 High Yield Bond
1.923624 28.22 % 1.500210 -3.52 % 1.554978 Select Bond
2.184385 4.81 % 2.084184 11.36 % 1.871532 Money Market
1.513153 0.58 % 1.504462 1.00 % 1.489628 Fidelity VIP Mid Cap ##
1.400609 40.06 % 1.000000 N/A N/A Russell Multi-Style Equity
0.777670 28.02 % 0.607438 -23.69 % 0.795993 Russell Aggressive Equity
1.229860 44.66 % 0.850202 -19.58 % 1.057215 Russell Non-U.S
0.955315 37.89 % 0.692822 -15.70 % 0.821829 Russell Core Bond
1.312719 5.46 % 1.244772 8.13 % 1.151142 Russell Real Estate Securities
1.758196 36.32 % 1.289736 3.13 % 1.250590
^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock Division.
* Includes accumulation unit values at inception date in 2003 for portfolios becoming effective after December 31, 2002.
## Became an investment option under the Contracts effective May 1, 2003. 17
ACCOUNT C
ACCUMULATION UNIT VALUES
CONTRACTS ISSUED AFTER DECEMBER 31, 1991 - SIMPLIFIED LOAD VERSION:
DIVISION
12/31/03 % CHANGE 12/31/02* % CHANGE 12/31/01 Small Cap Growth Stock
$ 1.956937 31.41 % $ 1.489185 -19.44 % $ 1.848493 T. Rowe Price Small Cap Value
1.259912 33.48 % 0.943905 -6.75 % 1.012260 Aggressive Growth Stock
4.318610 23.15 % 3.506913 -22.13 % 4.503663 International Growth Stock
1.071062 37.27 % 0.780276 -13.42 % 0.901258 Franklin Templeton International Equity
2.163493 38.72 % 1.559571 -18.43 % 1.911919 AllianceBernstein Mid Cap Value ##
1.320512 32.05 % 1.000000 N/A N/A Index 400 Stock
1.429987 33.34 % 1.072428 -15.60 % 1.270690 Janus Capital Appreciation ##
1.189063 18.91 % 1.000000 N/A N/A Growth Stock
2.257547 17.47 % 1.921805 -21.81 % 2.458020 Large Cap Core Stock ^
1.837972 22.51 % 1.500218 -29.09 % 2.115675 Capital Guardian Domestic Equity
1.004585 32.74 % 0.756787 -22.22 % 0.973004 T. Rowe Price Equity Income ##
1.226098 22.61 % 1.000000 N/A N/A Index 500 Stock
3.765294 26.84 % 2.968449 -23.04 % 3.857114 Asset Allocation
1.028260 19.13 % 0.863125 -11.37 % 0.973862 Balanced
7.498641 16.53 % 6.435011 -8.68 % 7.047000 High Yield Bond
1.815388 27.46 % 1.424293 -4.10 % 1.485164 Select Bond
9.571910 4.18 % 9.187656 10.70 % 8.299723 Money Market
2.734239 -0.02 % 2.734853 0.39 % 2.724154 Fidelity VIP Mid Cap ##
1.395022 39.50 % 1.000000 N/A N/A Russell Multi-Style Equity
0.756197 27.26 % 0.594202 -24.14 % 0.783335 Russell Aggressive Equity
1.195908 43.79 % 0.831686 -20.06 % 1.040412 Russell Non-U.S
0.928976 37.07 % 0.677755 -16.20 % 0.808779 Russell Core Bond
1.276523 4.83 % 1.217720 7.49 % 1.132872 Russell Real Estate Securities
1.709672 35.51 % 1.261665 2.51 % 1.230726
^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock Division.
* Includes accumulation unit values at inception date in 2003 for portfolios becoming effective after December 31, 2002.
## Became an investment option under the Contracts effective May 1, 2003. TOTAL EQUITY:
(IN THOUSANDS)
12/31/03
12/31/02
12/31/01
$435,562
$383,452 $552,816 The changes in 2003’s Total Equity was
alsoattributable primarily to investment activities within the Account: the net change in unrealizeddepreciationappreciation of$124,257$103,646 led to a decrease in equity derived from investment activities of$63,440$86,530 for the year ended December 31,2001. ACCOUNT C ACCUMULATION UNIT VALUES CONTRACTS ISSUED PRIOR TO DECEMBER 17, 1981 OR BETWEEN APRIL 30, 1984 AND DECEMBER 31, 1991:
DIVISION 12/31/02 % CHANGE 12/31/01 % CHANGE 12/31/00* - -------- ----------- -------- ---------- -------- ------------Small Cap Growth Stock........................... $ 15.591407 -18.42% $19.112629 -3.76% $ 19.859931 T. Rowe Price Small Cap Value # ................. 9.607906 -5.58 10.175772 1.76 10.000000 Aggressive Growth Stock ......................... 38.441232 -21.15 48.753408 -19.87 60.845203 International Growth Stock # .................... 7.942434 -12.34 9.060000 -9.40 10.000000 Franklin Templeton International Equity ......... 1.759773 -17.40 2.130553 -14.00 2.477334 Index 400 Stock ................................. 11.227976 -14.54 13.138452 -0.65 13.224995 Growth Stock .................................... 21.414901 -20.83 27.049526 -14.22 31.531943 J.P. Morgan Select Growth and Income Stock ...... 16.717038 -28.20 23.281928 -7.77 25.243989 Capital Guardian Domestic Equity # .............. 7.703469 -21.24 9.781208 -2.19 10.000000 Index 500 Stock ................................. 35.246385 -22.07 45.228886 -11.88 51.325633 Asset Allocation # .............................. 8.785751 -10.26 9.789803 -2.10 10.000000 Balanced ........................................ 84.486469 -7.54 91.372736 -3.15 94.345469 High Yield Bond ................................. 15.870922 -2.89 16.343831 5.03 15.560950 Select Bond ..................................... 121.279762 12.09 108.200259 10.37 98.036463 Money Market .................................... 34.132616 1.65 33.577318 3.92 32.311690 Russell Multi-Style Equity ...................... 6.221208 -23.19 8.099453 -14.21 9.440627 Russell Aggressive Equity ....................... 8.707578 -19.06 10.757522 -2.36 11.017913 Russell Non-U.S ................................. 7.095865 -15.15 8.362558 -22.03 10.725190 Russell Real Estate Securities .................. 13.208871 3.80 12.725061 7.84 11.800164 Russell Core Bond ............................... 12.748590 8.84 11.713217 7.41 10.905549- ---------- # Became an investment option under2003. The remaining change in equity is attributed to theContracts effective July 31, 2001. * Includes accumulation unit values at inception date in 2001equity transactions forportfolios becoming effective afterthe year ended December 31,2000. 16ACCUMULATION UNIT VALUES CONTRACTS ISSUED AFTER DECEMBER 16, 1981 AND PRIOR TO MAY 1, 1984:
DIVISION 12/31/02 % CHANGE 12/31/01 % CHANGE 12/31/00* - -------- ----------- -------- ---------- -------- ------------Small Cap Growth Stock........................... $ 15.307344 -18.83% $18.858687 -4.25% $ 19.695066 T. Rowe Price Small Cap Value # ................. 9.539874 -6.05 10.154423 1.54 10.000000 Aggressive Growth Stock ......................... 36.213065 -21.55 46.158193 -20.28 57.897540 International Growth Stock # .................... 7.886164 -12.77 9.040958 -9.59 10.000000 Franklin Templeton International Equity ......... 1.676652 -17.82 2.040110 -14.43 2.384172 Index 400 Stock ................................. 11.023428 -14.97 12.963870 -1.15 13.115131 Growth Stock .................................... 20.506308 -21.23 26.031963 -14.65 30.498976 J.P. Morgan Select Growth and Income Stock ...... 16.007652 -28.56 22.405970 -8.24 24.416867 Capital Guardian Domestic Equity # .............. 7.648889 -21.64 9.760679 -2.39 10.000000 Index 500 Stock ................................. 33.200274 -22.46 42.817258 -12.32 48.834231 Asset Allocation # .............................. 8.723560 -10.70 9.769272 -2.31 10.000000 Balanced ........................................ 76.084739 -8.00 82.699005 -3.64 85.820221 High Yield Bond ................................. 15.197603 -3.38 15.728914 4.50 15.050970 Select Bond ..................................... 109.16634 11.53 97.881219 9.81 89.133511 Money Market .................................... 30.774871 1.15 30.425952 3.40 29.426661 Russell Multi-Style Equity ...................... 6.107844 -23.57 7.991801 -14.64 9.362193 Russell Aggressive Equity ....................... 8.548899 -19.46 10.614527 -2.85 10.926333 Russell Non-U.S ................................. 6.966578 -15.57 8.251395 -22.42 10.636093 Russell Real Estate Securities .................. 12.968435 3.28 12.556055 7.30 11.702144 Russell Core Bond ............................... 12.516564 8.30 11.557668 6.87 10.814951- ---------- # 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 - FRONT LOAD VERSION:
DIVISION 12/31/02 % CHANGE 12/31/01 % CHANGE 12/31/00* - -------- ----------- -------- --------- -------- ------------Small Cap Growth Stock........................... $ 1.522337 -18.95% $ 1.878336 -4.39% $ 1.964602 T. Rowe Price Small Cap Value # ................. 0.951956 -6.19 1.014805 1.48 1.000000 Aggressive Growth Stock ......................... 2.360410 -21.66 3.013165 -20.40 3.785207 International Growth Stock # .................... 0.786940 -12.90 0.903525 -9.65 1.000000 Franklin Templeton International Equity ......... 1.652585 -17.94 2.013838 -14.56 2.357007 Index 400 Stock ................................. 1.096297 -15.10 1.291211 -1.30 1.308249 Growth Stock .................................... 2.024216 -21.34 2.573522 -14.77 3.019678 J.P. Morgan Select Growth and Income Stock ...... 1.580140 -28.66 2.215050 -8.37 2.417488 Capital Guardian Domestic Equity # .............. 0.763266 -21.75 0.975455 -2.45 1.000000 Index 500 Stock ................................. 2.420098 -22.58 3.125796 -12.45 3.570426 Asset Allocation # .............................. 0.870499 -10.84 0.976312 -2.37 1.000000 Balanced ........................................ 2.209502 -8.14 2.405185 -3.78 2.499718 High Yield Bond ................................. 1.500210 -3.52 1.554978 4.35 1.490196 Select Bond ..................................... 2.084184 11.36 1.871532 9.65 1.706832 Money Market .................................... 1.504462 1.00 1.489628 3.24 1.442872 Russell Multi-Style Equity ...................... 0.607438 -23.69 0.795993 -14.77 0.933887 Russell Aggressive Equity ....................... 0.850202 -19.58 1.057215 -3.00 1.089907 Russell Non-U.S ................................. 0.692822 -15.70 0.821829 -22.54 1.060950 Russell Real Estate Securities .................. 1.289736 3.13 1.250590 7.14 1.167301 Russell Core Bond ............................... 1.244772 8.13 1.151142 6.71 1.078791- ---------- # 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. 17ACCUMULATION UNIT VALUES CONTRACTS ISSUED AFTER DECEMBER 31, 1991 - SIMPLIFIED LOAD VERSION:
DIVISION 12/31/02 % CHANGE 12/31/01 % CHANGE 12/31/00* - -------- ----------- -------- ---------- -------- ------------Small Cap Growth Stock........................... $ 1.489185 -19.44% $ 1.848493 -4.97% $ 1.945087 T. Rowe Price Small Cap Value # ................. 0.943905 -6.75 1.012260 1.23 1.000000 Aggressive Growth Stock ......................... 3.506913 -22.13 4.503663 -20.88 5.691856 International Growth Stock # .................... 0.780276 -13.42 0.901258 -9.87 1.000000 Franklin Templeton International Equity ......... 1.559571 -18.43 1.911919 -15.07 2.251266 Index 400 Stock ................................. 1.072428 -15.60 1.270690 -1.90 1.295242 Growth Stock .................................... 1.921805 -21.81 2.458020 -15.29 2.901600 J.P. Morgan Select Growth and Income Stock ...... 1.500218 -29.09 2.115675 -8.92 2.322995 Capital Guardian Domestic Equity # .............. 0.756787 -22.22 0.973004 -2.70 1.000000 Index 500 Stock ................................. 2.968449 -23.04 3.857114 -12.98 4.432423 Asset Allocation # .............................. 0.863125 -11.37 0.973862 -2.61 1.000000 Balanced ........................................ 6.435011 -8.68 7.047000 -4.36 7.368231 High Yield Bond ................................. 1.424293 -4.10 1.485164 3.72 1.431888 Select Bond ..................................... 9.187656 10.70 8.299723 8.99 7.615016 Money Market .................................... 2.734853 0.39 2.724154 2.62 2.654580 Russell Multi-Style Equity ...................... 0.594202 -24.14 0.783335 -15.28 0.924598 Russell Aggressive Equity ....................... 0.831686 -20.06 1.040412 -3.58 1.079072 Russell Non-U.S ................................. 0.677755 -16.20 0.808779 -23.00 1.050412 Russell Real Estate Securities................... 1.261665 2.51 1.230726 6.49 1.155691 Russell Core Bond ............................... 1.217720 7.49 1.132872 6.07 1.068073- ---------- # 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)2003. The changes in
12/31/02 12/31/01 12/31/00 -------- -------- --------$383,452 $552,816 $672,8352002's2002’s Total Equity was attributable primarily to investment activities within the Account: the net change in unrealized depreciation of $58,211 led to a decrease in equity derived from investment activities of $85,767 for the year ended December 31, 2002. The remaining change in2001's Total Equity was also attributable primarilyequity is attributed toinvestment activities withintheAccount: the net change in unrealized depreciation of $133,527 led to a decrease inequityderived from investment activities of $72,308transactions for the year ended December 31,2001.2002.CRITICAL ACCOUNTING POLICIES
Dividend income and distributions of net realized gains received from the Funds are recorded on the ex-date of the dividends. Transactions in the
Funds'Funds’ shares are accounted for on the trade date. Annuity reserves are based on published annuity tables. A deduction for annuity rate and expense guarantees is determined daily. Under current law, no federal income taxes are payable with respect to Accounts A and C. Accordingly, no provisions for any such liability has been made.OFF-BALANCE SHEET ARRANGEMENTS
Each of Account A and Account C had no off-balance sheet arrangement (as defined by S-K 303) during 2003 that have or are reasonably likely to have a current or future effect on the respective Account’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to Contract holders.
CONTRACTUAL OBLIGATIONS
At December 31, 2003, neither Account A nor Account C had any contractual obligations classified as long-term debt obligations, capital (finance) lease obligations, operating lease obligations, purchase obligations or other long-term liabilities reflected on their respective balance sheets.
18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The assets of Account A and Account C consist entirely of shares of the
1518 portfolios of the Series Fund, the Fidelity VIP Mid Cap Portfolio (the “Fidelity Portfolio”), and 5portfoliosfunds of the Russell Funds, together with current amounts due from the sale of Series Fund, Fidelity Portfolio, 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, Fidelity Portfolio, 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.ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA NML VARIABLE ANNUITY ACCOUNT A
STATEMENTS OF ASSETS AND LIABILITIES
(IN THOUSANDS)
DECEMBER 31 2003 2002 ASSETS Investments at market value:
Northwestern Mutual Series Fund, Inc.
Small Cap Growth Stock
2003: 9,545 shares (cost $17,467)
$ 18,478 2002: 9,912 shares (cost $18,759)
$ 14,422 T. Rowe Price Small Cap Value
2003: 3,550 shares (cost $3,793)
4,572 2002: 2,825 shares (cost $2,981)
2,692 Aggressive Growth Stock
2003: 20,972 shares (cost $70,148)
57,087 2002: 23,805 shares (cost $81,640)
51,966 International Growth Stock
2003: 2,045 shares (cost $1,830)
2,232 2002: 758 shares (cost $666)
598 Franklin Templeton International Equity
2003: 20,576 shares (cost $31,048)
29,053 2002: 22,001 shares (cost $34,441)
22,529 AllianceBernstein Mid Cap Value ##
2003: 337 shares (cost $385)
444 Index 400 Stock
2003: 8,890 shares (cost $9,769)
11,335 2002: 8,750 shares (cost $9,843)
8,330 Janus Capital Appreciation ##
2003: 159 shares (cost $176)
190 Growth Stock
2003: 13,103 shares (cost $28,118)
24,542 2002: 14,790 shares (cost $33,032)
23,486 Large Cap Core Stock ^
2003: 14,902 shares (cost $19,410)
15,885 2002: 15,786 shares (cost $22,115)
13,703 Capital Guardian Domestic Equity
2003: 3,517 shares (cost $2,966)
3,535 2002: 2,203 shares (cost $1,904)
1,670 T. Rowe Price Equity Income ##
2003: 397 shares (cost $454)
484 Index 500 Stock
2003: 29,599 shares (cost $74,678)
80,656 2002: 32,083 shares (cost $81,840)
69,524 Asset Allocation
2003: 4,730 shares (cost $4,346)
4,815 2002: 3,263 shares (cost $3,031)
2,800 19
NML VARIABLE ANNUITY ACCOUNT A
STATEMENTS OF ASSETS AND LIABILITIES
(INCONTINUED(IN THOUSANDS)
December 31 2003 2002 Balanced
2003: 105,632 shares (cost $182,650)
195,524 2002: 111,967 shares (cost $194,101)
181,610 High Yield Bond
2003: 7,475 shares (cost $5,192)
5,419 2002: 7,602 shares (cost $5,620)
4,280 Select Bond
2003: 23,179 shares (cost $28,196)
29,252 2002: 24,737 shares (cost $29,435)
31,441 Money Market
2003: 18,413 shares (cost $18,413)
18,413 2002: 26,634 shares (cost $26,634)
26,634 Fidelity VIP Mid Cap Portfolio ##
2003: 43 shares (cost $934)
1,031 Russell Investment Funds
Multi Style Equity
2003: 393 shares (cost $4,730)
4,547 2002: 336 shares (cost $4,489)
3,042 Aggressive Equity
2003: 280 shares (cost $3,203)
3,765 2002: 247 shares (cost $2,928)
2,283 Non-U.S
2003: 364 shares (cost $3,371)
3,551 2002: 317 shares (cost $3,341)
2,284 Core Bond
2003: 237 shares (cost $2,477)
2,477 2002: 224 shares (cost $2,275)
2,331 Real Estate Securities
2003: 403 shares (cost $4,560)
5,521 2002: 291 shares (cost $3,120)
3,056 Due from Northwestern Mutual Life Insurance Company
21 211 Total Assets
$ 522,829 $ 468,892 LIABILITIES AND EQUITY LIABILITIES
Due to Participants
$ 807 597 Due to Northwestern Mutual Life Insurance Company
82 223 Total Liabilities
889 820 EQUITY
Group Variable Annuity Contracts Issued:
Before December 17, 1981:
38,264 35,373 After December 16, 1981 and Prior to March 31, 1995:
348,737 320,815 On or After March 31, 1995 and Prior to March 31, 2000 - Front Load Version
18,495 15,937 On or After March 31, 1995 and Prior to March 31, 2000 - Back Load Version
88,461 79,380 On or After March 31, 2000 - Front Load Version:
2,976 2,529 On or After March 31, 2000 - Back Load Version
25,007 14,038 Total Equity
521,940 468,072 Total Liabilities and Equity
$ 522,829 $ 468,892
DECEMBER^ Prior to January 31, -------------------------- 2002 2001 ------------ -----------ASSETS Investments at market value: Northwestern Mutual Series Fund, Inc. Small Cap Growth Stock 2002: 9,912 shares (cost $18,759).......... $ 14,422 2001: 8,748 shares (cost $17,350).......... $ 15,624 T. Rowe Price Small Cap Value # 2002: 2,825 shares (cost $2,981)........... 2,692 2001: 576 shares (cost $543)............... 585 Aggressive Growth Stock 2002: 23,805 shares (cost $81,640)......... 51,966 2001: 27,500 shares (cost $96,370)......... 77,633 International Growth Stock # 2002: 758 shares (cost $666)............... 598 2001: 173 shares (cost $165)............... 157 Franklin Templeton International Equity 2002: 22,001 shares (cost $34,441)......... 22,529 2001: 24,394 shares (cost $39,250)......... 30,810 Index 400 Stock 2002: 8,750 shares (cost $9,843)........... 8,330 2001: 8,172 shares (cost $9,465)........... 9,168 Growth Stock 2002: 14,790 shares (cost $33,032)......... 23,486 2001: 16,139 shares (cost $37,094)......... 32,7172003 this Division was named the J.P. Morgan Select Growth and Income Stock2002: 15,786 shares (cost $22,115)......... 13,703 2001: 18,915 shares (cost $27,776)......... 23,058 Capital Guardian Domestic Equity # 2002: 2,203 shares (cost $1,904)........... 1,670 2001: 298 shares (cost $277)............... 291 Index 500 Stock 2002: 32,083 shares (cost $81,840)......... 69,524 2001: 36,502 shares (cost $93,314)......... 104,943 Asset Allocation # 2002: 3,263 shares (cost $3,031)........... 2,800 2001: 822 shares (cost $787)............... 800 Balanced 2002: 111,967 shares (cost $194,101)....... 181,610 2001: 125,956 shares (cost $218,603)....... 229,239Division.19
December 31 -------------------------- 2002 2001 ------------ -----------High Yield Bond 2002: 7,602 shares (cost $5,620)........................................... 4,280 2001: 7,733 shares (cost $6,179)........................................... 5,018 Select Bond 2002: 24,737 shares (cost $29,435)......................................... 31,441 2001: 19,936 shares (cost $23,404)......................................... 23,983 Money Market 2002: 26,634 shares (cost $26,634)......................................... 26,634 2001: 27,159 shares (cost $27,159)......................................... 27,159 Russell Insurance Funds Multi Style Equity 2002: 336 shares (cost $4,489)............................................. 3,042 2001: 341 shares (cost $5,063)............................................. 4,111 Aggressive Equity 2002: 247 shares (cost $2,928)............................................. 2,283 2001: 258 shares (cost $3,182)............................................. 2,947 Non-U.S 2002: 317 shares (cost $3,341)............................................. 2,284 2001: 328 shares (cost $3,838)............................................. 2,861 Real Estate Securities 2002: 291 shares (cost $3,120)............................................. 3,056 2001: 169 shares (cost $1,794)............................................. 1,820 Core Bond 2002: 224 shares (cost $2,275)............................................. 2,331 2001: 151 shares (cost $1,497)............................................. 1,527 Due from Sales of Fund Shares..................................................... -- 39 Due from Northwestern Mutual Life Insurance Company............................... 211 8 ------------ ----------- Total Assets............................................................... $ 468,892 $ 594,498 ============ =========== LIABILITIES AND EQUITY LIABILITIES Due to Participants ........................................................... $ 597 739 Due to Northwestern Mutual Life Insurance Company.............................. 223 39 Due on Purchase of Fund Shares................................................. -- 8 ------------ ----------- Total Liabilities.......................................................... 820 786 ------------ ----------- EQUITY Group Variable Annuity Contracts Issued: Before December 17, 1981:...................................................... 35,373 46,841 After December 16, 1981 and Prior to March 31, 1995:........................... 320,815 421,383 On or After March 31, 1995 and Prior to March 31, 2000 - Front Load Version.... 15,937 96,699 On or After March 31, 1995 and Prior to March 31, 2000 - Back Load Version..... 79,380 20,123 On or After March 31, 2000 - Front Load Version:............................... 2,529 6,604 On or After March 31, 2000 - Back Load Version................................. 14,038 2,062 ------------ ----------- Total Equity............................................................... 468,072 593,712 ------------ ----------- Total Liabilities and Equity............................................... $ 468,892 $ 594,498 ============ ===========## The initial investment was made May 1, 2003. - ---------- # The initial investment was made July 31, 2001.The Accompanying Notes are an Integral Part of the Financial Statements.
20
NML VARIABLE ANNUITY ACCOUNT A
STATEMENTS OF OPERATIONS
(IN(IN THOUSANDS)
Investment Income DIVISION
Dividend
IncomeAnnuity Rate and
Expense GuaranteesNet Investment
Income (Loss)Year Ended December 31, 2003
Small Cap Growth Stock
$ — $ (187 ) $ (187 ) T. Rowe Price Small Cap Value
— (36 ) (36 ) Aggressive Growth Stock
— (640 ) (640 ) International Growth Stock
14 (14 ) — Franklin Templeton International Equity
408 (284 ) 124 AllianceBernstein Mid Cap Value ##
2 (2 ) — Index 400 Stock
66 (107 ) (41 ) Janus Capital Appreciation ##
— (1 ) (1 ) Growth Stock
194 (280 ) (86 ) Large Cap Core Stock ^
139 (167 ) (28 ) Capital Guardian Domestic Equity
47 (26 ) 21 T. Rowe Price Equity Income ##
4 (2 ) 2 Index 500 Stock
1,074 (815 ) 259 Asset Allocation
78 (39 ) 39 Balanced
6,026 (2,229 ) 3,797 High Yield Bond
11 (59 ) (48 ) Select Bond
1,248 (358 ) 890 Money Market
300 (280 ) 20 Fidelity VIP Mid Cap ##
— (4 ) (4 ) Russell Multi-Style Equity
26 (41 ) (15 ) Russell Aggressive Equity
3 (33 ) (30 ) Russell Non-U.S
78 (31 ) 47 Russell Core Bond
92 (31 ) 61 Russell Real Estate Securities
227 (48 ) 179 Year Ended December 31, 2002
Small Cap Growth Stock
$ 26 $ (198 ) $ (172 ) T. Rowe Price Small Cap Value
14 (26 ) (12 ) Aggressive Growth Stock
61 (766 ) (705 ) International Growth Stock
3 (5 ) (2 ) Franklin Templeton International Equity
574 (327 ) 247 Index 400 Stock
76 (109 ) (33 ) Growth Stock
324 (337 ) (13 ) Large Cap Core Stock ^
170 (212 ) (42 ) Capital Guardian Domestic Equity
20 (12 ) 8 Index 500 Stock
1,197 (976 ) 221 Asset Allocation
45 (22 ) 23 Balanced
7,949 (2,466 ) 5,483 High Yield Bond
456 (55 ) 401 Select Bond
1,181 (299 ) 882 Money Market
440 (304 ) 136 Russell Multi-Style Equity
22 (41 ) (19 ) Russell Aggressive Equity
— (29 ) (29 ) Russell Non-U.S
41 (32 ) 9 Russell Core Bond
55 (23 ) 32 Russell Real Estate Securities
142 (30 ) 112
COMBINED SMALL CAP GROWTH STOCK DIVISION ---------------------------------------- --------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER^ Prior to January 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ----------- ----------- ----------- ----------- ----------- -----------Investment2003 this Division was named the J.P. Morgan Select Growth and IncomeDividend Income ............................ $ 12,796 $ 53,045 $ 56,065 $ 26 $Stock Division.
## The initial investment in this Division was made on May 1, $ 379 Annuity Rate and Expense Guarantees ........ (6,269) (7,425) (8,884) (198) (179) (153) ----------- ----------- ----------- ----------- ----------- ----------- Net Investment Income (Loss) .................. 6,527 45,620 47,181 (172) (178) 226 ----------- ----------- ----------- ----------- ----------- ----------- Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments ........ (14,549) 15,197 56,764 (785) (343) 827 Unrealized Appreciation (Depreciation) During the Year .......................... (74,854) (124,257) (120,838) (2,610) (338) (1,850) ----------- ----------- ----------- ----------- ----------- ----------- Net Gain (Loss) on Investments ................ (89,403) (109,060) (64,074) (3,395) (681) (681) ----------- ----------- ----------- ----------- ----------- ----------- Increase (Decrease) in Equity Derived from Investment Activity ........... $ (82,876) $ (63,440) $ (16,893) $ (3,567) $ (859) $ (797) =========== =========== =========== =========== =========== ===========2003.
T. ROWE PRICE SMALL CAP VALUE DIVISION # AGGRESSIVE GROWTH STOCK DIVISION -------------------------- ----------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 2000 ----------- ----------- ----------- ----------- -----------Investment Income Dividend Income ............................... $ 14 $ 1 $ 61 $ 19,094 $ 13,412 Annuity Rate and Expense Guarantees ........... (26) (1) (766) (1,021) (1,395) ----------- ----------- ----------- ----------- ----------- Net Investment Income (Loss) ..................... (12) -- (705) 18,073 12,017 ----------- ----------- ----------- ----------- ----------- Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments ........... (73) -- (4,414) 906 11,257 Unrealized Appreciation (Depreciation) During the Year ............................ (329) 41 (10,937) (40,892) (18,313) ----------- ----------- ----------- ----------- ----------- Net Gain (Loss) on Investments ................... (402) 41 (15,351) (39,986) (7,056) ----------- ----------- ----------- ----------- ----------- Increase (Decrease) in Equity Derived from Investment Activity .............. $ (414) $ 41 $ (16,056) $ (21,913) $ 4,961 =========== =========== =========== =========== ===========- ---------- # The initial investment in this Division was made on July 31, 2001.21
NML VARIABLE ANNUITY ACCOUNT A
STATEMENTS OF OPERATIONS CONTINUED
(IN(IN THOUSANDS)
Realized and Unrealized Gain (Loss) on Investments DIVISION
Realized Gain
(Loss) on
InvestmentsUnrealized Appreciation
(Depreciation) of
Investments During the
PeriodNet Gain
(Loss) on
InvestmentsIncrease (Decrease) in
Equity Derived from
Investment ActivityYear Ended December 31, 2003
Small Cap Growth Stock
$ (817 ) $ 5,347 $ 4,530 $ 4,343 T. Rowe Price Small Cap Value
(87 ) 1,067 980 944 Aggressive Growth Stock
(4,723 ) 16,613 11,890 11,250 International Growth Stock
— 469 469 469 Franklin Templeton International Equity
(1,889 ) 9,917 8,028 8,152 AllianceBernstein Mid Cap Value ##
12 �� 58 70 70 Index 400 Stock
(344 ) 3,079 2,735 2,694 Janus Capital Appreciation ##
1 14 15 14 Growth Stock
(2,074 ) 5,970 3,896 3,810 Large Cap Core Stock ^
(1,905 ) 4,887 2,982 2,954 Capital Guardian Domestic Equity
(141 ) 803 662 683 T. Rowe Price Equity Income ##
8 30 38 40 Index 500 Stock
(1,048 ) 18,294 17,246 17,505 Asset Allocation
(81 ) 701 620 659 Balanced
(550 ) 25,366 24,816 28,613 High Yield Bond
(321 ) 1,567 1,246 1,198 Select Bond
1,416 (949 ) 467 1,357 Money Market
— — — 20 Fidelity VIP Mid Cap ##
46 96 142 138 Russell Multi-Style Equity
(338 ) 1,264 926 911 Russell Aggressive Equity
(83 ) 1,207 1,124 1,094 Russell Non-U.S
(389 ) 1,237 848 895 Russell Core Bond
119 (56 ) 63 124 Russell Real Estate Securities
121 1,025 1,146 1,325 Year Ended December 31, 2002
Small Cap Growth Stock
$ (785 ) $ (2,610 ) $ (3,395 ) $ (3,567 ) T. Rowe Price Small Cap Value
(73 ) (329 ) (402 ) (414 ) Aggressive Growth Stock
(4,414 ) (10,937 ) (15,351 ) (16,056 ) International Growth Stock
(3 ) (59 ) (62 ) (64 ) Franklin Templeton International Equity
(2,073 ) (3,472 ) (5,545 ) (5,298 ) Index 400 Stock
(352 ) (1,217 ) (1,569 ) (1,602 ) Growth Stock
(1,842 ) (5,170 ) (7,012 ) (7,025 ) Large Cap Core Stock ^
(2,738 ) (3,694 ) (6,432 ) (6,474 ) Capital Guardian Domestic Equity
(54 ) (248 ) (302 ) (294 ) Index 500 Stock
483 (23,945 ) (23,462 ) (23,241 ) Asset Allocation
(35 ) (244 ) (279 ) (256 ) Balanced
(1,610 ) (23,128 ) (24,738 ) (19,255 ) High Yield Bond
(439 ) (179 ) (618 ) (217 ) Select Bond
437 1,426 1,863 2,745 Money Market
— — — 136 Russell Multi-Style Equity
(547 ) (495 ) (1,042 ) (1,061 ) Russell Aggressive Equity
(133 ) (409 ) (542 ) (571 ) Russell Non-U.S
(459 ) (80 ) (539 ) (530 ) Russell Core Bond
85 26 111 143 Russell Real Estate Securities
3 (90 ) (87 ) 25
FRANKLIN TEMPLETON INTERNATIONAL GROWTH STOCK INTERNATIONAL DIVISION # EQUITY DIVISION ---------------------------- -------------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER^ Prior to January 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 2000 ------------ ------------ ------------ ------------ ------------Investment2003 this Division was named the J.P. Morgan Select Growth and IncomeDividend Income ................................. $ 3 $ -- $ 574 $ 3,729 $ 3,228 Annuity Rate and Expense Guarantees ............. (5) -- (327) (415) (515) ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ....................... (2) -- 247 3,314 2,713 ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss)Stock Division.
## The initial investment in this Division was made on Investments Realized Gain (Loss) on Investments ............. (3) (8) (2,073) (245) 2,247 Unrealized Appreciation (Depreciation) During the Year .............................. (59) -- (3,472) (8,897) (5,914) ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments ..................... (62) (8) (5,545) (9,142) (3,667) ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ................ $ (64) $ (8) $ (5,298) $ (5,828) $ (954) ============ ============ ============ ============ ============
INDEX 400 STOCK DIVISION GROWTH 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, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------Investment Income Dividend Income .......................... $ 76 $ 97 $ 801 $ 324 $ 1,497 $ 1,855 Annuity Rate and Expense Guarantees ...... (109) (94) (55) (337) (403) (473) ------------ ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ................ (33) 3 746 (13) 1,094 1,382 ------------ ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments ...... (352) (41) 207 (1,842) 464 3,581 Unrealized Appreciation (Depreciation) During the Year ........................ (1,217) (36) (414) (5,170) (7,478) (6,543) ------------ ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments .............. (1,569) (77) (207) (7,012) (7,014) (2,962) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ......... $ (1,602) $ (74) $ 539 $ (7,025) $ (5,920) $ (1,580) ============ ============ ============ ============ ============ ============
J.P. MORGAN SELECT GROWTH AND INCOME CAPITAL GUARDIAN STOCK DIVISION EQUITY DIVISION# -------------------------------------------- ---------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 ------------ ------------ ------------ ------------ ------------Investment Income Dividend Income ............................... $ 170 $ 876 $ 1,774 $ 20 $May 1,Annuity Rate and Expense Guarantees ........... (212) (286) (362) (12) -- ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ..................... (42) 590 1,412 8 1 ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments ........... (2,738) (278) (2) (54) -- Unrealized Appreciation (Depreciation) During the Year ............................. (3,694) (2,664) (3,775) (248) 12 ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments ................... (6,432) (2,942) (3,777) (302) 12 ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity .............. $ (6,474) $ (2,352) $ (2,365) $ (294) $ 13 ============ ============ ============ ============ ============2003.- ---------- # The initial investment in this Division was made on July 31, 2001.22
NML VARIABLE ANNUITY ACCOUNT A
STATEMENTS OF OPERATIONS CONTINUED
(IN(IN THOUSANDS)
Investment Income DIVISION
Dividend
IncomeAnnuity Rate and
Expense GuaranteesNet Investment
Income (Loss)Year Ended December 31, 2001
Small Cap Growth Stock
$ 1 $ (179 ) $ (178 ) T. Rowe Price Small Cap Value #
1 (1 ) — Aggressive Growth Stock
19,094 (1,021 ) 18,073 International Growth Stock #
— — — Franklin Templeton International Equity
3,729 (415 ) 3,314 Index 400 Stock
97 (94 ) 3 Growth Stock
1,497 (403 ) 1,094 Large Cap Core Stock ^
876 (286 ) 590 Capital Guardian Domestic Equity #
1 — 1 Index 500 Stock
5,168 (1,297 ) 3,871 Asset Allocation #
6 (2 ) 4 Balanced
19,440 (2,955 ) 16,485 High Yield Bond
529 (62 ) 467 Select Bond
1,257 (248 ) 1,009 Money Market
1,067 (318 ) 749 Russell Multi-Style Equity
91 (44 ) 47 Russell Aggressive Equity
3 (29 ) (26 ) Russell Non-U.S
17 (34 ) (17 ) Russell Core Bond
78 (16 ) 62 Russell Real Estate Securities
93 (21 ) 72
DIVISION
Realized and Unrealized Gain (Loss) on Investments Increase (Decrease) in
Equity Derived from
Investment ActivityRealized Gain
(Loss) on
InvestmentsUnrealized Appreciation
(Depreciation) of
Investments During the
PeriodNet Gain
(Loss) on
InvestmentsYear Ended December 31, 2001
Small Cap Growth Stock
$ (343 ) $ (338 ) $ (681 ) $ (859 ) T. Rowe Price Small Cap Value #
— 41 41 41 Aggressive Growth Stock
906 (40,892 ) (39,986 ) (21,913 ) International Growth Stock #
(8 ) — (8 ) (8 ) Franklin Templeton International Equity
(245 ) (8,897 ) (9,142 ) (5,828 ) Index 400 Stock
(41 ) (36 ) (77 ) (74 ) Growth Stock
464 (7,478 ) (7,014 ) (5,920 ) Large Cap Core Stock ^
(278 ) (2,664 ) (2,942 ) (2,352 ) Capital Guardian Domestic Equity #
— 12 12 13 Index 500 Stock
8,880 (29,565 ) (20,685 ) (16,814 ) Asset Allocation #
— 11 11 15 Balanced
6,981 (34,686 ) (27,705 ) (11,220 ) High Yield Bond
(655 ) 381 (274 ) 193 Select Bond
(65 ) 919 854 1,863 Money Market
— — — 749 Russell Multi-Style Equity
(154 ) (517 ) (671 ) (624 ) Russell Aggressive Equity
(69 ) 6 (63 ) (89 ) Russell Non-U.S
(287 ) (480 ) (767 ) (784 ) Russell Core Bond
16 (13 ) 3 65 Russell Real Estate Securities
95 (61 ) 34 106
INDEX 500 STOCK DIVISION ASSET ALLOCATION DIVISION# -------------------------------------------- ---------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DECEMBERThe initial investment in this Division was made on July 31, DECEMBER2001.
^ Prior to January 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 ------------ ------------ ------------ ------------ ------------Investment2003 this Division was named the J.P. Morgan Select Growth and IncomeDividend Income ................................. $ 1,197 $ 5,168 $ 6,161 $ 45 $ 6 Annuity Rate and Expense Guarantees ............. (976) (1,297) (1,722) (22) (2) ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ....................... 221 3,871 4,439 23 4 ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments ............. 483 8,880 19,865 (35) -- Unrealized Appreciation (Depreciation) During the Year .............................. (23,945) (29,565) (39,225) (244) 11 ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments ..................... (23,462) (20,685) (19,360) (279) 11 ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ................ $ (23,241) $ (16,814) $ (14,921) $ (256) $ 15 ============ ============ ============ ============ ============Stock Division.
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, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------Investment Income Dividend Income ........................... $ 7,949 $ 19,440 $ 24,058 $ 456 $ 529 $ 611 Annuity Rate and Expense Guarantees ....... (2,466) (2,955) (3,494) (55) (62) (68) ------------ ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ................. 5,483 16,485 20,564 401 467 543 ------------ ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments ...... (1,610) 6,981 19,864 (439) (655) (756) Unrealized Appreciation (Depreciation) During the Year ........................ (23,128) (34,686) (44,078) (179) 381 (119) ------------ ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments .............. (24,738) (27,705) (24,214) (618) (274) (875) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ......... $ (19,255) $ (11,220) $ (3,650) $ (217) $ 193 $ (332) ============ ============ ============ ============ ============ ============
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, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------Investment Income Dividend Income .......................... $ 1,181 $ 1,257 $ 1,463 $ 440 $ 1,067 $ 1,609 Annuity Rate and Expense Guarantees ...... (299) (248) (228) (304) (318) (296) ------------ ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ................ 882 1,009 1,235 136 749 1,313 ------------ ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments ...... 437 (65) (333) -- -- -- Unrealized Appreciation (Depreciation) During the Year ........................ 1,426 919 830 -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments .............. 1,863 854 497 -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ......... $ 2,745 $ 1,863 $ 1,732 $ 136 $ 749 $ 1,313 ============ ============ ============ ============ ============ ============- ---------- #The
initial investment in this Division was made on July 31, 2001.Accompanying Notes are an Integral Part of the Financial Statements23
NML VARIABLE ANNUITY ACCOUNT A
STATEMENTS OF
OPERATIONSCHANGES IN EQUITY(IN THOUSANDS)
Operations DIVISION
Net Investment Income
(Loss)Net Realized Gain
(Loss)Net Change in
Unrealized Appreciation
(Depreciation)Increase (Decrease) in
Equity Derived from
Investment ActivityYear Ended December 31, 2003
Small Cap Growth Stock
$ (187 ) $ (817 ) $ 5,347 $ 4,343 T. Rowe Price Small Cap Value
(36 ) (87 ) 1,067 944 Aggressive Growth Stock
(640 ) (4,723 ) 16,613 11,250 International Growth Stock
— — 469 469 Franklin Templeton International Equity
124 (1,889 ) 9,917 8,152 AllianceBernstein Mid Cap Value ##
— 12 58 70 Index 400 Stock
(41 ) (344 ) 3,079 2,694 Janus Capital Appreciation ##
(1 ) 1 14 14 Growth Stock
(86 ) (2,074 ) 5,970 3,810 Large Cap Core Stock ^
(28 ) (1,905 ) 4,887 2,954 Capital Guardian Domestic Equity
21 (141 ) 803 683 T. Rowe Price Equity Income ##
2 8 30 40 Index 500 Stock
259 (1,048 ) 18,294 17,505 Asset Allocation
39 (81 ) 701 659 Balanced
3,797 (550 ) 25,366 28,613 High Yield Bond
(48 ) (321 ) 1,567 1,198 Select Bond
890 1,416 (949 ) 1,357 Money Market
20 — — 20 Fidelity VIP Mid Cap ##
(4 ) 46 96 138 Russell Multi-Style Equity
(15 ) (338 ) 1,264 911 Russell Aggressive Equity
(30 ) (83 ) 1,207 1,094 Russell Non-U.S
47 (389 ) 1,237 895 Russell Core Bond
61 119 (56 ) 124 Russell Real Estate Securities
179 121 1,025 1,325 Year Ended December 31, 2002
Small Cap Growth Stock
$ (172 ) $ (785 ) $ (2,610 ) $ (3,567 ) T. Rowe Price Small Cap Value
(12 ) (73 ) (329 ) (414 ) Aggressive Growth Stock
(705 ) (4,414 ) (10,937 ) (16,056 ) International Growth Stock
(2 ) (3 ) (59 ) (64 ) Franklin Templeton International Equity
247 (2,073 ) (3,472 ) (5,298 ) Index 400 Stock
(33 ) (352 ) (1,217 ) (1,602 ) Growth Stock
(13 ) (1,842 ) (5,170 ) (7,025 ) Large Cap Core Stock ^
(42 ) (2,738 ) (3,694 ) (6,474 ) Capital Guardian Domestic Equity
8 (54 ) (248 ) (294 ) Index 500 Stock
221 483 (23,945 ) (23,241 ) Asset Allocation
23 (35 ) (244 ) (256 ) Balanced
5,483 (1,610 ) (23,128 ) (19,255 ) High Yield Bond
401 (439 ) (179 ) (217 ) Select Bond
882 437 1,426 2,745 Money Market
136 — — 136 Russell Multi-Style Equity
(19 ) (547 ) (495 ) (1,061 ) Russell Aggressive Equity
(29 ) (133 ) (409 ) (571 ) Russell Non-U.S
9 (459 ) (80 ) (530 ) Russell Core Bond
32 85 26 143 Russell Real Estate Securities
112 3 (90 ) 25
^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock Division.
## The initial investment in this Division was made on May 1, 2003. 24
NML VARIABLE ANNUITY ACCOUNT A
STATEMENTS OF CHANGES IN EQUITY CONTINUED
(IN(IN THOUSANDS)
Equity Transactions DIVISION
Contract
Owners’ Net
PaymentsAnnuity
PaymentsSurrenders and
Other (net)Transfers from
Other Divisions or
SponsorTransfers to
Other Divisions
or SponsorIncrease (Decrease) in
Equity Derived from
Equity TransactionsYear Ended December 31, 2003
Small Cap Growth Stock
$ 1,691 $ (2 ) $ (1,913 ) $ 4,438 $ (4,512 ) $ (298 ) T. Rowe Price Small Cap Value
622 — (446 ) 2,709 (1,951 ) 934 Aggressive Growth Stock
4,213 (28 ) (7,671 ) 5,148 (7,808 ) (6,146 ) International Growth Stock
231 — (37 ) 1,930 (959 ) 1,165 Franklin Templeton International Equity
1,961 (13 ) (3,483 ) 4,587 (4,662 ) (1,610 ) AllianceBernstein Mid Cap Value ##
66 — (2 ) 457 (148 ) 373 Index 400 Stock
1,217 (4 ) (1,769 ) 4,785 (3,911 ) 318 Janus Capital Appreciation ##
39 — (9 ) 154 (8 ) 176 Growth Stock
2,312 (3 ) (3,795 ) 4,018 (5,293 ) (2,761 ) Large Cap Core Stock ^
1,434 (71 ) (2,308 ) 2,136 (1,989 ) (798 ) Capital Guardian Domestic Equity
424 (10 ) (380 ) 3,099 (1,951 ) 1,182 T. Rowe Price Equity Income ##
55 — (4 ) 526 (133 ) 444 Index 500 Stock
5,066 (228 ) (11,228 ) 10,444 (10,285 ) (6,231 ) Asset Allocation
913 — (683 ) 2,154 (1,025 ) 1,359 Balanced
9,659 (600 ) (21,746 ) 8,516 (10,744 ) (14,915 ) High Yield Bond
588 (18 ) (732 ) 2,767 (2,645 ) (40 ) Select Bond
2,723 (86 ) (5,006 ) 9,655 (10,829 ) (3,543 ) Money Market
4,170 (37 ) (6,679 ) 8,733 (14,593 ) (8,406 ) Fidelity VIP Mid Cap ##
96 — (11 ) 1,340 (533 ) 892 Russell Multi-Style Equity
464 (6 ) (443 ) 2,871 (2,355 ) 531 Russell Aggressive Equity
337 — (706 ) 3,366 (2,546 ) 451 Russell Non-U.S
339 (2 ) (450 ) 2,550 (2,092 ) 345 Russell Core Bond
277 — (487 ) 2,278 (2,023 ) 45 Russell Real Estate Securities
736 (3 ) (531 ) 3,665 (2,728 ) 1,139 Year Ended December 31, 2002
Small Cap Growth Stock
$ 1,990 $ (2 ) $ (1,772 ) $ 5,993 $ (3,844 ) $ 2,365 T. Rowe Price Small Cap Value
744 (21 ) (399 ) 4,185 (1,985 ) 2,524 Aggressive Growth Stock
5,565 (30 ) (9,556 ) 5,187 (10,758 ) (9,592 ) International Growth Stock
198 — (15 ) 678 (356 ) 505 Franklin Templeton International Equity
2,567 (14 ) (4,346 ) 3,446 (4,630 ) (2,977 ) Index 400 Stock
1,618 (14 ) (1,479 ) 4,135 (3,493 ) 767 Growth Stock
3,233 (4 ) (3,860 ) 3,299 (4,869 ) (2,201 ) Large Cap Core Stock ^
2,184 (51 ) (3,074 ) 2,022 (3,947 ) (2,866 ) Capital Guardian Domestic Equity
449 — (121 ) 2,055 (709 ) 1,674 Index 500 Stock
6,935 (273 ) (14,951 ) 8,032 (12,115 ) (12,372 ) Asset Allocation
578 — (147 ) 2,148 (326 ) 2,253 Balanced
11,208 (640 ) (31,038 ) 8,932 (16,839 ) (28,377 ) High Yield Bond
633 (4 ) (895 ) 1,378 (1,636 ) (524 ) Select Bond
2,605 (82 ) (4,465 ) 11,827 (4,953 ) 4,932 Money Market
4,308 (34 ) (8,347 ) 17,060 (13,683 ) (696 ) Russell Multi-Style Equity
566 (7 ) (651 ) 2,286 (2,140 ) 54 Russell Aggressive Equity
320 — (210 ) 1,428 (1,623 ) (85 ) Russell Non-U.S
361 (2 ) (356 ) 1,492 (1,516 ) (21 ) Russell Core Bond
299 — (469 ) 1,570 (739 ) 661 Russell Real Estate Securities
597 (8 ) (375 ) 2,817 (1,819 ) 1,212
RUSSELL MULTI-STYLE EQUITY DIVISION RUSSELL AGGRESSIVE EQUITY DIVISION ---------------------------------------- ---------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER^ Prior to January 31, DECEMBER2003 this Division was named the J.P. Morgan Select Growth and Income Stock Division.
## The initial investment in this Division was made on May 1, 2003. 25
NML VARIABLE ANNUITY ACCOUNT A
STATEMENTS OF CHANGES IN EQUITY CONTINUED
(IN THOUSANDS)
Equity DIVISION
Net Increase
(Decrease) in EquityBeginning of
PeriodEnd of
PeriodYear Ended December 31, 2003
Small Cap Growth Stock
$ 4,045 $ 14,421 $ 18,466 T. Rowe Price Small Cap Value
1,878 2,694 4,572 Aggressive Growth Stock
5,104 51,983 57,087 International Growth Stock
1,634 598 2,232 Franklin Templeton International Equity
6,542 22,509 29,051 AllianceBernstein Mid Cap Value ##
443 — 443 Index 400 Stock
3,012 8,323 11,335 Janus Capital Appreciation ##
190 — 190 Growth Stock
1,049 23,491 24,540 Large Cap Core Stock ^
2,156 13,717 15,873 Capital Guardian Domestic Equity
1,865 1,670 3,535 T. Rowe Price Equity Income ##
484 — 484 Index 500 Stock
11,274 69,294 80,568 Asset Allocation
2,018 2,797 4,815 Balanced
13,698 181,291 194,989 High Yield Bond
1,158 4,267 5,425 Select Bond
(2,186 ) 31,434 29,248 Money Market
(8,386 ) 26,587 18,201 Fidelity VIP Mid Cap ##
1,030 — 1,030 Russell Multi-Style Equity
1,442 3,104 4,546 Russell Aggressive Equity
1,545 2,219 3,764 Russell Non-U.S
1,240 2,311 3,551 Russell Core Bond
169 2,305 2,474 Russell Real Estate Securities
2,464 3,057 5,521 Year Ended December 31, 2002
Small Cap Growth Stock
$ (1,202 ) $ 15,623 $ 14,421 T. Rowe Price Small Cap Value
2,110 584 2,694 Aggressive Growth Stock
(25,648 ) 77,631 51,983 International Growth Stock
441 157 598 Franklin Templeton International Equity
(8,275 ) 30,784 22,509 Index 400 Stock
(835 ) 9,158 8,323 Growth Stock
(9,226 ) 32,717 23,491 Large Cap Core Stock ^
(9,340 ) 23,057 13,717 Capital Guardian Domestic Equity
1,380 290 1,670 Index 500 Stock
(35,613 ) 104,907 69,294 Asset Allocation
1,997 800 2,797 Balanced
(47,632 ) 228,923 181,291 High Yield Bond
(741 ) 5,008 4,267 Select Bond
7,677 23,757 31,434 Money Market
(560 ) 27,147 26,587 Russell Multi-Style Equity
(1,007 ) 4,111 3,104 Russell Aggressive Equity
(656 ) 2,875 2,219 Russell Non-U.S
(551 ) 2,862 2,311 Russell Core Bond
804 1,501 2,305 Russell Real Estate Securities
1,237 1,820 3,057
^ Prior to January 31, DECEMBER2003 this Division was named the J.P. Morgan Select Growth and Income Stock Division.
## The initial investment in this Division was made on May 1, 2003. 26
NML VARIABLE ANNUITY ACCOUNT A
STATEMENTS OF CHANGES IN EQUITY CONTINUED
(IN THOUSANDS)
Operations DIVISION
Net Investment
Income (Loss)
Net Realized
Gain (Loss)
Net Change in
Unrealized
Appreciation
(Depreciation)Increase (Decrease)
in Equity Derived
from Investment
ActivityYear Ended December 31, 2001
Small Cap Growth Stock
$ (178 ) $ (343 ) $ (338 ) $ (859 ) T. Rowe Price Small Cap Value #
— — 41 41 Aggressive Growth Stock
18,073 906 (40,892 ) (21,913 ) International Growth Stock #
— (8 ) — (8 ) Franklin Templeton International Equity
3,314 (245 ) (8,897 ) (5,828 ) Index 400 Stock
3 (41 ) (36 ) (74 ) Growth Stock
1,094 464 (7,478 ) (5,920 ) Large Cap Core Stock ^
590 (278 ) (2,664 ) (2,352 ) Capital Guardian Domestic Equity #
1 — 12 13 Index 500 Stock
3,871 8,880 (29,565 ) (16,814 ) Asset Allocation #
4 — 11 15 Balanced
16,485 6,981 (34,686 ) (11,220 ) High Yield Bond
467 (655 ) 381 193 Select Bond
1,009 (65 ) 919 1,863 Money Market
749 — — 749 Russell Multi-Style Equity
47 (154 ) (517 ) (624 ) Russell Aggressive Equity
(26 ) (69 ) 6 (89 ) Russell Non-U.S
(17 ) (287 ) (480 ) (784 ) Russell Core Bond
62 16 (13 ) 65 Russell Real Estate Securities
72 95 (61 ) 106
Equity Transactions DIVISION
Contract
Owners’ Net
PaymentsAnnuity
PaymentsSurrenders and
Other (net)Transfers from
Other Divisions or
SponsorTransfers to
Other Divisions or
SponsorIncrease (Decrease)
in Equity Derived
from Equity
TransactionsYear Ended December 31, 2001
Small Cap Growth Stock
$ 1,932 $ (7 ) $ (1,362 ) $ 4,029 $ (4,403 ) $ 189 T. Rowe Price Small Cap Value #
87 — — 490 (34 ) 543 Aggressive Growth Stock
6,978 (37 ) (10,388 ) 7,243 (10,995 ) (7,199 ) International Growth Stock #
24 — — 154 (13 ) 165 Franklin Templeton International Equity
2,894 (17 ) (4,910 ) 3,316 (4,969 ) (3,686 ) Index 400 Stock
1,347 (16 ) (708 ) 4,453 (3,006 ) 2,070 Growth Stock
3,713 (5 ) (3,538 ) 5,424 (4,981 ) 613 Large Cap Core Stock ^
2,138 (66 ) (3,087 ) 3,370 (3,033 ) (678 ) Capital Guardian Domestic Equity #
25 — (2 ) 254 — 277 Index 500 Stock
7,565 (337 ) (15,093 ) 9,028 (12,955 ) (11,792 ) Asset Allocation #
86 — 2 699 (2 ) 785 Balanced
12,043 (684 ) (32,253 ) 9,588 (14,552 ) (25,858 ) High Yield Bond
523 (11 ) (888 ) 1,921 (1,860 ) (315 ) Select Bond
1,760 (84 ) (3,070 ) 5,887 (2,868 ) 1,625 Money Market
2,973 (42 ) (7,417 ) 19,263 (13,859 ) 918 Russell Multi-Style Equity
675 (6 ) (216 ) 2,557 (2,372 ) 638 Russell Aggressive Equity
447 — (200 ) 1,011 (792 ) 466 Russell Non-U.S
505 — (270 ) 1,782 (1,616 ) 401 Russell Core Bond
182 — (122 ) 814 (624 ) 250 Russell Real Estate Securities
316 (4 ) (127 ) 2,039 (1,838 ) 386
# The initial investment in this Division was made on July 31, DECEMBER2001.
^ Prior to January 31, DECEMBER2003 this Division was named the J.P. Morgan Select Growth and Income Stock Division.27
NML VARIABLE ANNUITY ACCOUNT A
STATEMENTS OF CHANGES IN EQUITY CONTINUED
(IN THOUSANDS)
Equity DIVISION
Net Increase
(Decrease) in EquityBeginning of
PeriodEnd of
PeriodYear Ended December 31, 2001
Small Cap Growth Stock
$ (670 ) $ 16,293 $ 15,623 T. Rowe Price Small Cap Value #
584 — 584 Aggressive Growth Stock
(29,112 ) 106,743 77,631 International Growth Stock #
157 — 157 Franklin Templeton International Equity
(9,514 ) 40,298 30,784 Index 400 Stock
1,996 7,162 9,158 Growth Stock
(5,307 ) 38,024 32,717 Large Cap Core Stock ^
(3,030 ) 26,087 23,057 Capital Guardian Domestic Equity #
290 — 290 Index 500 Stock
(28,606 ) 133,513 104,907 Asset Allocation #
800 — 800 Balanced
(37,078 ) 266,001 228,923 High Yield Bond
(122 ) 5,130 5,008 Select Bond
3,488 20,269 23,757 Money Market
1,667 25,480 27,147 Russell Multi-Style Equity
14 4,097 4,111 Russell Aggressive Equity
377 2,498 2,875 Russell Non-U.S
(383 ) 3,245 2,862 Russell Core Bond
315 1,186 1,501 Russell Real Estate Securities
492 1,328 1,820
# The initial investment in this Division was made on July 31, DECEMBER2001.
^ Prior to January 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------Investment2003 this Division was named the J.P. Morgan Select Growth and IncomeDividendStock Division.The Accompanying Notes are an Integral Part of the Financial Statements
28
NML VARIABLE ANNUITY ACCOUNT A
FINANCIAL HIGHLIGHTS
(FOR A UNIT OUTSTANDING DURING THE PERIOD)
DIVISION
UNIT VALUE (3),
LOWEST TO HIGHEST
DIVIDEND
INCOME AS A
% OF
AVERAGE NET
ASSETS
EXPENSE RATIO
LOWEST TO HIGHEST
TOTAL RETURN (4),
LOWEST TO HIGHEST
Small Cap Growth Stock
Year Ended 12/31/03
$0.774833 to $ 2.035993 0.00% 0.40% to 1.25% 31.41% to 32.53% Year Ended 12/31/02
$0.702869 to $ 1.536295 0.16% 0.40% to 1.25% (19.44%) to (18.75%) Year Ended 12/31/01
$0.865935 to $ 1.890848 0.01% 0.40% to 1.25% (4.97%) to (4.15%) T. Rowe Price Small Cap Value(1)
Year Ended 12/31/03
$1.119619 to $ 1.298296 0.00% 0.40% to 1.25% 33.48% to 34.61% Year Ended 12/31/02
$0.943905 to $ 0.955324 0.57% 0.40% to 1.25% (6.75%) to (5.96%) Period Ended 12/31/01
$1.012260 to $ 1.015860 0.44% 0.40% to 1.25% 1.23% to 1.59% Aggressive Growth Stock
Year Ended 12/31/03
$0.582765 to $ 4.593218 0.00% 0.40% to 1.25% 23.15% to 24.19% Year Ended 12/31/02
$0.564112 to $ 3.711325 0.10% 0.40% to 1.25% (22.13%) to (21.47%) Year Ended 12/31/01
$0.719033 to $ 4.742335 22.82% 0.40% to 1.25% (20.88%) to (20.20%) International Growth Stock(1)
Year Ended 12/31/03
$0.951794 to $ 1.103798 1.09% 0.40% to 1.25% 37.27% to 38.43% Year Ended 12/31/02
$0.780276 to $ 0.789715 0.73% 0.40% to 1.25% (13.42%) to (12.69%) Period Ended 12/31/01
$0.901258 to $ 0.904464 0.00% 0.40% to 1.25% (9.87%) to (9.55%) Franklin Templeton International Equity
Year Ended 12/31/03
$0.814836 to $ 2.282107 1.70% 0.40% to 1.25% 38.72% to 39.90% Year Ended 12/31/02
$0.700185 to $ 1.636881 2.12% 0.40% to 1.25% (18.43%) to (17.73%) Year Ended 12/31/01
$0.851962 to $ 1.996677 10.94% 0.40% to 1.25% (15.07%) to (14.35%) AllianceBernstein Mid Cap Value(2)
Period Ended 12/31/03
$1.278131 to $ 1.331554 0.84% 0.40% to 1.25% 32.05% to 32.80% Index 400 Stock
Year Ended 12/31/03
$0.973657 to $ 1.487736 0.72% 0.40% to 1.25% 33.34% to 34.47% Year Ended 12/31/02
$0.870423 to $ 1.106344 0.82% 0.40% to 1.25% (15.60%) to (14.88%) Year Ended 12/31/01
$1.023646 to $ 1.299809 1.20% 0.40% to 1.25% (1.90%) to (1.06%) Janus Capital Appreciation(2)
Period Ended 12/31/03
$1.150894 to $ 1.199010 0.11% 0.40% to 1.25% 18.91% to 19.58% Growth Stock
Year Ended 12/31/03
$0.607527 to $ 2.369404 0.83% 0.40% to 1.25% 17.47% to 18.47% Year Ended 12/31/02
$0.616498 to $ 2.006974 1.16% 0.40% to 1.25% (21.81%) to (21.15%) Year Ended 12/31/01
$0.782628 to $ 2.554121 4.47% 0.40% to 1.25% (15.29%) to (14.56%) Large Cap Core Stock(5)
Year Ended 12/31/03
$0.597703 to $ 1.929029 0.97% 0.40% to 1.25% 22.51% to 23.56% Year Ended 12/31/02
$0.581563 to $ 1.566688 0.96% 0.40% to 1.25% (29.09%) to (28.49%) Year Ended 12/31/01
$0.814020 to $ 2.198364 3.66% 0.40% to 1.25% (8.92%) to (8.14%) Capital Guardian Domestic Equity (1)
Year Ended 12/31/03
$0.892738 to $ 1.035954 2.02% 0.40% to 1.25% 32.74% to 33.87% Year Ended 12/31/02
$0.756787 to $ 0.765966 1.82% 0.40% to 1.25% (22.22%) to (21.56%) Period Ended 12/31/01
$0.973004 to $ 0.976476 0.72% 0.40% to 1.25% (2.70%) to (2.35%) T. Rowe Price Equity Income
.........................(2)Period Ended 12/31/03
$1.186753 to $ 221.2363572.70% 0.40% to 1.25% 22.61% to 23.30% Index 500 Stock
Year Ended 12/31/03
$0.642741 to $ 913.9389531.49% 0.40% to 1.25% 26.84% to 27.92% Year Ended 12/31/02
$0.604035 to $ 1343.0898941.40% 0.40% to 1.25% (23.04%) to (22.38%) Year Ended 12/31/01
$0.779001 to $ --3.9948534.55% 0.40% to 1.25% (12.98%) to (12.23%) Asset Allocation(1)
Year Ended 12/31/03
$0.913778 to $ 31.0592912.12% 0.40% to 1.25% 19.13% to 20.14% Year Ended 12/31/02
$0.863125 to $ 261 Annuity Rate0.8735712.26% 0.40% to 1.25% (11.37%) to (10.62%) Period Ended 12/31/01
$0.973862 to $ 0.977328 1.20% 0.40% to 1.25% (2.61%) to (2.27%) Balanced
Year Ended 12/31/03
$0.843358 to $ 8.329807 3.25% 0.40% to 1.25% 16.53% to 17.52% Year Ended 12/31/02
$0.862735 to $ 7.112654 3.92% 0.40% to 1.25% (8.68%) to (7.91%) Year Ended 12/31/01
$0.937735 to $ 7.750204 8.01% 0.40% to 1.25% (4.36%) to (3.54%) High Yield Bond
Year Ended 12/31/03
$0.908491 to $ 1.905353 0.21% 0.40% to 1.25% 27.46% to 28.54% Year Ended 12/31/02
$0.972766 to $ 1.487426 9.94% 0.40% to 1.25% (4.10%) to (3.28%) Year Ended 12/31/01
$1.006773 to $ 1.543249 10.16% 0.40% to 1.25% 3.72% to 4.61% Select Bond
Year Ended 12/31/03
$1.154879 to $ 10.584441 3.93% 0.40% to 1.25% 4.18% to 5.07% Year Ended 12/31/02
$1.321394 to $ 10.108841 4.40% 0.40% to 1.25% 10.70% to 11.64% Year Ended 12/31/01
$1.184790 to $ 9.086342 5.71% 0.40% to 1.25% 8.99% to 9.92% Money Market
Year Ended 12/31/03
$0.916015 to $ 3.045469 1.26% 0.40% to 1.25% (0.02%) to 0.83% Year Ended 12/31/02
$1.092171 to $ 3.030949 1.65% 0.40% to 1.25% 0.39% to 1.25% Year Ended 12/31/01
$1.079788 to $ 3.004024 3.80% 0.40% to 1.25% 2.62% to 3.50% 29
NML VARIABLE ANNUITY ACCOUNT A
FINANCIAL HIGHLIGHTS CONTINUED
(FOR A UNIT OUTSTANDING DURING THE PERIOD)
DIVISION
UNIT VALUE (3),
LOWEST TO HIGHEST
DIVIDEND
INCOME AS A
% OF
AVERAGE NET
ASSETS
EXPENSE RATIO
LOWEST TO HIGHEST
TOTAL RETURN (4),
LOWEST TO HIGHEST
Fidelity VIP Mid Cap(2)
Period Ended 12/31/03
$1.350258 to $ 1.406699 0.00% 0.40% to 1.25% 39.50% to 40.29% Russell Multi-Style Equity
Year Ended 12/31/03
$0.601990 to $11.740732 0.72% 0.40% to 1.25% 27.26% to 28.34% Year Ended 12/31/02
$0.574187 to $ 0.613006 0.60% 0.40% to 1.25% (24.14%) to (23.50%) Year Ended 12/31/01
$0.751294 to $ 0.801293 2.33% 0.40% to 1.25% (15.28%) to (14.55%) Russell Aggressive Equity
Year Ended 12/31/03
$0.878142 to $13.489469 0.11% 0.40% to 1.25% 43.79% to 45.01% Year Ended 12/31/02
$0.727980 to $ 0.857996 0.00% 0.40% to 1.25% (20.06%) to (19.38%) Year Ended 12/31/01
$0.903873 to $ 1.064253 0.11% 0.40% to 1.25% (3.58%) to (2.76%) Russell Non-U.S
Year Ended 12/31/03
$0.640701 to $10.238075 2.94% 0.40% to 1.25% 37.07% to 38.23% Year Ended 12/31/02
$0.557227 to $ 0.699179 1.48% 0.40% to 1.25% (16.20%) to (15.49%) Year Ended 12/31/01
$0.659991 to $ 0.827309 0.60% 0.40% to 1.25% (23.00%) to (22.34%) Russell Core Bond
Year Ended 12/31/03
$1.016235 to $12.042920 3.47% 0.40% to 1.25% 4.83% to 5.72% Year Ended 12/31/02
$1.217720 to $ 1.256188 2.87% 0.40% to 1.25% 7.49% to 8.40% Year Ended 12/31/01
$1.132872 to $ 1.158815 5.90% 0.40% to 1.25% 6.07% to 6.97% Russell Real Estate Securities
Year Ended 12/31/03
$1.361016 to $15.969751 5.35% 0.40% to 1.25% 35.51% to 36.66% Year Ended 12/31/02
$1.261665 to $ 1.375137 5.39% 0.40% to 1.25% 2.51% to 3.39% Year Ended 12/31/01
$1.230726 to $ 1.331406 5.13% 0.40% to 1.25% 6.49% to 7.40%
(1) Division commenced operations on July 31, 2001.
(2) Division commenced operations on May 1, 2003.
(3) The lowest and Expense Guarantees ..... (41) (44) (43) (29) (29) (26) ------------ ------------ ------------ ------------ ------------ ------------ Net Investmenthighest unit value is as of the respective period-end date.
(4) 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.
(5) Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income (Loss) ............... (19) 47 91 (29) (26) 235 ------------ ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments ..... (547) (154) (74) (133) (69) 43 Unrealized Appreciation (Depreciation) During the Year ....................... (495) (517) (564) (409) 6 (359) ------------ ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments ............. (1,042) (671) (638) (542) (63) (316) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ........ $ (1,061) $ (624) $ (547) $ (571) $ (89) $ (81) ============ ============ ============ ============ ============ ============Stock Division.
RUSSELL NON-U.S. DIVISION RUSSELL REAL ESTATE SECURITIES 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, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------Investment Income Dividend Income ........................... $ 41 $ 17 $ 226 $ 142 $ 93 $ 43 Annuity Rate and Expense Guarantees ....... (32) (34) (33) (30) (21) (9) ------------ ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ................. 9 (17) 193 112 72 34 ------------ ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments ....... (459) (287) 21 3 95 40 Unrealized Appreciation (Depreciation) During the Year ......................... (80) (480) (679) (90) (61) 97 ------------ ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments ............... (539) (767) (658) (87) 34 137 ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity .......... $ (530) $ (784) $ (465) $ 25 $ 106 $ 171 ============ ============ ============ ============ ============ ============
RUSSELL CORE BOND DIVISION -------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 ------------ ------------ ------------Investment Income Dividend Income .............................................. $ 55 $ 78 $ 50 Annuity Rate and Expense Guarantees .......................... (23) (16) (12) ------------ ------------ ------------ Net Investment Income (Loss) .................................... 32 62 38 ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments .......................... 85 16 (23) Unrealized Appreciation (Depreciation) During the Year ........................................... 26 (13) 68 ------------ ------------ ------------ Net Gain (Loss) on Investments .................................. 111 3 45 ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ............................. $ 143 $ 65 $ 83 ============ ============ ============The Accompanying Notes are an Integral Part of the Financial Statements.
2430
NML VARIABLE ANNUITY ACCOUNT A
STATEMENTS OF CHANGES IN EQUITY (IN THOUSANDS)
COMBINED SMALL CAP GROWTH 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, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ -------------Operations: Net Investment Income ............... $ 6,527 $ 45,620 $ 47,181 $ (172) $ (178) $ 226 Net Realized Gain (Loss) ............ (14,549) 15,197 56,764 (785) (343) 827 Net Change in Unrealized Appreciation (Depreciation) ....... (74,854) (124,257) (120,838) (2,610) (338) (1,850) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity .... (82,876) (63,440) (16,893) (3,567) (859) (797) ------------ ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ........ 46,958 46,213 54,157 1,990 1,932 2,791 Annuity Payments .................... (1,186) (1,316) (1,472) (2) (7) (13) Surrenders and Other (Net) .......... (86,526) (83,649) (121,406) (1,772) (1,362) (1,308) Transfers from Other Divisions or Sponsors ....................... 89,970 83,322 137,543 5,993 4,029 19,138 Transfers to Other Divisions or Sponsors ....................... (91,980) (84,772) (138,779) (3,844) (4,403) (8,365) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions .... (42,764) (40,202) (69,957) 2,365 189 12,243 ------------ ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ...... (125,640) (103,642) (86,850) (1,202) (670) 11,446 Equity: Beginning of Period ................. 593,712 697,354 784,204 15,623 16,293 4,847 ------------ ------------ ------------ ------------ ------------ ------------ End of Period ....................... $ 468,072 $ 593,712 $ 697,354 $ 14,421 $ 15,623 $ 16,293 ============ ============ ============ ============ ============ ============
T. ROWE PRICE SMALL CAP VALUE DIVISION # AGGRESSIVE GROWTH STOCK DIVISION --------------------------- ------------------------------------------ PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 2000 ------------ ------------ ------------ ------------ ------------Operations: Net Investment Income .............................. $ (12) $ -- $ (705) $ 18,073 $ 12,017 Net Realized Gain (Loss) ........................... (73) -- (4,414) 906 11,257 Net Change in Unrealized Appreciation (Depreciation) (329) 41 (10,937) (40,892) (18,313) ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ................... (414) 41 (16,056) (21,913) 4,961 ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ....................... 744 87 5,565 6,978 8,119 Annuity Payments ................................... (21) -- (30) (37) (49) Surrenders and Other (Net) ......................... (399) -- (9,556) (10,388) (19,221) Transfers from Other Divisions or Sponsors ......... 4,185 490 5,187 7,243 26,450 Transfers to Other Divisions or Sponsors ........... (1,985) (34) (10,758) (10,995) (17,887) ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ................... 2,524 543 (9,592) (7,199) (2,588) ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ..................... 2,110 584 (25,648) (29,112) 2,373 Equity: Beginning of Period ................................ 584 -- 77,631 106,743 104,370 ------------ ------------ ------------ ------------ ------------ End of Period ...................................... $ 2,694 $ 584 $ 51,983 $ 77,631 $ 106,743 ============ ============ ============ ============ ============- ---------- # The initial investment in this Division was made on July 31, 2001. 25NML VARIABLE ANNUITY ACCOUNT A STATEMENTS OF CHANGES IN EQUITY CONTINUED (IN THOUSANDS)
INTERNATIONAL GROWTH FRANKLIN TEMPLETON STOCK DIVISION # INTERNATIONAL EQUITY DIVISION --------------------------- ------------------------------------------ YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 2000 ------------ ------------ ------------ ------------ ------------Operations: Net Investment Income .................... $ (2) $ -- $ 247 $ 3,314 $ 2,713 Net Realized Gain (Loss) ................. (3) (8) (2,073) (245) 2,247 Net Change in Unrealized Appreciation (Depreciation) ............ (59) -- (3,472) (8,897) (5,914) ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ......... (64) (8) (5,298) (5,828) (954) ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ............. 198 24 2,567 2,894 3,890 Annuity Payments ......................... -- -- (14) (17) (19) Surrenders and Other (Net) ............... (15) -- (4,346) (4,910) (6,674) Transfers from Other Divisions or Sponsors 678 154 3,446 3,316 7,129 Transfers to Other Divisions or Sponsors . (356) (13) (4,630) (4,969) (8,486) ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ......... 505 165 (2,977) (3,686) (4,160) ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ........... 441 157 (8,275) (9,514) (5,114) Equity: Beginning of Period ...................... 157 -- 30,784 40,298 45,412 ------------ ------------ ------------ ------------ ------------ End of Period ............................ $ 598 $ 157 $ 22,509 $ 30,784 $ 40,298 ============ ============ ============ ============ ============
INDEX 400 STOCK DIVISION GROWTH 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, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------Operations: Net Investment Income ................ $ (33) $ 3 $ 746 $ (13) $ 1,094 $ 1,382 Net Realized Gain (Loss) ............. (352) (41) 207 (1,842) 464 3,581 Net Change in Unrealized Appreciation (Depreciation) ........ (1,217) (36) (414) (5,170) (7,478) (6,543) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ..... (1,602) (74) 539 (7,025) (5,920) (1,580) ------------ ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ......... 1,618 1,347 1,061 3,233 3,713 4,161 Annuity Payments ..................... (14) (16) (22) (4) (5) (5) Surrenders and Other (Net) ........... (1,479) (708) 28 (3,860) (3,538) (6,808) Transfers from Other Divisions or Sponsors ........................ 4,135 4,453 5,651 3,299 5,424 14,158 Transfers to Other Divisions or Sponsors ........................ (3,493) (3,006) (2,290) (4,869) (4,981) (10,930) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ..... 767 2,070 4,428 (2,201) 613 576 ------------ ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ....... (835) 1,996 4,967 (9,226) (5,307) (1,004) Equity: Beginning of Period .................. 9,158 7,162 2,195 32,717 38,024 39,028 ------------ ------------ ------------ ------------ ------------ ------------ End of Period ........................ $ 8,323 $ 9,158 $ 7,162 $ 23,491 $ 32,717 $ 38,024 ============ ============ ============ ============ ============ ============- ---------- # The initial investment in this Division was made on July 31, 2001. 26NML VARIABLE ANNUITY ACCOUNT A STATEMENTS OF CHANGES IN EQUITY CONTINUED (IN THOUSANDS)
J.P. MORGAN SELECT GROWTH CAPITAL GUARDIAN DOMESTIC AND INCOME STOCK DIVISION EQUITY DIVISION # --------------------------- ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 ------------ ------------ ------------ ------------ ------------Operations: Net Investment Income ........................ $ (42) $ 590 $ 1,412 $ 8 $ 1 Net Realized Gain (Loss) ..................... (2,738) (278) (2) (54) -- Net Change in Unrealized Appreciation (Depreciation) ................ (3,694) (2,664) (3,775) (248) 12 ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ............. (6,474) (2,352) (2,365) (294) 13 ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ................. 2,184 2,138 2,864 449 25 Annuity Payments ............................. (51) (66) (77) -- -- Surrenders and Other (Net) ................... (3,074) (3,087) (5,329) (121) (2) Transfers from Other Divisions or Sponsors ... 2,022 3,370 3,239 2,055 254 Transfers to Other Divisions or Sponsors .... (3,947) (3,033) (7,981) (709) -- ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ............. (2,866) (678) (7,284) 1,674 277 ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ............... (9,340) (3,030) (9,649) 1,380 290 Equity: Beginning of Period .......................... 23,057 26,087 35,736 290 -- ------------ ------------ ------------ ------------ ------------ End of Period ................................ $ 13,717 $ 23,057 $ 26,087 $ 1,670 $ 290 ============ ============ ============ ============ ============
INDEX 500 STOCK DIVISION ASSET ALLOCATION DIVISION # ------------------------------------------ --------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 ------------ ------------ ------------ ------------ ------------Operations: Net Investment Income ....................... $ 221 $ 3,871 $ 4,439 $ 23 $ 4 Net Realized Gain (Loss) .................... 483 8,880 19,865 (35) -- Net Change in Unrealized Appreciation (Depreciation) .............. (23,945) (29,565) (39,225) (244) 11 ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ............ (23,241) (16,814) (14,921) (256) 15 ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ................ 6,935 7,565 9,486 578 86 Annuity Payments ............................ (273) (337) (468) -- -- Surrenders and Other (Net) .................. (14,951) (15,093) (24,033) (147) 2 Transfers from Other Divisions or Sponsors .. 8,032 9,028 16,159 2,148 699 Transfers to Other Divisions or Sponsors .... (12,115) (12,955) (22,419) (326) (2) ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ............ (12,372) (11,792) (21,275) 2,253 785 ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity .............. (35,613) (28,606) (36,196) 1,997 800 Equity: Beginning of Period ......................... 104,907 133,513 169,709 800 -- ------------ ------------ ------------ ------------ ------------ End of Period ............................... $ 69,294 $ 104,907 $ 133,513 $ 2,797 $ 800 ============ ============ ============ ============ ============- ---------- # The initial investment in this Division was made on July 31, 2001. 27NML VARIABLE ANNUITY ACCOUNT A STATEMENTS OF CHANGES IN EQUITY CONTINUED (IN THOUSANDS)
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, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------Operations: Net Investment Income ................ $ 5,483 $ 16,485 $ 20,564 $ 401 $ 467 $ 543 Net Realized Gain (Loss) ............. (1,610) 6,981 19,864 (439) (655) (756) Net Change in Unrealized Appreciation (Depreciation) ........ (23,128) (34,686) (44,078) (179) 381 (119) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ..... (19,255) (11,220) (3,650) (217) 193 (332) ------------ ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ......... 11,208 12,043 13,081 633 523 765 Annuity Payments ..................... (640) (684) (715) (4) (11) (4) Surrenders and Other (Net) ........... (31,038) (32,253) (44,386) (895) (888) (968) Transfers from Other Divisions or Sponsors ........................ 8,932 9,588 8,372 1,378 1,921 746 Transfers to Other Divisions or Sponsors ........................ (16,839) (14,552) (25,634) (1,636) (1,860) (2,016) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ..... (28,377) (25,858) (49,282) (524) (315) (1,477) ------------ ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ....... (47,632) (37,078) (52,932) (741) (122) (1,809) Equity: Beginning of Period .................. 228,923 266,001 318,933 5,008 5,130 6,939 ------------ ------------ ------------ ------------ ------------ ------------ End of Period ........................ $ 181,291 $ 228,923 $ 266,001 $ 4,267 $ 5,008 $ 5,130 ============ ============ ============ ============ ============ ============
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, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------Operations: Net Investment Income ................. $ 882 $ 1,009 $ 1,235 $ 136 $ 749 $ 1,313 Net Realized Gain (Loss) .............. 437 (65) (333) -- -- -- Net Change in Unrealized Appreciation (Depreciation) ......... 1,426 919 830 -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ...... 2,745 1,863 1,732 136 749 1,313 ------------ ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment .......... 2,605 1,760 1,609 4,308 2,973 3,498 Annuity Payments ...................... (82) (84) (54) (34) (42) (44) Surrenders and Other (Net) ............ (4,465) (3,070) (3,755) (8,347) (7,417) (8,367) Transfers from Other Divisions or Sponsors ......................... 11,827 5,887 1,998 17,060 19,263 21,967 Transfers to Other Divisions or Sponsors ......................... (4,953) (2,868) (3,403) (13,683) (13,859) (21,732) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ...... 4,932 1,625 (3,605) (696) 918 (4,678) ------------ ------------ ------------ ------------ ------------ ------------ Net Increase Decrease) in Equity ......... 7,677 3,488 (1,873) (560) 1,667 (3,365) Equity: Beginning of Period ................... 23,757 20,269 22,142 27,147 25,480 28,845 ------------ ------------ ------------ ------------ ------------ ------------ End of Period ......................... $ 31,434 $ 23,757 $ 20,269 $ 26,587 $ 27,147 $ 25,480 ============ ============ ============ ============ ============ ============28NML VARIABLE ANNUITY ACCOUNT A STATEMENTS OF CHANGES IN EQUITY CONTINUED (IN THOUSANDS)
RUSSELL MULTI-STYLE EQUITY DIVISION RUSSELL AGGRESSIVE EQUITY DIVISION ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------Operations: Net Investment Income ................. $ (19) $ 47 $ 91 $ (29) $ (26) $ 235 Net Realized Gain (Loss) .............. (547) (154) (74) (133) (69) 43 Net Change in Unrealized Appreciation (Depreciation) ......... (495) (517) (564) (409) 6 (359) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ...... (1,061) (624) (547) (571) (89) (81) ------------ ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment .......... 566 675 1,088 320 447 556 Annuity Payments ...................... (7) (6) (2) -- -- -- Surrenders and Other (Net) ............ (651) (216) (119) (210) (200) (198) Transfers from Other Divisions or Sponsors ........................ 2,286 2,557 2,889 1,428 1,011 1,921 Transfers to Other Divisions or Sponsors ........................ (2,140) (2,372) (1,712) (1,623) (792) (842) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ...... 54 638 2,144 (85) 466 1,437 ------------ ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ........ (1,007) 14 1,597 (656) 377 1,356 Equity: Beginning of Period ................... 4,111 4,097 2,500 2,875 2,498 1,142 ------------ ------------ ------------ ------------ ------------ ------------ End of Period ......................... $ 3,104 $ 4,111 $ 4,097 $ 2,219 $ 2,875 $ 2,498 ============ ============ ============ ============ ============ ============
RUSSELL NON-U.S. DIVISION RUSSELL REAL ESTATE SECURITIES 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, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------Operations: Net Investment Income ................ $ 9 $ (17) $ 193 $ 112 $ 72 $ 34 Net Realized Gain (Loss) ............. (459) (287) 21 3 95 40 Net Change in Unrealized Appreciation (Depreciation) ........ (80) (480) (679) (90) (61) 97 ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ..... (530) (784) (465) 25 106 171 Equity Transactions: Contract Owners' Net Payment ......... 361 505 712 597 316 234 Annuity Payments ..................... (2) -- -- (8) (4) -- Surrenders and Other (Net) ........... (356) (270) (203) (375) (127) (17) Transfers from Other Divisions or Sponsors ....................... 1,492 1,782 3,039 2,817 2,039 3,101 Transfers to Other Divisions or Sponsors ........................ (1,516) (1,616) (1,221) (1,819) (1,838) (2,492) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ..... (21) 401 2,327 1,212 386 826 ------------ ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ....... (551) (383) 1,862 1,237 492 997 Equity: Beginning of Period .................. 2,862 3,245 1,383 1,820 1,328 331 ------------ ------------ ------------ ------------ ------------ ------------ End of Period ........................ $ 2,311 $ 2,862 $ 3,245 $ 3,057 $ 1,820 $ 1,328 ============ ============ ============ ============ ============ ============29NML VARIABLE ANNUITY ACCOUNT A STATEMENTS OF CHANGES IN EQUITY CONTINUED (IN THOUSANDS)
RUSSELL CORE BOND DIVISION ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 ------------ ------------ ------------Operations: Net Investment Income ....................... $ 32 $ 62 $ 38 Net Realized Gain (Loss) .................... 85 16 (23) Net Change in Unrealized Appreciation (Depreciation) .............. 26 (13) 68 ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ............ 143 65 83 ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ................ 299 182 242 Annuity Payments ............................ -- -- -- Surrenders and Other (Net) .................. (469) (122) (48) Transfers from Other Divisions or Sponsors .. 1,570 814 1,586 Transfers to Other Divisions or Sponsors .... (739) (624) (1,369) ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ............ 661 250 411 ------------ ------------ ------------ Net Increase (Decrease) in Equity .............. 804 315 494 Equity: Beginning of Period ......................... 1,501 1,186 692 ------------ ------------ ------------ End of Period ............................... $ 2,305 $ 1,501 $ 1,186 ============ ============ ============The Accompanying Notes are an Integral Part of the Financial Statements. 30FINANCIAL HIGHLIGHTS NML VARIABLE ANNUITY ACCOUNT A (FOR A UNIT OUTSTANDING DURING THE PERIOD)
DIVIDEND INCOME AS A % OF UNIT VALUE AVERAGE NET EXPENSE RATIO TOTAL RETURN (2) DIVISION LOWEST TO HIGHEST ASSETS LOWEST TO HIGHEST LOWEST TO HIGHEST - -------- ------------------------- ------------ ----------------- ---------------------Small Cap Growth Stock Year Ended 12/31/02.................. $0.702869 to $ 1.536295 0.16% 0.40% to 1.25% (19.44%) to (18.75%) Year Ended 12/31/01.................. $0.865935 to $ 1.890848 0.01% 0.40% to 1.25% (4.97%) to (4.15%) T. Rowe Price Small Cap Value(1) Year Ended 12/31/02.................. $0.943905 to $ 0.955324 0.57% 0.40% to 1.25% (6.75%) to (5.96%) Period Ended 12/31/01................ $1.012260 to $ 1.015860 0.44% 0.40% to 1.25% 1.23% to 1.59% Aggressive Growth Stock Year Ended 12/31/02.................. $0.564112 to $ 3.711325 0.10% 0.40% to 1.25% (22.13%) to (21.47%) Year Ended 12/31/01.................. $0.719033 to $ 4.742335 22.82% 0.40% to 1.25% (20.88%) to (20.20%) International Growth Stock(1) Year Ended 12/31/02.................. $0.780276 to $ 0.789715 0.73% 0.40% to 1.25% (13.42%) to (12.69%) Period Ended 12/31/01................ $0.901258 to $ 0.904464 0.00% 0.40% to 1.25% (9.87%) to (9.55%) Franklin Templeton International Equity Year Ended 12/31/02.................. $0.700185 to $ 1.636881 2.12% 0.40% to 1.25% (18.43%) to (17.73%) Year Ended 12/31/01.................. $0.851962 to $ 1.996677 10.94% 0.40% to 1.25% (15.07%) to (14.35%) Index 400 Stock Year Ended 12/31/02.................. $0.870423 to $ 1.106344 0.82% 0.40% to 1.25% (15.60%) to (14.88%) Year Ended 12/31/01.................. $1.023646 to $ 1.299809 1.20% 0.40% to 1.25% (1.90%) to (1.06%) Growth Stock Year Ended 12/31/02.................. $0.616498 to $ 2.006974 1.16% 0.40% to 1.25% (21.81%) to (21.15%) Year Ended 12/31/01.................. $0.782628 to $ 2.554121 4.47% 0.40% to 1.25% (15.29%) to (14.56%) J.P. Morgan Select Growth and Income Stock Year Ended 12/31/02.................. $0.581563 to $ 1.566688 0.96% 0.40% to 1.25% (29.09%) to (28.49%) Year Ended 12/31/01.................. $0.814020 to $ 2.198364 3.66% 0.40% to 1.25% (8.92%) to (8.14%) Capital Guardian Domestic Equity(1) Year Ended 12/31/02.................. $0.756787 to $ 0.765966 1.82% 0.40% to 1.25% (22.22%) to (21.56%) Period Ended 12/31/01................ $0.973004 to $ 0.976476 0.72% 0.40% to 1.25% (2.70%) to (2.35%) Index 500 Stock Year Ended 12/31/02.................. $0.604035 to $ 3.089894 1.40% 0.40% to 1.25% (23.04%) to (22.38%) Year Ended 12/31/01.................. $0.779001 to $ 3.994853 4.55% 0.40% to 1.25% (12.98%) to (12.23%) Asset Allocation(1) Year Ended 12/31/02.................. $0.863125 to $ 0.873571 2.26% 0.40% to 1.25% (11.37%) to (10.62%) Period Ended 12/31/01................ $0.973862 to $ 0.977328 1.20% 0.40% to 1.25% (2.61%) to (2.27%) Balanced Year Ended 12/31/02.................. $0.862735 to $ 7.112654 3.92% 0.40% to 1.25% (8.68%) to (7.91%) Year Ended 12/31/01.................. $0.937735 to $ 7.750204 8.01% 0.40% to 1.25% (4.36%) to (3.54%) High Yield Bond Year Ended 12/31/02.................. $0.972766 to $ 1.487426 9.94% 0.40% to 1.25% (4.10%) to (3.28%) Year Ended 12/31/01.................. $1.006773 to $ 1.543249 10.16% 0.40% to 1.25% 3.72% to 4.61% Select Bond Year Ended 12/31/02.................. $1.321394 to $ 10.108841 4.40% 0.40% to 1.25% 10.70% to 11.64% Year Ended 12/31/01.................. $1.184790 to $ 9.086342 5.71% 0.40% to 1.25% 8.99% to 9.92% Money Market Year Ended 12/31/02.................. $1.092171 to $ 3.030949 1.65% 0.40% to 1.25% 0.39% to 1.25% Year Ended 12/31/01.................. $1.079788 to $ 3.004024 3.80% 0.40% to 1.25% 2.62% to 3.50% Russell Multi-Style Equity Year Ended 12/31/02.................. $0.574187 to $ 0.613006 0.60% 0.40% to 1.25% (24.14%) to (23.50%) Year Ended 12/31/01.................. $0.751294 to $ 0.801293 2.33% 0.40% to 1.25% (15.28%) to (14.55%) Russell Aggressive Equity Year Ended 12/31/02.................. $0.727980 to $ 0.857996 0.00% 0.40% to 1.25% (20.06%) to (19.38%) Year Ended 12/31/01.................. $0.903873 to $ 1.064253 0.11% 0.40% to 1.25% (3.58%) to (2.76%) Russell Non-U.S Year Ended 12/31/02.................. $0.557227 to $ 0.699179 1.48% 0.40% to 1.25% (16.20%) to (15.49%) Year Ended 12/31/01.................. $0.659991 to $ 0.827309 0.60% 0.40% to 1.25% (23.00%) to (22.34%)31FINANCIAL HIGHLIGHTS NML VARIABLE ANNUITY ACCOUNT A CONTINUED (FOR A UNIT OUTSTANDING DURING THE PERIOD)
Russell Core Bond Year Ended 12/31/02.............. $1.217720 to $ 1.256188 2.87% 0.40% to 1.25% 7.49% to 8.40% Year Ended 12/31/01.............. $1.132872 to $ 1.158815 5.90% 0.40% to 1.25% 6.07% to 6.97% Russell Real Estate Securities Year Ended 12/31/02.............. $1.261665 to $ 1.375137 5.39% 0.40% to 1.25% 2.51% to 3.39% Year Ended 12/31/01.............. $1.230726 to $ 1.331406 5.13% 0.40% to 1.25% 6.49% to 7.40%- ------------ (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. The Accompanying Notes are an Integral Part of the Financial Statements. 32NML VARIABLE ANNUITY ACCOUNT ANOTES TO FINANCIAL STATEMENTS
NOTE
1--NML1—NML Variable Annuity Account A (the"Account"“Account”) is a segregated asset account of The Northwestern Mutual Life Insurance Company("(“NorthwesternMutual"Mutual”) used to fund variable annuity contracts("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 Back Load contracts with a withdrawal charge of 0-6%.NOTE
2--The2—The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America 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--All3—All assets of each Division of the Account are invested in shares of the corresponding Portfolio of Northwestern Mutual Series Fund, Inc., Fidelity VIP Mid Cap Portfolio and the RussellInsuranceInvestment Funds (collectively known as the"Funds"“Funds”). The shares are valued at theFunds'Funds’ offering and redemption price per share. The Funds arediversifiedopen-end investment companies registered under the Investment Company Act of 1940.NOTE
4--Annuity4—Annuity reserves, included in equity, 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 Mortality Table with assumed interest rates of3-1/2%3.5% 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 of3-1/2%3.5% or 5%.NOTE
5--Dividend5—Dividend income and distributions of net realized gains from the Fundsisare recorded on the ex-date of the dividends. Transactions in theFunds'Funds’ shares are accounted for on the trade date. The basis for determining cost on sale of theFunds'Funds’ shares is identified cost. Purchases and sales of theFunds'Funds’ shares for the years ended December 31 by each Division are shown below:(in thousands)
PURCHASES
2003 2002 2001 Small Cap Growth Stock
$ 2,098 $ 4,461 $ 3,120 T. Rowe Price Small Cap Value #
1,370 3,057 544 Aggressive Growth Stock
4,682 7,415 23,504 International Growth Stock #
1,205 520 165 Franklin Templeton International Equity
2,604 3,334 5,754 AllianceBernstein Mid Cap Value ##
378 — — Index 400 Stock
2,160 2,397 4,039 Janus Capital Appreciation ##
185 — — Growth Stock
2,817 3,786 6,551 Large Cap Core Stock ^
1,992 2,595 3,711 Capital Guardian Domestic Equity #
1,610 1,827 277 T. Rowe Price Equity Income ##
492 — — Index 500 Stock
7,109 10,496 11,216 Asset Allocation #
2,101 2,448 787 Balanced
16,457 19,743 27,210 High Yield Bond
880 1,108 1,952 Select Bond
5,896 11,094 6,619 Money Market
4,781 8,252 15,154 Fidelity VIP Mid Cap ##
900 — — Russell Multi-Style
1,118 815 1,097 Russell Aggressive Equity
1,216 343 871 Russell Non-U.S
907 475 973 Russell Core Bond
618 1,317 1,739 Russell Real Estate Securities
1,929 1,983 587
PURCHASES 2002 2001 2000 - --------- ----------- ----------- -----------Small Cap Growth Stock ..................... $ 4,461,452 $ 3,119,762 $17,753,003 T. Rowe Price Small Cap Value# ............ 3,056,595 544,334 N/A Aggressive Growth Stock .................... 7,414,573 23,504,270 28,757,540 International Growth Stock#................. 519,948 164,575 N/A Franklin Templeton International Equity .... 3,334,140 5,754,067 79,974,310 Index 400 Stock ............................ 2,397,162 4,038,686 2,853,810 Growth Stock .............................. 3,786,154 6,550,789 11,793,727# Initial Investment in this division was made on July 31, 2001.
^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock.. 2,595,415 3,711,176 9,919,814 Capital Guardian Domestic Equity#........... 1,827,157 277,299 N/A Index 500Stock............................ 10,496,270 11,216,245 20,410,794 Asset Allocation#........................... 2,448,370 787,179 N/A Balanced ................................... 19,743,059 27,209,702 44,419,512 High Yield Bond ........................... 1,107,893 1,951,937 2,095,955 Select Bond ................................ 11,093,552 6,619,324 4,931,954 Money Market .............................. 8,251,938 15,154,072 20,905,226 Russell Multi-Style ........................ 814,757 1,097,267 2,666,402 Russell Aggressive Equity ................. 343,250 871,028 1,593,605 Russell Non-U.S. ........................... 474,958 973,304 1,498,221 Russell Core Bond ......................... 1,316,732 1,738,713 758,431 Russell Real Estate Securities.............. 1,982,942 586,923 357,723Division.33
## Initial Investment in this division was made on May 1, 2003. 31
NML VARIABLE ANNUITY ACCOUNT A
NOTES TO FINANCIAL STATEMENTS CONTINUED
SALES
2003 2002 2001 Small Cap Growth Stock
$ 2,572 $ 2,268 $ 3,108 T. Rowe Price Small Cap Value #
470 545 1 Aggressive Growth Stock
11,452 16,375 12,701 International Growth Stock #
41 15 — Franklin Templeton International Equity
4,108 6,071 6,134 AllianceBernstein Mid Cap Value ##
1 — — Index 400 Stock
1,890 1,666 1,955 Janus Capital Appreciation ##
10 — — Growth Stock
5,659 6,006 4,860 Large Cap Core Stock ^
2,792 5,518 3,793 Capital Guardian Domestic Equity #
408 146 — T. Rowe Price Equity Income ##
45 — — Index 500 Stock
12,828 20,460 19,113 Asset Allocation #
705 169 — Balanced
27,359 42,634 36,677 High Yield Bond
986 1,228 1,795 Select Bond
7,839 5,332 3,765 Money Market
13,001 8,778 13,474 Fidelity VIP Mid Cap ##
12 — — Russell Multi-Style
540 841 484 Russell Aggressive Equity
859 465 365 Russell Non-U.S
488 513 617 Russell Core Bond
489 563 249 Russell Real Estate Securities
611 645 1,298
SALES 2002 2001 2000 - ----- ----------- ----------- -----------Small Cap Growth Stock ..................... $ 2,267,772 $ 3,107,912 $ 5,283,832 T. Rowe Price Small Cap Value# ............. 544,753 1,251 N/A Aggressive Growth Stock .................... 16,374,895 12,700,645 19,230,800 International Growth Stock# ............... 15,440 1 N/A Franklin Templeton International Equity .... 6,070,557 6,134,228 8,640,998 Index 400 Stock ............................ 1,666,098 1,955,209 1,353,450 Growth Stock .............................. 6,005,545 4,859,534 8,573,786# Initial Investment in this division was made on July 31, 2001.
^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock.. 5,518,037 3,793,450 9,525,030 Capital Guardian Domestic Equity# ......... 145,921 36 N/A Index 500Stock............................ 20,459,679 19,112,689 29,656,415 Asset Allocation#........................... 169,149 8 N/A Balanced ................................... 42,633,986 36,676,777 56,250,284 High Yield Bond ........................... 1,228,005 1,795,043 2,157,663 Select Bond ................................ 5,331,758 3,765,014 5,660,540 Money Market .............................. 8,777,655 13,474,404 21,431,894 Russell Multi-Style ........................ 841,367 483,989 864,610 Russell Aggressive Equity ................. 465,120 364,836 548,989 Russell Non-U.S. ........................... 512,890 616,921 484,146 Russell Core Bond ......................... 562,906 249,167 1,332,763 Russell Real Estate Securities.............. 645,240 1,297,610 1,636,969Division.- --------- # Initial Investment in this division was made on July 31, 2001.
## Initial Investment in this division was made on May 1, 2003. 32
NML VARIABLE ANNUITY ACCOUNT A
NOTES TO FINANCIAL STATEMENTS CONTINUED
NOTE
6--A6—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%.75% 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%1.25% 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 a1-1/2%1.5% 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%.4% and1-1/4%1.25%, 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 exceed3/4 of 1%.75% and1-1/2%1.5%, 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%.5% and1-1/4%1.25%, 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 exceed3/4 of 1%.75% and1-1/2%1.5% 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'Owners’ Net Payment in the accompanying financial statements.NOTE
7--Northwestern7—Northwestern Mutual is taxed as a"life“life insurancecompany"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.3433
NML VARIABLE ANNUITY ACCOUNT A
NOTES TO FINANCIAL STATEMENTS CONTINUED
NOTE
8--Equity8— The changes in units outstanding for the years ended December 31, 2003, 2002 and 2001 by each Division are shown as follows:(in thousands)
Year Ended December 31, 2003
Units
IssuedUnits
RedeemedNet Increase
(Decrease)Small Cap Growth Stock Division
1,313 1,642 (329 ) T. Rowe Price Small Cap Value Division
1,206 443 763 Aggressive Growth Stock Division
1,345 2,925 (1,580 ) International Growth Division
1,358 47 1,311 Franklin Templeton International Equity Division
1,303 2,311 (1,008 ) AllianceBernstein Mid Cap Value Division ##
337 1 336 Index 400 Stock Division
1,782 1,619 163 Janus Capital Appreciation Division ##
168 8 160 Growth Stock Division
1,345 2,675 (1,330 ) Large Cap Core Stock Division ^
1,234 1,742 (508 ) Capital Guardian Domestic Equity Division
1,622 514 1,108 T. Rowe Price Equity Income Division ##
427 40 387 Index 500 Stock Division
1,955 3,820 (1,865 ) Asset Allocation Division
2,218 791 1,427 Balanced Division
1,670 4,645 (2,975 ) High Yield Bond Division
591 591 — Select Bond Division
560 761 (201 ) Money Market Division
1,793 4,875 (3,082 ) Fidelity VIP Mid Cap Division ##
748 9 739 Russell Multi-Style Equity Division
1,623 801 822 Russell Aggressive Equity Division
1,288 805 483 Russell Non-U.S. Division
1,113 696 417 Russell Core Bond Division
429 390 39 Russell Real Estate Securities Division
1,208 427 781
Year Ended December 31, 2002
Units
IssuedUnits
RedeemedNet Increase
(Decrease)Small Cap Growth Stock Division
2,648 1,414 1,234 T. Rowe Price Small Cap Value Division
2,848 576 2,272 Aggressive Growth Stock Division
1,621 4,041 (2,420 ) International Growth Division
612 19 593 Franklin Templeton International Equity Division
1,584 3,233 (1,649 ) Index 400 Stock Division
2,092 1,434 658 Growth Stock Division
1,660 2,704 (1,044 ) Large Cap Core Stock Division ^
1,396 3,092 (1,696 ) Capital Guardian Domestic Equity Division
2,093 188 1,905 Index 500 Stock Division
2,331 6,179 (3,848 ) Asset Allocation Division
2,609 192 2,417 Balanced Division
1,930 6,249 (4,319 ) High Yield Bond Division
459 839 (380 ) Select Bond Division
1,423 629 794 Money Market Division
3,242 3,748 (506 ) Russell Multi-Style Equity Division
1,243 1,265 (22 ) Russell Aggressive Equity Division
367 466 (99 ) Russell Non-U.S. Division
585 716 (131 ) Russell Core Bond Division
1,050 485 565 Russell Real Estate Securities Division
1,489 529 960
^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock Division.
## Initial Investment in this division was made on May 1, 2003. 34
NML VARIABLE ANNUITY ACCOUNT A
NOTES TO FINANCIAL STATEMENTS CONTINUED
Year Ended December 31, 2001
Units
IssuedUnits
RedeemedNet Increase
(Decrease)Small Cap Growth Stock Division
3,624 3,423 201 T. Rowe Price Small Cap Value Division #
616 39 577 Aggressive Growth Stock Division
3,640 5,090 (1,450 ) International Growth Division #
188 15 173 Franklin Templeton International Equity Division
3,419 5,190 (1,771 ) Index 400 Stock Division
4,811 3,015 1,796 Growth Stock Division
3,844 3,620 224 Large Cap Core Stock Division ^
3,022 3,268 (246 ) Capital Guardian Domestic Equity Division #
299 — 299 Index 500 Stock Division
4,718 7,450 (2,732 ) Asset Allocation Division #
823 2 821 Balanced Division
4,215 7,315 (3,100 ) High Yield Bond Division
1,597 1,786 (189 ) Select Bond Division
1,127 942 185 Money Market Division
8,681 8,155 526 Russell Multi-Style Equity Division
4,463 3,731 732 Russell Aggressive Equity Division
1,557 1,107 450 Russell Non-U.S. Division
2,796 2,367 429 Russell Core Bond Division
945 732 213 Russell Real Estate Securities Division
1,869 1,581 288
^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock Division.
# Initial Investment in this division was made on July 31, 2001. NOTE 9—Equity Values by Division for the year ended December 31, 2003 are shown below: (in thousands, except accumulation unit values)
CONTRACTS ISSUED:
PRIOR TO DECEMBER 17, 1981
CONTRACTS ISSUED:
AFTER DECEMBER 16, 1981 AND
PRIOR TO MARCH 31, 1995
DIVISION
ACCUMULATION
UNIT VALUE
UNITS
OUTSTANDING
EQUITY ACCUMULATION
UNIT VALUE
UNITS
OUTSTANDING
EQUITY Small Cap Growth Stock
$ 2.003241 201 $ 403 $ 1.956937 6,049 $ 11,838 T. Rowe Price Small Cap Value
1.275243 228 291 1.259912 1,656 2,086 Aggressive Growth Stock
4.593218 240 1,102 4.302813 8,811 37,912 International Growth Stock
1.084083 34 37 1.071062 1,024 1,097 Franklin Templeton International Equity
2.282107 316 721 2.163493 9,085 19,655 AllianceBernstein Mid Cap Value ##
1.324927 7 9 1.320512 203 268 Index 400 Stock
1.463815 228 334 1.429987 3,985 5,698 Janus Capital Appreciation ##
1.193045 6 7 1.189063 44 52 Growth Stock
2.369404 304 720 2.257547 5,807 13,110 Large Cap Core Stock ^
1.929029 112 216 1.837972 4,940 9,080 Capital Guardian Domestic Equity
1.016839 96 98 1.004585 1,524 1,531 T. Rowe Price Equity Income ##
1.230194 5 6 1.226098 244 299 Index 500 Equity
3.938953 3,555 14,003 3.690039 11,698 43,166 Asset Allocation
1.040782 46 48 1.028260 2,383 2,450 Balanced
8.329807 1,310 10,912 7.461780 20,610 153,787 High Yield Bond
1.905353 83 158 1.815388 1,456 2,643 Select Bond
10.584441 456 4,827 9.479507 1,588 15,053 Money Market
3.045469 389 1,185 2.728314 3,704 10,106 Fidelity VIP Mid Cap ##
1.399684 26 36 1.395022 483 674 Russell Multi-Style Equity
0.774096 7 5 0.756197 3,138 2,373 Russell Aggressive Equity
1.224208 109 133 1.195908 1,962 2,346 Russell Non-U.S
0.950951 36 34 0.928976 2,073 1,926 Russell Core Bond
1.306711 10 13 1.276523 777 992 Russell Real Estate Securities
1.750140 48 84 1.709672 1,509 2,580 Equity
35,382 340,722 Annuity Reserves
2,882 8,015 Total Equity
$ 38,264 $ 348,737
^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock Division.
## Initial Investment in this division was made on May 1, 2003. 35
NML VARIABLE ANNUITY ACCOUNT A
NOTES TO FINANCIAL STATEMENTS CONTINUED
CONTRACTS ISSUED:
ON OR AFTER MARCH 31, 1995 AND
PRIOR TO MARCH 31, 2000
FRONT LOAD VERSION
CONTRACTS ISSUED:
ON OR AFTER MARCH 31, 1995 AND
PRIOR TO MARCH 31, 2000
BACK LOAD VERSION
DIVISION
ACCUMULATION
UNIT VALUE
UNITS
OUTSTANDING
EQUITY ACCUMULATION
UNIT VALUE
UNITS
OUTSTANDING
EQUITY Small Cap Growth Stock
$ 2.035993 314 $ 639 $ 1.956937 1,913 $ 3,744 T. Rowe Price Small Cap Value
1.285976 300 386 1.259912 828 1,043 Aggressive Growth Stock
2.191030 1,132 2,480 4.302813 2,991 12,870 International Growth Stock
1.093220 221 242 1.071062 367 393 Franklin Templeton International Equity
1.913375 719 1,376 2.163493 2,622 5,673 AllianceBernstein Mid Cap Value ##
1.328001 32 42 1.320512 64 85 Index 400 Stock
1.487736 404 601 1.429987 1,955 2,796 Janus Capital Appreciation ##
1.195801 29 35 1.189063 55 65 Growth Stock
2.246405 464 1,042 2.257547 3,288 7,423 Large Cap Core Stock ^
1.828313 382 698 1.837972 2,306 4,238 Capital Guardian Domestic Equity
1.025423 261 268 1.004585 722 725 T. Rowe Price Equity Income ##
1.233047 5 6 1.226098 83 102 Index 500 Equity
2.477110 987 2,445 3.690039 4,074 15,033 Asset Allocation
1.049545 692 726 1.028260 864 888 Balanced
2.198372 1,181 2,596 7.461780 2,316 17,281 High Yield Bond
1.832738 194 356 1.815388 920 1,670 Select Bond
1.884108 667 1,257 9.479507 567 5,375 Money Market
1.408673 1,137 1,602 2.728314 1,380 3,765 Fidelity VIP Mid Cap ##
1.402932 10 14 1.395022 160 223 Russell Multi-Style Equity
0.786751 414 326 0.756197 1,596 1,207 Russell Aggressive Equity
1.244218 102 127 1.195908 661 790 Russell Non-U.S
0.966479 271 262 0.928976 944 877 Russell Core Bond
1.328054 183 243 1.276523 588 751 Russell Real Estate Securities
1.778695 257 457 1.709672 649 1,110 Equity
18,226 88,127 Annuity Reserves
269 334 Total Equity
$ 18,495 $ 88,461
^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock Division.
## Initial Investment in this division was made on May 1, 2003. 36
NML VARIABLE ANNUITY ACCOUNT A
NOTES TO FINANCIAL STATEMENTS CONTINUED
CONTRACTS ISSUED:
ON OR AFTER MARCH 31, 2000
FRONT LOAD VERSION
CONTRACTS ISSUED:
ON OR AFTER MARCH 31, 2000
BACK LOAD VERSION
DIVISION
ACCUMULATION
UNIT VALUE
UNITS
OUTSTANDING
EQUITY ACCUMULATION
UNIT VALUE
UNITS
OUTSTANDING
EQUITY Small Cap Growth Stock
$ 0.930572 195 $ 181 $ 1.956937 732 $ 1,432 T. Rowe Small Cap Value
1.282924 39 50 1.259912 560 706 Aggressive Growth Stock
0.699892 287 201 4.302813 532 2,289 International Growth Stock
1.090626 65 71 1.071062 367 393 Franklin Templeton International Equity
0.978611 158 155 2.163493 590 1,276 AllianceBernstein Mid Cap Value ##
1.327125 9 12 1.320512 21 28 Index 400 Stock
1.169318 201 235 1.429987 1,092 1,562 Janus Capital Appreciation ##
1.195012 2 2 1.189063 24 29 Growth Stock
0.729643 182 133 2.257547 916 2,068 Large Cap Core Stock ^
0.717843 334 240 1.837972 420 772 Capital Guardian Domestic Equity
1.022974 87 89 1.004585 622 625 T. Rowe Price Equity Income ##
1.232233 28 35 1.226098 24 29 Index 500 Equity
0.771935 354 273 3.690039 965 3,561 Asset Allocation
1.047056 172 180 1.028260 508 522 Balanced
1.012887 191 193 7.461780 483 3,604 High Yield Bond
1.249172 85 106 1.815388 242 439 Select Bond
1.386996 147 204 9.479507 194 1,839 Money Market
1.100118 159 175 2.728314 423 1,154 Fidelity VIP Mid Cap ##
1.402004 18 25 1.395022 42 59 Russell Multi-Style Equity
0.736202 97 71 0.756197 629 476 Russell Aggressive Equity
1.054631 52 55 1.195908 261 312 Russell Non-U.S
0.769505 113 87 0.928976 364 338 Russell Core Bond
1.313645 47 62 1.276523 321 410 Russell Real Estate Securities
1.877412 75 141 1.709672 634 1,084 Equity
2,976 25,007 Annuity Reserves
— — Total Equity
$ 2,976 $ 25,007
^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock Division.
## Initial Investment in this division was made on May 1, 2003. 37
NML VARIABLE ANNUITY ACCOUNT A
NOTES TO FINANCIAL STATEMENTS CONTINUED
Equity Values by Division for the year ended December 31, 2002 are shown below: (in thousands, except accumulation unit values)
CONTRACTS ISSUED:
PRIOR TO DECEMBER 17, 1981
CONTRACTS ISSUED:
AFTER DECEMBER 16, 1981 AND
PRIOR TO MARCH 31, 1995
DIVISION
ACCUMULATION
UNIT VALUE
UNITS
OUTSTANDING
EQUITY ACCUMULATION
UNIT VALUE
UNITS
OUTSTANDING
EQUITY Small Cap Growth Stock
$ 1.516823 196 $ 297 $ 1.489185 6,573 $ 9,788 T. Rowe Price Small Cap Value
0.950636 230 219 0.943905 1,401 1,322 Aggressive Growth Stock
3.711325 256 950 3.494085 10,045 35,098 International Growth Stock
0.785836 13 10 0.780276 317 247 Franklin Templeton International Equity
1.636881 326 534 1.559571 9,896 15,434 Index 400 Stock
1.092338 243 265 1.072428 4,143 4,443 Growth Stock
2.006974 313 628 1.921805 6,983 13,420 Large Cap Core Stock ^
1.566688 125 196 1.500218 5,160 7,741 Capital Guardian Domestic Equity
0.762191 107 82 0.756787 1,190 901 Index 500 Equity
3.089894 3,965 12,251 2.909123 12,908 37,551 Asset Allocation
0.869281 41 36 0.863125 2,124 1,833 Balanced
7.112654 1,322 9,403 6.403383 22,433 143,647 High Yield Bond
1.487426 69 103 1.424293 1,461 2,081 Select Bond
10.108841 603 6,096 9.098961 1,840 16,742 Money Market
3.030949 460 1,394 2.728924 6,073 16,573 Russell Multi-Style Equity
0.605230 6 4 0.594202 2,539 1,509 Russell Aggressive Equity
0.847132 113 96 0.831686 1,279 1,064 Russell Non-U.S
0.690333 33 23 0.677755 1,927 1,306 Russell Core Bond
1.240286 11 14 1.217720 996 1,213 Russell Real Estate Securities
1.285091 55 71 1.261665 1,199 1,513 Equity
32,672 313,426 Annuity Reserves
2,701 7,389 Total Equity
$ 35,373 $ 320,815
CONTRACTS ISSUED:
ON OR AFTER MARCH 31, 1995 AND
PRIOR TO MARCH 31, 2000
FRONT LOAD VERSION
CONTRACTS ISSUED:
ON OR AFTER MARCH 31, 1995 AND
PRIOR TO MARCH 31, 2000
BACK LOAD VERSION
DIVISION
ACCUMULATION
UNIT VALUE
UNITS
OUTSTANDING
EQUITY ACCUMULATION
UNIT VALUE
UNITS
OUTSTANDING
EQUITY Small Cap Growth Stock
$ 1.536295 323 $ 496 $ 1.489185 1,965 $ 2,926 T. Rowe Small Cap Value
0.955324 272 260 0.943905 591 558 Aggressive Growth Stock
1.764232 1,184 2,089 3.494085 3,455 12,072 International Growth Stock
0.789715 6 5 0.780276 214 167 Franklin Templeton International Equity
1.367662 870 1,190 1.559571 2,870 4,476 Index 400 Stock
1.106344 344 381 1.072428 2,052 2,201 Growth Stock
1.896210 591 1,121 1.921805 3,629 6,974 Large Cap Core Stock ^
1.479747 641 949 1.500218 2,625 3,938 Capital Guardian Domestic Equity
0.765966 37 28 0.756787 409 310 Index 500 Equity
1.936439 1,084 2,099 2.909123 4,606 13,399 Asset Allocation
0.873571 107 93 0.863125 584 504 Balanced
1.870656 1,610 3,012 6.403383 2,544 16,290 High Yield Bond
1.425787 138 197 1.424293 1,056 1,504 Select Bond
1.793220 482 864 9.098961 605 5,505 Money Market
1.397113 1,308 1,827 2.728924 1,724 4,705 Russell Multi-Style Equity
0.613006 634 389 0.594202 1,405 835 Russell Aggressive Equity
0.857996 281 241 0.831686 714 594 Russell Non-U.S
0.699179 256 179 0.677755 818 554 Russell Core Bond
1.256188 66 83 1.217720 599 729 Russell Real Estate Securities
1.301549 153 199 1.261665 656 828 Equity
15,702 79,069 Annuity Reserves
235 311 Total Equity
$ 15,937 $ 79,380
CONTRACTS ISSUED: CONTRACTS ISSUED: AFTER DECEMBER 16, 1981 AND PRIOR TO DECEMBER 17, 1981 PRIOR TO MARCH^ Prior to January 31, 1995 ------------------------------------ ------------------------------------- ACCUMULATION ACCUMULATION UNIT UNITS UNIT UNITS DIVISION VALUE OUTSTANDING EQUITY VALUE OUTSTANDING EQUITY - -------- ----------- ----------- -------- ------------ ----------- -------Small Cap Growth Stock ............. $ 1.516823 196 $ 297 $ 1.489185 6,573 $ 9,788 T. Rowe Price Small Cap Value 0.950636 230 219 0.943905 1,401 1,322 Aggressive Growth Stock ............ 3.711325 256 950 3.494085 10,045 35,098 International Growth Stock ......... 0.785836 13 10 0.780276 317 247 Franklin Templeton International Equity ........................ 1.636881 326 534 1.559571 9,896 15,434 Index 400 Stock .................... 1.092338 243 265 1.072428 4,143 4,443 Growth Stock ....................... 2.006974 313 628 1.921805 6,983 13,4202003 this Division was named the J.P. Morgan Select Growth and Income Stock.................. 1.566688 125 196 1.500218 5,160 7,741 Capital Guardian Domestic Equity 1 0.762191 107 82 0.756787 1,190 901 Index 500 Equity ................... 3.089894 3,965 12,251 2.909123 12,908 37,551 Asset Allocation ................... 0.869281 41 36 0.863125 2,124 1,833 Balanced ........................... 7.112654 1,322 9,403 6.403383 22,433 143,647 High Yield Bond .................... 1.487426 69 103 1.424293 1,461 2,081 Select Bond ........................ 10.108841 603 6,096 9.098961 1,840 16,742 Money Market ....................... 3.030949 460 1,394 2.728924 6,073 16,573 Russell Multi-Style Equity ......... 0.605230 6 4 0.594202 2,539 1,509 Russell Aggressive Equity .......... 0.847132 113 96 0.831686 1,279 1,064 Russell Non-U.S .................... 0.690333 33 23 0.677755 1,927 1,306 Russell Real Estate Securities ..... 1.285091 55 71 1.261665 1,199 1,513 Russell Core Bond .................. 1.240286 11 14 1.217720 996 1,213 --------- --------- Equity ........................ 32,672 313,426 Annuity Reserves .............. 2,701 7,389 --------- --------- Total Equity .................. $ 35,373 $ 320,815 ========= =========Division.38
NML VARIABLE ANNUITY ACCOUNT A
NOTES TO FINANCIAL STATEMENTS CONTINUED
CONTRACTS ISSUED:
ON OR AFTER MARCH 31, 2000
FRONT LOAD VERSION
CONTRACTS ISSUED:
ON OR AFTER MARCH 31, 2000
BACK LOAD VERSION
DIVISION
ACCUMULATION
UNIT VALUE
UNITS
OUTSTANDING
EQUITY ACCUMULATION
UNIT VALUE
UNITS
OUTSTANDING
EQUITY Small Cap Growth Stock
$ 0.702869 154 $ 108 $ 1.489185 522 $ 777 T. Rowe Small Cap Value
0.953992 28 27 0.943905 328 310 Aggressive Growth Stock
0.564112 222 125 3.494085 412 1,440 International Growth Stock
0.788618 23 18 0.780276 193 151 Franklin Templeton International Equity
0.700185 133 93 1.559571 403 629 Index 400 Stock
0.870423 181 158 1.072428 740 794 Growth Stock
0.616498 140 86 1.921805 635 1,220 Large Cap Core Stock ^
0.581563 206 120 1.500218 244 366 Capital Guardian Domestic Equity
0.764893 44 34 0.756787 418 316 Index 500 Equity
0.604035 281 170 2.909123 653 1,900 Asset Allocation
0.872356 131 114 0.863125 251 217 Balanced
0.862735 829 715 6.403383 329 2,107 High Yield Bond
0.972766 60 58 1.424293 197 281 Select Bond
1.321394 183 242 9.098961 106 964 Money Market
1.092171 197 215 2.728924 513 1,400 Russell Multi-Style Equity
0.574187 72 41 0.594202 403 239 Russell Aggressive Equity
0.727980 52 38 0.831686 226 188 Russell Non-U.S
0.557227 94 52 0.677755 258 175 Russell Core Bond
1.243794 42 52 1.217720 173 211 Russell Real Estate Securities
1.375137 46 63 1.261665 280 353 Equity
2,529 14,038 Annuity Reserves
— — Total Equity
$ 2,529 $ 14,038
CONTRACTS ISSUED: CONTRACTS ISSUED: ON OR AFTER MARCH^ Prior to January 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 UNIT UNITS UNIT UNITS DIVISION VALUE OUTSTANDING EQUITY VALUE OUTSTANDING EQUITY - -------- ------------ ----------- --------- ------------ ----------- ---------Small Cap Growth Stock ............... $ 1.536295 323 $ 496 $ 1.489185 1,965 $ 2,926 T. Rowe Small Cap Value .............. 0.955324 272 260 0.943905 591 558 Aggressive Growth Stock .............. 1.764232 1,184 2,089 3.494085 3,455 12,072 International Growth Stock ........... 0.789715 6 5 0.780276 214 167 Franklin Templeton International Equity .......................... 1.367662 870 1,190 1.559571 2,870 4,476 Index 400 Stock ...................... 1.106344 344 381 1.072428 2,052 2,201 Growth Stock ......................... 1.896210 591 1,121 1.921805 3,629 6,9742003 this Division was named the J.P. Morgan Select Growth and Income Stock.................... 1.479747 641 949 1.500218 2,625 3,938 Capital Guardian Domestic Equity 1 0.765966 37 28 0.756787 409 310 Index 500 Equity ..................... 1.936439 1,084 2,099 2.909123 4,606 13,399 Asset Allocation ..................... 0.873571 107 93 0.863125 584 504 Balanced ............................. 1.870656 1,610 3,012 6.403383 2,544 16,290 High Yield Bond ...................... 1.425787 138 197 1.424293 1,056 1,504 Select Bond .......................... 1.793220 482 864 9.098961 605 5,505 Money Market ......................... 1.397113 1,308 1,827 2.728924 1,724 4,705 Russell Multi-Style Equity ........... 0.613006 634 389 0.594202 1,405 835 Russell Aggressive Equity ............ 0.857996 281 241 0.831686 714 594 Russell Non-U.S ...................... 0.699179 256 179 0.677755 818 554 Russell Real Estate Securities ....... 1.301549 153 199 1.261665 656 828 Russell Core Bond .................... 1.256188 66 83 1.217720 599 729 --------- --------- Equity .......................... 15,702 79,069 Annuity Reserves ................ 235 311 --------- --------- Total Equity .................... $ 15,937 $ 79,380 ========= =========Division.35NML VARIABLE ANNUITY ACCOUNT A NOTES TO FINANCIAL STATEMENTS CONTINUED
CONTRACTS ISSUED: CONTRACTS ISSUED: ON OR AFTER MARCH 31, 2000 ON OR AFTER MARCH 31, 2000 FRONT LOAD VERSION BACK LOAD VERSION ---------------------------------- ------------------------------------- ACCUMULATION ACCUMULATION UNIT UNITS UNIT UNITS DIVISION VALUE OUTSTANDING EQUITY VALUE OUTSTANDING EQUITY - -------- ------------ ----------- ------ ------------ ----------- --------Small Cap Growth Stock .............. $ 0.702869 154 $ 108 $1.489185 522 $ 777 T. Rowe Small Cap Value ............. 0.953992 28 27 0.943905 328 310 Aggressive Growth Stock ............. 0.564112 222 125 3.494085 412 1,440 International Growth Stock .......... 0.788618 23 18 0.780276 193 151 Franklin Templeton International .... Equity ......................... 0.700185 133 93 1.559571 403 629 Index 400 Stock ..................... 0.870423 181 158 1.072428 740 794 Growth Stock ........................ 0.616498 140 86 1.921805 635 1,220 J.P. Morgan Select Growth and Income Stock ................... 0.581563 206 120 1.500218 244 366 Capital Guardian Domestic Equity 1 0.764893 44 34 0.756787 418 316 Index 500 Equity .................... 0.604035 281 170 2.909123 653 1,900 Asset Allocation .................... 0.872356 131 114 0.863125 251 217 Balanced ............................ 0.862735 829 715 6.403383 329 2,107 High Yield Bond ..................... 0.972766 60 58 1.424293 197 281 Select Bond ......................... 1.321394 183 242 9.098961 106 964 Money Market ........................ 1.092171 197 215 2.728924 513 1,400 Russell Multi-Style Equity .......... 0.574187 72 41 0.594202 403 239 Russell Aggressive Equity ........... 0.727980 52 38 0.831686 226 188 Russell Non-U.S ..................... 0.557227 94 52 0.677755 258 175 Russell Real Estate Securities ...... 1.375137 46 63 1.261665 280 353 Russell Core Bond ................... 1.243794 42 52 1.217720 173 211 ------ -------- Equity ......................... 2,529 14,038 Annuity Reserves ............... -- -- ------ -------- Total Equity ................... $2,529 $ 14,038 ====== ========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 UNIT UNITS UNIT UNITS DIVISION 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 Stock ................. 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 ======== =========36NML VARIABLE ANNUITY ACCOUNT A NOTES TO FINANCIAL STATEMENTS CONTINUED
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 UNIT UNITS UNIT UNITS DIVISION 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 Stock ................. 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 ========= ========
CONTRACTS ISSUED: CONTRACTS ISSUED: ON OR AFTER MARCH 31, 2000 ON OR AFTER MARCH 31, 2000 FRONT LOAD VERSION BACK LOAD VERSION -------------------------------------- ----------------------------------- ACCUMULATION ACCUMULATION UNIT UNITS UNIT UNITS DIVISION 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 Stock ................. 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 ======== =======3739
REPORT OF INDEPENDENT
ACCOUNTANTSAUDITORSTo The Northwestern Mutual Life Insurance Company and Contract Owners of NML Variable Annuity Account A
In our opinion, the accompanying statements of assets and liabilities and the related 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, AllianceBernstein Mid Cap Value Division, Index 400 Stock Division, Janus Capital Appreciation Division, Growth Stock Division,
J.P. Morgan Select Growth & IncomeLarge Cap Core Stock Division, Capital Guardian Domestic Equity Division, T. Rowe Price Equity Income Division, Index 500 Stock Division, Asset Allocation Division, Balanced Division, High Yield Bond Division, Select Bond Division, Money Market Division, Fidelity VIP Mid Cap Division, Russell Multi-Style Equity Division, Russell Aggressive Equity Division, Russell Non-U.S. Division, Russell Core Bond Division, and Russell Real Estate Securities Divisionand Russell Core Bond Divisionat December 31,20022003 and2001,2002, and the results of each of their operations, the changes in each of their equity and their financial highlights for theperiods indicated,three years ended December 31, 2003, 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"“financial statements”) are the responsibility of The Northwestern Mutual Life InsuranceCompany'sCompany’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 securities owned at December 31,2002 and 20012003 with Northwestern Mutual Series Fund, Inc., Fidelity VIP Mid Cap Portfolio and the RussellInsuranceInvestment Funds, provide a reasonable basis for our opinion./s/ PRICEWATERHOUSECOOPERS LLP - ------------------------------ Milwaukee, Wisconsin January 30, 2003 38
/s/ PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
January 28, 2004
40
NML VARIABLE ANNUITY ACCOUNT C
STATEMENTS OF ASSETS AND LIABILITIES
(IN THOUSANDS)
DECEMBER 31 2003 2002 ASSETS
Investments at Market Value:
Northwestern Mutual Series Fund, Inc.
Small Cap Growth Stock
2003: 12,613 shares (cost $22,499)
$ 24,418 2002: 11,605 shares (cost $21,588)
$ 16,885 T. Rowe Price Small Cap Value
2003: 641 shares (cost $683)
826 2002: 476 shares (cost $493)
454 Aggressive Growth Stock
2003: 29,031 shares (cost $94,475)
79,023 2002: 32,817 shares (cost $112,089)
71,638 International Growth
2003: 134 shares (cost $132)
146 2002: 73 shares (cost $68)
58 Franklin Templeton International Equity
2003: 33,904 shares (cost $42,990)
47,872 2002: 34,186 shares (cost $44,997)
35,006 AllianceBernstein Mid Cap Value ##
2003: 174 shares (cost $207)
229 Index 400 Stock
2003: 15,994 shares (cost $17,804)
20,392 2002: 15,253 shares (cost $17,298)
14,520 Janus Capital Appreciation ##
2003: 196 shares (cost $219)
234 Growth Stock
2003: 13,550 shares (cost $28,544)
25,380 2002: 14,018 shares (cost $31,269)
22,261 Large Cap Core Stock
2003: 15,719 shares (cost $19,655)
16,756 2002: 15,981 shares (cost $22,258)
13,872 Capital Guardian Domestic Equity
2003: 1,229 shares (cost $1,050)
1,235 2002: 765 shares (cost $646)
580 T. Rowe Price Equity Income ##
2003: 118 shares (cost $133)
144 Index 500 Stock
2003: 32,780 shares (cost $86,874)
89,325 2002: 35,907 shares (cost $97,006)
77,810 Asset Allocation
2003: 1,237 shares (cost $1,111)
1,259 2002: 1,738 shares (cost $1,612)
1,491 Balanced
2003: 42,154 shares (cost $77,542)
78,027 2002: 50,686 shares (cost $95,393)
82,213 High Yield Bond
2003: 8,560 shares (cost $5,583)
6,206 2002: 6,917 shares (cost $4,705)
3,894 Select Bond
2003: 14,618 shares (cost $17,936)
18,448 2002: 15,390 shares (cost $18,303)
19,561 Money Market
2003: 6,171 shares (cost $6,171)
6,171 2002: 10,973 shares (cost $10,973)
10,973 41
NML VARIABLE ANNUITY ACCOUNT C
STATEMENTS OF ASSETS AND LIABILITIES
(INCONTINUED(IN THOUSANDS)
DECEMBER 31 2003 2002 Fidelity VIP Mid Cap Portfolio ##
2003: 16 shares (cost $329)
377 Russell Investment Funds
Multi-Style Equity
2003: 94 shares (cost $1,155)
1,087 2002: 83 shares (cost $1,140)
751 Aggressive Equity
2003: 68 shares (cost $782)
911 2002: 57 shares (cost $688)
527 Non-U.S.
2003: 118 shares (cost $1,149)
1,149 2002: 73 shares (cost $800)
527 Core Bond
2003: 85 shares (cost $891)
895 2002: 77 shares (cost $796)
804 Real Estate Securities
2003: 1,096 shares (cost $12,575)
15,029 2002: 910 shares (cost $9,865)
9,566 Due from Northwestern Mutual Life Insurance Company
35 67 Total Assets
$ 435,574 $ 383,458 LIABILITIES AND EQUITY
LIABILITIES
Due to Northwestern Mutual Life Insurance Company
$ 12 $ 6 Total Liabilities
12 6 EQUITY
Group Variable Annuity Contracts Issued:
Before December 17, 1981 or between April 30, 1984 and December 31, 1991
349,478 287,155 After December 16, 1981 and Prior to May 1, 1984
1,405 2,947 After December 31, 1991 - Front Load Version
19,925 20,761 After December 31, 1991 - Simplified Load Version
64,754 72,589 Total Equity
435,562 383,452 Total Liabilities and Equity
$ 435,574 $ 383,458
DECEMBER^ Prior to January 31, -------------------------- 2002 2001 ----------- -----------ASSETS Investments at Market Value: Northwestern Mutual Series Fund, Inc. Small Cap Growth Stock 2002: 11,605 shares (cost $21,588)......... $ 16,885 2001: 11,812 shares (cost $22,806)......... $ 21,098 T. Rowe Price Small Cap Value# 2002: 476 shares (cost $493) .............. 454 2001: 162 shares (cost $159) .............. 165 Aggressive Growth Stock 2002: 32,817 shares (cost $112,089) ....... 71,638 2001: 39,756 shares (cost $140,948) ....... 112,232 International Growth Stock# 2002: 73 shares (cost $68) ................ 58 2001: 41 shares (cost $39) ................ 38 Franklin Templeton International Equity 2002: 34,186 shares (cost $44,997) ........ 35,006 2001: 38,694 shares (cost $58,397) ........ 48,902 Index 400 Stock 2002: 15,253 shares (cost $17,298) ........ 14,520 2001: 15,015 shares (cost $17,465) ........ 16,849 Growth Stock 2002: 14,018 shares (cost $31,269) ........ 22,261 2001: 16,290 shares (cost $37,853) ........ 33,0162003 this Division was named the J.P. Morgan Select Growth and Income Stock2002: 15,981 shares (cost $22,258) ........ 13,872 2001: 20,895 shares (cost $30,763) ........ 25,473 Capital Guardian Domestic Equity# 2002: 765 shares (cost $646) .............. 580 2001: 216 shares (cost $204) .............. 211 Index 500 Stock 2002: 35,907 shares (cost $97,006) ........ 77,810 2001: 47,737 shares (cost $124,634) ....... 131,489 Asset Allocation# 2002: 1,738 shares (cost $1,612) .......... 1,491 2001: 47 shares (cost $45) ................ 46 Balanced 2002: 50,686 shares (cost $95,393) ........ 82,213 2001: 63,722 shares (cost $122,051) ....... 115,972 High Yield Bond 2002: 6,917 shares (cost $4,705) .......... 3,894 2001: 7,061 shares (cost $5,126) .......... 4,583 Select Bond 2002: 15,390 shares (cost $18,303) ........ 19,561 2001: 14,446 shares (cost $16,739) ........ 17,379 Money Market 2002: 10,973 shares (cost $10,973) ........ 10,973 2001: 15,185 shares (cost $15,185) ........ 15,185Division.39
DECEMBER 31 -------------------------- 2002 2001 ----------- -----------Russell Insurance Funds Multi-Style Equity 2002: 83 shares (cost $1,140) ............................................ 751 2001: 118 shares (cost $1,766) ........................................... 1,403 Aggressive Equity 2002: 57 shares (cost $688) .............................................. 527 2001: 62 shares (cost $778) .............................................. 710 Non-U.S 2002: 73 shares (cost $800) .............................................. 527 2001: 78 shares (cost $957) .............................................. 672 Real Estate Securities 2002: 910 shares (cost $9,865) ........................................... 9,566 2001: 614 shares (cost $6,485) ........................................... 6,600 Core Bond 2002: 77 shares (cost $796) .............................................. 804 2001: 78 shares (cost $798) .............................................. 793 Due from Sales of Fund Shares .................................................. 0 13 Due from Northwestern Mutual Life Insurance Company ............................ 67 37 ----------- ----------- Total Assets ............................................................. 383,458 552,866 ----------- ----------- LIABILITIES AND EQUITY LIABILITIES Due to Northwestern Mutual Life Insurance Company............................... $ 6 $ 13 Due## The initial investment was made on Purchase of Fund Shares ................................................. 0 37 ----------- ----------- Total Liabilities ........................................................ 6 50 ----------- ----------- EQUITY Group Variable Annuity Contracts Issued: Before December 17, 1981 or between April 30, 1984 and December 31, 1991 .... 287,155 390,128 After December 16, 1981 and Prior toMay 1,1984 ............................ 2,947 3,636 After December 31, 1991 - Front Load Version ................................ 20,761 29,953 After December 31, 1991 - Simplified Load Version ........................... 72,589 129,099 ----------- ----------- Total Equity ............................................................. 383,452 552,816 ----------- ----------- Total Liabilities and Equity.............................................. $ 383,458 $ 552,866 =========== ===========2003.- ---------- # The initial investment was made on July 31, 2001.The Accompanying Notes are an Integral Part of the Financial Statements.
4042
NML VARIABLE ANNUITY ACCOUNT C
STATEMENTS OF OPERATIONS
(IN(IN THOUSANDS)
Investment Income DIVISION
Dividend
IncomeAnnuity Rate and
Expense GuaranteesNet Investment
Income (Loss)Year Ended December 31, 2003
Small Cap Growth Stock
$ — $ (19 ) $ (19 ) T. Rowe Price Small Cap Value
— (6 ) (6 ) Aggressive Growth Stock
— (137 ) (137 ) International Growth Stock
1 — 1 Franklin Templeton International Equity
618 (48 ) 570 AllianceBernstein Mid Cap Value ##
1 — 1 Index 400 Stock
115 (17 ) 98 Janus Capital Appreciation ##
— — — Growth Stock
179 (52 ) 127 Large Cap Core Stock ^
137 (51 ) 86 Capital Guardian Domestic Equity
17 (8 ) 9 T. Rowe Price Equity Income ##
1 — 1 Index 500 Stock
1,167 (162 ) 1,005 Asset Allocation
21 (10 ) 11 Balanced
2,491 (255 ) 2,236 High Yield Bond
11 (14 ) (3 ) Select Bond
771 (98 ) 673 Money Market
128 (105 ) 23 Fidelity VIP Mid Cap ##
— (1 ) (1 ) Russell Multi-Style Equity
6 (8 ) (2 ) Russell Aggressive Equity
1 (8 ) (7 ) Russell Non-U.S
25 (7 ) 18 Russell Core Bond
29 (7 ) 22 Russell Real Estate Securities
604 (13 ) 591 Year Ended December 31, 2002
Small Cap Growth Stock
$ 32 $ (25 ) $ 7 T. Rowe Price Small Cap Value
2 (5 ) (3 ) Aggressive Growth Stock
90 (231 ) (141 ) International Growth Stock
— — — Franklin Templeton International Equity
906 (78 ) 828 Index 400 Stock
140 (20 ) 120 Growth Stock
330 (77 ) 253 Large Cap Core Stock ^
180 (78 ) 102 Capital Guardian Domestic Equity
7 (3 ) 4 Index 500 Stock
1,468 (259 ) 1,209 Asset Allocation
24 (8 ) 16 Balanced
3,922 (356 ) 3,566 High Yield Bond
415 (15 ) 400 Select Bond
863 (93 ) 770 Money Market
221 (144 ) 77 Russell Multi-Style Equity
7 (10 ) (3 ) Russell Aggressive Equity
— (7 ) (7 ) Russell Non-U.S
9 (6 ) 3 Russell Core Bond
20 (6 ) 14 Russell Real Estate Securities
481 (11 ) 470
COMBINED SMALL CAP GROWTH STOCK DIVISION ---------------------------------------- ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER^ Prior to January 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------Investment2003 this Division was named the J.P. Morgan Select Growth and IncomeDividend Income ........................ $ 9,117 $ 54,521 $ 54,949 $ 32 $ 2 $ 99 Annuity Rate and Expense Guarantees .... (1,432) (2,007) (2,896 (25) (28) (26) ------------ ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) .............. 7,685 52,514 52,053 7 (26) 73 ------------ ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss)Stock Division.
## The initial investment in this Division was made on Investments Realized Gain (Loss) on Investments .... (35,241) 8,705 54,861 (1,245) (886) 295 Unrealized Appreciation (Depreciation) During the Year ..................... (58,211) (133,527) (121,850) (2,995) (14) (1,897) ------------ ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments ............ (93,452) (124,822) (66,989) (4,240) (900) (1,602) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ....... $ (85,767) $ (72,308) $ (14,936) $ (4,233) $ (926) $ (1,529) ============ ============ ============ ============ ============ ============May 1, 2003.
T. ROWE PRICE SMALL CAP VALUE DIVISION # AGGRESSIVE GROWTH STOCK DIVISION --------------------------- ------------------------------------------ YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 2000 ------------ ------------ ------------ ------------ ------------Investment Income Dividend Income ...................... $ 2 $ -- $ 90 $ 27,284 $ 20,221 Annuity Rate and Expense Guarantees .. (5) -- (231) (358) (614) ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ............ (3) -- (141) 26,926 19,607 ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments .. (27) -- (10,519) 511 9,000 Unrealized Appreciation (Depreciation) During the Year ................... (44) 5 (11,735) (58,412) (20,677) ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments .......... (71) 5 (22,254) (57,901) (11,677) ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ..... $ (74) $ 5 $ (22,395) $ (30,975) $ 7,930 ============ ============ ============ ============ ============
INTERNATIONAL GROWTH STOCK FRANKLIN TEMPLETON INTERNATIONAL DIVISION # EQUITY DIVISION --------------------------- ------------------------------------------ YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 2000 ------------ ------------ ------------ ------------ ------------Investment Income Dividend Income ...................... $ -- $ -- $ 906 $ 5,914 $ 5,036 Annuity Rate and Expense Guarantees .. -- -- (78) (121) (186) ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ............ -- -- 828 5,793 4,850 ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments .. (42) -- (8,378) (6,258) 3,131 Unrealized Appreciation (Depreciation) During the Year ................... (8) (2) (496) (8,375) (8,616) ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments .......... (50) (2) (8,874) (14,633) (5,485) ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ..... $ (50) $ (2) $ (8,046) $ (8,840) $ (635) ============ ============ ============ ============ ============- ---------- # The initial investment in this Division was made on July 31, 2001. 4143
NML VARIABLE ANNUITY ACCOUNT C
STATEMENTS OF OPERATIONS CONTINUED
(IN(IN THOUSANDS)
Realized and Unrealized Gain (Loss) on Investments DIVISION
Realized Gain
(Loss) on
InvestmentsUnrealized Appreciation
(Depreciation) of
Investments During the
PeriodNet Gain
(Loss) on
InvestmentsIncrease (Decrease) in
Equity Derived from
Investment ActivityYear Ended December 31, 2003
Small Cap Growth Stock
$ (1,212 ) $ 6,622 $ 5,410 $ 5,391 T. Rowe Price Small Cap Value
1 183 184 178 Aggressive Growth Stock
(8,800 ) 24,998 16,198 16,061 International Growth Stock
(5 ) 23 18 19 Franklin Templeton International Equity
(2,243 ) 14,872 12,629 13,199 AllianceBernstein Mid Cap Value ##
2 22 24 25 Index 400 Stock
(593 ) 5,365 4,772 4,870 Janus Capital Appreciation ##
1 15 16 16 Growth Stock
(2,089 ) 5,845 3,756 3,883 Large Cap Core Stock ^
(2,362 ) 5,487 3,125 3,211 Capital Guardian Domestic Equity
(10 ) 251 241 250 T. Rowe Price Equity Income ##
1 11 12 13 Index 500 Stock
(2,525 ) 21,648 19,123 20,128 Asset Allocation
(63 ) 269 206 217 Balanced
(3,454 ) 13,665 10,211 12,447 High Yield Bond
(145 ) 1,433 1,288 1,285 Select Bond
1,033 (745 ) 288 961 Money Market
— — — 23 Fidelity VIP Mid Cap ##
— 49 49 48 Russell Multi-Style Equity
(104 ) 321 217 215 Russell Aggressive Equity
(18 ) 290 272 265 Russell Non-U.S
(35 ) 273 238 256 Russell Core Bond
19 (4 ) 15 37 Russell Real Estate Securities
188 2,753 2,941 3,532 Year Ended December 31, 2002
Small Cap Growth Stock
$ (1,245 ) $ (2,995 ) $ (4,240 ) $ (4,233 ) T. Rowe Price Small Cap Value
(27 ) (44 ) (71 ) (74 ) Aggressive Growth Stock
(10,519 ) (11,735 ) (22,254 ) (22,395 ) International Growth Stock
(42 ) (8 ) (50 ) (50 ) Franklin Templeton International Equity
(8,378 ) (496 ) (8,874 ) (8,046 ) Index 400 Stock
(823 ) (2,160 ) (2,983 ) (2,863 ) Growth Stock
(2,757 ) (4,172 ) (6,929 ) (6,676 ) Large Cap Core Stock ^
(3,735 ) (3,096 ) (6,831 ) (6,729 ) Capital Guardian Domestic Equity
(8 ) (72 ) (80 ) (76 ) Index 500 Stock
(2,524 ) (26,051 ) (28,575 ) (27,366 ) Asset Allocation
(23 ) (121 ) (144 ) (128 ) Balanced
(5,135 ) (7,102 ) (12,237 ) (8,671 ) High Yield Bond
(278 ) (267 ) (545 ) (145 ) Select Bond
541 617 1,158 1,928 Money Market
— — — 77 Russell Multi-Style Equity
(274 ) (26 ) (300 ) (303 ) Russell Aggressive Equity
(35 ) (93 ) (128 ) (135 ) Russell Non-U.S
(107 ) 13 (94 ) (91 ) Russell Core Bond
27 11 38 52 Russell Real Estate Securities
101 (414 ) (313 ) 157
INDEX 400 STOCK DIVISION GROWTH STOCK DIVISION ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER^ Prior to January 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------Investment2003 this Division was named the J.P. Morgan Select Growth and IncomeDividend Income ...................... $ 140 $ 194 $ 1,180 $ 330 $ 1,614 $ 2,101 Annuity Rate and Expense Guarantees .. (20) (19) (11) (77) (111) (152) ------------ ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ............ 120 175 1,169 253 1,503 1,949 ------------ ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss)Stock Division.
## The initial investment in this Division was made on Investments Realized Gain (Loss) on Investments .. (823) (575) 98 (2,757) 777 2,717 Unrealized Appreciation (Depreciation) During the Year ................... (2,160) 275 (923) (4,172) (8,402) (5,875) ------------ ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments .......... (2,983) (300) (825) (6,929) (7,625) (3,158) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ..... $ (2,863) $ (125) $ 344 $ (6,676) $ (6,122) $ (1,209) ============ ============ ============ ============ ============ ============May 1, 2003.
J.P. MORGAN SELECT GROWTH AND INCOME CAPITAL GUARDIAN DOMESTIC STOCK DIVISION EQUITY DIVISION # ------------------------------------------- --------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 ------------ ------------ ------------ ------------ ------------Investment Income Dividend Income ...................... $ 180 $ 957 $ 2,123 $ 7 $ -- Annuity Rate and Expense Guarantees .. (78) (124) (178) (3) -- ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ............ 102 833 1,945 4 -- ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments .. (3,735) (545) (276) (8) -- Unrealized Appreciation (Depreciation) During the Year ................... (3,096) (2,643) (4,224) (72) 6 ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments .......... (6,831) (3,188) (4,500) (80) 6 ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ..... $ (6,729) $ (2,355) $ (2,555) $ (76) $ 6 ============ ============ ============ ============ ============
INDEX 500 STOCK DIVISION ASSET ALLOCATION DIVISION # ------------------------------------------ --------------------------- PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 ------------ ------------ ------------ ------------ ------------Investment Income Dividend Income ............................... $ 1,468 $ 6,550 $ 8,370 $ 24 $ -- Annuity Rate and Expense Guarantees ........... (259) (420) (688) (8) -- ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ..................... 1,209 6,130 7,682 16 -- ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments ........... (2,524) 12,916 27,391 (23) -- Unrealized Appreciation (Depreciation) During the Year ............................ (26,051) (39,298) (53,361) (121) -- ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments ................... (28,575) (26,382) (25,970) (144) -- ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity .............. $ (27,366) $ (20,252) $ (18,288) $ (128) $ -- ============ ============ ============ ============ ============- ---------- # The initial investment in this Division was made on July 31, 2001. 4244
NML VARIABLE ANNUITY ACCOUNT C
STATEMENTS OF OPERATIONS CONTINUED
(IN(IN THOUSANDS)
Investment Income DIVISION
Dividend
IncomeAnnuity Rate and
Expense GuaranteesNet Investment
Income (Loss)Year Ended December 31, 2001
Small Cap Growth Stock
$ 2 $ (28 ) $ (26 ) T. Rowe Price Small Cap Value #
— — — Aggressive Growth Stock
27,284 (358 ) 26,926 International Growth Stock #
— — — Franklin Templeton International Equity
5,914 (121 ) 5,793 Index 400 Stock
194 (19 ) 175 Growth Stock
1,614 (111 ) 1,503 Large Cap Core Stock ^
957 (124 ) 833 Capital Guardian Domestic Equity #
— — — Index 500 Stock
6,550 (420 ) 6,130 Asset Allocation #
— — — Balanced
9,705 (497 ) 9,208 High Yield Bond
487 (22 ) 465 Select Bond
911 (99 ) 812 Money Market
523 (163 ) 360 Russell Multi-Style Equity
37 (14 ) 23 Russell Aggressive Equity
1 (7 ) (6 ) Russell Non-U.S
4 (8 ) (4 ) Russell Core Bond
48 (7 ) 41 Russell Real Estate Securities
290 (9 ) 281
Realized and Unrealized Gain (Loss) on Investments DIVISION
Realized Gain
(Loss) on
InvestmentsUnrealized Appreciation
(Depreciation) of
Investments During the
PeriodNet Gain
(Loss) on
InvestmentsIncrease (Decrease) in
Equity Derived from
Investment ActivityYear Ended December 31, 2001
Small Cap Growth Stock
$ (886 ) $ (14 ) $ (900 ) $ (926 ) T. Rowe Price Small Cap Value #
— 5 5 5 Aggressive Growth Stock
511 (58,412 ) (57,901 ) (30,975 ) International Growth Stock #
— (2 ) (2 ) (2 ) Franklin Templeton International Equity
(6,258 ) (8,375 ) (14,633 ) (8,840 ) Index 400 Stock
(575 ) 275 (300 ) (125 ) Growth Stock
777 (8,402 ) (7,625 ) (6,122 ) Large Cap Core Stock ^
(545 ) (2,643 ) (3,188 ) (2,355 ) Capital Guardian Domestic Equity #
— 6 6 6 Index 500 Stock
12,916 (39,298 ) (26,382 ) (20,252 ) Asset Allocation #
— — — — Balanced
3,486 (17,384 ) (13,898 ) (4,690 ) High Yield Bond
(737 ) 448 (289 ) 176 Select Bond
32 578 610 1,422 Money Market
— — — 360 Russell Multi-Style Equity
(120 ) (144 ) (264 ) (241 ) Russell Aggressive Equity
(17 ) 9 (8 ) (14 ) Russell Non-U.S
(33 ) (158 ) (191 ) (195 ) Russell Core Bond
14 (12 ) 2 43 Russell Real Estate Securities
140 (4 ) 136 417
BALANCED DIVISION HIGH YIELD BOND DIVISION ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER# The initial investment in this Division was made on July 31, DECEMBER2001.
^ Prior to January 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------Investment2003 this Division was named the J.P. Morgan Select Growth and IncomeDividend Income ...................... $ 3,922 $ 9,705 $ 12,909 $ 415 $ 487 $ 558 Annuity Rate and Expense Guarantees .. (356) (497) (688) (15) (22) (30) ------------ ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ............ 3,566 9,208 12,221 400 465 528 ------------ ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments .. (5,135) 3,486 14,398 (278) (737) (1,290) Unrealized Appreciation (Depreciation) During the Year ................... (7,102) (17,384) (27,427) (267) 448 501 ------------ ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments .......... (12,237) (13,898) (13,029) (545) (289) (789) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ..... $ (8,671) $ (4,690) $ (808) $ (145) $ 176 $ (261) ============ ============ ============ ============ ============ ============Stock Division.
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, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------Investment Income Dividend Income ...................... $ 863 $ 911 $ 1,093 $ 221 $ 523 $ 971 Annuity Rate and Expense Guarantees .. (93) (99) (109) (144) (163) (174) ------------ ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ............ 770 812 984 77 360 797 ------------ ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments .. 541 32 (655) -- -- -- Unrealized Appreciation (Depreciation) During the Year ................... 617 578 1,084 -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments .......... 1,158 610 429 -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ..... $ 1,928 $ 1,422 $ 1,413 $ 77 $ 360 $ 797 ============ ============ ============ ============ ============ ============
RUSSELL MULTI-STYLE EQUITY DIVISION RUSSELL AGGRESSIVE EQUITY DIVISION ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------Investment Income Dividend Income ...................... $ 7 $ 37 $ 79 $ -- $ 1 $ 74 Annuity Rate and Expense Guarantees .. (10) (14) (19) (7) (7) (7) ------------ ------------ ------------ ------------ ------------ ------------ Net Investment Income (Loss) ............ (3) 23 60 (7) (6) 67 ------------ ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments .. (274) (120) (20) (35) (17) 24 Unrealized Appreciation (Depreciation) During the Year ................... (26) (144) (282) (93) 9 (103) ------------ ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments .......... (300) (264) (302) (128) (8) (79) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ..... $ (303) $ (241) $ (242) $ (135) $ (14) $ (12) ============ ============ ============ ============ ============ ============43The Accompanying Notes are an Integral Part of the Financial Statements
45
NML VARIABLE ANNUITY ACCOUNT C
STATEMENTS OF
OPERATIONSCHANGES IN EQUITY(IN THOUSANDS)
Operations DIVISION
Net Investment Income
(Loss)Net Realized Gain
(Loss)Net Change in
Unrealized Appreciation
(Depreciation)Increase (Decrease) in
Equity Derived from
Investment ActivityYear Ended December 31, 2003
Small Cap Growth Stock
$ (19 ) $ (1,212 ) $ 6,622 $ 5,391 T. Rowe Price Small Cap Value
(6 ) 1 183 178 Aggressive Growth Stock
(137 ) (8,800 ) 24,998 16,061 International Growth Stock
1 (5 ) 23 19 Franklin Templeton International Equity
570 (2,243 ) 14,872 13,199 AllianceBernstein Mid Cap Value ##
1 2 22 25 Index 400 Stock
98 (593 ) 5,365 4,870 Janus Capital Appreciation ##
— 1 15 16 Growth Stock
127 (2,089 ) 5,845 3,883 Large Cap Core Stock ^
86 (2,362 ) 5,487 3,211 Capital Guardian Domestic Equity
9 (10 ) 251 250 T. Rowe Price Equity Income ##
1 1 11 13 Index 500 Stock
1,005 (2,525 ) 21,648 20,128 Asset Allocation
11 (63 ) 269 217 Balanced
2,236 (3,454 ) 13,665 12,447 High Yield Bond
(3 ) (145 ) 1,433 1,285 Select Bond
673 1,033 (745 ) 961 Money Market
23 — — 23 Fidelity VIP Mid Cap ##
(1 ) — 49 48 Russell Multi-Style Equity
(2 ) (104 ) 321 215 Russell Aggressive Equity
(7 ) (18 ) 290 265 Russell Non-U.S
18 (35 ) 273 256 Russell Core Bond
22 19 (4 ) 37 Russell Real Estate Securities
591 188 2,753 3,532 Year Ended December 31, 2002
Small Cap Growth Stock
$ 7 $ (1,245 ) $ (2,995 ) $ (4,233 ) T. Rowe Price Small Cap Value
(3 ) (27 ) (44 ) (74 ) Aggressive Growth Stock
(141 ) (10,519 ) (11,735 ) (22,395 ) International Growth Stock
— (42 ) (8 ) (50 ) Franklin Templeton International Equity
828 (8,378 ) (496 ) (8,046 ) Index 400 Stock
120 (823 ) (2,160 ) (2,863 ) Growth Stock
253 (2,757 ) (4,172 ) (6,676 ) Large Cap Core Stock ^
102 (3,735 ) (3,096 ) (6,729 ) Capital Guardian Domestic Equity
4 (8 ) (72 ) (76 ) Index 500 Stock
1,209 (2,524 ) (26,051 ) (27,366 ) Asset Allocation
16 (23 ) (121 ) (128 ) Balanced
3,566 (5,135 ) (7,102 ) (8,671 ) High Yield Bond
400 (278 ) (267 ) (145 ) Select Bond
770 541 617 1,928 Money Market
77 — — 77 Russell Multi-Style Equity
(3 ) (274 ) (26 ) (303 ) Russell Aggressive Equity
(7 ) (35 ) (93 ) (135 ) Russell Non-U.S
3 (107 ) 13 (91 ) Russell Core Bond
14 27 11 52 Russell Real Estate Securities
470 101 (414 ) 157
^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock Division.
## The initial investment in this Division was made on May 1, 2003. 46
NML VARIABLE ANNUITY ACCOUNT C
STATEMENTS OF CHANGES IN EQUITY CONTINUED
(IN(IN THOUSANDS)
Equity Transactions DIVISION
Contract
Owners’ Net
PaymentsAnnuity
PaymentsSurrenders
and Other
(net)Transfers
from Other
Divisions or
SponsorTransfers
to Other
Divisions or
SponsorIncrease
(Decrease)
in Equity
Derived
from Equity
TransactionsYear Ended December 31, 2003
Small Cap Growth Stock
$ 4,693 $ — $ (3,732 ) $ 2,378 $ (1,197 ) $ 2,142 T. Rowe Price Small Cap Value
71 — (61 ) 216 (32 ) 194 Aggressive Growth Stock
7,787 — (13,766 ) 1,935 (4,649 ) (8,693 ) International Growth Stock
59 — (8 ) 52 (35 ) 68 Franklin Templeton International Equity
4,343 (1 ) (5,044 ) 2,551 (2,174 ) (325 ) AllianceBernstein Mid Cap Value ##
13 — (1 ) 194 (2 ) 204 Index 400 Stock
3,862 (1 ) (3,229 ) 1,896 (1,521 ) 1,007 Janus Capital Appreciation ##
32 — — 186 — 218 Growth Stock
3,259 (3 ) (3,681 ) 1,689 (2,026 ) (762 ) Large Cap Core Stock ^
2,454 — (3,531 ) 1,858 (1,104 ) (323 ) Capital Guardian Domestic Equity
95 — (51 ) 414 (57 ) 401 T. Rowe Price Equity Income ##
1 — — 130 — 131 Index 500 Stock
8,607 (3 ) (15,633 ) 2,343 (3,957 ) (8,643 ) Asset Allocation
74 (13 ) (23 ) 177 (663 ) (448 ) Balanced
6,524 (26 ) (19,636 ) 4,412 (7,918 ) (16,644 ) High Yield Bond
1,706 (1 ) (842 ) 2,347 (2,183 ) 1,027 Select Bond
2,727 (7 ) (4,255 ) 3,183 (3,722 ) (2,074 ) Money Market
3,819 (1 ) (11,210 ) 5,882 (3,315 ) (4,825 ) Fidelity VIP Mid Cap ##
9 — (1 ) 324 (3 ) 329 Russell Multi-Style Equity
194 — (128 ) 183 (128 ) 121 Russell Aggressive Equity
132 — (52 ) 111 (72 ) 119 Russell Non-U.S
95 — (34 ) 329 (24 ) 366 Russell Core Bond
163 — (126 ) 271 (253 ) 55 Russell Real Estate Securities
2,570 (2 ) (2,220 ) 2,905 (1,318 ) 1,935 Year Ended December 31, 2002
Small Cap Growth Stock
$ 3,161 $ — $ (3,415 ) $ 3,066 $ (2,791 ) $ 21 T. Rowe Price Small Cap Value
96 — (78 ) 592 (247 ) 363 Aggressive Growth Stock
9,670 — (23,497 ) 2,021 (6,377 ) (18,183 ) International Growth Stock
67 — (10 ) 159 (145 ) 71 Franklin Templeton International Equity
30,003 (2 ) (39,024 ) 6,265 (3,090 ) (5,848 ) Index 400 Stock
2,788 (1 ) (3,440 ) 2,998 (1,810 ) 535 Growth Stock
3,727 (3 ) (6,378 ) 2,570 (3,995 ) (4,079 ) Large Cap Core Stock ^
2,377 — (5,579 ) 973 (2,644 ) (4,873 ) Capital Guardian Domestic Equity
62 — (55 ) 509 (67 ) 449 Index 500 Stock
10,129 (3 ) (31,783 ) 1,762 (6,390 ) (26,285 ) Asset Allocation
185 (10 ) (9 ) 1,406 — 1,572 Balanced
6,606 (26 ) (24,451 ) 4,001 (11,207 ) (25,077 ) High Yield Bond
531 (1 ) (1,020 ) 709 (763 ) (544 ) Select Bond
2,853 (6 ) (5,251 ) 6,188 (3,530 ) 254 Money Market
4,425 (5 ) (13,638 ) 10,654 (5,725 ) (4,289 ) Russell Multi-Style Equity
312 — (345 ) 90 (406 ) (349 ) Russell Aggressive Equity
92 — (145 ) 67 (62 ) (48 ) Russell Non-U.S
85 — (147 ) 109 (101 ) (54 ) Russell Core Bond
100 — (121 ) 401 (422 ) (42 ) Russell Real Estate Securities
1,725 (1 ) (2,490 ) 4,673 (1,098 ) 2,809
RUSSELL NON-U.S. DIVISION RUSSELL REAL ESTATE SECURITIES DIVISION ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER^ Prior to January 31, DECEMBER2003 this Division was named the J.P. Morgan Select Growth and Income Stock Division.
## The initial investment in this Division was made on May 1, 2003. 47
NML VARIABLE ANNUITY ACCOUNT C
STATEMENTS OF CHANGES IN EQUITY CONTINUED
(IN THOUSANDS)
Equity DIVISION
Net Increase
(Decrease) in Equity
Beginning
of PeriodEnd of
PeriodYear Ended December 31, 2003
Small Cap Growth Stock
$ 7,533 $ 16,886 $ 24,419 T. Rowe Price Small Cap Value
372 454 826 Aggressive Growth Stock
7,368 71,654 79,022 International Growth Stock
87 59 146 Franklin Templeton International Equity
12,874 35,008 47,882 AllianceBernstein Mid Cap Value ##
229 — 229 Index 400 Stock
5,877 14,521 20,398 Janus Capital Appreciation ##
234 — 234 Growth Stock
3,121 22,261 25,382 Large Cap Core Stock ^
2,888 13,871 16,759 Capital Guardian Domestic Equity
651 584 1,235 T. Rowe Price Equity Income ##
144 — 144 Index 500 Stock
11,485 77,838 89,323 Asset Allocation
(231 ) 1,490 1,259 Balanced
(4,197 ) 82,224 78,027 High Yield Bond
2,312 3,894 6,206 Select Bond
(1,113 ) 19,561 18,448 Money Market
(4,802 ) 10,973 6,171 Fidelity VIP Mid Cap ##
377 — 377 Russell Multi-Style Equity
336 751 1,087 Russell Aggressive Equity
384 527 911 Russell Non-U.S
622 527 1,149 Russell Core Bond
92 803 895 Russell Real Estate Securities
5,467 9,566 15,033 Year Ended December 31, 2002
Small Cap Growth Stock
$ (4,212 ) $ 21,098 $ 16,886 T. Rowe Price Small Cap Value
289 165 454 Aggressive Growth Stock
(40,578 ) 112,232 71,654 International Growth Stock
21 38 59 Franklin Templeton International Equity
(13,894 ) 48,902 35,008 Index 400 Stock
(2,328 ) 16,849 14,521 Growth Stock
(10,755 ) 33,016 22,261 Large Cap Core Stock ^
(11,602 ) 25,473 13,871 Capital Guardian Domestic Equity
373 211 584 Index 500 Stock
(53,651 ) 131,489 77,838 Asset Allocation
1,444 46 1,490 Balanced
(33,748 ) 115,972 82,224 High Yield Bond
(689 ) 4,583 3,894 Select Bond
2,182 17,379 19,561 Money Market
(4,212 ) 15,185 10,973 Russell Multi-Style Equity
(652 ) 1,403 751 Russell Aggressive Equity
(183 ) 710 527 Russell Non-U.S
(145 ) 672 527 Russell Core Bond
10 793 803 Russell Real Estate Securities
2,966 6,600 9,566
^ Prior to January 31, DECEMBER2003 this Division was named the J.P. Morgan Select Growth and Income Stock Division.
## The initial investment in this Division was made on May 1, 2003. 48
NML VARIABLE ANNUITY ACCOUNT C
STATEMENTS OF CHANGES IN EQUITY CONTINUED
(IN THOUSANDS)
Operations DIVISION
Net Investment
Income (Loss)Net Realized
Gain (Loss)Net Change in
Unrealized
Appreciation
(Depreciation)Increase (Decrease) in
Equity Derived from
Investment ActivityYear Ended December 31, 2001
Small Cap Growth Stock
$ (26 ) $ (886 ) $ (14 ) $ (926 ) T. Rowe Price Small Cap Value #
— — 5 5 Aggressive Growth Stock
26,926 511 (58,412 ) (30,975 ) International Growth Stock #
— — (2 ) (2 ) Franklin Templeton International Equity
5,793 (6,258 ) (8,375 ) (8,840 ) Index 400 Stock
175 (575 ) 275 (125 ) Growth Stock
1,503 777 (8,402 ) (6,122 ) Large Cap Core Stock ^
833 (545 ) (2,643 ) (2,355 ) Capital Guardian Domestic Equity #
— — 6 6 Index 500 Stock
6,130 12,916 (39,298 ) (20,252 ) Asset Allocation #
— — — — Balanced
9,208 3,486 (17,384 ) (4,690 ) High Yield Bond
465 (737 ) 448 176 Select Bond
812 32 578 1,422 Money Market
360 — — 360 Russell Multi-Style Equity
23 (120 ) (144 ) (241 ) Russell Aggressive Equity
(6 ) (17 ) 9 (14 ) Russell Non-U.S
(4 ) (33 ) (158 ) (195 ) Russell Core Bond
41 14 (12 ) 43 Russell Real Estate Securities
281 140 (4 ) 417
Equity Transactions DIVISION
Contract
Owners’ Net
PaymentsAnnuity
PaymentsSurrenders and
Other (net)Transfers from
Other Divisions
or SponsorTransfers to
Other Divisions
or SponsorIncrease (Decrease) in
Equity Derived from
Equity TransactionsYear Ended December 31, 2001
Small Cap Growth Stock
$ 3,160 $ — $ (3,044 ) $ 4,837 $ (2,967 ) $ 1,986 T. Rowe Price Small Cap Value #
94 — — 66 — 160 Aggressive Growth Stock
13,427 (3 ) (23,656 ) 4,001 (7,931 ) (14,162 ) International Growth Stock #
11 — — 29 — 40 Franklin Templeton International Equity
27,273 (2 ) (32,422 ) 2,545 (5,144 ) (7,750 ) Index 400 Stock
3,343 — (2,104 ) 6,318 (1,982 ) 5,575 Growth Stock
4,918 (4 ) (6,927 ) 2,504 (4,049 ) (3,558 ) Large Cap Core Stock ^
3,353 — (5,302 ) 2,133 (2,079 ) (1,895 ) Capital Guardian Domestic Equity #
103 — — 102 — 205 Index 500 Stock
15,810 (4 ) (31,233 ) 4,024 (10,254 ) (21,657 ) Asset Allocation #
15 — — 31 — 46 Balanced
8,917 (28 ) (18,268 ) 3,462 (9,430 ) (15,347 ) High Yield Bond
1,643 (1 ) (2,091 ) 2,647 (2,030 ) 168 Select Bond
2,126 (5 ) (3,607 ) 5,722 (2,306 ) 1,930 Money Market
4,807 (17 ) (10,053 ) 12,104 (4,118 ) 2,723 Russell Multi-Style Equity
228 — (119 ) 61 (271 ) (101 ) Russell Aggressive Equity
120 — (72 ) 84 (51 ) 81 Russell Non-U.S
114 — (86 ) 21 — 49 Russell Core Bond
67 — (8 ) 253 (48 ) 264 Russell Real Estate Securities
1,245 — (1,081 ) 4,382 (1,014 ) 3,532
# The initial investment in this Division was made on July 31, DECEMBER2001.
^ Prior to January 31, DECEMBER2003 this Division was named the J.P. Morgan Select Growth and Income Stock Division.49
NML VARIABLE ANNUITY ACCOUNT C
STATEMENTS OF CHANGES IN EQUITY CONTINUED
(IN THOUSANDS)
Equity DIVISION
Net Increase
(Decrease) in EquityBeginning of
PeriodEnd of
PeriodYear Ended December 31, 2001
Small Cap Growth Stock
$ 1,060 $ 20,038 $ 21,098 T. Rowe Price Small Cap Value #
165 — 165 Aggressive Growth Stock
(45,137 ) 157,369 112,232 International Growth Stock #
38 — 38 Franklin Templeton International Equity
(16,590 ) 65,492 48,902 Index 400 Stock
5,450 11,399 16,849 Growth Stock
(9,680 ) 42,696 33,016 Large Cap Core Stock ^
(4,250 ) 29,723 25,473 Capital Guardian Domestic Equity #
211 — 211 Index 500 Stock
(41,909 ) 173,398 131,489 Asset Allocation #
46 — 46 Balanced
(20,037 ) 136,009 115,972 High Yield Bond
344 4,239 4,583 Select Bond
3,352 14,027 17,379 Money Market
3,083 12,102 15,185 Russell Multi-Style Equity
(342 ) 1,745 1,403 Russell Aggressive Equity
67 643 710 Russell Non-U.S
(146 ) 818 672 Russell Core Bond
307 486 793 Russell Real Estate Securities
3,949 2,651 6,600
# The initial investment in this Division was made on July 31, DECEMBER2001.
^ Prior to January 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------Investment2003 this Division was named the J.P. Morgan Select Growth and IncomeDividendStock Division.The Accompanying Notes are an Integral Part of the Financial Statements
50
NML VARIABLE ANNUITY ACCOUNT C
FINANCIAL HIGHLIGHTS
(FOR A UNIT OUTSTANDING DURING THE PERIOD)
DIVISION
UNIT VALUE (3),
LOWEST TO HIGHEST
DIVIDEND
INCOME AS
A % OF
AVERAGE NET
ASSETSEXPENSE RATIO
LOWEST TO HIGHESTTOTAL RETURN (4),
LOWEST TO HIGHESTSmall Cap Growth Stock
Year Ended 12/31/03
$1.605622 to $20.745671 0.00% 0.00% to 1.25% 31.41% to 33.06% Year Ended 12/31/02
$1.489185 to $15.591407 0.16% 0.00% to 1.25% (19.44%) to (18.42%) Year Ended 12/31/01
$1.848493 to $19.112629 0.01% 0.00% to 1.25% (4.97%) to (3.76%) T. Rowe Price Small Cap Value(1)
Year Ended 12/31/03
$1.121914 to $12.985287 0.00% 0.00% to 1.25% 33.48% to 35.15% Year Ended 12/31/02
$0.943905 to $9.607906 0.49% 0.00% to 1.25% (6.75%) to (5.58%) Period Ended 12/31/01
$1.012260 to $10.175772 0.38% 0.00% to 1.25% 1.23% to 1.76% Aggressive Growth Stock
Year Ended 12/31/03
$2.478578 to $47.932675 0.00% 0.00% to 1.25% 23.15% to 24.69% Year Ended 12/31/02
$2.360410 to $38.441232 0.10% 0.00% to 1.25% (22.13%) to (21.15%) Year Ended 12/31/01
$3.013165 to $48.753408 22.56% 0.00% to 1.25% (20.88%) to (19.87%) International Growth Stock(1)
Year Ended 12/31/03
$0.953741 to $11.039080 1.79% 0.00% to 1.25% 37.27% to 38.99% Year Ended 12/31/02
$0.780276 to $7.942434 0.27% 0.00% to 1.25% (13.42%) to (12.34%) Period Ended 12/31/01
$0.901258 to $9.060000 0.00% 0.00% to 1.25% (9.87%) to (9.40%) Franklin Templeton International Equity
Year Ended 12/31/03
$1.427413 to $2.471833 1.64% 0.00% to 1.25% 38.72% to 40.46% Year Ended 12/31/02
$1.559571 to $1.759773 2.11% 0.00% to 1.25% (18.43%) to (17.40%) Year Ended 12/31/01
$1.911919 to $2.130553 10.95% 0.00% to 1.25% (15.07%) to (14.00%) AllianceBernstein Mid Cap Value (2)
Period Ended 12/31/03
$1.278131 to $13.315544 1.22% 0.00% to 1.25% 32.05% to 33.16% Index 400 Stock
Year Ended 12/31/03
$1.173282 to $15.159273 0.71% 0.00% to 1.25% 33.34% to 35.01% Year Ended 12/31/02
$1.072428 to $11.227976 0.84% 0.00% to 1.25% (15.60%) to (14.54%) Year Ended 12/31/01
$1.270690 to $13.138452 1.30% 0.00% to 1.25% (1.90%) to (0.65%) Janus Capital Appreciation (2)
Period Ended 12/31/03
$1.150894 to $11.990097 0.13% 0.00% to 1.25% 18.91% to 19.90% Growth Stock
Year Ended 12/31/03
$1.544846 to $25.471804 0.80% 0.00% to 1.25% 17.47% to 18.94% Year Ended 12/31/02
$1.921805 to $21.414901 1.20% 0.00% to 1.25% (21.81%) to (20.83%) Year Ended 12/31/01
$2.458020 to $27.049526 4.53% 0.00% to 1.25% (15.29%) to (14.22%) Large Cap Core Stock (5)
Year Ended 12/31/03
$1.085867 to $20.737771 0.92% 0.00% to 1.25% 22.51% to 24.05% Year Ended 12/31/02
$1.500218 to $16.717038 0.97% 0.00% to 1.25% (29.09%) to (28.20%) Year Ended 12/31/01
$2.115675 to $23.281928 3.63% 0.00% to 1.25% (8.92%) to (7.77%) Capital Guardian Domestic Equity (1)
Year Ended 12/31/03
$0.894569 to $10.354264 1.96% 0.00% to 1.25% 32.74% to 34.41% Year Ended 12/31/02
$0.756787 to $7.703469 2.12% 0.00% to 1.25% (22.22%) to (21.24%) Period Ended 12/31/01
$0.973004 to $9.781208 0.71% 0.00% to 1.25% (2.70%) to (2.19%) T. Rowe Price Equity Income
......................(2)Period Ended 12/31/03
$ 91.186753 to $12.3635793.03% 0.00% to 1.25% 22.61% to 23.64% Index 500 Stock
Year Ended 12/31/03
$ 42.337968 to $45.2686171.46% 0.00% to 1.25% 26.84% to 28.43% Year Ended 12/31/02
$ 612.420098 to $35.2463851.44% 0.00% to 1.25% (23.04%) to (22.07%) Year Ended 12/31/01
$ 4813.125796 to $45.2288864.54% 0.00% to 1.25% (12.98%) to (11.88%) Asset Allocation(1)
Year Ended 12/31/03
$ 2900.915619 to $10.5980201.72% 0.00% to 1.25% 19.13% to 20.63% Year Ended 12/31/02
$ 52 Annuity Rate0.863125 to $8.7857512.61% 0.00% to 1.25% (11.37% )to (10.26%) Period Ended 12/31/01
$0.973862 to $9.789803 0.72% 0.00% to 1.25% (2.61%) to (2.10%) Balanced
Year Ended 12/31/03
$1.985808 to $99.686821 3.21% 0.00% to 1.25% 16.53% to 17.99% Year Ended 12/31/02
$2.209502 to $84.486469 4.05% 0.00% to 1.25% (8.68%) to (7.54%) Year Ended 12/31/01
$2.405185 to $91.372736 7.91% 0.00% to 1.25% (4.36%) to (3.15%) High Yield Bond
Year Ended 12/31/03
$0.908491 to $20.482734 0.21% 0.00% to 1.25% 27.46% to 29.06% Year Ended 12/31/02
$1.424293 to $15.870922 10.23% 0.00% to 1.25% (4.10%) to (2.89%) Year Ended 12/31/01
$1.485164 to $16.343831 10.11% 0.00% to 1.25% 3.72% to 5.03% Select Bond
Year Ended 12/31/03
$1.423053 to $127.939507 3.86% 0.00% to 1.25% 4.18% to 5.49% Year Ended 12/31/02
$2.084184 to $121.279762 4.77% 0.00% to 1.25% 10.70% to 12.09% Year Ended 12/31/01
$1.871532 to $108.200259 5.60% 0.00% to 1.25% 8.99% to 10.37% Money Market
Year Ended 12/31/03
$1.035206 to $34.553668 1.29% 0.00% to 1.25% (0.02%) to 1.23% Year Ended 12/31/02
$1.504462 to $34.132616 1.66% 0.00% to 1.25% 0.39% to 1.65% Year Ended 12/31/01
$1.489628 to $33.577318 3.74% 0.00% to 1.25% 2.62% to 3.92% 51
NML VARIABLE ANNUITY ACCOUNT C
FINANCIAL HIGHLIGHTS CONTINUED
(FOR A UNIT OUTSTANDING DURING THE PERIOD)
DIVISION
UNIT VALUE(3),
LOWEST TO HIGHESTDIVIDEND
INCOME AS
A % OF
AVERAGE NET
ASSETSEXPENSE RATIO
LOWEST TO HIGHESTTOTAL RETURN (4),
LOWEST TO HIGHESTFidelity VIP Mid Cap(2)
Period Ended 12/31/03
$1.350258 to $14.066904 0.00% 0.00% to 1.25% 39.50% to 40.67% Russell Multi-Style Equity
Year Ended 12/31/03
$0.620449 to $11.740732 0.70% 0.00% to 1.25% 27.26% to 28.86% Year Ended 12/31/02
$0.594202 to $6.221208 0.62% 0.00% to 1.25% (24.14%) to (23.19%) Year Ended 12/31/01
$0.783335 to $8.099453 2.58% 0.00% to 1.25% (15.28%) to (14.21%) Russell Aggressive Equity
Year Ended 12/31/03
$0.981216 to $13.489469 0.11% 0.00% to 1.25% 43.79% to 45.60% Year Ended 12/31/02
$0.831686 to $8.707578 0.00% 0.00% to 1.25% (20.06%) to (19.06%) Year Ended 12/31/01
$1.040412 to $10.757522 0.11% 0.00% to 1.25% (3.58%) to (2.36%) Russell Non-U.S
Year Ended 12/31/03
$0.762184 to $10.238075 3.46% 0.00% to 1.25% 37.07% to 38.79% Year Ended 12/31/02
$0.677755 to $7.095865 1.62% 0.00% to 1.25% (16.20%) to (15.15%) Year Ended 12/31/01
$0.808779 to $8.362558 0.59% 0.00% to 1.25% (23.00%) to (22.03%) Russell Core Bond
Year Ended 12/31/03
$1.047336 to $13.532112 3.52% 0.00% to 1.25% 4.83% to 6.15% Year Ended 12/31/02
$1.217720 to $12.748590 2.91% 0.00% to 1.25% 7.49% to 8.84% Year Ended 12/31/01
$1.132872 to $11.713217 6.24% 0.00% to 1.25% 6.07% to 7.41% Russell Real Estate Securities
Year Ended 12/31/03
$1.402741 to $18.123797 5.38% 0.00% to 1.25% 35.51% to 37.21% Year Ended 12/31/02
$1.261665 to $13.208871 5.22% 0.00% to 1.25% 2.51% to 3.80% Year Ended 12/31/01
$1.230726 to $12.725061 5.28% 0.00% to 1.25% 6.49% to 7.84%
(1) Division commenced operations on July 31, 2001.
(2) Division commenced operations on May 1, 2003.
(3) The lowest and Expense Guarantees .. (6) (8) (8) (11) (9) (2) ------------ ------------ ------------ ------------ ------------ ------------ Net Investmenthighest unit value is as of the respective period-end date.
(4) 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.
(5) Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income (Loss) ............ 3 (4) 53 470 281 50 ------------ ------------ ------------ ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments .. (107) (33) 15 101 140 36 Unrealized Appreciation (Depreciation) During the Year ................... 13 (158) (199) (414) (4) 126 ------------ ------------ ------------ ------------ ------------ ------------ Net Gain (Loss) on Investments .......... (94) (191) (184) (313) 136 162 ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ..... $ (91) $ (195) $ (131) $ 157 $ 417 $ 212 ============ ============ ============ ============ ============ ============Stock Division.
RUSSELL CORE BOND DIVISION ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 ------------ ------------ ------------Investment Income Dividend Income .............................................. $ 20 $ 48 $ 22 Annuity Rate and Expense Guarantees .......................... (6) (7) (4) ------------ ------------ ------------ Net Investment Income (Loss) .................................... 14 41 18 ------------ ------------ ------------ Realized and Unrealized Gain (Loss) on Investments Realized Gain (Loss) on Investments .......................... 27 14 (3) Unrealized Appreciation (Depreciation) During the Year ........................................... 11 (12) 23 ------------ ------------ ------------ Net Gain (Loss) on Investments .................................. 38 2 20 ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ............................. $ 52 $ 43 $ 38 ============ ============ ============The Accompanying Notes are an Integral Part of the Financial Statements.
4452
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 YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------Operations: Net Investment Income (Loss) ........ $ 7,685 $ 52,514 $ 52,053 $ 7 $ (26) $ 73 Net Realized Gain (Loss) ............ (35,241) 8,705 54,861 (1,245) (886) 295 Net Change in Unrealized Appreciation (Depreciation) ...... (58,211) (133,527) (121,850) (2,995) (14) (1,897) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity .... (85,767) (72,308) (14,936) (4,233) (926) (1,529) ------------ ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ........ 78,994 90,774 103,967 3,161 3,160 4,045 Annuity Payments .................... (58) (64) (75) -- -- -- Surrenders and Other (Net) .......... (160,876) (140,073) (135,735) (3,415) (3,044) (373) Transfers from Other Divisions or Sponsors ....................... 49,213 55,326 91,474 3,066 4,837 17,508 Transfers to Other Divisions or Sponsors ........................ (50,870) (53,674) (92,576) (2,791) (2,967) (562) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions .... (83,597) (47,711) (32,945) 21 1,986 20,618 ------------ ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ...... (169,364) (120,019) (47,881) (4,212) 1,060 19,089 Equity: Beginning of Period ................. 552,816 672,835 720,716 21,098 20,038 949 ------------ ------------ ------------ ------------ ------------ ------------ End of Period ....................... $ 383,452 $ 552,816 $ 672,835 $ 16,886 $ 21,098 $ 20,038 ============ ============ ============ ============ ============ ============
T. ROWE PRICE SMALL CAP VALUE DIVISION # AGGRESSIVE GROWTH STOCK DIVISION --------------------------- ------------------------------------------ YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 2000 ------------ ------------ ------------ ------------ ------------Operations: Net Investment Income (Loss) ........ $ (3) $ -- $ (141) $ 26,926 $ 19,607 Net Realized Gain (Loss) ............ (27) -- (10,519) 511 9,000 Net Change in Unrealized Appreciation (Depreciation) ...... (44) 5 (11,735) (58,412) (20,677) ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity .... (74) 5 (22,395) (30,975) 7,930 ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ........ 96 94 9,670 13,427 23,615 Annuity Payments .................... -- -- -- (3) (5) Surrenders and Other (Net) .......... (78) -- (23,497) (23,656) (20,763) Transfers from Other Divisions or Sponsors ....................... 592 66 2,021 4,001 16,356 Transfers to Other Divisions or Sponsors ....................... (247) -- (6,377) (7,931) (9,504) ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions .... 363 160 (18,183) (14,162) 9,699 ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ...... 289 165 (40,578) (45,137) 17,629 Equity: Beginning of Period ................. 165 -- 112,232 157,369 139,740 ------------ ------------ ------------ ------------ ------------ End of Period ....................... $ 454 $ 165 $ 71,654 $ 112,232 $ 157,369 ============ ============ ============ ============ ============- ---------- # The initial investment in this Division was made on July 31, 2001. 45NML VARIABLE ANNUITY ACCOUNT C STATEMENTS OF CHANGES IN EQUITY CONTINUED (IN THOUSANDS)
INTERNATIONAL GROWTH FRANKLIN TEMPLETON INTERNATIONAL STOCK DIVISION # EQUITY DIVISION ---------------------------- -------------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 2000 ------------ ------------ ------------ ------------ ------------Operations: Net Investment Income (Loss) ................. $ -- $ -- $ 828 $ 5,793 $ 4,850 Net Realized Gain (Loss) ..................... (42) -- (8,378) (6,258) 3,131 Net Change in Unrealized Appreciation (Depreciation) ............... (8) (2) (496) (8,375) (8,616) ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ............. (50) (2) (8,046) (8,840) (635) ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ................. 67 11 30,003 27,273 22,162 Annuity Payments ............................. -- -- (2) (2) (2) Surrenders and Other (Net) ................... (10) -- (39,024) (32,422) (22,407) Transfers from Other Divisions or Sponsors ... 159 29 6,265 2,545 9,389 Transfers to Other Divisions or Sponsors ..... (145) -- (3,090) (5,144) (7,571) ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ............. 71 40 (5,848) (7,750) 1,571 ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ............... 21 38 (13,894) (16,590) 936 Equity: Beginning of Period .......................... 38 -- 48,902 65,492 64,556 ------------ ------------ ------------ ------------ ------------ End of Period ................................ $ 59 $ 38 $ 35,008 $ 48,902 $ 65,492 ============ ============ ============ ============ ============
INDEX 400 STOCK DIVISION GROWTH 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, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------Operations: Net Investment Income (Loss) ....... $ 120 $ 175 $ 1,169 $ 253 $ 1,503 $ 1,949 Net Realized Gain (Loss) ........... (823) (575) 98 (2,757) 777 2,717 Net Change in Unrealized Appreciation (Depreciation) ..... (2,160) 275 (923) (4,172) (8,402) (5,875) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ... (2,863) (125) 344 (6,676) (6,122) (1,209) ------------ ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ....... 2,788 3,343 881 3,727 4,918 6,941 Annuity Payments ................... (1) -- -- (3) (4) (4) Surrenders and Other (Net) ......... (3,440) (2,104) (366) (6,378) (6,927) (6,269) Transfers from Other Divisions or Sponsors ...................... 2,998 6,318 10,283 2,570 2,504 6,640 Transfers to Other Divisions or Sponsors ...................... (1,810) (1,982) (217) (3,995) (4,049) (3,179) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ... 535 5,575 10,581 (4,079) (3,558) 4,129 ------------ ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ..... (2,328) 5,450 10,925 (10,755) (9,680) 2,920 Equity: Beginning of Period ................ 16,849 11,399 474 33,016 42,696 39,776 ------------ ------------ ------------ ------------ ------------ ------------ End of Period ...................... $ 14,521 $ 16,849 $ 11,399 $ 22,261 $ 33,016 $ 42,696 ============ ============ ============ ============ ============ ============- ---------- # The initial investment in this Division was made on July 31, 2001. 46NML VARIABLE ANNUITY ACCOUNT C STATEMENTS OF CHANGES IN EQUITY CONTINUED (IN THOUSANDS)
J.P. MORGAN SELECT GROWTH AND INCOME CAPITAL GUARDIAN DOMESTIC STOCK DIVISION EQUITY DIVISION # ------------------------------------------ --------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 ------------ ------------ ------------ ------------ ------------Operations: Net Investment Income (Loss) ................. $ 102 $ 833 $ 1,945 $ 4 $ -- Net Realized Gain (Loss) ..................... (3,735) (545) (276) (8) -- Net Change in Unrealized Appreciation (Depreciation) ............... (3,096) (2,643) (4,224) (72) 6 ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ............. (6,729) (2,355) (2,555) (76) 6 ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ................. 2,377 3,353 4,010 62 103 Annuity Payments ............................. -- -- -- -- -- Surrenders and Other (Net) ...................... (5,579) (5,302) (6,461) (55) -- Transfers from Other Divisions or Sponsors ... 973 2,133 2,472 509 102 Transfers to Other Divisions or Sponsors ..... (2,644) (2,079) (8,848) (67) -- ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ............. (4,873) (1,895) (8,827) 449 205 ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ............... (11,602) (4,250) (11,382) 373 211 Equity: Beginning of Period .......................... 25,473 29,723 41,105 211 -- ------------ ------------ ------------ ------------ ------------ End of Period ................................ $ 13,871 $ 25,473 $ 29,723 $ 584 $ 211 ============ ============ ============ ============ ============
INDEX 500 STOCK DIVISION ASSET ALLOCATION DIVISION # ------------------------------------------ --------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 ------------ ------------ ------------ ------------ ------------Operations: Net Investment Income (Loss) ................. $ 1,209 $ 6,130 $ 7,682 $ 16 $ -- Net Realized Gain (Loss) ..................... (2,524) 12,916 27,391 (23) -- Net Change in Unrealized Appreciation (Depreciation) ............... (26,051) (39,298) (53,361) (121) -- ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ............. (27,366) (20,252) (18,288) (128) -- ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ................. 10,129 15,810 20,521 185 15 Annuity Payments ............................. (3) (4) (5) (10) -- Surrenders and Other (Net) ................... (31,783) (31,233) (31,320) (9) -- Transfers from Other Divisions or Sponsors ... 1,762 4,024 6,728 1,406 31 Transfers to Other Divisions or Sponsors ..... (6,390) (10,254) (24,313) -- -- ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ............. (26,285) (21,657) (28,389) 1,572 46 ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ............... (53,651) (41,909) (46,677) 1,444 46 Equity: Beginning of Period .......................... 131,489 173,398 220,075 46 -- ------------ ------------ ------------ ------------ ------------ End of Period ................................ $ 77,838 $ 131,489 $ 173,398 $ 1,490 $ 46 ============ ============ ============ ============ ============- ---------- # The initial investment in this Division was made on July 31, 2001. 47NML VARIABLE ANNUITY ACCOUNT C STATEMENTS OF CHANGES IN EQUITY CONTINUED (IN THOUSANDS)
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, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------Operations: Net Investment Income (Loss) ......... $ 3,566 $ 9,208 $ 12,221 $ 400 $ 465 $ 528 Net Realized Gain (Loss) ............. (5,135) 3,486 14,398 (278) (737) (1,290) Net Change in Unrealized Appreciation (Depreciation) ...... (7,102) (17,384) (27,427) (267) 448 501 ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity .. (8,671) (4,690) (808) (145) 176 (261) ------------ ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ...... 6,606 8,917 13,295 531 1,643 698 Annuity Payments .................. (26) (28) (37) (1) (1) (1) Surrenders and Other (Net) ........ (24,451) (18,268) (26,734) (1,020) (2,091) (1,212) Transfers from Other Divisions or Sponsors ...................... 4,001 3,462 2,847 709 2,647 669 Transfers to Other Divisions or Sponsors ...................... (11,207) (9,430) (19,997) (763) (2,030) (2,034) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions .. (25,077) (15,347) (30,626) (544) 168 (1,880) ------------ ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity .... (33,748) (20,037) (31,434) (689) 344 (2,141) Equity: Beginning of Period ............... 115,972 136,009 167,443 4,583 4,239 6,380 ------------ ------------ ------------ ------------ ------------ ------------ End of Period ..................... $ 82,224 $ 115,972 $ 136,009 $ 3,894 $ 4,583 $ 4,239 ============ ============ ============ ============ ============ ============
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, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------Operations: Net Investment Income (Loss) ...... $ 770 $ 812 $ 984 $ 77 $ 360 $ 797 Net Realized Gain (Loss) .......... 541 32 (655) -- -- -- Net Change in Unrealized Appreciation (Depreciation) .... 617 578 1,084 -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity .. 1,928 1,422 1,413 77 360 7979 ------------ ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ...... 2,853 2,126 2,655 4,425 4,807 4,448 Annuity Payments .................. (6) (5) (4) (5) (17) (17) Surrenders and Other (Net) ........ (5,251) (3,607) (4,440) (13,638) (10,053) (14,734) Transfers from Other Divisions or Sponsors ...................... 6,188 5,722 2,504 10,654 12,104 11,630 Transfers to Other Divisions or Sponsors ...................... (3,530) (2,306) (5,638) (5,725) (4,118) (9,596) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions .. 254 1,930 (4,923) (4,289) 2,723 (8,269) ------------ ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity .... 2,182 (3,352) (3,510) (4,212) 3,083 (7,472) Equity: Beginning of Period ............... 17,379 14,027 17,537 15,185 12,102 19,574 ------------ ------------ ------------ ------------ ------------ ------------ End of Period ..................... $ 19,561 $ 17,379 $ 14,027 $ 10,973 $ 15,185 $ 12,102 ============ ============ ============ ============ ============ ============48NML VARIABLE ANNUITY ACCOUNT C STATEMENTS OF CHANGES IN EQUITY CONTINUED (IN THOUSANDS)
RUSSELL MULTI-STYLE EQUITY DIVISION RUSSELL AGGRESSIVE EQUITY DIVISION ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------Operations: Net Investment Income (Loss) ....... $ (3) $ 23 $ 60 $ (7) $ (6) $ 67 Net Realized Gain (Loss) ........... (274) (120) (20) (35) (17) 24 Net Change in Unrealized Appreciation (Depreciation) ..... (26) (144) (282) (93) 9 (103) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ... (303) (241) (242) (135) (14) (12) ------------ ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ....... 312 228 210 92 120 133 Annuity Payments ................... -- -- -- -- -- -- Surrenders and Other (Net) ......... (345) (119) (243) (145) (72) (170) Transfers from Other Divisions or Sponsors .......................... 90 61 672 67 84 472 Transfers to Other Divisions or Sponsors ....................... (406) (271) (357) (62) (51) (131) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ... (349) (101) 282 (48) 81 304 ------------ ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity ..... (652) (342) 40 (183) 67 292 Equity: Beginning of Period ................ 1,403 1,745 1,705 710 643 351 ------------ ------------ ------------ ------------ ------------ ------------ End of Period ...................... $ 751 $ 1,403 $ 1,745 $ 527 $ 710 $ 643 ============ ============ ============ ============ ============ ============
RUSSELL NON-U.S. DIVISION RUSSELL REAL ESTATE SECURITIES 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, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ Operations:Net Investment Income (Loss) ...... $ 3 $ (4) $ 53 $ 470 $ 281 $ 50 Net Realized Gain (Loss) .......... (107) (33) 15 101 140 36 Net Change in Unrealized Appreciation (Depreciation) .... 13 (158) (199) (414) (4) 126 ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity .. (91) (195) (131) 157 417 212 ------------ ------------ ------------ ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ...... 85 114 125 1,725 1,245 151 Annuity Payments .................. -- -- -- (1) -- -- Surrenders and Other (Net) ........ (147) (86) (152) (2,490) (1,081) (48) Transfers from Other Divisions or Sponsors ......................... 109 21 516 4,673 4,382 2,707 Transfers to Other Divisions or Sponsors ...................... (101) -- (105) (1,098) (1,014) (473) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions .. (54) 49 384 2,809 3,532 2,337 ------------ ------------ ------------ ------------ ------------ ------------ Net Increase (Decrease) in Equity .... (145) (146) 253 2,966 3,949 2,549 Equity: Beginning of Period ............... 672 818 565 6,600 2,651 102 ------------ ------------ ------------ ------------ ------------ ------------ End of Period ..................... $ 527 $ 672 $ 818 $ 9,566 $ 6,600 $ 2,651 ============ ============ ============ ============ ============ ============49NML VARIABLE ANNUITY ACCOUNT C STATEMENTS OF CHANGES IN EQUITY CONTINUED (IN THOUSANDS)
RUSSELL CORE BOND DIVISION ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 ------------ ------------ ------------Operations: Net Investment Income (Loss) ................. $ 14 $ 41 $ 18 Net Realized Gain (Loss) ..................... 27 14 (3) Net Change in Unrealized Appreciation (Depreciation) ............... 11 (12) 23 ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Investment Activity ............. 52 43 38 ------------ ------------ ------------ Equity Transactions: Contract Owners' Net Payment ................. 100 67 77 Annuity Payments ............................. -- -- -- Surrenders and Other (Net) ................... (121) (8) (43) Transfers from Other Divisions or Sponsors ... 401 253 81 Transfers to Other Divisions or Sponsors ..... (422) (48) (51) ------------ ------------ ------------ Increase (Decrease) in Equity Derived from Equity Transactions ............. (42) 264 64 ------------ ------------ ------------ Net Increase (Decrease) in Equity ............... 10 307 102 Equity: Beginning of Period .......................... 793 486 384 ------------ ------------ ------------ End of Period ................................ $ 803 $ 793 $ 486 ============ ============ ============The Accompanying Notes are an Integral Part of the Financial Statements. 50FINANCIAL HIGHLIGHTS NML VARIABLE ANNUITY ACCOUNT C (FOR A UNIT OUTSTANDING DURING THE PERIOD)
DIVIDEND INCOME AS A % OF UNIT VALUE AVERAGE NET EXPENSE RATIO TOTAL RETURN(2) DIVISION LOWEST TO HIGHEST ASSETS LOWEST TO HIGHEST LOWEST TO HIGHEST - -------- ------------------------ ----------- ----------------- ----------------------Small Cap Growth Stock Year Ended 12/31/02...................... $1.489185 to $ 15.591407 0.16% 0.00% to 1.25% (19.44%) to (18.42%) Year Ended 12/31/01...................... $1.848493 to $ 19.112629 0.01% 0.00% to 1.25% (4.97%) to (3.76%) T. Rowe Price Small Cap Value(1) ........... Year Ended 12/31/02...................... $0.943905 to $ 9.607906 0.49% 0.00% to 1.25% (6.75%) to (5.58%) Period Ended 12/31/01.................... $1.012260 to $ 10.175772 0.38% 0.00% to 1.25% 1.23% to 1.76% Aggressive Growth Stock Year Ended 12/31/02...................... $2.360410 to $ 38.441232 0.10% 0.00% to 1.25% (22.13%) to (21.15%) Year Ended 12/31/01...................... $3.013165 to $ 48.753408 22.56% 0.00% to 1.25% (20.88%) to (19.87%) International Growth Stock(1) Year Ended 12/31/02...................... $0.780276 to $ 7.942434 0.27% 0.00% to 1.25% (13.42%) to (12.34%) Period Ended 12/31/01....... ............ $0.901258 to $ 9.060000 0.00% 0.00% to 1.25% (9.87%) to (9.40%) Franklin Templeton International Equity Year Ended 12/31/02...................... $1.559571 to $ 1.759773 2.11% 0.00% to 1.25% (18.43%) to (17.40%) Year Ended 12/31/01...................... $1.911919 to $ 2.130553 10.95% 0.00% to 1.25% (15.07%) to (14.00%) Index 400 Stock Year Ended 12/31/02...................... $1.072428 to $ 11.227976 0.84% 0.00% to 1.25% (15.60%) to (14.54%) Year Ended 12/31/01...................... $1.270690 to $ 13.138452 1.30% 0.00% to 1.25% (1.90%) to (0.65%) Growth Stock Year Ended 12/31/02...................... $1.921805 to $ 21.414901 1.20% 0.00% to 1.25% (21.81%) to (20.83%) Year Ended 12/31/01...................... $2.458020 to $ 27.049526 4.53% 0.00% to 1.25% (15.29%) to (14.22%) J.P. Morgan Select Growth and Income Stock Year Ended 12/31/02...................... $1.500218 to $ 16.717038 0.97% 0.00% to 1.25% (29.09%) to (28.20%) Year Ended 12/31/01...................... $2.115675 to $ 23.281928 3.63% 0.00% to 1.25% (8.92%) to (7.77%) Capital Guardian Domestic Equity(1) Year Ended 12/31/02...................... $0.756787 to $ 7.703469 2.12% 0.00% to 1.25% (22.22%) to (21.24%) Period Ended 12/31/01.................... $0.973004 to $ 9.781208 0.71% 0.00% to 1.25% (2.70%) to (2.19%) Index 500 Stock Year Ended 12/31/02...................... $2.420098 to $ 35.246385 1.44% 0.00% to 1.25% (23.04%) to (22.07%) Year Ended 12/31/01...................... $3.125796 to $ 45.228886 4.54% 0.00% to 1.25% (12.98%) to (11.88%) Asset Allocation(1) Year Ended 12/31/02...................... $0.863125 to $ 8.785751 2.61% 0.00% to 1.25% (11.37%) to (10.26%) Period Ended 12/31/01.................... $0.973862 to $ 9.789803 0.72% 0.00% to 1.25% (2.61%) to (2.10%) Balanced Year Ended 12/31/02...................... $2.209502 to $ 84.486469 4.05% 0.00% to 1.25% (8.68%) to (7.54%) Year Ended 12/31/01...................... $2.405185 to $ 91.372736 7.91% 0.00% to 1.25% (4.36%) to (3.15%) High Yield Bond Year Ended 12/31/02...................... $1.424293 to $ 15.870922 10.23% 0.00% to 1.25% (4.10%) to (2.89%) Year Ended 12/31/01...................... $1.485164 to $ 16.343831 10.11% 0.00% to 1.25% 3.72% to 5.03% Select Bond Year Ended 12/31/02...................... $2.084184 to $121.279762 4.77% 0.00% to 1.25% 10.70% to 12.09% Year Ended 12/31/01...................... $1.871532 to $108.200259 5.60% 0.00% to 1.25% 8.99% to 10.37% Money Market Year Ended 12/31/02...................... $1.504462 to $ 34.132616 1.66% 0.00% to 1.25% 0.39% to 1.65% Year Ended 12/31/01...................... $1.489628 to $ 33.577318 3.74% 0.00% to 1.25% 2.62% to 3.92% Russell Multi-Style Equity Year Ended 12/31/02...................... $0.594202 to $ 6.221208 0.62% 0.00% to 1.25% (24.14%) to (23.19%) Year Ended 12/31/01...................... $0.783335 to $ 8.099453 2.58% 0.00% to 1.25% (15.28%) to (14.21%) Russell Aggressive Equity Year Ended 12/31/02...................... $0.831686 to $ 8.707578 0.00% 0.00% to 1.25% (20.06%) to (19.06%) Year Ended 12/31/01...................... $1.040412 to $ 10.757522 0.11% 0.00% to 1.25% (3.58%) to (2.36%) Russell Non-U.S Year Ended 12/31/02...................... $0.677755 to $ 7.095865 1.62% 0.00% to 1.25% (16.20%) to (15.15%) Year Ended 12/31/01...................... $0.808779 to $ 8.362558 0.59% 0.00% to 1.25% (23.00%) to (22.03%)51FINANCIAL HIGHLIGHTS NML VARIABLE ANNUITY ACCOUNT C CONTINUED (FOR A UNIT OUTSTANDING DURING THE PERIOD)
Russell Core Bond Year Ended 12/31/02......... $1.217720 to $ 12.748590 2.91% 0.00% to 1.25% 7.49% to 8.84% Year Ended 12/31/01......... $1.132872 to $ 11.713217 6.24% 0.00% to 1.25% 6.07% to 7.41% Russell Real Estate Securities Year Ended 12/31/02......... $1.261665 to $ 13.208871 5.22% 0.00% to 1.25% 2.51% to 3.80% Year Ended 12/31/01......... $1.230726 to $ 12.725061 5.28% 0.00% to 1.25% 6.49% to 7.84%- ----------- (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. The Accompanying Notes are an Integral Part of the Financial Statements. 52NML VARIABLE ANNUITY ACCOUNT CNOTES TO FINANCIAL STATEMENTS
NOTE 1
--— NML Variable Annuity Account C (the"Account"“Account”) is a segregated asset account of The Northwestern Mutual Life Insurance Company("(“NorthwesternMutual"Mutual”) used to fund variable annuity contracts("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 accounting principles generally accepted in the United States of America 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., Fidelity VIP Mid Cap Portfolio and the RussellInsuranceInvestment Funds (collectively know as the"Funds"“Funds”). The shares are valued at theFunds'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, included in equity, are based on published annuity tables with age adjustments and benefit payments which reflect actual investment experience. Annuity reserves are based on the 1983 Annuity Table a adjusted with assumed interest rates of3-1/2%3.5% or 5%.NOTE 5
--— Dividend income and distributions of net realized gains from the Funds is recorded on the ex-date of the dividends. Transactions in theFunds'Funds’ shares are accounted for on the trade date. The basis for determining cost on sale of theFunds'Funds’ shares is identified cost. Purchases and sales of theFunds'Funds’ shares for the years ended December 31 by each Division are shown below:(in thousands)
PURCHASES
2003 2002 2001 Small Cap Growth Stock
$ 6,284 $ 4,101 $ 6,233 T. Rowe Price Small Cap Value #
252 439 160 Aggressive Growth Stock
9,252 13,446 36,768 International Growth Stock #
80 82 40 Franklin Templeton International Equity
5,760 37,675 31,684 AllianceBernstein Mid Cap Value ##
207 — — Index 400 Stock
4,532 4,795 8,667 Janus Capital Appreciation ##
219 — — Growth Stock
3,816 4,615 6,414 Large Cap Core Stock ^
3,455 3,215 4,403 Capital Guardian Domestic Equity #
466 507 205 T. Rowe Price Equity Income ##
133 — — Index 500 Stock
11,518 17,825 17,139 Asset Allocation #
94 1,603 45 Balanced
10,374 13,689 15,734 High Yield Bond
1,929 1,019 4,183 Select Bond
4,306 6,546 7,322 Money Market
6,895 10,579 14,788 Fidelity VIP Mid Cap ##
329 — — Russell Multi-Style
247 326 402 Russell Aggressive Equity
163 124 183 Russell Non-U.S
419 107 135 Russell Core Bond
218 146 753 Russell Real Estate Securities
5,091 5,919 5,225
PURCHASES 2002 2001 2000 - --------- ----------- ----------- -----------Small Cap Growth Stock ...................... $ 4,101,427 $ 6,233,394 $21,822,710 T. Rowe Price Small Cap Value# ............. 439,368 159,645 N/A Aggressive Growth Stock ..................... 13,446,357 36,767,770 47,835,326 International Growth Stock#.................. 81,631 39,524 N/A Franklin Templeton International Equity ..... 37,675,272 31,683,628 31,939,632 Index 400 Stock ............................. 4,794,956 8,666,766 12,366,486 Growth Stock ............................... 4,614,934 6,414,454 12,950,757 J.P. Morgan Select Growth and Income Stock... 3,214,603 4,403,338 5,847,806 Capital Guardian Domestic Equity#............ 507,375 204,575 N/A Index 500 Stock ............................. 17,825,221 17,138,782 21,135,615 Asset Allocation#............................ 1,602,656 45,385 N/A Balanced .................................... 13,689,364 15,734,227 19,926,273 High Yield Bond ............................ 1,019,296 4,182,589 2,046,585 Select Bond ................................. 6,546,498 7,322,244 5,061,775 Money Market ............................... 10,578,873 14,787,625 14,029,450 Russell Multi-Style ......................... 326,188 401,949 851,426 Russell Aggressive Equity .................. 123,680 183,388 646,095 Russell Non-U.S. ............................ 107,319 134,575 646,150 Russell Core Bond .......................... 145,550 752,848 179,473 Russell Real Estate Securities............... 5,919,307 5,224,573 3,116,036# Initial Investment in this division was made on July 31, 2001. 53NML VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS CONTINUED
SALES 2002 2001 2000 - ----- ------------ ------------ ------------Small Cap Growth Stock ...................... $ 4,073,616 $ 4,295,263 $ 1,131,840 T. Rowe Price Small Cap Value# .............. 78,233 176 N/A Aggressive Growth Stock ..................... 29,800,357 24,003,411 18,536,546 International Growth Stock# ................. 11,232 123 N/A Franklin Templeton International Equity ..... 42,699,052 33,668,396 25,522,098 Index 400 Stock ............................. 4,139,828 2,918,757 615,601 Growth Stock ................................ 8,441,163 8,466,155 6,871,377^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock .. 7,984,459 5,467,056 12,730,171 Capital Guardian Domestic Equity# ........... 57,966 145 N/A Index 500Division.
## Initial Investment in this division was made on May 1, 2003. 53
NML VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS CONTINUED
SALES
2003 2002 2001 Small Cap Growth Stock
$ 4,161 $ 4,074 $ 4,295 T. Rowe Price Small Cap Value #
64 78 — Aggressive Growth Stock
18,065 29,800 24,003 International Growth Stock #
10 11 — Franklin Templeton International Equity
5,524 42,699 33,668 AllianceBernstein Mid Cap Value ##
1 — — Index 400 Stock
3,434 4,140 2,919 Janus Capital Appreciation ##
— — — Growth Stock
4,450 8,441 8,466 Large Cap Core Stock ^
3,694 7,984 5,467 Capital Guardian Domestic Equity #
51 58 — T. Rowe Price Equity Income
— — — Index 500 Stock
18,696 40,484 32,663 Asset Allocation #
533 13 — Balanced
24,771 35,212 21,870 High Yield Bond
905 1,162 3,550 Select Bond
5,266 5,400 4,581 Money Market
11,697 14,794 11,702 Fidelity VIP Mid Cap ##
1 — — Russell Multi-Style
123 678 486 Russell Aggressive Equity
52 179 115 Russell Non-U.S
35 158 89 Russell Core Bond
127 150 442 Russell Real Estate Securities
2,570 2,586 1,383
# Initial Investment in this division was made on July 31, 2001.
^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock ............................. 40,484,151 32,662,751 42,005,726 Asset Allocation# ........................... 13,114 83 N/A Balanced .................................... 35,212,020 21,870,333 38,332,517 High Yield Bond ............................. 1,162,441 3,549,767 3,398,369 Select Bond ................................. 5,400,203 4,580,899 9,000,392 Money Market ................................ 14,793,674 11,701,602 21,273,753 Russell Multi-Style ......................... 678,182 485,832 510,026 Russell Aggressive Equity ................... 178,946 114,505 276,105 Russell Non-U.S ............................. 158,091 89,282 208,804 Russell Core Bond ........................... 150,115 441,607 736,889 Russell Real Estate Securities .............. 2,586,225 1,382,753 97,425Division.- ----------- # Initial Investment in this division was made on July 31, 2001.
## Initial Investment in this division was made on May 1, 2003. 54
NML VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS CONTINUED
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%.5% 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 a3/4 of 1%.75% 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%.65% and1-1/4%1.25%, 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% and1-1/2%1.5% 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'Owners’ Net Payment in the accompanying financial statements.NOTE 7
--— Northwestern Mutual is taxed as a"life“life insurancecompany"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.5455
NML VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS CONTINUED
NOTE 8
--— The changes in units outstanding for the years ended December 31, 2003, 2002 and 2001 by each Division are shown as follows:(in thousands)
Year Ended December 31, 2003
Units
IssuedUnits
RedeemedNet Increase
(Decrease)Small Cap Growth Stock Division
572 406 166 T. Rowe Price Small Cap Value Division
216 58 158 Aggressive Growth Stock Division
699 2,136 (1,437 ) International Growth Division
74 13 61 Franklin Templeton International Equity Division
2,522 3,078 (556 ) AllianceBernstein Mid Cap Value Division ##
172 — 172 Index 400 Stock Division
552 603 (51 ) Janus Capital Appreciation Division ##
196 — 196 Growth Stock Division
500 816 (316 ) Large Cap Core Stock Division ^
607 1,657 (1,050 ) Capital Guardian Domestic Equity Division
466 48 418 T. Rowe Price Equity Income Division ##
117 — 117 Index 500 Stock Division
958 2,729 (1,771 ) Asset Allocation Division
38 624 (586 ) Balanced Division
738 2,311 (1,573 ) High Yield Bond Division
273 168 105 Select Bond Division
217 389 (172 ) Money Market Division
1,869 4,171 (2,302 ) Fidelity VIP Mid Cap Division ##
269 — 269 Russell Multi-Style Equity Division
248 240 8 Russell Aggressive Equity Division
179 52 127 Russell Non-U.S. Division
498 49 449 Russell Core Bond Division
130 103 27 Russell Real Estate Securities Division
535 399 136 Year Ended December 31, 2002
Units
IssuedUnits
RedeemedNet Increase
(Decrease)Small Cap Growth Stock Division
414 781 (367 ) T. Rowe Price Small Cap Value Division
364 81 283 Aggressive Growth Stock Division
1,132 3,987 (2,855 ) International Growth Division
74 41 33 Franklin Templeton International Equity Division
18,038 21,253 (3,215 ) Index 400 Stock Division
776 902 (126 ) Growth Stock Division
693 1,833 (1,140 ) Large Cap Core Stock Division ^
942 2,713 (1,771 ) Capital Guardian Domestic Equity Division
576 71 505 Index 500 Stock Division
1,792 5,458 (3,666 ) Asset Allocation Division
1,348 3 1,345 Balanced Division
1,108 3,833 (2,725 ) High Yield Bond Division
185 547 (362 ) Select Bond Division
680 828 (148 ) Money Market Division
4,467 5,384 (917 ) Russell Multi-Style Equity Division
238 618 (380 ) Russell Aggressive Equity Division
132 181 (49 ) Russell Non-U.S. Division
148 201 (53 ) Russell Core Bond Division
86 129 (43 ) Russell Real Estate Securities Division
815 381 434
^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock Division.
## Initial Investment in this division was made on May 1, 2003. 56
NML VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS CONTINUED
Year Ended December 31, 2001
Units
IssuedUnits
RedeemedNet Increase
(Decrease)Small Cap Growth Stock Division
1,268 1,342 (74 ) T. Rowe Price Small Cap Value Division #
149 — 149 Aggressive Growth Stock Division
2,156 4,251 (2,095 ) International Growth Division #
26 — 26 Franklin Templeton International Equity Division
14,858 18,409 (3,551 ) Index 400 Stock Division
1,988 1,195 793 Growth Stock Division
1,194 1,850 (656 ) Large Cap Core Stock Division ^
1,400 2,336 (936 ) Capital Guardian Domestic Equity Division #
188 — 188 Index 500 Stock Division
2,884 5,603 (2,719 ) Asset Allocation Division #
19 — 19 Balanced Division
1,530 3,360 (1,830 ) High Yield Bond Division
672 823 (151 ) Select Bond Division
936 1,082 (146 ) Money Market Division
7,405 6,039 1,366 Russell Multi-Style Equity Division
383 486 (103 ) Russell Aggressive Equity Division
204 118 86 Russell Non-U.S. Division
157 108 49 Russell Core Bond Division
759 516 243 Russell Real Estate Securities Division
1,209 671 538
^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock Division.
# Initial Investment in this division was made on July 31, 2001. NOTE 9 — Equity Values by Division for the year ended December 31, 2003 are shown below: (in thousands, except accumulation unit values)
CONTRACTS ISSUED:
PRIOR TO DECEMBER 17, 1981 OR BETWEEN
APRIL 30, 1984 AND DECEMBER 31, 1991
CONTRACTS ISSUED:
AFTER DECEMBER 16, 1981 AND
PRIOR TO MAY 1, 1984
DIVISION
ACCUMULATION
UNIT VALUE
UNITS
OUTSTANDING
EQUITY ACCUMULATION
UNIT VALUE
UNITS
OUTSTANDING
EQUITY Small Cap Growth Stock
$ 20.745671 1,080 $ 22,405 $ 20.266253 — $ — T. Rowe Price Small Cap Value
12.985287 7 91 12.829144 — — Aggressive Growth Stock
47.932675 1,444 69,215 44.929401 — — International Growth Stock
11.039080 2 22 10.906272 — — Franklin Templeton International Equity
2.471833 17,399 43,007 2.343355 — — AllianceBernstein Mid Cap Value ##
13.315544 — — 13.271202 — — Index 400 Stock
15.159273 1,229 18,631 14.808985 — — Janus Capital Appreciation ##
11.990097 — — 11.950148 — — Growth Stock
25.471804 808 20,581 24.269545 — — Large Cap Core Stock ^
20.737771 637 13,210 19.758825 — — Capital Guardian Domestic Equity
10.354264 12 124 10.229694 — — T. Rowe Price Equity Income ##
12.363579 — — 12.322387 — — Index 500 Stock
45.268617 1,689 76,459 42.428293 — — Asset Allocation
10.598020 29 307 10.470560 — — Balanced
99.686821 557 55,526 89.326036 8 715 High Yield Bond
20.482734 230 4,711 19.516037 — — Select Bond
127.939507 88 11,259 114.586395 — — Money Market
34.553668 6 207 30.999129 — — Fidelity VIP Mid Cap ##
14.066904 — — 14.020063 — — Russell Multi-Style Equity
8.016570 25 200 7.831294 — — Russell Aggressive Equity
12.677885 1 13 12.384892 — — Russell Non-U.S
9.848016 3 30 9.620430 — — Russell Core Bond
13.532112 1 14 13.219553 — — Russell Real Estate Securities
18.123797 743 13,466 17.705263 — — Equity
349,478 715 Annuity Reserves
— 690 Total Equity
$ 349,478 $ 1,405
^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock Division.
## Initial Investment in this division was made on May 1, 2003. 57
NML VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS CONTINUED
CONTRACTS ISSUED:
AFTER DECEMBER 31, 1991
FRONT LOAD VERSION
CONTRACTS ISSUED:
AFTER DECEMBER 31, 1991
SIMPLIFIED LOAD VERSION
DIVISION
ACCUMULATION
UNIT VALUE
UNITS
OUTSTANDING
EQUITY ACCUMULATION
UNIT VALUE
UNITS
OUTSTANDING
EQUITY Small Cap Growth Stock
$ 2.012501 181 $ 364 $ 1.956937 847 $ 1,658 T. Rowe Price Small Cap Value
1.278281 155 198 1.259912 428 539 Aggressive Growth Stock
2.924175 784 2,293 4.318610 1,742 7,523 International Growth Stock
1.086683 26 28 1.071062 92 99 Franklin Templeton International
Equity
2.306261 501 1,155 2.163493 1,712 3,704 AllianceBernstein Mid Cap Value ##
1.325796 161 213 1.320512 11 15 Index 400 Stock
1.470580 270 397 1.429987 945 1,351 Janus Capital Appreciation ##
1.193818 167 199 1.189063 28 33 Growth Stock
2.392114 412 986 2.257547 1,681 3,795 Large Cap Core Stock ^
1.947509 350 682 1.837972 1,558 2,864 Capital Guardian Domestic Equity
1.019273 342 349 1.004585 758 761 T. Rowe Price Equity Income ##
1.231018 83 102 1.226098 34 42 Index 500 Stock
3.088134 1,250 3,860 3.765294 2,388 8,992 Asset Allocation
1.043259 137 143 1.028260 613 630 Balanced
2.590151 1,572 4,072 7.498641 2,313 17,344 High Yield Bond
1.923624 177 340 1.815388 629 1,142 Select Bond
2.184385 508 1,110 9.571910 631 6,040 Money Market
1.513153 790 1,195 2.734239 1,742 4,763 Fidelity VIP Mid Cap ##
1.400609 179 251 1.395022 90 126 Russell Multi-Style Equity
0.777670 443 345 0.756197 717 542 Russell Aggressive Equity
1.229860 127 156 1.195908 621 743 Russell Non-U.S
0.955315 505 482 0.928976 688 639 Russell Core Bond
1.312719 388 509 1.276523 290 370 Russell Real Estate Securities
1.758196 282 496 1.709672 608 1,039 Equity
19,925 64,754 Annuity Reserves
— — Total Equity
$ 19,925 $ 64,754
^ Prior to January 31, 2003 this Division was named the J.P. Morgan Select Growth and Income Stock Division.
## Initial Investment in this division was made on May 1, 2003. 58
NML VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS CONTINUED
Equity Values by Division for the year ended December 31, 2002 are shown below: (in thousands, except accumulation unit values)
CONTRACTS ISSUED:
PRIOR TO DECEMBER 17, 1981 OR BETWEEN
APRIL 30, 1984 AND DECEMBER 31, 1991
CONTRACTS ISSUED:
AFTER DECEMBER 16, 1981 AND
PRIOR TO MAY 1, 1984
DIVISION
ACCUMULATION
UNIT VALUE
UNITS
OUTSTANDING
EQUITY ACCUMULATION
UNIT VALUE
UNITS
OUTSTANDING
EQUITY Small Cap Growth Stock
$ 15.591407 992 $ 15,467 $ 15.307344 — $ — T. Rowe Price Small Cap Value
9.607906 5 48 9.539874 — — Aggressive Growth Stock
38.441232 1,538 59,123 36.213065 2 72 International Growth Stock
7.942434 2 16 7.886164 — — Franklin Templeton International Equity
1.759773 17,431 30,675 1.676652 26 44 Index 400 Stock
11.227976 1,163 13,058 11.023428 — — Growth Stock
21.414901 821 17,582 20.506308 — — Large Cap Core Stock ^
16.717038 552 9,228 16.007652 2 32 Capital Guardian Domestic Equity
7.703469 9 69 7.648889 — — Index 500 Stock
35.246385 1,782 62,809 33.200274 3 100 Asset Allocation
8.785751 20 176 8.723560 — — Balanced
84.486469 664 56,099 76.084739 27 2,054 High Yield Bond
15.870922 176 2,793 15.197603 1 15 Select Bond
121.279762 92 11,158 109.166340 — — Money Market
34.132616 9 307 30.774871 — — Russell Multi-Style Equity
6.221208 8 50 6.107844 — — Russell Aggressive Equity
8.707578 1 9 8.548899 — — Russell Non-U.S
7.095865 3 21 6.966578 — — Russell Core Bond
12.748590 — — 12.516564 — — Russell Real Estate Securities
13.208871 641 8,467 12.968435 — — Equity
287,155 2,317 Annuity Reserves
— 630 Total Equity
$ 287,155 $ 2,947
CONTRACTS ISSUED:
AFTER DECEMBER 31, 1991
FRONT LOAD VERSION
CONTRACTS ISSUED:
AFTER DECEMBER 31, 1991
SIMPLIFIED LOAD VERSION
DIVISION
ACCUMULATION
UNIT VALUE
UNITS
OUTSTANDING
EQUITY ACCUMULATION
UNIT VALUE
UNITS
OUTSTANDING
EQUITY Small Cap Growth Stock
$ 1.522337 197 $ 300 $ 1.489185 753 $ 1,121 T. Rowe Price Small Cap Value
0.951956 107 102 0.943905 319 301 Aggressive Growth Stock
2.360410 972 2,294 3.506913 2,895 10,153 International Growth Stock
0.786940 7 6 0.780276 51 40 Franklin Templeton International Equity
1.652585 533 881 1.559571 2,178 3,397 Index 400 Stock
1.096297 337 369 1.072428 994 1,066 Growth Stock
2.024216 414 838 1.921805 1,982 3,809 Large Cap Core Stock ^
1.580140 572 904 1.500218 2,469 3,704 Capital Guardian Domestic Equity
0.763266 153 117 0.756787 532 403 Index 500 Stock
2.420098 1,590 3,848 2.968449 3,722 11,049 Asset Allocation
0.870499 49 43 0.863125 1,295 1,118 Balanced
2.209502 2,482 5,484 6.435011 2,852 18,353 High Yield Bond
1.500210 129 194 1.424293 626 892 Select Bond
2.084184 519 1,082 9.187656 787 7,231 Money Market
1.504462 2,092 3,147 2.734853 2,738 7,488 Russell Multi-Style Equity
0.607438 415 252 0.594202 753 447 Russell Aggressive Equity
0.850202 135 115 0.831686 487 405 Russell Non-U.S
0.692822 171 118 0.677755 573 388 Russell Core Bond
1.244772 336 418 1.217720 317 386 Russell Real Estate Securities
1.289736 193 249 1.261665 664 838 Equity
20,761 72,589 Annuity Reserves
— — Total Equity
$ 20,761 $ 72,589
CONTRACTS ISSUED: CONTRACTS ISSUED: PRIOR TO DECEMBER 17, 1981 OR BETWEEN AFTER DECEMBER 16, 1981 AND APRIL 30, 1984 AND DECEMBER^ Prior to January 31, 1991 PRIOR TO MAY 1, 1984 ------------------------------------- ----------------------------------- ACCUMULATION ACCUMULATION UNIT UNITS UNIT UNITS DIVISION VALUE OUTSTANDING EQUITY VALUE OUTSTANDING EQUITY - -------- ------------ ----------- -------- ------------ ----------- --------Small Cap Growth Stock ............ $ 15.591407 992 $ 15,467 $ 15.307344 -- $ -- T. Rowe Price Small Cap Value ..... 9.607906 5 48 9.539874 -- -- Aggressive Growth Stock ........... 38.441232 1,538 59,123 36.213065 2 72 International Growth Stock ........ 7.942434 2 16 7.886164 -- -- Franklin Templeton International Equity ....................... 1.759773 17,431 30,675 1.676652 26 44 Index 400 Stock ................... 11.227976 1,163 13,058 11.023428 -- -- Growth Stock ...................... 21.414901 821 17,582 20.506308 -- --2003 this Division was named the J.P. Morgan Select Growth and Income Stock................. 16.717038 552 9,228 16.007652 2 32 Capital Guardian Domestic Equity .. 7.703469 9 69 7.648889 -- -- Index 500 Stock ................... 35.246385 1,782 62,809 33.200274 3 100 Asset Allocation .................. 8.785751 20 176 8.723560 -- -- Balanced .......................... 84.486469 664 56,099 76.084739 27 2,054 High Yield Bond ................... 15.870922 176 2,793 15.197603 1 15 Select Bond ....................... 121.279762 92 11,158 109.16634 -- -- Money Market ...................... 34.132616 9 307 30.774871 -- -- Russell Multi-Style Equity ........ 6.221208 8 50 6.107844 -- -- Russell Aggressive Equity ......... 8.707578 1 9 8.548899 -- -- Russell Non-U.S ................... 7.095865 3 21 6.966578 -- -- Russell Real Estate Securities .... 13.208871 641 8,467 12.968435 -- Russell Core Bond ................. 12.748590 -- -- 12.516564 -- -- -------- -------- Equity ....................... 287,155 2,317 Annuity Reserves ............. -- 630 -------- -------- Total Equity ................. $287,155 $ 2,947 ======== ========Division.
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 ............. $ 1.522337 197 $ 300 $ 1.489185 753 $ 1,121 T. Rowe Price Small Cap Value ...... 0.951956 107 102 0.943905 319 301 Aggressive Growth Stock ............ 2.360410 972 2,294 3.506913 2,895 10,153 International Growth Stock ......... 0.786940 7 6 0.780276 51 40 Franklin Templeton International Equity ........................ 1.652585 533 881 1.559571 2,178 3,397 Index 400 Stock .................... 1.096297 337 369 1.072428 994 1,066 Growth Stock ....................... 2.024216 414 838 1.921805 1,982 3,809 J.P. Morgan Select Growth and Income Stock .................. 1.580140 572 904 1.500218 2,469 3,704 Capital Guardian Domestic Equity ... 0.763266 153 117 0.756787 532 403 Index 500 Stock .................... 2.420098 1,590 3,848 2.968449 3,722 11,049 Asset Allocation ................... 0.870499 49 43 0.863125 1,295 1,118 Balanced ........................... 2.209502 2,482 5,484 6.435011 2,852 18,353 High Yield Bond .................... 1.500210 129 194 1.424293 626 892 Select Bond ........................ 2.084184 519 1,082 9.187656 787 7,231 Money Market ....................... 1.504462 2,092 3,147 2.734853 2,738 7,488 Russell Multi-Style Equity ......... 0.607438 415 252 0.594202 753 447 Russell Aggressive Equity .......... 0.850202 135 115 0.831686 487 405 Russell Non-U.S .................... 0.692822 171 118 0.677755 573 388 Russell Real Estate Securities ..... 1.289736 193 249 1.261665 664 838 Russell Core Bond .................. 1.244772 336 418 1.217720 317 386 -------- -------- Equity ........................ 20,761 72,589 Annuity Reserves .............. -- -- -------- -------- Total Equity .................. $ 20,761 $ 72,589 ======== ========55NML VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS CONTINUED 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 ======== =========5659
REPORT OF INDEPENDENT
ACCOUNTANTSAUDITORSTo The Northwestern Mutual Life Insurance Company and Contract Owners of NML Variable Annuity Account C
In our opinion, the accompanying statements of assets and liabilities and the related 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, AllianceBernstein Mid Cap Value Division, Index 400 Stock Division, Janus Capital Appreciation Division, Growth Stock Division,
J.P. Morgan Select Growth & IncomeLarge Cap Core Stock Division, Capital Guardian Domestic Equity Division, T. Rowe Price Equity Income Division, Index 500 Stock Division, Asset Allocation Division, Balanced Division, High Yield Bond Division, Select Bond Division, Money Market Division, Fidelity VIP Mid Cap Portfolio Division, Russell Multi-Style Equity Division, Russell Aggressive Equity Division, Russell Non-U.S. Division, Russell Core Bond Division, and Russell Real Estate Securities Divisionand Russell Core Bond Divisionat December 31,20022003 and2001,2002, and the results of each of their operations, the changes in each of their equity and their financial highlights for theperiods indicated,three years ended December 31, 2003, 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"“financial statements”) are the responsibility of The Northwestern Mutual Life InsuranceCompany'sCompany’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 securities owned at December 31,2002 and 20012003 with Northwestern Mutual Series Fund, Inc., Fidelity VIP Mid Cap Portfolio and the RussellInsuranceInvestment Funds, provide a reasonable basis for our opinion./s/ PRICEWATERHOUSECOOPERS LLP - ---------------------------------- Milwaukee, Wisconsin January 30,
/s/ PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
January 28, 2004
60
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES The registrant’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the registrant’s disclosure controls and procedures (as such term is defined in Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the registrant’s Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2003,
57ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 58those disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by the registrant in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. There have not been any changes in the registrant’s internal control over financial reporting (as such term is defined in Rule 15d-15(f) under the Exchange Act) during the fourth quarter of 2003 that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
61
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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,
2003,2004, is provided with respect to each director, including persons nominated or chosen to become directors, of Northwestern Mutual. Northwestern Mutual uses the title of Trustee to denote the directors.
TRUSTEE
AGE YEAR
ELECTED/
APPT’D
EXPIRATION
OF TERM
OF OFFICE
OTHER POSITIONS PRESENTLY
HELD WITH REGISTRANT
Edward E. Barr
67 1991 May 2007 Member, Human Resources, Nominating and Corporate
Governance CommitteeJohn M. Bremer
56 2001 May 2006 Chief Operating Officer (Chief Compliance Officer); Member, Executive Committee Peter W. Bruce
58 2001 May 2004(1) Chief Insurance Officer; Member, Executive
CommitteeRobert C. Buchanan
63 1991 May 2007 Member, Audit, Executive and Finance Committees George A. Dickerman
65 1994 May 2004(1) Member, Agency and Marketing Committee Pierre S. du Pont
69 1985 May 2006 Member, Human Resources, Nominating and Corporate
Governance CommitteeJames D. Ericson
68 1989 May 2004(1) Member, Agency and Marketing, Executive and
Finance CommitteesDavid A. Erne
60 2002 May 2005 Member, Audit, Executive and Finance Committees J. E. Gallegos
68 1985 May 2004(1) Member, Operations and Technology Committee Stephen N. Graff
69 1996 May 2004(1) Member, Audit, Executive, and Finance Committees Patricia Albjerg Graham
69 1980 May 2004(1) Member, Human Resources, Nominating and Corporate
Governance CommitteeJames P. Hackett
48 2000 May 2006 Member, Operations and Technology Committee Stephen F. Keller
65 1984 May 2007 Member, Operations and Technology Committee Barbara A. King
57 1996 May 2006 Member, Agency and Marketing Committee J. Thomas Lewis
67 1978 May 2006 Member, Agency and Marketing Committee Daniel F. McKeithan, Jr
68 1988 May 2007 Member, Executive, Finance, and Human Resources,
Nominating and Corporate Governance CommitteesH. Mason Sizemore, Jr
62 1993 May 2007 Member, Operations and Technology Committee Sherwood H. Smith, Jr
69 1992 May 2006 Chair, Agency and Marketing Committee Peter M. Sommerhauser
61 1999 May 2006 Chair, Human Resources, Nominating and Corporate
Governance Committee; Member, Executive and
Finance CommitteesJohn E. Steuri
64 1994 May 2007 Chair, Operations and Technology Committee John J. Stollenwerk
64 1993 May 2005 Member, Agency and Marketing, Executive and
Finance CommitteesBarry L. Williams
59 1987 May 2005 Kathryn D. Wriston
65 1986 May 2005 Chair, Audit Committee Edward J. Zore
58 2000 May 2005 President and CEO; Chair, Executive and Finance
Committees; Member, Agency and Marketing,
Operations and Technology Committees
YEAR EXPIRATION ELECTED/ OF TERM OTHER POSITIONS PRESENTLY TRUSTEE AGE APPT'D OF OFFICE HELD WITH REGISTRANT - ------- --- -------- ---------- --------------------Edward E. Barr................. 66 1991 May 2003(1) Member, Human Resources and Public Policy Committee John M. Bremer................. 55 2001 May 2006 Chief Operating Officer (Chief Compliance Officer); Member, Executive Committee Peter W. Bruce ................ 57 2001(1) Candidate proposed for re-election by the Board of Trustees for the election to be held at the May 2004 Chief Insurance Officer; Member, Executive Committee Robert C. Buchanan ............ 62 1991Annual meeting of Policyowners. If re-elected, these Trustees’ terms will expire in May2003(1) Member, Audit, Executive and Finance Committees George A. Dickerman ........... 64 1994 May 2004 Member, Agency and Marketing Committee Pierre S. du Pont ............. 68 1985 May 2006 Member, Human Resources and Public Policy Committee James D. Ericson .............. 67 1989 May 2004 Member, Agency and Marketing, Executive and Finance Committees David A. Erne ................. 59 2002 May 2005 Member, Audit, Executive and Finance Committees J. E. Gallegos ................ 67 1985 May 2004 Member, Operations and Technology Committee Stephen N. Graff .............. 68 1996 May 2004 Member, Audit, Executive, and Finance Committees Patricia Albjerg Graham ....... 68 1980 May 2004 Member, Human Resources and Public Policy Committee James P. Hackett .............. 47 2000 May 2006 Member, Operations and Technology Committee Stephen F. Keller ............. 64 1984 May 2003(1) Member, Human Resources and Public Policy Committee Barbara A. King. .............. 56 1996 May 2006 Member, Agency and Marketing Committee J. Thomas Lewis. .............. 66 1978 May 2006 Member, Agency and Marketing Committee Daniel F. McKeithan, Jr ....... 67 1988 May 2003(1) Member, Executive, Finance, and Human Resources and Public Policy Committees H. Mason Sizemore, Jr ......... 61 1993 May 2003(1) Member, Operations and Technology Committee Harold B. Smith. .............. 69 1973 May 2004(2) Member, Operations and Technology Committee Sherwood H. Smith, Jr ......... 68 1992 May 2006 Chair, Agency and Marketing Committee Peter M. Sommerhauser ......... 60 1999 May 2006 Chair, Human Resources and Public Policy Committee; Member, Executive and Finance Committees John E. Steuri ................ 63 1994 May 2003(1) Chair, Operations and Technology Committee John J. Stollenwerk ........... 63 1993 May 2005 Member, Agency and Marketing, Executive and Finance Committees Barry L. Williams ............. 58 1987 May 2005 Member, Audit Committee Kathryn D. Wriston ............ 64 1986 May 2005 Chair, Audit Committee Edward J. Zore ................ 57 2000 May 2005 President and CEO; Chair, Executive and Finance Committees; Member, Agency and Marketing, Operations and Technology Committees2008.- ---------- (1) Candidate proposed for re-election by the Board of Trustees for the election to be held at the May 2003 Annual meeting of Policyowners. If re-elected, these Trustees' terms will expire in May 2007. (2) Mr. Harold B. Smith is retiring from the Board of Trustees effective May 28, 2003. 5962
The business experience and public company directorships of Northwestern
Mutual'sMutual’s Trustees as of March 1,20022004 are as follows:
TRUSTEE
PRINCIPAL OCCUPATION
TRUSTEEDURING PAST FIVE YEARS
DIRECTORSHIPS
------- ---------------------- -------------Edward E. Barr
Retired Chairman, Sun Chemical Group, B.V. (graphic arts), Fort Lee, New Jersey, since 2003. Prior thereto, Chairman from 1998-2002; Chairman and CEO, 1997-1998; President and Chief Executive Officer, 1987-1997. Sequa Corporation John M. Bremer
Chief Operating Officer (Chief Compliance Officer) of Northwestern Mutual since 2002. Prior thereto, Senior Executive Vice President and Chief Operating Officer (Chief Compliance Officer) from 2001-2002; Senior Executive Vice President and Secretary from 2000-2001; Executive Vice President, General Counsel and Secretary from 1998-2000; Senior Vice President, General Counsel and Secretary from 1995-1998. Peter W. Bruce
Chief Insurance Officer of Northwestern Mutual since October 1,2002. Prior thereto, Senior Executive Vice President (Insurance) from 2000-2002; Executive Vice President (Accumulation Products and Long Term Care) from 1998-2000; Executive Vice President (Operations and Administration) from1995- 1998.1995-1998.Robert C. Buchanan
President and Chief Executive Officer, Fox Brady CorporationValley Corporation (manufacturer of gift wrap and writing paper), Appleton, Wisconsin, since 1980.Brady Corporation George A. Dickerman
Retired Chairman, Spalding Sports Worldwide (manufacturer of sporting equipment), Chicopee, Massachusetts, since 1999. Prior thereto, Chairman, 1997-1998; President, 1981-1997. Pierre S. du Pont
Attorney and Director, Richards, Layton &
Finger
PepsiAmericas, Inc(law firm), Wilmington, Delaware,since 1985.
PepsiAmericas, Inc James D. Ericson
Retired Chairman of Northwestern Mutual since Kohl's Corporation2001; Chairman, 2001; Chairman and ChiefThe Marcus CorporationExecutive Officer from 2000 to 2001. Prior thereto, President and Chief Executive Officer from 1993-2000.Kohl’s Corporation
The Marcus Corporation
David A. Erne
Attorney, Reinhart Boerner Van Deuren s.c. (law Artisan Funds, Inc.firm), Milwaukee, Wisconsin, since 1968.Artisan Funds, Inc. J. E. Gallegos
Attorney, Gallegos Law Firm, Santa Fe, New Mexico, since 1988. 63
Stephen N. Graff
Office Managing Partner (retired), Arthur Mason Street Funds, Inc.Andersen LLP, Milwaukee, Wisconsin, 1981-1994.Mason Street Funds, Inc.
Northwestern Mutual Series
1981-1994.Fund, Inc.Regal-Beloit Corporation
60
PRINCIPAL OCCUPATION TRUSTEE DURING PAST FIVE YEARS DIRECTORSHIPS ------- ---------------------- -------------Patricia Albjerg Graham
Professor, Graduate School of the History of American Apache Corporation GrahamEducation, Harvard University, Cambridge, Massachusetts, since 1974; President, Spencer Foundation (social and behavioral sciences), Chicago, Illinois, 1991-2000.Apache Corporation James P. Hackett
President and Chief Executive Officer, of Fifth Third BancorpSteelcase Inc. (office furniture manufacturer)Steelcase Inc., Grand Rapids, Michigan, since 1994.Fifth Third Bancorp
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, 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. BancorpMilwaukee, Wisconsin, since 1982.The Marcus Corporation H. Mason Sizemore, Jr.
Retired President and Chief Operating Officer, The Seattle Times, Seattle, Washington, since 2001. Prior thereto, President and Chief Operating Officer 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 CorporationCompany, Raleigh, North Carolina, since 1999. Prior thereto, Chairman, 1996-1999.Nortel Networks Corporation Peter M. Sommerhauser
Attorney, Godfrey & Kahn, S.C. (law firm), Kohl's CorporationMilwaukee, Wisconsin, since 1969.Kohl’s Corporation John E. Steuri
Retired Chairman and Chief Executive Officer, Advanced Thermal Superior Financial Corporation andTechnologies, Inc. (heating, air conditioning humidity control), Little Rock, Arkansas, since 2001; Chairman, 1997-2001. Prior thereto, Retired Chairman and Chief Executive Officer, ALLTEL Information Services, Inc., Little Rock, Arkansas.John J. Stollenwerk
President and Chief Executive Officer, Badger Meter, Inc.Allen-Edmonds Shoe Corporation, PortKoss CorporationWashington, Wisconsin, since 1998. PriorU.S. Bancorpthereto, President and Owner, 1980-1998.Badger Meter, Inc.
Koss Corporation
U.S. Bancorp
6164
PRINCIPAL OCCUPATION TRUSTEE DURING PAST FIVE YEARS DIRECTORSHIPS ------- ---------------------- -------------Barry L. Williams
President and Chief Executive Officer, CH2M Hill Companies Ltd.Williams Pacific Ventures, Inc. (ventureR. H. Donnelly Corporationcapital), San Francisco, California, since 1993.CH2M Hill Companies Ltd.
R. H. Donnelly Corporation
Pacific Gas & Electric Company
1993.PG&E Corporation
Simpson Manufacturing Co., Inc.
Synavant Inc. The Newhall Land and Farming CompanyUSA Education Inc.
Kathryn D. Wriston
Director of various corporations. The Goodyear Tire & Rubber CompanyThe Stanley Works Edward J. Zore
President and Chief Executive Officer of Manpower, Inc.Northwestern Mutual since 2001. PriorMason Street Funds, Inc.thereto, President, 2000-2001;Northwestern Mutual SeriesExecutive Vice President (Life and DisabilityFund, Inc.Income Insurance), 1998-2000; Executive Vice President (Finance and Investments), 1995-1998.Manpower, Inc.
Mason Street Funds, Inc.
Northwestern Mutual Series Fund, Inc.
62Neither Account A nor Account C have Boards of Directors or Audit Committees. Northwestern Mutual’s Board of Trustees has determined that its Audit Committee has at least one “Audit Committee Financial Expert” serving on the Audit Committee. In 2003 Northwestern Mutual’s Board determined Mr. Stephen N. Graff to be the Audit Committee Financial Expert and concurrently determined that he was independent (applying the NASD definition of independent director then in effect).
65
The following information as of March 1,
2003,2004, is provided with respect to each Executive Officer of Northwestern Mutual. The term of office for all Executive Officers is one year expiring May 31,2003.2004.
NAME
AGE
CURRENT POSITION AND YEAR ASSUMED
- ---- --- ---------------------------------Edward J.
Zore......... 57Zore58 President and Chief Executive Officer (2001) John M.
Bremer......... 55Bremer56 Chief Operating Officer (Chief Compliance Officer) (2001) Peter W.
Bruce......... 57Bruce58 Chief Insurance Officer (2002) Deborah A.
Beck........ 55Beck56 Executive Vice President (Planning and Technology) (2000) William H.
Beckley..... 55Beckley56 Executive Vice President (Agencies) (2000) Bruce L. Miller........ 60 Executive Vice President (Marketing) (2000)Mason G.
Ross.......... 59Ross60 Executive Vice President and Chief Investment Officer (2001) Mark G.
Doll........... 53Doll54 Senior Vice President (Public Markets) (1996) Richard L.
Hall........ 57Hall58 Senior Vice President (Life Insurance) (2000)Product) (2004)William C.
Koenig...... 55Koenig56 Senior Vice President and Chief Actuary (1995) Gregory C. Oberland
46 Senior Vice President (Insurance Operations) (2004) Barbara F.
Piehler..... 52Piehler53 Senior Vice President and Chief Information Officer (2002) Gary A.
Poliner........ 49Poliner50 Senior Vice President and& Chief Financial Officer (2001)Marcia Rimai
48 Senior Vice President (Marketing) (2004) Charles D.
Robinson.... 58Robinson59 Senior Vice President (Investment Products and Services) (2001) John E.
Schlifske...... 43Schlifske44 Senior Vice President (Securities(Investment Products andReal Estate) (1999)Services and Affiliates) (2004)Leonard F.
Stecklein... 56Stecklein57 Senior Vice President (Annuity and Accumulation Products) (2000)(Investment Products Operations) (2004)Frederic H.
Sweet...... 59Sweet60 Senior Vice President (Corporate and Government Relations) (1998) Robert J.
Berdan....... 56Berdan57 Vice President, General Counsel and Secretary (2001) Michael G. Carter
42 Vice President (Policyowner Services) (2004) Steven T.
Catlett...... 53Catlett54 Vice President and Controller (2001)(Investment Products) (2004)David D. Clark
52 Vice President (Real Estate) (2004) Gloster B. Current
58 Vice President (Corporate Planning) (2004) Thomas E.
Dyer......... 57Dyer58 Vice President (Corporate Services) (1998) ChristinaChristine H.
Fiasca.... 48Fiasca49 Vice President (Field System Administration) (2002) Susan A. Lueger........ 49 Vice President (Human Resources) (1994) JeanJohn M.
Maier.......... 48Grogan40 Vice President (Field Services and Support) (2001) Meridee J. Maynard..... 47(2004)John C. Kelly
44 Vice President (Disability Income) (2001) Gregory C. Oberland.... 45and Controller (2004)Susan A. Lueger
50 Vice President (Human Resources) (1994) Jeffrey J. Lueken
43 Vice President (Securities) (2004) Jean M. Maier
49 Vice President (New Business) (2001) Marcia Rimai........... 47(2004)Meridee J. Maynard
48 Vice President (Policyowner Services) (2000)(Disability Income and Long-Term Care) (2004)Lora A.
Rosenbaum...... 46Rosenbaum47 Vice President (Compliance/Best Practices) (2000) Brenda F. Skelton
48 Vice President (Communications) (2003) J. Edward
Tippetts..... 58Tippetts59 Vice President (Field Development) (2002) Martha M.
Valerio...... 56Valerio57 Vice President (Technology Research and Web Resources) (2001) David B. Wescoe........ 48W. Ward White
64 Vice President (Northwestern Mutual Investment Services) (2000) W. Ward White.......... 63 Vice President (Communications) (1990)(Corporate Relations) (2003)Michael L.
Youngman.... 51Youngman52 Vice President (Government Relations) (2001) All of the Executive Officers, except
David B. Wescoe andCharles D. Robinson, Gloster B. Current and Brenda F. Skelton, have been employed by Northwestern Mutual in an executive or management position for more than five years.Mr. Wescoe joined Northwestern Mutual in 1999. From 1994 to 1999, Mr. Wescoe was employed by Manpower, Inc. as Vice President and General Counsel.Mr. Robinson joined Northwestern Mutual in 2001. 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.63ITEM 11. EXECUTIVE COMPENSATIONPrior to joining Northwestern Mutual in 2003, Mr. Current was Vice President and Chief Marketing Officer for Lincoln Financial Group from 1995 to 2003. Prior to Lincoln Financial, Mr. Current served as Vice President at Citibank, North America in a variety of operations and marketing management assignments, and in key leadership roles at Kentucky Fried Chicken Co., Canadian Canners Ltd., Del Monte Corp., R.J. Reynolds Foods, Inc., Procter and Gamble Co. and AT&T Long Lines. Ms. Skelton joined Northwestern Mutual in 2002. Prior to Northwestern Mutual, Ms. Skelton worked for the Milwaukee Wave professional soccer team from 2001 to 2002 as the general manager of business operations. Ms. Skelton also headed up the marketing function for Midwest Airlines from 1987 to 2000. During her tenure at Midwest Airlines, Ms. Skelton held the positions of Senior Vice President of Marketing, Vice President of Marketing and Director of Marketing Programs. She also served on the Midwest Air Group Inc. Board of Directors from 1995 until her departure in 2000. Prior to Midwest Airlines, Ms. Skelton held a variety of other marketing and product management positions of progressive responsibility.66
As indicated above, neither Account A nor Account C have executive officers and thus do not have a “Code of Ethics.” However, Northwestern Mutual has adopted a “Code of Ethics” that applies to Northwestern Mutual’s Chief Executive Officer, Chief Financial Officer and Controller, as well as to the rest of its employees. A copy of Northwestern Mutual’s Guidelines for Business Conduct, which satisfy the Code of Ethics requirements, are filed as Exhibit 14.1 to this Annual Report on Form 10-K.
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, such persons receive no compensation tied specifically to any services provided 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
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. No Contract owner is the beneficial owner of more than 5% of Account A, Account C or Northwestern
Mutual'sMutual’s voting securities. Neither Accounts A or C, nor Northwestern Mutual, maintain equity compensation plans under which equity securities are authorized for issuance.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Effective January 1, 2002,
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Northwestern
Mutual'sMutual’s subsidiary, Mason Street Advisors, LLC("MSA"(“MSA”),commenced servingserves as the investmentadvisoradviser to the Series Fund.The Board of the Series Fund approved the assignment of the investment advisory agreement to MSA in 2001, the renewal of which was approved in 2002.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'sMutual’s subsidiary, Frank Russell Company, provides the Russell Funds and its investment adviser, Frank Russell Investment Management Company("FRIMCo"(“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 RussellFunds, the renewal of which was approved in 2002.Funds. 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
20022003 and through the date hereof, including transactions in mutual funds sponsored by Northwestern Mutual and 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'sMutual’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, in accordance with applicable law and are administered solely pursuant to the terms of such policies.In the ordinary course of its business, Northwestern Mutual makes loans to its field force Managing Partners in connection with their business operations. Interest on such loans is tied to Northwestern
Mutual'sMutual’s cost of funds or the prime rate, depending upon the purpose of the loan. On occasion, a Managing Partner who has received such a loan may assume an Executive Officer position at Northwestern Mutual. In such circumstances, historically the outstanding loans have remained in place and are satisfied in accordance with the terms of the underlying loan documentation.At December 31,
2002,2003, Mr. Peter M. Sommerhauser, a Northwestern Mutual Trustee since May 1999, was the beneficial owner of approximately9.6%9.1% of the outstanding common stock ofKohl'sKohl’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 ofKohl'sKohl’s Corporation and as a director of charitable foundations established by executive officers ofKohl'sKohl’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 toKohl's 64Kohl’s Department Stores, Inc., a subsidiary of Kohl'sKohl’s Corporation, $40,000,00067
and received a 6.57% Senior Note, guaranteed by
Kohl'sKohl’s Corporation, due March 31, 2004. The principal amount of such indebtedness was reduced to$13,333,333$6,666,667 during2002,2003, which remains outstanding at March 1, 2004.Mr. Sommerhauser is a shareholder in the law firm Godfrey & Kahn, S.C. Godfrey & Kahn provided services to Northwestern Mutual during 2003. The aggregate amount of such services billed to Northwestern Mutual is less than 1% of the law firm’s gross revenues for its last fiscal year.
Mr. David A. Erne, a Northwestern Mutual Trustee since July 2002, is a shareholder of Reinhart Boerner Van Deuren s.c. Reinhart Boerner Van Deuren s.c. provided legal services to Northwestern Mutual and certain related entities during
2002 and year-to-date2003. The aggregate amount of such legal services billed to Northwestern Mutual or related entities is less than 1% of the lawfirm'sfirm’s gross revenues for its last fiscal year.ITEM 14. CONTROLS
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES AUDIT FEES
PricewaterhouseCoopers LLP is Account A’s and Account C’s principal accountant. Set forth below are the aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit or review of Account A’s and Account C’s financial statements or other services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years.
2003 2002 Account A
$ 29,400 $ 28,000 Account C
$ 29,400 $ 28,000 AUDIT-RELATED FEES
Neither Account A nor Account C had any fees billed for each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of Account A’s and Account C’s financial statements and that are not reported under the caption “Audit Fees” above.
TAX FEES
Neither Account A nor Account C had any fees billed for each of the last two fiscal years for tax compliance, tax advice or tax planning services rendered by their principal accountant.
ALL OTHER FEES
Neither Account A nor Account C had any fees billed for each of the last two fiscal years for products and services provided by their principal accountant that are not otherwise reported under the captions “Audit Fees,” “Audit-Related Fees” and “Tax Fees” above.
PRE-APPROVAL POLICIES AND PROCEDURES
Based on their evaluationNeither Account A nor Account C have a Board of
the registrant's disclosure controlsDirectors or Audit Committee and have therefore not adopted pre-approval policies and procedures(as definedfor audit and non-audit services. However, inRules 13a-14(c)2003 Northwestern Mutual’s Audit Committee adopted an Audit and15d-14(c) underNon-Audit Services Pre-Approval Policy that does apply to Account A and Account C (the “Policy”).Under the
Securities Exchange ActPolicy, the Audit Committee must pre-approve all audit and permissible non-audit services provided by the independent accountant. The Policy requires certain services to be approved on a case-by-case basis by the Audit Committee. Such services that must be approved on a case-by-case basis include the annual financial statement audits of1934, as amended (the "Exchange Act")) as conducted within 90 daysNorthwestern Mutual and its subsidiaries. The Policy also provides that other audit services (e.g., services associated with statements, reports and other documents filed with the Commission), audit-related services (e.g., employee benefit plan audits and internal control reviews), tax services (e.g., U.S. federal, state and local tax planning and advice) and all other permissible services may be pre-approved through the adoption by the Audit Committee of a list of authorized services along with specific budgeted amounts for such services. The Audit Committee has established such a list of authorized services. Audit and non-audit services to be provided by Northwestern Mutual’s independent accountant not on such list, or that would exceed thefiling datebudgeted amount for such68
service, must be pre-approved by the Audit Committee on a case-by-case basis. The Policy requires the Northwestern Mutual Audit Committee to be informed on a timely basis of
this Annual Report,any services rendered by theregistrant's Chief Executive Officer and Chief Financial Officer have concluded that those disclosure controls and procedures provide reasonable assurance thatindependent accountant pursuant to such authorized list of services.The Policy also permits the
informationAudit Committee to delegate to one or more of its members pre-approval authority, which the Audit Committee has done. Those Audit Committee members are required tobe disclosed byreport any pre-approval decisions to theregistrant in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms. ThereAudit Committee at its next scheduled meeting.In 2003, there were no
significant changes in the registrant's internal controls or in other factors that could significantly affect such controls subsequentfees paid to Account A’s and Account C’s independent accountant under a de minimis exception to thedate of evaluation referenced above. ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-Krules that waives the pre-approval requirements for certain non-audit services.
ITEM 15. 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)................................................. 19 Statements of Assets and Liabilities at December 31, 2002 and 2001 Statements of Operations for years ended December 31, 2002, 2001 and 2000 Statements of Changes in Equity for years ended December 31, 2002, 2001 and 2000 Financial Highlights Notes to Financial Statements Report of Independent Accountants (2) NML Variable Annuity Account C (in Part II, Item 8)................................................. 39 Statements of Assets and Liabilities at December 31, 2002 and 2001 Statements of Operations for years ended December 31, 2002, 2001 and 2000 Statements of Changes in Equity for years ended December 31, 2002, 2001 and 2000 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, 2002 and 2001 Consolidated Statement of Operations for years ended December 31, 2002, 2001 and 2000 Consolidated Statement of Changes in Surplus for years ended December 31, 2002, 2001 and 2000 Consolidated Statement of Cash Flows for years ended December 31, 2002, 2001 and 2000 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, 2002. (c) See Index to Exhibits which is incorporated herein by reference ......................................... 98 65
PAGE (1)
NML Variable Annuity Account A
(in Part II, Item 8)
19 Statements of Assets and Liabilities at December 31, 2003 and 2002
Statements of Operations for years ended December 31, 2003, 2002 and 2001
Statements of Changes in Equity for years ended December 31, 2003, 2002 and 2001
Financial Highlights
Notes to Financial Statements
Report of Independent Auditors
(2)
NML Variable Annuity Account C (in Part II, Item 8) 41 Statements of Assets and Liabilities at December 31, 2003 and 2002
Statements of Operations for years ended December 31, 2003, 2002 and 2001
Statements of Changes in Equity for years ended December 31, 2003, 2002 and 2001
Financial Highlights
Notes to Financial Statements
Report of Independent Auditors
(3)
The Northwestern Mutual Life Insurance Company 70 Immediately following this page are:
Report of Independent Auditors
Consolidated Statement of Financial Position at December 31, 2003 and 2002
Consolidated Statement of Operations for years ended December 31, 2003, 2002 and 2001
Consolidated Statement of Changes in Surplus for years ended December 31, 2003, 2002 and 2001
Consolidated Statement of Cash Flows for years ended December 31, 2003, 2002 and 2001
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, 2003.
(c) See Index to Exhibits which is incorporated herein by reference
96 69
REPORT OF INDEPENDENT
ACCOUNTANTSAUDITORSTo 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
("(“theCompany"Company”) as of December 31,20022003 and2001,2002, 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 31,2002.2003. These consolidated financial statements are the responsibility of theCompany'sCompany’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 accounting principles generally accepted in the United
States.States of America. The effects on the consolidated financial statements of the variances between the statutory basis of accounting and accounting principles generally accepted in the United States of America, 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,
20022003 and2001,2002, or the results of their operations or their cash flows for each of the three years in the period ended December 31,20022003 because of the effects of the variances between the statutory basis of accounting and accounting principles generally accepted in the United States of America 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 31,20022003 and20012002 and the results of their operations and their cash flows for each of the three years in the period ended December 31,2002,2003, on the basis of accounting described in Note 1.As discussed in Note
115 to the financial statements, the Company adopted the accounting policies in the revised National Association of Insurance Commissioners"Accounting“Accounting Practices and ProceduresManual" -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 - --------------------------------- Milwaukee, Wisconsin January 21, 2003 66
/s/ PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
January 26, 2004
70
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(IN(IN MILLIONS)
DECEMBER 31 -------------------------- 2002 2001 ------------ ------------ASSETS: Bonds ................................ $ 50,597 $ 44,306 Common and preferred stocks .......... 4,902 5,369 Mortgage loans ....................... 15,692 15,164 Real estate .......................... 1,503 1,671 Policy loans ......................... 9,292 9,028 Other investments .................... 4,242 4,817 Cash and temporary investments ....... 1,814 2,018 ------------ ------------ Total investments ............... 88,042 82,373 Due and accrued investment income .... 1,100 1,048 Net deferred tax assets .............. 1,887 1,602 Deferred premium and other assets .... 1,660 1,583 Separate account assets .............. 10,246 11,786 ------------ ------------ Total assets .................... $ 102,935 $ 98,392 ============ ============ LIABILITIES AND SURPLUS: Reserves for policy benefits ......... $ 74,880 $ 68,432 Policyowner dividends payable ........ 3,765 3,650 Interest maintenance reserve 521 375 Asset valuation reserve .............. 1,268 2,034 Income taxes payable 777 1,329 Other liabilities .................... 4,261 3,894 Separate account liabilities ......... 10,246 11,786 ------------ ------------ Total liabilities ............... 95,718 91,500 Surplus .............................. 7,217 6,892 ------------ ------------ Total liabilities and surplus ... $ 102,935 $ 98,392 ============ ============
DECEMBER 31 2003 2002 ASSETS:
Bonds
$ 55,571 $ 50,597 Common and preferred stocks
6,577 4,902 Mortgage loans
16,426 15,692 Real estate
1,481 1,503 Policy loans
9,546 9,292 Other investments
4,851 4,242 Cash and temporary investments
2,594 1,814 Total investments
97,046 88,042 Due and accrued investment income
1,126 1,100 Net deferred tax assets
1,198 1,887 Deferred premium and other assets
1,790 1,660 Separate account assets
12,662 10,246 Total assets
$ 113,822 $ 102,935 LIABILITIES AND SURPLUS:
Reserves for policy benefits
$ 81,280 $ 74,880 Policyowner dividends payable
3,770 3,765 Interest maintenance reserve
815 521 Asset valuation reserve
2,568 1,268 Income taxes payable
737 777 Other liabilities
4,443 4,261 Separate account liabilities
12,662 10,246 Total liabilities
106,275 95,718 Surplus
7,547 7,217 Total liabilities and surplus
$ 113,822 $ 102,935 The accompanying notes are an integral part of these financial statements.
6771
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(IN(IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------- 2002 2001 2000 ------------ ------------ ------------REVENUE: Premiums $ 10,108 $ 9,447 $ 8,966 Net investment income 5,477 5,431 5,229 Other income 439 467 1,187 ------------ ------------ ------------ Total revenue 16,024 15,345 15,382 ------------ ------------ ------------ BENEFITS AND EXPENSES: Benefit payments to policyowners and beneficiaries 3,902 3,808 4,541 Net additions to policy benefit reserves 6,186 5,367 4,815 Net transfers to separate accounts 242 502 469 ------------ ------------ ------------ Total benefits 10,330 9,677 9,825 Commissions and operating expenses 1,580 1,453 1,416 ------------ ------------ ------------ Total benefits and expenses 11,910 11,130 11,241 ------------ ------------ ------------ Gain from operations before dividends and taxes 4,114 4,215 4,141 Policyowner dividends 3,792 3,651 3,334 ------------ ------------ ------------ Gain from operations before taxes 322 564 807 Income tax expense (benefit) (442) 173 125 ------------ ------------ ------------ Net gain from operations 764 391 682 Net realized capital gains (losses) (606) 259 1,147 ------------ ------------ ------------ Net income $ 158 $ 650 $ 1,829 ============ ============ ============
FOR THE YEAR ENDED
DECEMBER 31,
2003 2002 2001 REVENUE:
Premiums
$ 10,307 $ 10,108 $ 9,447 Net investment income
5,737 5,477 5,431 Other income
501 439 467 Total revenue
16,545 16,024 15,345 BENEFITS AND EXPENSES:
Benefit payments to policyowners and beneficiaries
4,079 3,902 3,808 Net additions to policy benefit reserves
6,260 6,186 5,367 Net transfers to separate accounts
288 242 502 Total benefits
10,627 10,330 9,677 Commissions and operating expenses
1,690 1,580 1,453 Total benefits and expenses
12,317 11,910 11,130 Gain from operations before dividends and taxes
4,228 4,114 4,215 Policyowner dividends
3,765 3,792 3,651 Gain from operations before taxes
463 322 564 Income tax expense (benefit)
(90 ) (442 ) 173 Net gain from operations
553 764 391 Net realized capital gains (losses)
139 (606 ) 259 Net income
$ 692 $ 158 $ 650 The accompanying notes are an integral part of these financial statements.
6872
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN SURPLUS
(IN(IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, ------------------------------ 2002 2001 2000 -------- -------- --------Beginning of year balance ........................... $ 6,892 $ 5,896 $ 5,069 Net income ....................................... 158 650 1,829 Change in net unrealized capital gains (losses) .. (517) (555) (1,043) Increase in net deferred tax assets .............. 44 73 -- Increase in nonadmitted assets and other ......... (126) (124) (32) Change in reserve valuation bases (Note 5) ....... -- (61) -- Change in asset valuation reserve ................ 766 264 73 Cumulative effect of changes in accounting principles (Note 1) ............................. -- 749 -- -------- -------- -------- Net increase in surplus ..................... 325 996 827 -------- -------- -------- End of year balance ......................... $ 7,217 $ 6,892 $ 5,896 ======== ======== ========
FOR THE YEAR ENDED
DECEMBER 31,
2003 2002 2001 Beginning of year balance
$ 7,217 $ 6,892 $ 5,896 Net income
692 158 650 Change in net unrealized capital gains (losses)
1,171 (517 ) (555 ) Change in net deferred income tax
(137 ) 44 73 Change in nonadmitted assets and other
(96 ) (126 ) (124 ) Change in reserve valuation bases (Note 5)
— — (61 ) Change in asset valuation reserve
(1,300 ) 766 264 Cumulative effect of changes in accounting principles (Note 15)
— — 749 Net change in surplus
330 325 996 End of year balance
$ 7,547 $ 7,217 $ 6,892 The accompanying notes are an integral part of these financial statements.
6973
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN(IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------ 2002 2001 2000 ---------- ---------- ----------CASH FLOWS FROM OPERATING ACTIVITIES: Premiums and other income received ................................. $ 6,947 $ 6,607 $ 6,149 Investment income received ......................................... 5,224 5,328 5,000 Disbursement of policy loans, net of repayments .................... (264) (524) (566) Payments to policyowners and beneficiaries ......................... (4,130) (3,996) (3,967) Net transfers to separate accounts ................................. (257) (534) (469) Commissions, expenses and taxes paid ............................... (1,855) (1,698) (1,845) ---------- ---------- ---------- Net cash provided by operating activities ....................... 5,665 5,183 4,302 ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from investments sold or matured: Bonds ............................................................. 60,865 35,318 29,539 Common and preferred stocks ....................................... 1,766 15,465 9,437 Mortgage loans .................................................... 1,532 1,174 1,198 Real estate ....................................................... 468 244 302 Other investments ................................................. 1,646 494 659 ---------- ---------- ---------- 66,277 52,695 41,135 ---------- ---------- ---------- Cost of investments acquired: Bonds ............................................................. 67,398 38,915 33,378 Common and preferred stocks ....................................... 2,003 15,014 8,177 Mortgage loans .................................................... 2,005 2,003 2,261 Real estate ....................................................... 191 353 224 Other investments ................................................. 748 1,106 1,535 ---------- ---------- ---------- 72,345 57,391 45,575 ---------- ---------- ---------- Net cash applied in investing activities ........................ (6,068) (4,696) (4,440) ---------- ---------- ---------- CASH FLOWS FROM FINANCING AND MISCELLANEOUS SOURCES: Proceeds from deposit-type contract funds and other liabilities without life or disability contingencies ........ 990 996 907 Withdrawals from deposit-type contract funds and other liabilities without life or disability contingencies ........ (741) (793) (777) Other cash provided (applied) ...................................... (50) 111 66 ---------- ---------- ---------- Net cash provided by financing and other activities: ............ 199 314 196 ---------- ---------- ---------- Net increase(decrease) in cash and temporary investments ...... (204) 801 58 Cash and temporary investments, beginning of year ..................... 2,018 1,217 1,159 ---------- ---------- ---------- Cash and temporary investments, end of year ................... $ 1,814 $ 2,018 $ 1,217 ========== ========== ==========
FOR THE YEAR ENDED
DECEMBER 31,2003 2002 2001 CASH FLOWS FROM OPERATING ACTIVITIES:
Premiums and other income received
$ 6,984 $ 6,947 $ 6,607 Investment income received
5,727 5,224 5,328 Disbursement of policy loans, net of repayments
(254 ) (264 ) (524 ) Payments to policyowners and beneficiaries
(4,312 ) (4,130 ) (3,996 ) Net transfers to separate accounts
(284 ) (257 ) (534 ) Commissions, expenses and taxes paid
(1,637 ) (1,855 ) (1,698 ) Net cash provided by operating activities
6,224 5,665 5,183 CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investments sold or matured:
Bonds
75,838 60,865 35,318 Common and preferred stocks
2,392 1,766 15,465 Mortgage loans
1,843 1,532 1,174 Real estate
356 468 244 Other investments
1,047 1,646 494 81,476 66,277 52,695 Cost of investments acquired:
Bonds
79,994 67,398 38,915 Common and preferred stocks
2,708 2,003 15,014 Mortgage loans
2,534 2,005 2,003 Real estate
191 191 353 Other investments
1,387 748 1,106 86,814 72,345 57,391 Net cash applied to investing activities
(5,338 ) (6,068 ) (4,696 ) CASH FLOWS FROM FINANCING AND MISCELLANEOUS SOURCES:
Net deposits on deposit-type contract funds and other liabilities without life or disability contingencies
142 249 203 Other cash provided (applied)
(248 ) (50 ) 111 Net cash provided by financing and other activities:
(106 ) 199 314 Net increase(decrease) in cash and temporary investments
780 (204 ) 801 Cash and temporary investments, beginning of year
1,814 2,018 1,217 Cash and temporary investments, end of year
$ 2,594 $ 1,814 $ 2,018 The accompanying notes are an integral part of these financial statements.
7074
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002
2001AND2000 1. BASIS OF PRESENTATION AND CHANGES IN ACCOUNTING PRINCIPLES2001
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"“the Company”). All intercompany balances and transactionswerehave been eliminated. The Company offers life, annuity, disability income and long-term care insurance products to the personal, business, and estate 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 ofaccounting"accounting”).Beginning January 1, 2001, insurance companies domiciled in Wisconsin were 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 variations prescribed or permitted by the Office of the Commissioner of Insurance of the State of Wisconsin ("OCI"). These new requirements differed from those used prior to January 1, 2001, primarily because under the new statutory accounting principles: (1) deferred tax balances were established for temporary differences between book and tax bases of certain assets and liabilities, (2) investment valuation adjustments on impaired assets were measured differently and were reported as realized losses, (3) pension and other employee benefit obligations were accounted for based on the funded status of the related plans, (4) recognition of earnings from unconsolidated subsidiaries and affiliates as net investment income was limited to dividends received, (5) certain software costs were capitalized and amortized to expense over a maximum of five years, and (6) premiums, benefits and reserve changes for policies without significant mortality or morbidity risks ("deposit-type contracts") were 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):Financial statements prepared on the statutory basis of accounting differ from financial statements prepared in accordance with generally accepted accounting principles
Deferred tax accounting ................ $ 850 Pension plan liabilities ............... (74) Investment valuation changes, net ...... (27) -------- $ 749 ========("GAAP"(“GAAP”), primarily because on a GAAP basis: (1) certain policy acquisition costs are deferred and amortized, (2) investment valuations and policy benefit 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 investment gains71THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)and losses is permitted. The effects on the financial statements of the Companyfromattributable to the differences between the statutory basis of accounting and GAAP are material.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in conformity with the statutory basis of accounting required management to use assumptions or make estimates that affected 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'sCompany’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 real estate joint ventures, partnership investments
including(including real estate, venture capital and leveraged buyout fund limitedpartnerships,partnerships), leveraged leases andsubsidiaries, controlled and affiliated entities.unconsolidated non-insurance subsidiaries. These investments are valued based on the equity method of accounting, whichapproximatedapproximates fair value. Other investments also include derivative financial instruments. See Note 4 regarding theCompany'sCompany’s use ofderivatives.derivatives and their valuation in the financial statements.TEMPORARY INVESTMENTS
Temporary investments represent securities that
havehad maturities of one year or less at purchase, and are reported at amortized cost, whichapproximatedapproximates 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. Accrued investment income more than 90 days past due is nonadmitted and reported as a direct reduction of surplus. Accrued investment income that is ultimately deemed uncollectible is reported as a reduction of net investment income in the period that such determination is made.
Beginning January 1, 2001, netNet investment income also includes dividends paid to the Company from accumulated earnings ofunconsolidated subsidiaries, affiliates,joint ventures, partnerships, andjoint ventures. Prior tounconsolidated75
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
the Company's share of undistributed earnings in these entities was recognized as net investment income using the equity method.subsidiaries. Net investment income is reduced by investment management expenses, real estate depreciation, depletion related to energy assets and interest costs associated with securities lending.
72THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)INTEREST MAINTENANCE RESERVE
The Company is required to maintain an interest maintenance reserve
("IMR"(“IMR”). The IMR is used to defer realized gains and losses, net of income tax, on fixed income investments thatresult fromare attributable to changes in interest rates. Net realized gains and losses deferred to the IMR are amortized into investment income over the estimated remaininglifeterm to maturity of the investment sold.INVESTMENT CAPITAL GAINS AND LOSSES
Realized capital gains and losses are recognized based upon specific identification of securities sold.
Beginning January 1, 2001, realizedRealized capital losses also include valuation adjustments for impairment of bonds, stocks, mortgage loans, real estate and other investmentswiththat have experienced a decline in fair value that management considers to be other-than-temporary. Factors considered in evaluating whether a decline in value is other-than-temporary include: (1) whether the decline is substantial, (2) theCompany'sCompany’s ability and intent to retain the investment for a period of time sufficient to allow for an anticipated recovery in value, (3) the duration and extent to which themarketfair value has been less than cost, and (4) the financial condition and near-term prospects of the issuer.Prior to 2001, these valuation adjustments were classified as unrealized capital losses and only reported as realized upon disposition.Realized capital gains and losses as reported in the consolidated statement of operationsare net ofexclude any IMRdeferrals and current income tax expense.deferrals. See Note 3 regarding details of realized capital gains and losses.Unrealized capital gains and losses primarily represent changes in the reported fair value of common
stocks. Beginning January 1, 2001,stocks and changes in valuation adjustments made for bonds in or near default. Changes in theCompany'sCompany’s share of undistributed earningsinof joint ventures, partnerships, and unconsolidated subsidiariesaffiliates, partnerships and joint venturesare also 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 changes in unrealized capital gains and losses.ASSET VALUATION RESERVE
The Company is required to maintain an asset valuation reserve
("AVR"(“AVR”). The AVR represents a general reserve liability for invested asset valuation using a formula prescribed by theNAIC.National Association of Insurance Commissioners (“NAIC”). The AVR is designed to protect surplus against potential declines in the value of theCompany'sCompany’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. Considerations received on supplementary insurance contracts without life contingencies are deposit-type transactions and thereby excluded from revenue in the consolidated statement of operations. Premium revenue is reported net of ceded reinsurance, see Note 9.
73THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)OTHER INCOME
Other income
includesprimarily represents 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 and included in other income.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, benefitpayments on supplementary insurance contracts that include life contingencies. Benefit payments on supplementary insurance contracts without life contingencies areclassified asdeposit-type transactions and thereby excluded fromexpense. Prior to 2001, these payments were reported as benefit expense.benefits in the consolidated statement of operations. Benefit payments are reported net of ceded reinsurance recoveries, see Note 9.76
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
RESERVES FOR POLICY BENEFITS
See Note 5 regarding the methods and assumptions used to establish the
Company'sCompany’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
ElectronicThe cost of electronic data processing
("EDP"(“EDP”) equipment and operating system software used in theCompany'sCompany’s businessare reported at cost less accumulated depreciation. Beginning January 1, 2001, certainis generally capitalized and depreciated over three years using the straight-line method. Non-operating system softwarecosts areis generally capitalized and depreciated over a maximum of fiveyears, while EDP equipment is capitalized and depreciated over threeyears.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 operating software assets of$20$25 million and$18$20 million at December 31, 2003 and 2002,and 2001,respectively,were net of accumulated depreciation of $48 million and $44 million, respectively, and includedare reported in other assets in the consolidated statement of financial position and are net of accumulated depreciation of $56 million and $48 million, respectively. Non-operating software costs, net of accumulated depreciation, are nonadmitted assets and thereby excluded from reported assets and surplus in the consolidated statement of financial position. Depreciation expenseis recorded using the straight-line method andtotaled $42 million, $27 million$14 millionand$8$14 million for the years ended December 31, 2003, 2002 and 2001, respectively.FURNITURE AND EQUIPMENT
The cost of furniture, fixtures and
2000,equipment, including leasehold improvements, is generally capitalized and depreciated over the useful life of the assets using the straight-line method. Furniture, fixtures and equipment costs, net of accumulated depreciation, are nonadmitted assets and thereby excluded from reported assets and surplus in the consolidated statement of financial position. Depreciation expense totaled $6 million, $6 million and $5 million for the years ended December 31, 2003, 2002 and 2001, respectively.POLICYOWNER DIVIDENDS
Almost all life insurance and disability income policies and certain annuity contracts and long-term care policies issued by the Company are participating. Annually, the
Company'sCompany’s Board of Trustees approves dividends payable on participating policiesinduring thefollowingsubsequent 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.74THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)NONADMITTED ASSETS
Certain assets are designated as nonadmitted
and thereby not permitted as a component of surpluson the statutory basis of accounting. Such assets, principally assets related to pension funding, amounts advanced to or due from theCompany'sCompany’s financial representatives andfixed assets, EDPfurniture, fixtures, equipment, and non-operating softwarenet(net of accumulateddepreciation,depreciation) are excluded from reported assets and surplus in the consolidated statement of financial position. Changes in nonadmitted assets are reported as a direct adjustment to surplus.RECLASSIFICATIONS
Certain financial statement balances
for 2001 and 2000have been reclassified to conform to the current year presentation.3. INVESTMENTS77
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
3. INVESTMENTS BONDS
Investments in bonds are reported in the financial statements at amortized cost, less any valuation adjustment. The interest method is used to amortize any purchase premium or discount. Use of the interest method for loan-backed bonds and structured securities includes
anticipatedestimates of future prepayments obtained from independent sources. Prepayment assumptions are updated at least annually, with the prospective adjustment method used to recognize related changes in the estimated yield-to-maturity of such securities.Valuation adjustments are made for bonds in or near default, which are reported at the lower of amortized cost or fair value, or for bonds with a decline in fair value that management considers to be other-than-temporary.
Estimated fair value is based upon values published by the Securities Valuation Office
("SVO"(“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.Valuation adjustments are made for bonds in or near default, which are reported at the lower of amortized cost or fair value, or for bonds with a decline in fair value that management considers to be other-than-temporary.Statement value and estimated fair value of bonds at December 31,
20022003 and20012002 were as follows:
December 31, 2002 Reconciliation to Estimated Fair Value - ----------------- ------------------------------------------------------- Gross Gross Estimated Statement Unrealized Unrealized Fair Value Gains Losses Value ------------ ------------ ------------ ------------ (in millions)U.S. Government $ 8,932 $ 531 $ (21) $ 9,442 States, territories and possessions 396 61 -- 457 Special revenue and assessments 7,576 400 (1) 7,975 Public utilities 2,501 251 (25) 2,727 Banks, trust and insurance companies 1,355 71 (15) 1,411 Industrial and miscellaneous 29,836 2,150 (688) 31,298 Parent, subsidiaries and affiliates 1 -- -- 1 ------------ ------------ ------------ ------------ Total $ 50,597 $ 3,464 $ (750) $ 53,311 ============ ============ ============ ============75THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)
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 ============ ============ ============ ============
Reconciliation to Estimated Fair Value December 31, 2003
Statement
ValueGross
Unrealized
GainsGross
Unrealized
LossesEstimated
Fair
Value(in millions) U.S. Government
$ 9,233 $ 476 $ (42 ) $ 9,667 States, territories and possessions
374 56 (4 ) 426 Special revenue and assessments
10,037 253 (41 ) 10,249 Public utilities
2,516 213 (6 ) 2,723 Banks, trust and insurance companies
3,227 82 (24 ) 3,285 Industrial and miscellaneous
30,184 2,303 (241 ) 32,246 Total
$ 55,571 $ 3,383 $ (358 ) $ 58,596 Reconciliation to Estimated Fair Value December 31, 2002
Statement
ValueGross
Unrealized
GainsGross
Unrealized
LossesEstimated
Fair
Value(in millions) U.S. Government
$ 8,933 $ 531 $ (21 ) $ 9,443 States, territories and possessions
396 61 — 457 Special revenue and assessments
7,576 400 (1 ) 7,975 Public utilities
2,501 251 (25 ) 2,727 Banks, trust and insurance companies
1,355 71 (15 ) 1,411 Industrial and miscellaneous
29,836 2,150 (688 ) 31,298 Total
$ 50,597 $ 3,464 $ (750 ) $ 53,311 Statement value and estimated fair value of bonds by contractual maturity at December 31,
20022003 are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Statement Estimated Value Fair Value ------------ ------------ (in millions)Due in one year or less $ 1,165 $ 1,193 Due after one year through five years 9,858 10,202 Due after five years through ten years 13,362 14,235 Due after ten years 11,877 12,747 ------------ ------------ 36,262 38,377 Structured securities 14,335 14,934 ------------ ------------ Total $ 50,597 $ 53,311 ============ ============
Statement
ValueEstimated
Fair
Value(in millions) Due in one year or less
$ 634 $ 648 Due after one year through five years
8,593 9,105 Due after five years through ten years
13,775 14,819 Due after ten years
14,349 15,402 37,351 39,974 Mortgage-backed and structured securities
18,220 18,622 Total
$ 55,571 $ 58,596 78
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
COMMON AND PREFERRED STOCKS
Common stocks are generally reported in the financial statements at fair value, which is based upon quoted market prices, if available. For common stocks without quoted market prices, fair value is estimated using independent pricing services or internally developed pricing models.
InvestmentsThe equity method is used to value investments in common stock of unconsolidatedsubsidiaries and affiliates are included in the consolidated statement of financial position using the equity method.subsidiaries.Preferred stocks rated
"1"“1” (highest quality),"2"“2” (high quality), or"3"“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 amortized 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.76THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)MORTGAGE LOANS
Mortgage loans are reported in the financial statements at unpaid principal balance, less any valuation allowance or unamortized commitment or origination fee.
TheseSuch fees are generally deferred upon receipt 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
20022003 were8.2%8.5% and5.0%3.6%, respectively, while these rates during20012002 were9.8%8.2% and6.4%5.0%, respectively. The aggregate average ratio of amounts loaned to the value of collateral for mortgage loans originated during 2003 and 2002 were 66% and2001 were65%and 68%, respectively, with a maximum of 100% for any single loan during each of20022003 and2001.2002.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 valuation adjustment is
classifiedreported as an unrealized loss.Beginning January 1, 2001 valuationValuation adjustments for impairments considered to be other-than-temporarywereare reported as realized losses.Prior to 2001, all changes in valuation adjustments were reported as unrealized gains or losses.At December 31,20022003 and2001,2002, the reported value of mortgage loans was reduced by$44$13 million and$99$44 million, respectively, in valuation adjustments.REAL ESTATE
Real estate investments are reported in the financial statements at cost, less any valuation adjustment, encumbrances and accumulated depreciation of buildings and other improvements using a
straight linestraight-line method over the estimated usefullifelives of the improvements. An investment in real estate is considered impaired when, based on current information, theprojected undiscounted netestimated fair value of the property is lower than depreciated cost. The estimated fair value is primarily based upon the present value of future cash flowfrom(for commercial properties) or theinvestment is less than depreciated cost.capitalization of stabilized net operating income (for residential properties). 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 appraisalnet ofthe property. Theencumbrances. Valuation adjustments are reported as a realized loss. At both December 31, 2003 and 2002 there was no valuation adjustmentis includedinrealized losses. At December 31, 2002 and 2001,determining the reported value of real estateinvestments was reduced by $0investments.At December 31, 2003 and
$522002, the reported value of real estate included $180 million and $124 million, respectively,in valuation adjustments.of real estate properties occupied by the Company.LEVERAGED LEASES
Leveraged leases are reported in the financial statements at the present value of future minimum lease payments, plus the residual value of the leased asset. At December 31,
20022003 and2001,2002, the reported value of leveraged leases was$532$513 million and$669$532 million, respectively. The reported value of leveraged leases at December 31, 2003 and 2002 was reduced by $0 and $108 million,at December 31, 2002respectively, to reflect a decline in value of certain aircraft leases that managementconsidersconsidered to be other-than-temporary. The decline in value was charged against an existing valuation allowance andiswas notincludedreported as acomponent of netrealized capitallosses forloss during 2002.79
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
Leveraged leases are included in other investments and primarily represent investments in commercial aircraft or real estate property that are leased to third parties and serve as collateral for non-recourse borrowings.
77THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)CAPITAL GAINS AND LOSSES
Realized investment gains and losses for the years ended December 31, 2003, 2002
2001and20002001 were as follows:
For the year ended For the year ended For the year ended December 31, 2002 December 31, 2001 December 31, 2000 ------------------------------ ------------------------------ ------------------------------ 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 $ 950 $ (1,237) $ (287) $ 537 $ (674) $ (137) $ 369 $ (416) $ (47) Common and preferred stocks 356 (619) (263) 863 (569) 294 1,534 (333) 1,201 Mortgage loans -- (4) (4) -- (10) (10) -- (25) (25) Real estate 121 (3) 118 85 (11) 74 101 -- 101 Other invested assets 158 (258) (100) 296 (149) 147 395 (177) 218 -------- -------- -------- -------- -------- -------- -------- -------- -------- $ 1,585 $ (2,121) (536) $ 1,781 $ (1,413) 368 $ 2,399 $ (951) 1,448 ======== ======== ======== ======== ======== ======== Less: Capital gains taxes (194) 98 353 Less: IMR gains (losses) 264 11 (52) -------- -------- -------- Net realized capital gains (losses) $ (606) $ 259 $ 1,147 ======== ======== ========
For the year ended
December 31, 2003
For the year ended
December 31, 2002
For the year ended
December 31, 2001
Realized
Gains
Realized
Losses
Net
Realized
Gains
(Losses)
Realized
Gains
Realized
Losses
Net
Realized
Gains
(Losses)
Realized
Gains
Realized
Losses
Net
Realized
Gains
(Losses)
(in millions) Bonds
$ 1,369 $ (861 ) $ 508 $ 950 $ (1,237 ) $ (287 ) $ 537 $ (674 ) $ (137 ) Common and preferred stocks
397 (402 ) (5 ) 356 (619 ) (263 ) 863 (569 ) 294 Mortgage loans
12 — 12 — (4 ) (4 ) — (10 ) (10 ) Real estate
198 — 198 121 (3 ) 118 85 (11 ) 74 Other invested assets
145 (286 ) (141 ) 158 (258 ) (100 ) 296 (149 ) 147 $ 2,121 $ (1,549 ) 572 $ 1,585 $ (2,121 ) (536 ) $ 1,781 $ (1,413 ) 368 Less: IMR gains (losses)
538 264 11 Less: Capital gains taxes (benefit)
(105 ) (194 ) 98 Net realized capital gains (losses)
$ 139 $ (606 ) $ 259 Proceeds
onfrom the sale of bond investments totaled $83 billion, $53 billion$30 billionand$25$30 billion for the years ended December 31, 2003, 2002,2001and2000,2001, respectively. Realized losses (before capital gains taxes) included $405 million, $588 million, and $457 million for the years ended December 31, 2003, 2002, and 2001, respectively, ofpretaxvaluation adjustments for declines in fair value of investments that were considered to be other-than-temporary.Other-than-temporary declines inThe amortized cost and estimated fair value of
$508 millionbonds and common and preferred stocks for which theyear endedestimated fair value had temporarily declined and remained below cost as of December 31,2000 are included in net unrealized losses.2003, were as follows:
December 31, 2003 Decline For Less Than 12 Months Decline For Greater Than 12 Months Cost Fair Value Difference Cost Fair Value Difference (in millions) Bonds
$ 9,051 $ 8,804 $ (247 ) $ 1,559 $ 1,448 $ (111 ) Common and preferred stocks
587 536 (51 ) 613 520 (93 ) Total
$ 9,638 $ 9,340 $ (298 ) $ 2,172 $ 1,968 $ (204 ) Changes in net unrealized investment gains and losses for the years ended December 31, 2003, 2002,
2001and20002001 were as follows:
For the year ended December 31, ------------------------------------------ 2002 2001 2000 ------------ ------------ ------------ (in millions)Bonds $ (150) $ (15) $ (208) Common and preferred stocks (436) (699) (851) Mortgage loans -- -- (2) Real estate -- -- (4) Other investments (172) (193) 22 ------------ ------------ ------------ (758) (907) $ (1,043) ============ Change in deferred taxes 241 352 ------------ ------------ $ (517) $ (555) ============ ============See Note 10 regarding the accounting change in 2001 for deferred taxes as regards to unrealized gains and losses. 78
For the year ended December 31, 2003 2002 2001 (in millions) Bonds
$ 188 $ (150 ) $ (15 ) Common and preferred stocks
1,372 (436 ) (699 ) Other investments
163 (172 ) (193 ) 1,723 (758 ) (907 ) Change in deferred taxes
(552 ) 241 352 $ 1,171 $ (517 ) $ (555 ) 80
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL
STATEMENTS--(CONTINUED)STATEMENTS CONTINUEDDECEMBER 31, 2003, 2002 AND 2001
SECURITIES LENDING
The Company has entered into securities lending agreements whereby certain investment securities are loaned to third parties, primarily major brokerage firms. The
Company'sCompany’s policy requires a minimum of 102% of the fair value of the loaned securities, calculated on a daily basis, as collateral in the form of either cash or securities held by the Company or a trustee. At December 31,20022003 and2001,2002, unrestricted cash collateral held by the Company of$1.6$2.5 billion and$1.3$1.6 billion, respectively, isincludedreported in cash and invested assets and the offsetting collateral liability of$1.6$2.5 billion and$1.3$1.6 billion, respectively, isincludedreported in otherliabilities.liabilities in the consolidated statement of financial position. Additional non-cash collateral of$389$482 million and$823$389 million is held on theCompany'sCompany’s behalf by a trustee at December 31,20022003 and2001,2002, respectively, and is not included in theConsolidated Statementconsolidated statement ofFinancial Position. MORTGAGE DOLLAR ROLLSfinancial position.REPURCHASE AGREEMENTS
The Company has
alsoentered intoreverse repurchaseagreements whereby the Company sells and agrees tosell andrepurchasevariouscertain mortgage-backed securities. At December 31, 2002,and 2001,the book value of securities subject to these agreements and included in the reported value of bondswere $1,042 million and $964 million, respectively,was $1.0 billion, whilefair values were $1,057 million and $966 million, respectively. Thethe repurchase obligation liability of$1,042 million and $964 million were included$1.0 billion was reported in other liabilities in theother liabilities at December 31, 2002 and 2001, respectively.consolidated statement of financial position. Securities subject to these agreements had contractual maturities of 30 years ateach ofDecember 31, 2002 and2001 anda weighted average interestratesrate of 5.8%and 6.8%, respectively. 4. DERIVATIVE FINANCIAL INSTRUMENTS. There were no outstanding repurchase commitments at December 31, 2003.
4. DERIVATIVE FINANCIAL INSTRUMENTS In the normal course of business, the Company enters into derivative transactions, generally to mitigate the risk to Company assets and
liabilitiessurplus of fluctuations in interest rates, foreign currency exchange rates and other market risks. Derivative investments are reported as other investments in the consolidated statement of financial position.DerivativesCash flow and fair value hedges that qualify for hedgespecific assets and liabilitiesaccounting arereportedaccounted for in a manner consistent with the hedged item (e.g., atamortized cost or fair value), while derivative financial instrumentswhereas cash flow and fair value hedges that do not qualify for hedgea portfolio of assets or liabilitiesaccounting arereportedaccounted for 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.ChangesIn addition to cash flow and fair value hedges, the Company entered into replication transactions during 2003 and 2002. A replication transaction is a derivative transaction entered into in conjunction with other investment transactions in order to replicate the
carrying valueinvestment characteristics of otherwise permissible investments.The Company does not take positions in derivatives
that hedgefor income generation purposes.The Company implemented Statement of Statutory Accounting Principles (“SSAP”) No. 86, Accounting for Derivative Instruments and Hedging Activities, which superceded SSAP 31, effective January 1, 2003. Upon implementation the Company had the option of applying the new guidance to all derivatives to which the Company was a
portfolioparty to as ofassetsJanuary 1, 2003 orliabilities are reportedcontinuing to use the existing guidance of SSAP 31 for all derivatives held asrealized capital gains and losses. 79of December 31, 2002. The Company chose to apply SSAP 86 guidance retroactively to derivatives held prior to January 1, 2003. The impact on surplus from the adoption of SSAP 86 was considered to be immaterial. 81
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL
STATEMENTS--(CONTINUED)STATEMENTS CONTINUEDDECEMBER 31, 2003, 2002 AND 2001
The Company held the following derivative positions
for hedging purposesat December 31,20022003 and2001:2002:
December 31, 2002 December 31, 2001 ----------------------------------- ----------------------------------- Carrying Notional Fair Carrying Notional Fair Derivative Instrument Value Amount Value Value Amount Value --------------------- ---------- ---------- ---------- ---------- ---------- ---------- (in millions)Specific Hedges: Foreign currency swaps $ -- $ 68 $ 7 $ 1 $ 70 $ 11 Forward purchase agreements -- -- -- -- 200 3 Interest rate swaps (3) 442 (8) 1 88 6 Swaptions 12 358 12 8 304 13 Interest rate floors 8 625 41 6 525 19 Credit default swaps -- 67 -- -- 57 -- Commodity swaps -- 5 (1) -- -- -- Portfolio Hedges: Equity futures and swaps -- -- -- 9 221 9 Fixed income futures -- 365 -- (2) 203 (2) Foreign currency forward contracts (19) 567 (17) -- 502 --
December 31, 2003 December 31, 2002 Derivative Instrument
Carrying
Value
Notional
Amount
Fair
Value
Carrying
Value
Notional
Amount
Fair
Value
(in millions) Cash Flow Hedges:
Foreign currency swaps
$ — $ 36 $ (2 ) $ — $ 68 $ 7 Interest rate swaps
— 473 6 (3 ) 442 (8 ) Swaptions
23 521 25 12 358 12 Interest rate floors
13 775 38 8 625 41 Fair Value Hedges:
Short equity futures
— — — — — — Fixed income futures
— — — — 365 — Foreign currency forward contracts
(43 ) 1,029 (43 ) (19 ) 567 (17 ) Credit default swaps
— 203 (1 ) — 67 — Commodity swaps
— — — — 5 (1 ) Replications:
Credit default swaps
— 230 (2 ) — 65 — Long fixed income futures
— — — — — — Long equity futures
— 28 — — 9 — 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.
Foreign currency swaps are cash flow hedges used to
hedgemitigate exposure to variable U.S. dollar cash flows from certain bonds 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.Forward purchase agreements are used to fix the price of a security purchase or sale to be settled on a future date, reducing or eliminating the risk of price fluctuation prior to settlement. Forward purchase agreements fix the price, quantity and settlement date for a future purchase or sale.Interest rate swaps are cash flow hedges used to
hedgemitigate exposure to variable interest payments on certain floating rate bonds. An interest rate swap is a contractual agreement to pay a floating rate of interest, based upon a reference index, in exchange for a fixed rate of interest established at the origination of the contract.Swaptions are cash flow hedges used to
hedgemitigate the asset/liability risks of a significant and sustained increase or decrease in interest rates for certain of theCompany'sCompany’s insurance products. Swaptions are a contractual agreement whereby one party holds an option to enter into an interest rate swap with another party on predefined terms.80THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)Interest rate floors are cash flow hedges used to
hedgemitigate the asset/liability risks of a significant and sustained decrease in interest rates. Floors entitle the Company to receive settlement payments from the counterparties if interest rates decline below a specified level.Credit default swaps are used to hedge against a drop in bond prices due to credit concerns for certain bond issuers. A credit default swap allows the Company to put the bond to a counterparty at par upon a "credit event" sustained by the bond issuer. A credit event is defined as bankruptcy, failure to pay, or obligation acceleration. Commodity swaps are used to hedge the forward sale of crude oil and natural gas production. Commodity swaps are agreements whereby one party pays a floating commodity price in exchange for a specified fixed commodity price. EquityShort equity index futures contracts
and equity total return swapsare fair value hedges that are used to mitigate exposure to market fluctuations for theCompany'sCompany’s portfolio of common stocks. Futures contracts obligate the Company to buy or sell a financial instrument at a specified future date for a specified price.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.Fixed income futures contracts are fair value hedges used to
hedgemitigate interest raterisksrisk for a portion of its fixed maturity investment portfolio. These futures contracts obligate the Company to buy or sell a financial instrument at a specified future date for a specified price.Foreign currency forward contracts are fair value hedges used to
hedgemitigate the foreign exchange risk for portfolios of investments denominated in foreign currencies. Foreign currency forward contracts obligate the Company to deliver a specified amount of foreign currency at a future date at a specified exchange rate.In addition82
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
Credit default swaps are fair value hedges used to
derivatives usedprotect against a decrease in bond prices due to credit concerns forhedging purposes, the Company entered into replication transactions during 2002.certain bond issuers. Areplication transaction means a derivative transaction is entered into in conjunction with other investment transactions in order to "replicate" the investment characteristics of otherwise permissible investments. During 2002, the Company entered into two replication transactions; a $15 million par equivalent fixed income replication comprised of acredit default swapan interest rateallows the Company to put the bond to a counterparty at par upon a “credit event” sustained by the bond issuer. A credit event is defined as bankruptcy, failure to pay, or obligation acceleration.Commodity swaps are fair value hedges used to mitigate exposure to market fluctuations for the forward sale of crude oil and natural gas production. Commodity swaps are agreements whereby one party pays a floating commodity price in exchange for a specified fixed commodity price.
Credit default swap
and an asset-backed security purchase; andreplication transactions are used by the Company to create a$25 million par equivalentfixed incomereplication comprisedinvestment through the use ofa credit default swapderivatives andan asset-backed security purchase.cash market instruments. These replication transactions, includingtheirthe derivativecomponents,component, arecarriedreported at amortized cost.The Company also entered into long equityDuring 2003 and 2002, the average fair value of such contracts was $0 and ($1) million, respectively. No realized gains or losses were recognized during 2003 or 2002 on the termination of such contracts.Long fixed income futures replication contracts are used by the Company to manage the duration of the fixed income portfolio and mitigate exposure to interest rate changes. These replication transactions
during 2002. Theare reported at fair value, with changes in fair value reflected as a component of unrealized gains and losses until such time as the contracts are terminated. During 2003 and 2002, the average fair value ofreplicationssuch contracts was $0. Realized gains of $29 million and $5 million were recognized during 2003 and 2002was $72 million,on the termination of such contracts.Long equity futures replication contracts are used by the Company to gain equity market investment exposure. These replication transactions are reported at fair value, with
an endingchanges in fair value reflected as a component of unrealized gains and losses until such time as the contracts are terminated. During 2003 and 2002, the average fair value of$8such contracts was $0 and $73 million,at December 31, 2002. 5. RESERVES FOR POLICY BENEFITSrespectively. Realized gains of $28 million and $10 million were recognized during 2003 and 2002, respectively, on the termination of such contracts.
5. RESERVES FOR POLICY BENEFITS Reserves for policy benefits represent the net present value of future policy benefits, less future policy premiums, estimated using actuarial methods based on mortality and morbidity experience tables and valuation interest rates prescribed or permitted by the
OCI. 81NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)Office of the Commissioner of Insurance of the State of Wisconsin (“OCI”). Use of these actuarial tables and methods involved assumptions regarding future mortality and morbidity. Actual future experience could differ from the assumptions used to make these estimates.General account reserves for policy benefits at December 31, 2003 and 2002 are summarized below:
December 31, 2003 2002 (in millions) Life insurance reserves
$ 71,441 $ 65,605 Annuity reserves and deposit liabilities
4,940 4,607 Disability income and long-term care unpaid claims and claim reserves
3,083 2,907 Disability income active life reserves
1,801 1,757 Long-term care active life reserves
15 4 Total reserves for policy benefits
$ 81,280 $ 74,880 Life insurance reserves on substantially all policies issued since 1978 are based on the
Commissioner'sCommissioner’s Reserve Valuation Method("CRVM"(“CRVM”) with interest rates ranging from3-1/2%3½% to5-1/2%5½% and the 1958 or 1980 CSO mortality tables. Other lifepolicyinsurance reserves are primarily based on the net level premium method, using various mortality tables at interest rates ranging from 2% to4-1/2%4½%. As of December 31,2002,2003, the Company has$750$810 billion of total life insurance in-force, including$8$8.7 billion of life insurance in-force for which gross premiums are less than net premiums according to the standard valuation methods and assumptions prescribed by the OCI.83
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
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 was 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 cost 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 an insured and returns any portion of the final premium beyond the date of death.
SurrenderCash values are not promised in excess of the legally computed reserves.Deferred annuity reserves on contracts issued since 1985 are primarily based on the
Commissioner'sCommissioner’s Annuity Reserve Valuation Method with interest rates ranging from3-1/2%3½% to6-1/4%6¼%. Other deferred annuity reserves are based on contract value. Immediate annuity reserves are based on present value of expected benefit payments at interest rates ranging from3-1/2%3½% to7-1/2%7½%.Beginning January 1, 2001 changesChanges 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 ofoperations. Prior to 2001, these reserve changes were reported as a component of operations. 82NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)operations, see Note 2.At December 31,
20022003 and2001,2002, the withdrawal characteristics of theCompany'sCompany’s general account annuity reserves and deposit liabilities were as follows:
December 31, 2002 December 31, 2001 ----------------------- ----------------------- Amount Percent Amount Percent ---------- ---------- ---------- ---------- (in millions)Subject to discretionary withdrawal - with market value adjustment $ 7,539 58.5% $ 8,936 63.5% Subject to discretionary withdrawal - without market value adjustment 2,620 20.3% 2,260 16.1% Not subject to discretionary withdrawal 2,738 21.2% 2,869 20.4% ---------- ---------- ---------- ---------- $ 12,897 100.0% $ 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
December 31, 2003 2002 Subject to discretionary withdrawal
- with market value adjustment
$ 1,354 $ 1,386 - without market value adjustment
2,340 2,032 Not subject to discretionary withdrawal
1,246 1,189 Total
$ 4,940 $ 4,607 Unpaid claims 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, with interest rates ranging from 3% to 4% and the 1964 Commissioner's Disability Table for morbidity. Disabled lifeclaim reserves for DI policies are based on the present value 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% to5-1/2%5½%. Unpaid claims and claim reserves for long-term care policies are based on the present values of expected benefit payments using industry-based long-term care experience with a 4.5% interest rate.Reserves for unpaid claims, losses, and loss adjustment expenses on disability income and long-term care insurance were $3.1 billion and $2.9 billion at December 31, 2003 and December 31, 2002, respectively. The table below provides a summary of the changes in these reserves for the years ended December 31, 2003 and 2002.
For the year ended
December 31,2003 2002 (in millions) Balance at January 1
$ 2,907 $ 2,701 Incurred related to:
Current year
466 466 Prior year
50 59 Total incurred
516 525 Paid related to:
Current year
17 17 Prior year
323 302 Total paid
340 319 Balance at December 31
$ 3,083 $ 2,907 84
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
The changes in reserves for incurred claims related to prior years are generally the result of ongoing analysis of recent loss development trends.
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, with interest rates ranging from 3% to 4% and the 1964 Commissioner’s Disability Table for morbidity.
Active life reserves for long-term care policies consist of mid-terminal reserves and unearned premium. Mid-terminal reserves are based on the one-year preliminary term method, industry-based experience morbidity, total terminations based on the 1983 Individual Annuity Mortality table without lapses or the 1983 Group Annuity Mortality table with
no lapse,lapses, and an interest rate of either 4% or the minimum rate allowable for tax purposes. When the tax interest rate is used, lapses are not included in total terminations and reserves are compared in the aggregate to the statutory minimum and the greater of the two is held.Disabled life reserves for long-term care policies are based on the present values of expected benefit payments using industry-based long-term care experience with a 4.5% interest rate. 6. PREMIUM AND ANNUITY CONSIDERATIONS DEFERRED AND UNCOLLECTED
6. PREMIUM AND ANNUITY CONSIDERATIONS DEFERRED AND UNCOLLECTED Gross deferred and uncollected insurance premiums represent life insurance premiums due to be received from policyowners through the next respective policy anniversary dates. Net deferred and uncollected premiums represent only the portion of gross premiums related to mortality charges and interest.
83NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)Deferred and uncollected premiums at December 31,
20022003 and20012002 were as follows:
December 31, 2003 December 31, 2002 Type of Business
Gross Net Gross Net (in millions) Ordinary new business
$ 171 $ 76 $ 149 $ 69 Ordinary renewal
1,461 1,191 1,409 1,145 $ 1,632 $ 1,267 $ 1,558 $ 1,214
December 31, 2002 December 31, 2001 ---------------------- ---------------------- Type of Business Gross Net Gross Net - ---------------- ---------- ---------- ---------- ---------- (in millions)Ordinary new business $ 149 $ 69 $ 145 $ 77 Ordinary renewal 1,409 1,145 1,351 1,103 ---------- ---------- ---------- ---------- $ 1,558 $ 1,214 $ 1,496 $ 1,180 ========== ========== ========== ==========7. SEPARATE ACCOUNTS 7. SEPARATE ACCOUNTSSeparate account assets and related policy liabilities represent the segregation of
funds deposited bybalances attributable to variable life insurance and variable annuitypolicyowners.policies. 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 issued by the general account of the Company. Separate account assets are reported at fair value based primarily on quoted market prices.Following is a summary of separate account liabilities by withdrawal characteristic at December 31,
20022003 and2001:2002:
December 31, ---------------------- 2002 2001 ---------- ---------- (in millions)At market value $ 8,442 $ 9,780 Not subject to discretionary withdrawal 1,550 1,762 Non-policy liabilities 254 244 ---------- ---------- Total $ 10,246 $ 11,786 ========== ==========
December 31, 2003 2002 (in millions) Subject to discretionary withdrawal
- with market value adjustment
$ 10,524 $ 8,442 - without market value adjustment
— — Not subject to discretionary withdrawal
1,886 1,550 Non-policy liabilities
252 254 Total
$ 12,662 $ 10,246 While separate account liability values are not guaranteed by the Company, the variable annuity and variable life insurance products represented in the separate accounts do include guaranteed minimum death benefits underwritten by the Company. At both December 31,
20022003 and2001,2002, general account reserves for policy benefits included $11 millionand $6 million, respectively, in reserves forattributable to these benefits.Separate account premiumsPremiums and other considerations received from variable life and variable annuity policyowners during the years ended December 31, 2003 and 2002 were $1.2 billion and
2001 were $1,341 million and $1,419 million,$1.3 billion, respectively. These amounts are reported as premiums in the consolidated statement of operations. The subsequent transfer of these receipts to the Separate Accounts is reported in net85
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
transfers to separate accounts in the consolidated statement of operations, net of amounts received from the Separate Accounts to provide for policy benefit payments to variable product policyowners.
Following is a summary reconciliation of amounts reported as transfers to and from separate accounts in the summary of operations of the
Company'sCompany’s NAIC Separate Account Annual Statementandwith the amount reported as net transfers to separate accounts in the accompanying consolidated statement of operations for the years ended December 31, 2003, 2002 and 2001:84NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)
For the year ended December 31, 2003 2002 2001 (in millions) From Separate Account Annual Statement:
Transfers to Separate Accounts
$ 1,224 $ 1,341 $ 1,419 Transfers from Separate Accounts
(1,125 ) (1,300 ) (1,128 ) 99 41 291 Reconciling adjustments:
Investment management and administrative charges
73 65 72 Mortality, breakage and taxes
116 136 139 Net transfers to separate accounts
$ 288 $ 242 $ 502
For the year ended December 31, ------------------------------- 2002 2001 ------------ ------------ (in millions)From Separate Account Annual Statement: Transfers to Separate Accounts $ 1,341 $ 1,419 Transfers from Separate Accounts (1,300) (1,128) ------------ ------------ 41 291 Reconciling adjustments: Investment management and administrative charges 65 72 Mortality, breakage and taxes 136 139 ------------ ------------ Net transfers to separate accounts $ 242 $ 502 ============ ============8. EMPLOYEE AND REPRESENTATIVE BENEFIT PLANS 8. EMPLOYEE AND REPRESENTATIVE BENEFIT PLANSThe Company sponsors noncontributory defined benefit retirement plans for all eligible employees and
fieldfinancial 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. TheCompany'sCompany’s policy is to fully fund the obligations of qualified plans in accordance with ERISA requirements.Beginning January 1, 2001In 2003, thecosts associated with these retirement benefits are expensed over the annual periods during which the participant provides servicesCompany contributed $28 million to theCompany, including recognition of pension assets and liabilities based on the funded status of the related plans. Prior to 2001, the Company recognized pension expense only in the periods in whichqualified employee retirement plan. No contributions weremade to plan assets.required during 2002 or 2001.In addition to pension benefits, the Company provides certain health care and life insurance benefits
("(“postretirementbenefits"benefits”) to retired employees, field representatives and eligible dependents. Substantially all employees and field representatives will become eligible for these benefits if they reach retirement age while working for the Company.85NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED) AggregatedAggregate assets and projected benefit obligations of the defined benefit plans and for postretirement benefits at December 31,
20022003 and2001,2002, and changes in assets and obligations for the years then ended, were as follows:
Defined Benefit Plans Postretirement Benefits --------------------------- --------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ (in millions)Fair value of plan assets at January 1 $ 1,612 $ 1,694 $ 20 $ 23 Changes in plan assets: Actual return on plan assets (161) (54) (2) (2) Actual plan benefits paid (31) (28) (1) (1) ------------ ------------ ------------ ------------ Fair value of plan assets at December 31 $ 1,420 $ 1,612 $ 17 $ 20 ============ ============ ============ ============ Projected benefit obligation at January 1 $ 1,367 $ 1,261 $ 96 $ 89 Changes in benefit obligation: Service cost of benefits earned 54 50 11 7 Interest cost on projected obligations 95 86 8 6 Projected plan benefits paid (34) (30) (8) (6) Experience (gains) losses 17 -- 24 -- ------------ ------------ ------------ ------------ Projected benefit obligation at December 31 $ 1,499 $ 1,367 $ 131 $ 96 ============ ============ ============ ============
Defined Benefit Plans Postretirement Benefits 2003 2002 2003 2002 (in millions) Fair value of plan assets at January 1
$ 1,420 $ 1,612 $ 17 $ 20 Changes in plan assets:
Actual return on plan assets
323 (161 ) 5 (2 ) Company contributions
28 — — — Actual plan benefits paid
(33 ) (31 ) (2 ) (1 ) Fair value of plan assets at December 31
$ 1,738 $ 1,420 $ 20 $ 17 Projected benefit obligation at January 1
$ 1,499 $ 1,367 $ 131 $ 96 Changes in benefit obligation:
Service cost of benefits earned
64 54 15 11 Interest cost on projected obligations
103 95 10 8 Projected plan benefits paid
(38 ) (34 ) (9 ) (8 ) Experience losses
101 17 19 24 Projected benefit obligation at December 31
$ 1,729 $ 1,499 $ 166 $ 131 Plan assets are invested primarily in common stocks and corporate debt securities through a separate account of the Company. Asset mix is re-balanced regularly to maintain ratios of approximately 60% equities, 35% fixed income investments, and 5% cash equivalents. Fair value of plan assets is based primarily on quoted market values.
86
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
The projected benefit obligation represents the actuarial net present value of future benefit obligations, which is
calculatedestimated annually by the Company. The following table summarizes assumptions used in estimating the projected benefitobligationobligations at December 31, 2003, 2002, and 2001:
Defined Benefit Plans Postretirement Benefits --------------------------- --------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------Discount rate 7.0% 7.0% 7.0% 7.0% Long-term rate of return on plan assets 8.5% 9.0% 8.5% 9.0% Annual increase in compensation 5.0% 5.0% 5.0% 5.0%
Defined Benefit Plans Postretirement Benefits 2003 2002 2001 2003 2002 2001 Discount rate
6.5 % 7.0 % 7.0 % 6.5 % 7.0 % 7.0 % Long-term rate of return on plan assets
8.0 % 8.5 % 9.0 % 8.0 % 8.5 % 9.0 % Annual increase in compensation
4.5 % 5.0 % 5.0 % 4.5 % 5.0 % 5.0 % The projected benefit obligations for post-retirement benefits at December 31,
20022003 and20012002 also assumed an annual increase in future retiree medical costs of 10%, grading down to 5% over 5 years and remaining level thereafter. A further increase in the assumed healthcare cost trend of 1% in each year would increase the accumulated postretirement benefit obligation as of December 31,20022003 by$13$18 million and net periodic postretirement benefit expense during20022003 by$2$3 million. A decrease in the assumed healthcare cost trend of 1% in each year woulddecreasereduce the accumulated postretirement benefit obligation as of December 31,20022003 by$13$18 million and net periodic postretirement benefit expense during20022003 by$2$3 million.Projected benefit obligations included
$12$28 million and$11$12 million for non-vested employees at December 31, 2003 and 2002,and 2001,respectively.86NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED) An aggregatedFollowing is an aggregate reconciliation of the funded status of the plans to the net liability
recordedreported by the Company at December 31,20022003 and2001, as well as the components of net periodic benefit costs for the years then ended, were as follows:2002:
Defined Benefit Plans Postretirement Benefits --------------------------- --------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ (in millions)Fair value of plan assets at December 31 $ 1,420 $ 1,612 $ 17 $ 20 Projected benefit obligation at December 31 1,499 1,367 131 96 ------------ ------------ ------------ ------------ Funded status (79) 245 (114) (76) Unrecognized net experience losses 516 207 29 4 Unrecognized initial net asset (644) (657) -- -- Nonadmitted asset (58) (38) -- -- ------------ ------------ ------------ ------------ Net pension liability $ (265) $ (243) $ (85) $ (72) ============ ============ ============ ============ Components of net periodic benefit cost: Service cost of benefits earned $ 54 $ 50 $ 11 $ 7 Interest cost on projected obligations 95 86 9 6 Amortization of experience gains and losses 5 -- 1 -- Amortization of initial net asset (13) -- -- -- Expected return on plan assets (136) (151) (2) (2) ------------ ------------ ------------ ------------ Net periodic expense (benefit) $ 5 $ (15) $ 19 $ 11 ============ ============ ============ ============
Defined Benefit Plans Postretirement Benefits 2003 2002 2003 2002 (in millions) Fair value of plan assets at December 31
$ 1,738 $ 1,420 $ 20 $ 17 Projected benefit obligation at December 31
1,729 1,499 166 131 Funded status
9 (79 ) (146 ) (114 ) Unrecognized net experience losses
368 516 43 29 Unrecognized initial net asset
(598 ) (644 ) — — Nonadmitted asset
(76 ) (58 ) — — Net pension liability
$ (297 ) $ (265 ) $ (103 ) $ (85 ) Unrecognized net experience gains or losses represent cumulative amounts by which plan experience for return on plan assets or benefit costs has been more or less favorable than assumed. These net differences accumulate without
recordingrecognition in theCompany'sCompany’s financial statements unless they exceedten percent10% of plan assets or projected benefit obligation, whichever is greater. If they exceed this limit, they are amortized into net periodic benefit costs over the remaining average years of service until retirement of theemployee base,plan participants, which is currentlyseventeenfourteen years.Unrecognized initial net assets represent the amount by which the fair value of plan assets exceeded the projected benefit obligation for funded pension plans upon the adoption of new statutory accounting principles at January 1, 2001. The Company has elected not to record an initial asset for this excess,
rather it will establishelecting instead to utilize theassetexcess through amortization of this initial asset as a credit to net periodic benefitcost.cost in a systematic manner until exhausted.Any
netpension assets for funded plans are nonadmitted under statutory accounting and are thereby excluded fromsurplus.reported assets and surplus in the consolidated statement of financial position.87
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
The components of net periodic benefit costs for the years ended December 31, 2003, 2002, and 2001, were as follows:
Defined Benefit Plans Postretirement Benefits 2003 2002 2001 2003 2002 2001 (in millions) Components of net periodic benefit cost:
Service cost of benefits earned
$ 64 $ 54 $ 50 $ 15 $ 11 $ 7 Interest cost on projected obligations
103 95 86 10 9 6 Amortization of experience gains and losses
34 5 — 2 1 — Amortization of initial net asset
(46 ) (13 ) — — — — Expected return on plan assets
(113 ) (136 ) (151 ) (1 ) (2 ) (2 ) Net periodic expense (benefit)
$ 42 $ 5 $ (15 ) $ 26 $ 19 $ 11 The Company also sponsors a contributory 401(k) plan for eligible employees and a noncontributory defined contribution plan for
full-timefinancial representatives. For the years ended December 31, 2003, 20022001and20002001 the Company expensed total contributions to these plans of $23 million, $22 million and $20 million,and $19 million,respectively.87NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED) 9. REINSURANCE In the normal course of business, the
9. REINSURANCE The Company limits its exposure to life insurance death benefits on any single insured by ceding insurance coverage to various reinsurers under excess and coinsurance contracts. The Company retains a maximum of $25 million of coverage per individual life policy and a maximum of $35 million
maximumof coverage per jointlife.life policy. The Company also participates in catastrophic risk sharing pools and has an excess reinsurance contract for certain disability income policies issued prior to 1999 with retention limits varying based upon coverage type.Amounts shown in the consolidated financial statements are reported net of the impact of reinsurance. Reserves for policy benefits at December 31, 2003 and 2002
and 2001were reported net of ceded reserves of $1.0 billion and $877 million,and $757 million,respectively.The effect of reinsurance on premium revenue and benefits expense for the years ended December 31, 2003, 2002
2001and20002001 was as follows:
For the year ended December 31, ------------------------------------------ 2002 2001 2000 ------------ ------------ ------------ (in millions)Direct premium revenue $ 10,706 $ 9,995 $ 9,460 Premiums ceded (598) (548) (494) ------------ ------------ ------------ Net premium revenue $ 10,108 $ 9,447 $ 8,966 ============ ============ ============ Direct benefit expense 10,749 10,109 10,140 Benefits ceded (419) (432) (315) ------------ ------------ ------------ Net benefit expense $ 10,330 $ 9,677 $ 9,825 ============ ============ ============
For the year ended December 31, 2003 2002 2001 (in millions) Direct premium revenue
$ 10,959 $ 10,706 $ 9,995 Premiums ceded
(652 ) (598 ) (548 ) Net premium revenue
$ 10,307 $ 10,108 $ 9,447 Direct benefit expense
11,110 10,770 10,119 Benefits ceded
(483 ) (440 ) (442 ) Net benefit expense
$ 10,627 $ 10,330 $ 9,677 In addition, the Company
receivedearned $184 million, $172 million$161 millionand$146$161 million for the years ended December 31, 2003, 2002 and 2001,and 2000,respectively, in allowances from reinsurersas allowancesfor reimbursement of commissions and other expenses on ceded business. These amounts areincludedreported 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. There were no reinsurance recoverables at December 31,
20022003 and2001,2002, which were considered by management to be uncollectible.88
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL
STATEMENTS--(CONTINUED) 10. INCOME TAXESSTATEMENTS CONTINUEDDECEMBER 31, 2003, 2002 AND 2001
10. INCOME TAXES The Company files a consolidated federal income tax return including the following entities:
Northwestern Mutual Investment Services, LLC
Baird Holding Company
Northwestern International Holdings, Inc.
Frank Russell Company
NML Real Estate Holdings, LLC and subsidiaries
Bradford, Inc.
NML Securities Holdings, LLC and subsidiaries
Network Planning Advisors, LLC
Northwestern Investment Management Company, LLC
Mason Street Advisors, LLC
Northwestern Securities Holdings, LLC
NML
-– CBO, LLCNorthwestern Mutual Trust Company
JYD, LLC
Chateau, LLC
The Company collects from or refunds to these subsidiaries their share of consolidated income taxes determined under written tax-sharing agreements. Federal income tax returns for years through 1999 are closed as to further assessment of tax. The liability for income taxes payable in the financial statements includes a provision for
anyadditional taxes that may become due with respect to the open tax years.Beginning January 1, 2001 theThe 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 netadmitteddeferred tax asset at December 31,20022003 and20012002 were as follows:
December 31, ---------------------- 2002 2001 Change ---------- ---------- ---------- (in millions)Deferred tax assets: Policy acquisition costs $ 673 $ 626 $ 47 Investment asset 664 360 304 Policy benefit liabilities 1,769 1,728 41 Benefit plan obligations 223 202 21 Guaranty fund assessment 14 14 -- Nonadmitted assets 67 54 13 Other 61 69 (8) ---------- ---------- ---------- Gross deferred tax assets $ 3,471 $ 3,053 $ 418 Deferred tax liabilities: Premium and other receivables $ 425 $ 416 $ 9 Investment asset 1,156 1,034 122 Other 3 1 2 ---------- ---------- ---------- Gross deferred tax liabilities $ 1,584 $ 1,451 $ 133 ---------- ---------- ---------- Net admitted deferred tax asset $ 1,887 $ 1,602 $ 285 ========== ========== ==========89NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED) Statutory
December 31, 2003 2002 Change (in millions) Deferred tax assets:
Policy acquisition costs
$ 715 $ 673 $ 42 Investment assets
189 664 (475 ) Policy benefit liabilities
1,751 1,769 (18 ) Benefit plan obligations
252 223 29 Guaranty fund assessments
12 14 (2 ) Nonadmitted assets
54 67 (13 ) Other
58 61 (3 ) Gross deferred tax assets
$ 3,031 $ 3,471 $ (440 ) Deferred tax liabilities:
Premium and other receivables
$ 453 $ 425 $ 28 Investment assets
1,375 1,156 219 Other
5 3 2 Gross deferred tax liabilities
$ 1,833 $ 1,584 $ 249 Net admitted deferred tax asset
$ 1,198 $ 1,887 $ (689 ) The statutory basis of accounting
principles limitlimits the amount of gross deferred tax assets that can be included in Company surplus. This limit is based on a formula that takes into consideration available loss carryback capacity, expected timing of reversal for existing temporary differences, gross deferred tax liabilities and the level of Company surplus. At December 31, 2003 and 2002,and 2001,theCompany'sCompany’s gross deferred tax assets did notexceededexceed this limitation.Changes in deferred tax assets and liabilities related to 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 net changes in deferred tax assets and liabilities are direct adjustments to surplus and separately reported in the consolidated statement of changes in surplus.
89
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
The major components of current income tax expense (benefit) were as follows:
December 31, --------------------------- 2002 2001 ------------ ------------ (in millions)Current year income tax $ 26 $ 170 Tax credits (15) (11) Equity tax (credit) (453) 14 ------------ ------------ Total current tax expense (benefit) $ (442) $ 173 ============ ============
For the year ended December 31, 2003 2002 2002 (in millions) Current year income tax
$ (65 ) $ 26 $ 170 Tax credits
(25 ) (15 ) (11 ) Equity tax expense (benefit)
— (453 ) 14 Total current tax expense (benefit)
$ (90 ) $ (442 ) $ 173 The
Company'sCompany’s taxable income can vary significantly from gain from operations before taxes due to temporary timing and permanent differences in revenue recognition and expense deduction between book and tax.The Company is subject to an
"equity tax"“equity tax” that is assessed only on mutual life insurance companies. At December 31, 2001, the liability for income taxes payable included $453 million related to theCompany'sCompany’s estimated liability for equity tax, primarily with respect to the 2001 tax year. In March 2002, Congress passed legislation that suspended assessments of equity tax for tax years 2001 through 2003. As a result, this liability was released as acredit tocurrent taxexpensebenefit during 2002. Barring any additional action by Congress, the equity tax is scheduled to be reinstated for the 2004 tax year.The
Company'sCompany’s effective tax rates were 13%, 299%, and 21% for the years ended December 31, 2003, 2002, and2001.2001, respectively. The effective rate is not the statutory rate applied to theCompany'sCompany’s taxable income or loss by the Internal Revenue Service. It is a financial statement relationship that represents therelationshipratio 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 or losses. These financial statement effective rates were different than the applicable federal tax rate of 35% due primarily to differences between book and tax recognition of net investment income and realized capital gains and losses, prior year adjustments and the impact the of equity tax in 2002.The effective tax rate for the year ended December 31, 2000 was 16%, based only on tax expense attributed to net gain from operations and its relationship to gain from operations before taxes. The effective rate was less than the applicable federal rate of 35% due primarily to differences between book and tax recognition of investment income and realized capital gains and losses and prior year adjustments. 90NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)Income taxes incurred in the current and prior years of
$1.7$1.2 billion are available at December 31,20022003 for recoupment in the event of future net losses.11. FRANK RUSSELL COMPANY ACQUISITION AND GOODWILL
11. FRANK RUSSELL COMPANY ACQUISITION AND GOODWILL The Company acquired Frank Russell Company
("Russell"(“Russell”) effective January 1, 1999 for a purchase price of approximately $955 million plus contingentconsideration.consideration based upon the financial performance of Russell from the date of acquisition through the five year period ended December 31, 2003. Through December 31, 2003 that contingent consideration had aggregated to approximately $143 million. Russell, a global leader inmulti-mangermulti-manager investment services, provides investment products and services in more than 35 countries. This acquisition was accounted for using the statutory purchase method, and the investment is accounted for using the equity method, adjusted for the charge-off of acquisition goodwill, and isincludedreported in common stocks in the consolidated statement of financial position. Since the date of acquisition, the Company charged-off directly from surplus approximately$882$958 million, representing the goodwill associated with theacquisition.acquisition, including the impact on goodwill of contingent consideration. The Company has received permission from the OCI for this statutory accounting treatment, which is different than that required by the NAIC"Accounting“Accounting Practices and ProceduresManual".Manual”, which prescribes amortization of goodwill over the period in which the purchasing entity benefits economically, not to exceed 10 years.
12. CONTINGENCIES 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 TheIn the normal course of business, the Company has
alsoguaranteed certain obligations of other affiliates.These guaranteesThe maximum exposure under these agreements totaled approximately$112$62 million at December 31,20022003 andarewas generallysupportedmitigated by the underlying net asset values of the affiliates. The Company believes that the likelihood is remote that payments will be required under these guarantees and therefore has not accrued a contingent liability in the consolidated statement of financial position. In addition, the90
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
Company routinely makes commitments to fund mortgage loans or other investments in the normal course of business. These commitments aggregated to
$2.2$2.3 billion at December 31,20022003 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, losses that may ultimately result from such actions would not have a material effect on the
Company'sCompany’s financial position at December 31,2002. 13. RELATED PARTY TRANSACTIONS2003.
13. RELATED PARTY TRANSACTIONS During 2003, the Company transferred investments to a majority-owned investment subsidiary as a capital contribution. Realized capital gains (losses) of ($7) million were recognized in 2003 on the transfer of these assets.
During 2001,
and 2000,the Company transferred appreciated equity investments to wholly-owned subsidiaries as a capital contribution to the subsidiaries. Realized capital gains of $244 millionand $220 millionfor 2001and 2000, respectively,were reported based on the fair value of the assets at transfer.91NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED) 14. FAIR VALUE OF FINANCIAL INSTRUMENTS
14. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of investment assets, including derivatives, and certain policy liabilities at December 31,
20022003 and20012002 were as follows:
December 31, 2002 December 31, 2001 -------------------------- -------------------------- Statement Fair Statement Fair Value Value Value Value ------------ ------------ ------------ ------------ (in millions)Assets: Bonds $ 50,597 $ 53,311 $ 44,306 $ 45,200 Common and preferred stocks 4,902 6,373 5,369 7,072 Mortgage loans 15,692 17,485 15,164 15,875 Real estate 1,503 2,181 1,671 2,406 Policy loans 9,292 9,628 9,028 9,375 Other investments 4,242 4,802 4,817 5,244 Cash and short-term investments 1,814 1,814 2,018 2,018 Liabilities: Investment-type insurance reserves $ 3,737 $ 3,562 $ 3,417 $ 3,191
December 31, 2003 December 31, 2002 Statement
Value
Fair
Value
Statement
Value
Fair
Value
(in millions) Assets:
Bonds
$ 55,571 $ 58,596 $ 50,597 $ 53,311 Common and preferred stocks
6,577 8,488 4,902 6,373 Mortgage loans
16,426 18,086 15,692 17,485 Real estate
1,481 2,122 1,503 2,181 Policy loans
9,546 9,839 9,292 9,628 Other investments
4,851 5,373 4,242 4,802 Cash and short-term investments
2,594 2,594 1,814 1,814 Liabilities:
Investment-type insurance reserves
$ 3,989 $ 3,759 $ 3,737 $ 3,562 Fair value of bonds, common and preferred stocks and derivative financial instruments are based upon quoted market prices, when available. For those not actively traded, fair values are estimated using independent pricing services or internally developed pricing models. The fair value of mortgage loans is estimated by discounting estimated future cash flows using market interest rates for debt with comparable credit risk and maturities. Real estate fair value is determined by discounting estimated future cash flows using market interest rates. Policy loan fair value is estimated based on discounted projected cash flows using market interest rates and assumptions regarding future loan repayments based on Company experience. Other investments primarily represent joint ventures and partnerships, for which the equity method approximates fair value.
The fair value of investment-type insurance reserves is estimated by discounting estimated future cash flows at market interest rates for similar instruments with comparable maturities.
15. CODIFICATION OF STATUTORY ACCOUNTING PRINCIPLES Beginning January 1, 2001, insurance companies domiciled in Wisconsin were required to prepare statutory basis financial statements in accordance with the new NAIC “Accounting Practices and Procedures Manual,” subject to any variations prescribed or permitted by the OCI.
These new requirements differed from those used prior to January 1, 2001, primarily because under the new statutory accounting principles: (1) deferred tax balances were established for temporary differences between book and tax bases of certain assets and liabilities, (2) investment valuation adjustments on impaired assets were measured differently and were reported as realized losses, (3) pension and other employee benefit obligations were accounted for based on the funded status of the related plans,
91
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
(4) recognition of earnings from unconsolidated subsidiaries and affiliates as net investment income was limited to dividends received, (5) certain software costs were capitalized and amortized to expense over a maximum of five years, and (6) premiums, benefits and reserve changes for policies without significant mortality or morbidity risks (“deposit-type contracts”) were 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 in the consolidated statement of changes in 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 92
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
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, 200323, 2004Pursuant 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/s/ EDWARD J.
ZOREZOREEdward J. Zore
Trustee, President and
- ------------------------------Chief Executive OfficerEdward J. Zore /s/ GARY/s/ GARY A.
POLINERPOLINERGary A. Poliner
Senior Vice President and
- ------------------------------Chief Financial OfficerGary A. Poliner /s/ STEVEN T. CATLETT/s/ JOHN C. KELLY
John C. Kelly
Vice President and
- ------------------------------ControllerSteven T. Catlett /s/ EDWARD/s/ EDWARD E.
BARR* Trustee - ------------------------------BARR*Edward E. Barr
/s/ JOHNTrustee
/s/ JOHN M.
BREMER* Trustee - ------------------------------BREMER*John M. Bremer
/s/ PETERTrustee
/s/ PETER W.
BRUCE* Trustee - ------------------------------BRUCE*Peter W. Bruce
/s/ ROBERTTrustee
/s/ ROBERT C.
BUCHANAN* Trustee - ------------------------------BUCHANAN*Robert C. Buchanan
/s/ GEORGETrustee
/s/ GEORGE A.
DICKERMAN* Trustee - ------------------------------DICKERMAN*George A. Dickerman
/s/ PIERRETrustee
/s/ PIERRE S.DU
PONT* Trustee - ------------------------------PONT*Pierre S. du Pont
/s/ JAMESTrustee
/s/ JAMES D.
ERICSON* Trustee - ------------------------------ERICSON*James D. Ericson
/s/Trustee
- ------------------------------/s/ DAVID A. ERNE*
David A. Erne
/s/Trustee
/s/ J. E.
GALLEGOS* Trustee - ------------------------------GALLEGOS*J. E. Gallegos
93
TITLE -----/s/ STEPHENTrustee
/s/ STEPHEN N.
GRAFF* Trustee - -----------------------------------GRAFF*Stephen N. Graff
/s/ PATRICIA ALBJERG GRAHAM*Trustee
- -----------------------------------93
/s/ PATRICIA ALBJERG GRAHAM*
Patricia Albjerg Graham
/s/ JAMESTrustee
/s/ JAMES P.
HACKETT* Trustee - -----------------------------------HACKETT*James P. Hackett
/s/ STEPHENTrustee
/s/ STEPHEN F.
KELLER* Trustee - -----------------------------------KELLER*Stephen F. Keller
/s/ BARBARATrustee
/s/ BARBARA A.
KING* Trustee - -----------------------------------KING*Barbara A. King
/s/Trustee
/s/ J.
THOMAS LEWIS* Trustee - -----------------------------------THOMAS LEWIS*J. Thomas Lewis
/s/ DANIELTrustee
/s/ DANIEL F.
MCKEITHAM, JR.MCKEITHAN, JR.*Trustee - -----------------------------------Daniel F. McKeithan, Jr.
/s/Trustee
/s/ H.
MASON SIZEMORE, JR.MASON SIZEMORE, JR.*Trustee - -----------------------------------H. Mason Sizemore, Jr.
/s/ HAROLD B. SMITH*Trustee
- ----------------------------------- Harold B. Smith /s/ SHERWOOD/s/ SHERWOOD H.
SMITH, JR.SMITH, JR.*Trustee - -----------------------------------Sherwood H. Smith, Jr.
/s/ PETERTrustee
/s/ PETER M.
SOMMERHAUSER* Trustee - -----------------------------------SOMMERHAUSER*Peter M. Sommerhauser
/s/ JOHNTrustee
/s/ JOHN E.
STEURI* Trustee - -----------------------------------STEURI*John E. Steuri
/s/ JOHNTrustee
/s/ JOHN J.
STOLLENWERK* Trustee - -----------------------------------STOLLENWERK*John J. Stollenwerk
/s/ BARRYTrustee
/s/ BARRY L.
WILLIAMS* Trustee - -----------------------------------WILLIAMS*Barry L. Williams
/s/ KATHRYNTrustee
/s/ KATHRYN D.
WRISTON* Trustee - -----------------------------------WRISTON*Kathryn D. Wriston
Trustee
Each of the above signatures is affixed as of March
25, 2003 *By /s/ EDWARD J. ZORE ----------------------------------------- Edward J. Zore, Attorney in Fact, pursuant to the Power of Attorney attached as exhibit 24.1 hereto.23, 2004
*By /s/ EDWARD J. ZORE Edward J. Zore, Attorney in Fact,
pursuant to the Power of Attorney
attached as exhibit 24.1 hereto.
94
CERTIFICATIONS I, Edward J. Zore, certify that: 1. I have reviewed this annual report on Form 10-K of The Northwestern Mutual Life Insurance Company in respect of NML Variable Annuity Account A and NML Variable Annuity Account C; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. By /s/ EDWARD J. ZORE -------------------------------------- Edward J. Zore President and Chief Executive Officer Date: March 25, 2003 95I, Gary A. Poliner, certify that: 1. I have reviewed this annual report on Form 10-K of The Northwestern Mutual Life Insurance Company in respect of NML Variable Annuity Account A and NML Variable Annuity Account C; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. By /s/ GARY A. POLINER -------------------------------------- Gary A. Poliner Senior Vice President and Chief Financial Officer Date: March 25, 2003 96SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED PURSUANT TO SECTION 12 OF THE ACT
As supplemental information, the Commission is separately being furnished with four copies of each of the following documents: (1)
20022003 Annual Report for NML Variable Annuity Account A; and (2)20022003 Annual Report for NML Variable Annuity Account C.No proxy material is prepared specifically for contract holders under NML Variable Annuity Account A or NML Variable Annuity Account C. The Northwestern Mutual Life Insurance Company, a mutual company with no shareholders, does prepare a proxy statement and proxy for each policyholder of a company-issued insurance policy or annuity contract.
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INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
PAGE - ------- ----------- ----FILED
HEREWITH
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 By-Laws of The Northwestern Mutual Life Insurance 100Company as amended December 4, 2002. (This exhibit was filed in electronic format with the Annual Report on Form 10-K for the fiscal year ended December 31, 2002 of The Northwestern Mutual Life Insurance Company, dated March 27, 2003 (“2002 Form 10-K”), and is incorporated herein by reference.)3.3 Resolution of the Board of Trustees of The Northwestern Mutual Life Insurance Company creating "Northwestern“Northwestern Mutual Variable Annuity AccountA"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 Form10-K"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“NML Variable Annuity AccountC"C”. (This exhibit was filed in electronic format with the 1999 Form 10-K and is incorporated herein by reference.)10.1 Amended Flexible Payment Variable Annuity Front Load Contract, RR.V.A. (032000)RR.V.A.FR. (0803) (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.)X 10.2 Amended Flexible Payment Variable Annuity Back Load Contract, RR.V.A. (032000)RR.V.A.BK. (0803) (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.)X 10.3 Amended Variable Annuity Front Load and Back Load Contract Payment Rate Tables, RR.V.A.B (032000)RR.V.A.FR. (0803) and RR.V.A.BK. (0803), included in Exhibits 10.1 and 10.2 above (sex distinct).98
EXHIBIT DESCRIPTION PAGE - ------- ----------- ----10.4 Amended Enhanced Death Benefit for Front Load and Back Load Contracts, VA. EDB. (032000)(0803), included in Exhibits 10.1 and 10.2 above.10.5 Waiver of Withdrawal Charge for Back Load Contract, VA.WWC. (032000)(03200), included in Exhibit 10.2 above.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 InsuranceInvestment 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 Participation Agreement among Variable Insurance Products Funds, Fidelity Distributors Corporation and The Northwestern Mutual Life Insurance Company. (This exhibit was filed in electronic format with the Registration Statement on Form N-6 for Northwestern Mutual Variable Life Account, File No. 33-89188, CIK 0000742277, dated February 28, 2003, and is incorporated herein by reference.) 96
10.9 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.) 10.10 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.) 10.11 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.) 10.12 Amended Application Form for Group Combination Annuity Contract, included in Exhibit 10.10 above. 14.1 The Northwestern Mutual Life Insurance Company Guidelines for Business Conduct X 21.1 Subsidiaries of the Registrant 117X 24.1 Power of Attorney 119 99.1X 31.1 Rule 15d-14(a) Certification Pursuant toof Edward J. ZoreX 31.2 Rule 15d-14(a) Certification of Gary A. Poliner X 32.1 Section 9061350 Certification ofthe Sarbanes-Oxley Act of 2002 121Edward J. Zore and Gary A. PolinerX 99
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