investment report 2008

over 150 years of

s t r e n g t h s t a b i l i t y

Beyond mutuality, what distinguishes Northwestern Mutual?

■ Northwestern Mutual’s core fi nancial products (depicted in graph to the right) focus primarily on traditional insurance, rather than complex fi nancial products that may have risks more diffi cult to predict or manage.

■ Participating portfolio life insurance represents nearly three-quarters of the company’s total premium revenue. This product is considered by rating agencies to be the lowest-risk product in the life insurance industry.

■ Policyowners tend to remain with the company for many years, which is illustrated by the company’s excellent persistency rate of 96.1%. In addition, Northwestern Mutual’s underwriting expertise has enabled the company to benefi t from superior mortality experience. Together, these factors translate into stable cash fl ow.

■ The company does not rely on debt fi nancing or leverage to fi nance its operations or investment portfolio, refl ecting Northwestern Mutual’s

conservative approach to risk management.

Another distinguishing feature is the company’s fi nancial strength as refl ected in its total surplus and surplus ratio, which are two measures of an insurer’s ability to meet its fi nancial obligations. Total surplus was $13.4 billion at year-end 2008. Despite the decline in fi nancial markets during 2008, Northwestern Mutual’s surplus ratio remains both sound, at 11.5%, and strong compared to its historical surplus levels (as shown in chart to the left), as well as the capitalization standards established by the rating agencies and insurance regulators.

The factors that make Northwestern Mutual different —

its mutual structure, a focus on participating portfolio life insurance,

outstanding persistency, mortality and fi nancial strength —

combine to make the company strong.

General Account

Portfolio Product Mix

Percentage of general account insurance reserves

Life Insurance 91%

Annuities 5%

Disability and Long-Term Care Insurance 4%

Historical Surplus Ratio

Ratio of total surplus and AVR to general account insurance reserves

0%

2%

4%

6%

8%

10%

12%

14%

16%

88 90 92 94 96 98 00 02 04 06 08

Since its founding in 1857, Northwestern Mutual

has been guided by its core principles. The company

aims not to be the biggest but instead to be safe,

to value quality above quantity and to rank fi rst

in benefi ts to policyowners rather than fi rst in size.

The Northwestern Mutual AdvantageAs a mutual company, The Northwestern Mutual Life Insurance Company (Northwestern Mutual) operates for the protection and benefi t of its policyowners, with a singular focus on their best interests. The company’s structure and business model allow for a long-term perspective and approach in its product offerings, business operations and investment strategy.

As a significant investor in fixed income and equity markets, Northwestern Mutual was not immune to 2008’s market declines. Despite these challenges, Northwestern Mutual remains fi nancially sound and is well positioned to fulfi ll the promises made to its policyowners, a testament to the company’s highly diversifi ed investment portfolio and historically high capital levels at the beginning of 2008.

Last year was an unprecedented and diffi cult period for capital markets and the economy. Global asset prices declined precipitously due largely to unsustainably high levels of borrowing, unwise investment decisions and weak risk management by some market participants. As highly leveraged investors sold assets, housing prices declined and consumer demand weakened, the U.S. economy entered a recession. Governments around the world have intervened on a massive scale, but the near-term economic outlook remains uncertain.

Northwestern Mutual’s strength is deeply rooted in its singular focus on the mutual protection and benefi t of its policyowners. Unlike many others in the life insurance industry, we do not offer universal life insurance with secondary guarantees, guaranteed investment contracts or annuities with guaranteed living benefi ts. While other fi rms faced

diffi culties in 2008 due to borrowing needs and market conditions, our steady fl ow of revenues from insurance premiums and investment income totaled $21 billion in 2008, providing more than $12 billion of cash fl ow for investing activities.

In 2008, Northwestern Mutual’s invested assets grew 2.6%, as investment and other income more than offset capital losses. Highlighting our long-term fi nancial strength, dividend payments to participating policyowners in 2009 are expected to total more than $4.5 billion, the third-largest dividend payout in the company’s history. The 6.5% dividend interest rate on most unborrowed permanent life insurance funds refl ects our desire to provide policyowners with a very attractive return while conservatively managing the company’s capital.

Looking back at the events of the last year, the concept of risk was central to market developments. Managing risk – whether mortality risk, credit risk, or other risk – has always been at the forefront of Northwestern Mutual’s business and investment operations. We reassess risk on an ongoing basis to preserve and enhance the company’s strength and stability.

We anticipate that diffi cult economic conditions could continue for a considerable time, leading to volatile markets, increasing corporate defaults and other challenges to our investment portfolio. In response, we have adopted a defensive approach in our investment activities, reducing our exposure to equities and other higher-risk assets. The company’s experienced investment team has built liquidity in order to position the portfolio to weather a downturn of uncertain duration. As we enter 2009, be assured your company is fi nancially strong and well positioned to build on its 152-year-long track record of success.

Mark G. DollChief Investment Offi cer

Northwestern Mutual’s investment objective is to generate superior risk-adjusted returns while maintaining a well-balanced and diversifi ed portfolio to preserve the company’s exceptional fi nancial strength. This time-tested strategy fundamentally supports Northwestern Mutual’s ability to deliver lifelong fi nancial security to its policyowners and clients.

Northwestern Investment Management Company, LLC and Mason Street Advisors, LLC, both wholly owned subsidiaries of Northwestern Mutual, invest the company’s $123 billion of managed assets in accordance with the company’s investment guidelines. Consistent with Northwestern Mutual’s investment objective, the company invests approximately 80% to 85% of managed assets in fi xed income and the remaining 15% to 20% of managed assets in equities.

Fixed income investments represent the core of Northwestern Mutual’s investment portfolio, providing a stable foundation for the overall portfolio while generating current income. Northwestern Mutual’s portfolio of fi xed income investments is largely highly rated and is well-diversifi ed within and among fi xed income sectors to minimize risk.

Northwestern Mutual’s equity investments include investments in public common stock, real estate and private equities. Typically, such diversifi cation across different types of equities enables the company to offset weakness in any one area with attractive performance in another. Furthermore, similar to fi xed income, equity investments are highly diversifi ed across countries, industries, company sizes and other parameters.

Northwestern Mutual’s signifi cant allocation to equity investments relative to fellow insurers is a distinguishing component of the company’s investment portfolio. The company’s mutual ownership structure, product mix, strong persistency and mortality results, and solid surplus position enable it to maintain greater exposure to equity investments than many of its competitors. In 2008, worldwide equity markets declined signifi cantly. Northwestern Mutual recognized the risk in the equity markets and reduced exposure to these markets during the second half of the year. By year-end, equities represented only 13% of managed assets. The company still believes that over a long period of time, equity investments should generate higher returns than fi xed income securities, providing a distinct advantage to Northwestern Mutual policyowners.

Consistent with the company’s investment objectives, Northwestern Mutual may also enter into transactions that are designed to reduce the company’s exposure to fl uctuations in interest rates, foreign currency exchange rates and market volatility. These hedging strategies include the use of forwards, futures, options and swaps. In implementing its hedging strategies, the company closely manages and monitors counterparty risk, utilizing minimum ratings requirements, maximum exposure limits, and collateral agreements, which require the counterparty to post collateral should the market value exceed established thresholds.

Ultimately, the combination of asset diversifi cation, active portfolio management and a long-term perspective supports outstanding product value and enhances the company’s fi nancial strength. Northwestern Mutual’s prudent investment strategy and unique business model have contributed to more than 150 years of strength and stability.

Investment Objective

While Northwestern Mutual continues to invest with a long-term perspective, in times of severe market disruptions it is prudent to consider near-term tactical measures. In response to the unprecedented developments of 2008, the company has taken several such steps. Combined with Northwestern Mutual’s fi nancial strength, these decisions are intended to conservatively position the company to weather even an extended period of diffi cult fi nancial market conditions.

Northwestern Mutual has increased its allocation of investments to higher quality, liquid assets. At year-end, Northwestern Mutual held more than $25 billion in cash equivalents, U.S. Treasuries and government-guaranteed debt, representing 21% of total managed assets. This near-term reallocation should help insulate the company from market

volatility and will ultimately enable it to capitalize on attractive new investment opportunities across various markets when appropriate.

In conjunction with increasing its holdings of higher quality, liquid investments, Northwestern Mutual has reduced its holdings of higher risk assets, as shown below. Reduced holdings of equities and other more volatile assets will defensively position the company to prosper despite the potential for extended near-term economic weakness. While investing a signifi cant portion of the portfolio in equities continues to be a key component of the company’s overall long-term strategy, its short-term actions are focused on reducing risk and guarding against loss of principal to protect the health of the overall portfolio.

Managing Portfolio Risk in Volatile Markets

2007 2008

Public and Private High Yield Debt 6.4% 6.8%

Real Estate Equities 5.4% 5.1%

Private Equities 5.3% 5.0%

Public Equities 6.4% 3.1%

Total 23.5% 20.0%

0%

2007 2008

5%

10%

15%

20%

25%23.5%

20.0%

2007 2008

Reduced Holdings of Higher Risk Assets

0%

2007 2008

5%

10%

15%

20%

25%

$22.6 billion

$25.9 billion

Cash, Treasuries and Government-Guaranteed Debt as a Percentage of Total Managed Assets

2007 2008 18.7% 21.0%

2007 2008

Allocation to Higher Quality,

Liquid Assets

2 |

Northwestern Mutual’s total invested assets increased nearly 3% to $136.6 billion in 2008, due primarily to the continued investment of premiums, interest income and dividend income — partially offset by realized and unrealized capital losses. Over the course of the year, the company shifted its asset allocation in order to increase liquidity and reduce risk. Refl ecting this shift, cash and short-term investments increased more than 68% to $4.2 billion, while fi xed income assets grew approximately 5% to $106.4 billion and equity assets declined nearly 14% to $16.6 billion.

Growth in fi xed income assets primarily refl ected a $1.2 billion, or 2%, increase in public bonds and preferred stock as well as a $1.3 billion, or 6%, increase in private bonds and preferred stock. Commercial mortgage whole loans increased more than $700 million, or 4%.

Within the equity portfolio, public common stock assets declined 50% to $3.9 billion, due to both lower market values and reduced allocation to equities. Real estate equities declined 2% to $6.3 billion. Private equities, which include investments in certain subsidiaries, increased 27% to $6.4 billion. This growth was due largely to an increase in the carrying value of the Russell Investment Group, Northwestern Mutual’s global investment services subsidiary, which was previously carried at a negative value. This new reporting basis, coupled with new investments, contributed to the $1.3 billion increase in private equities and more than offset a decline in market values.

Investment earnings in 2008 included $7.8 billion in net investment income, which was predominately comprised of interest payments and dividends. Fixed income investments contributed 85% of net investment income, while equity investments contributed the remainder, largely in line with each asset class’s allocation within the overall portfolio.

Realized capital losses in the portfolio included $1 billion of write downs for other-than-temporary declines in value in 2008. After taxes and required deferrals of interest-related gains, net losses were $4.1 billion and reduced the company’s surplus ratio to 11.5% at year-end 2008, compared to 14.5% at year-end 2007. Despite the impact of these losses, Northwestern Mutual’s healthy surplus ratio of 11.5% is higher than company surplus ratios in all but 13 years of the company’s 152-year history.

Investment performance in 2008 demonstrated the benefi ts of Northwestern Mutual’s highly diversifi ed investment portfolio and disciplined underwriting standards. The company had minimal exposure to investments in distressed fi nancial institutions – losses related to investments in Lehman Brothers, AIG, Fannie Mae (FNMA) and Washington Mutual were equal to approximately 0.2% of total invested assets.

Over the last 10 years, net investment income and total invested assets have exhibited strong and consistent growth, increasing at compound annual rates of 5% and 7%, respectively. These results refl ect Northwestern Mutual’s commitment to its disciplined, time-tested investment approach, which supports the company’s outstanding dividend interest rate and strong surplus position. ■

Overall Results on Invested Assets

| 3

Total AssetsDecember 31, 2008

In Millions

December 31, 2007

In Millions

Fixed Income Investments

Short-Term Money Market Investments $4,213 $2,496

Long-Term*

Public Bonds and Preferred Stock 58,563 57,356

Private Bonds and Preferred Stock 23,410 22,069

Commercial Mortgage Whole Loans 20,259 19,546

Total Fixed Income Investments 106,445 101,467

Equity Investments

Real Estate 6,300 6,401

Public Common Stock 3,936 7,859

Private Equities** 6,360 5,020

Total Equity Investments 16,596 19,280

Total Managed Assets $123,041 $120,747

Loans on Policies 12,884 11,797

Other Investments 712 643

Total Invested Assets*** $136,637 $133,187

Other Assets 5,130 3,656

Separate Account Business 13,387 19,704

Total Assets $155,154 $156,547

* As of year-end 2008, Commercial Mortgage-backed Securities are included in “Public Bonds and Preferred Stock.” As a result, $3.5 billion included in “Commercial Mortgage Loans” in the 2007 Investment Report (now “Commercial Mortgage Whole Loans”) is now shown under “Public Bonds and Preferred Stock” for purposes of this chart only. Similarly, mezzanine investments in corporate issuers are included in “Private Bonds and Preferred Stock” at year-end 2008. As a result, $1.5 billion included in “Private Equities” in the 2007 Investment Report is now shown under “Private Bonds and Preferred Stock.”

** As presented in this report, private equities include direct investment in certain subsidiaries and affi liates.

*** Includes investment income due and accrued of $1,498 million and $1,395 million in 2008 and 2007, respectively.

Note: Please read table above in conjunction with Reporting Considerations on page 12 of this publication. Numbers in tables are rounded.

Total Managed Asset Growth in billions

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

$0

$25

$75

$100

$150

$50

$125

1999 220002 2001 22 20022 20032 2004 22 20052 2006 22 2007 22 20082

4 |

Fixed Income InvestmentsNorthwestern Mutual’s fi xed income investments serve as the foundation of the overall investment portfolio. Fixed income assets include money market instruments, public bonds and preferred stock, private bonds and preferred stock and commercial mortgage whole loans. The company’s allocation to fi xed income assets increased to 87% of total managed assets at year-end 2008, from 84% of total managed assets at year-end 2007, due in part to the decline in value of equities in general as well as measures taken by the company to reduce overall portfolio risk.

The fi xed income portfolio is designed to provide liquidity and current income while minimizing loss of principal. To that end, the portfolio is well-diversifi ed and generally invested in high-quality assets. Public bonds, preferred stock and money market instruments, which are considered to be the most liquid fi xed income assets in the portfolio, together remain the largest component of the portfolio, comprising 59% of total fi xed income assets in 2008. Private bonds and preferred stock represented 22% and commercial mortgage whole loans represented 19% of total fi xed income assets at year-end.

TYPE PERCENT/TOTAL FIXED INCOME DETAIL

Corporate 47% Corporate investments include bonds and other fi xed income instruments issued by public and private corporations in the U.S. and abroad.

Commercial Mortgage 19% Commercial mortgage whole loans include privateWhole Loans fi xed income investments backed by individual

income-producing commercial properties.

Residential Mortgage- 15% Residential mortgage-backed securities include backed Securities public fi xed income investments backed by pools

of residential mortgages.

U.S. Gov’t. and Agencies 8% U.S. Government and agency securities include fi xed income investments issued or guaranteed by the U.S. Government or affi liated agencies.

Money Market Investments 4% Money market investments include generally short-term and highly liquid instruments, such

as bankers’ acceptances, commercial paper, repurchase agreements and government bills.

Commercial Mortgage- 3% Commercial mortgage-backed securities include backed Securities public fi xed income investments backed by pools

of commercial mortgage loans.

Asset-backed Securities 2% Asset-backed securities include a variety of fi xed income securities backed by pools of different types of fi nancial assets, including credit card receivables, auto loans and other assets.

Municipal/Other 2% Municipal/Other investments include a variety of fi xed income securities issued by U.S. municipalities and other governmental entities.

Composition of Fixed Income Portfolio

| 5

Northwestern Mutual’s investments in public bonds, preferred stock and money market instruments are actively managed to maximize returns while preserving a high level of safety, liquidity and diversifi cation. To manage portfolio risk, investments are broadly diversifi ed by security type, including corporates, residential mortgage-backed, asset-backed and U.S. Government securities. In 2008, the company increased its allocation to U.S. Government securities and money market instruments to enhance liquidity and reduce volatility. At year-end, Northwestern Mutual held more than $25 billion in cash equivalents, U.S. Treasuries and government-guaranteed debt. Northwestern Mutual’s investments in private bonds and preferred stock provide further diversifi cation to the company’s overall portfolio and often benefi t from higher yields and more attractive terms relative to public bonds.

The credit quality of the company’s public and private bond and preferred stock

investments – defi ned as the ability of the issuer to timely pay interest and repay principal – remained high. As of year-end 2008, 39% of these investments held the highest quality rating of AAA.* Investment grade securities – those rated BBB* or higher – comprised 89% of the portfolio.

* Quality ratings pertain exclusively to public and private fi xed income securities and omit commercial mortgage whole loans. These ratings are based on the higher of the credit ratings from Standard & Poor’s, Moody’s or Fitch Ratings when available, or internal rating evaluations when third-party ratings are not available.

2007 2008

48%47%

3% 2%

19%19%

34% 3% % %2% 1% 2%44%3%0

10%

20%

30%

40%

50%

60%

48%47

119119 16%15%6%6%1 15155%156% 8%6%6%66 333%%%

%% 2%2%

Corporate Asset-backed

Securities

CommercialMortgage

Whole Loans

CommercialMortgage-

backedSecurities

Municipal/Other

Money MarketInvestments

Residential Mortgage-

backedSecurities

U.S. Gov’tand Agencies

Total Fixed Income Portfolio

Quality of Public and Private Bond and

Preferred Stock Investments*

AAA 39%

AA 8%

A 15%

BBB 27%

BB 5%

B 4%

CCC & Below 2%

6 |

Northwestern Mutual’s investment in commercial mortgage whole loans accounted for 19% of fi xed income investments at year-end 2008. The company tempered its new commitments to this asset class throughout 2008 as market liquidity virtually disappeared and economic uncertainty increased. Northwestern Mutual’s historical focus on property selection, borrower quality and disciplined underwriting continued.

Northwestern Mutual concentrates its mortgage lending on fi xed-rate permanent loans greater than $15 million secured by income-producing property. The company invests primarily in apartments, shopping centers, offi ce buildings and industrial warehouses throughout the nation. Private transactions offer more control over both property quality and choice of borrowers than publicly traded commercial mortgage-backed securities. This portfolio has historically produced attractive yields and low delinquency and loss percentages. ■

Fixed Income Investments continued

Commercial Mortgage

Whole Loans by Region

West 36%

East 30%

South 22%

Midwest 11%

Other 1%

Commercial Mortgage

Whole Loans by Class

Apartments 34%

Office 26%

Retail 22%

Industrial 12%

Other 6%

Commercial Mortgage Whole Loan

in Dallas, Texas

Rosewood Court is a 19-story multi-tenant Class-A offi ce tower located on a high profi le site in the Uptown district of Dallas, Texas. This property secures a commercial mortgage whole loan in Northwestern Mutual’s portfolio.

| 7

Mortgage Investments

Northwestern Mutual’s total exposure to mortgage-related investments, including public residential mortgage-backed securities and commercial mortgage-backed securities as well as commercial mortgage whole loans, represented 37% of the fi xed income portfolio at year-end. While all of these investments are related to real estate, it is important to note that each has unique qualities and attributes.

Commercial mortgage whole loans are fi xed income investments originated in the private market directly with owners of commercial real estate. Northwestern Mutual originates these investments through a network of experienced professionals located in eight regional fi eld offi ces throughout the country. These investments are directly secured by apartments, offi ce buildings, warehouses or shopping centers. Commercial mortgage whole loans are considered illiquid because of the unique attributes of the underlying property securing each loan.

Residential mortgage-backed securities are generally highly liquid public bonds backed by a standardized pool of residential mortgages. The mortgage payments from the individual loans within the pool are passed through for payment of principal and interest to the bondholders. As of year-end, 85% of residential mortgage-backed securities within the portfolio were guaranteed by either the U.S. Government or government-sponsored entities.

Commercial mortgage-backed securities are publicly traded bonds secured by a diversifi ed pool of commercial mortgage whole loans originated by third parties. These investments typically offer more liquidity than commercial mortgage whole loans. Northwestern Mutual’s commercial mortgage-backed portfolio comprised 3% of fi xed income assets and 2.5% of invested assets. Of these, 59% were rated AAA*, with 84% rated A* or better as of year-end.

2007 2008

Commercial MortgageWhole Loans 49% 51%

Residential Mortgage-backed Securities 40% 40%

Commercial Mortgage-backed Securities 11% 9%

2007 2008

0%

20%

40%

60%

80%

100%

$39.6 billion $39.5 billion

Percent of Total Mortgage

Investments by Type

* Quality ratings based on the higher of the credit ratings from Standard & Poor’s, Moody’s or Fitch Ratings when available, or internal rating evaluations when third party-ratings are not available.

8 |

Equity InvestmentsEquity investments are a distinguishing element of Northwestern Mutual’s investment portfolio. The company’s equity portfolio is broadly diversifi ed across different types of equity investments, including public common stock, private equity and real estate. In 2008, this portfolio represented 13% of total managed assets, down from 16% in 2007. This overall decline refl ects both a shift toward lower risk fi xed income investments and a reduction in market values.

While Northwestern Mutual’s equity investments declined in value in 2008, over the long term the company expects equities to contribute both higher risk-adjusted returns and provide incremental diversifi cation to the overall portfolio. Over time, the company’s signifi cant allocation to equities has enhanced Northwestern Mutual’s dividend payment history and fi nancial strength.

At year-end 2008, the public common stock portfolio totaled $3.9 billion, or 24% of the total equity portfolio. The public equity portfolio includes investments in domestic large, medium and small capitalization companies, as well as in foreign companies. Risk is well-diversifi ed by company size, industry and country. During the course

of 2008, Northwestern Mutual reduced its holdings of public common stock. Furthermore, in an effort to lower the common stock portfolio’s risk profi le, the company increased its allocation to domestic large capitalization companies and lowered its allocation to foreign companies.

Private equity investments accounted for 38% or $6.4 billion of total equity investments at year-end. The private equity portfolio includes mezzanine and equity investments in buyouts of companies, private equity and venture capital limited partnerships and direct investments in selected other companies and subsidiaries. Northwestern Mutual’s private equity investments offer an additional potential source of attractive returns, primarily in the form of capital gains. Additionally, these assets generally exhibit lower volatility than their public market counterparts and provide diversifi cation benefi ts. Northwestern Mutual’s long-term investment horizon allows the company to hold signifi cant investments in this asset class.

Despite the challenging private equity investing environment experienced in 2008, Northwestern Mutual remains committed to

2007 2008

Domestic Large-Cap 57% 59%

Foreign 26% 24%

Domestic Mid-Cap 9% 11%

Domestic Small-Cap 8% 6%

2007 2008

0%

20%

40%

60%

80%

100%

$7.9 billion $3.9 billion

Diversifi cation of

Public Common Stocks

| 9

the private equity markets and to the fi rms with whom it has developed long-standing relationships. The company believes that investing in fundamentally strong businesses alongside leading private equity sponsors provides an additional level of diversifi cation and the opportunity for attractive returns.

Another facet of the company’s equity portfolio is commercial real estate equity investments, which represented 38% or $6.3 billion of the total equity portfolio at year-end 2008. The real estate equity portfolio consists primarily of apartment,

warehouse and offi ce properties held through both direct and joint venture ownership. Through partnerships with developers nationwide, Northwestern Mutual develops apartment communities and warehouse properties and also purchases properties directly. Asset managers, operating out of our real estate fi eld offi ces, monitor local markets and actively manage the investment properties, creating additional long-term value. The company also invests in private real estate funds and public real estate investment trusts (REITs), providing further diversifi cation within the equity account. ■

2007 2008

Private Equities 26% 38%

Real Estate 33% 38%

Public Common Stock 41% 24%

2007 2008

0%

20%

40%

60%

80%

100%

$19.3 billion $16.6 billion

Diversifi cation of Equities

10 |

Northwestern Mutual’s $123 billion managed assets portfolio is overseen by an experienced team of investment professionals, working together to achieve the company’s investment objectives. The investment team is led by the following senior executives.

Mark G. DollSenior Vice President & Chief Investment Offi cer

David D. ClarkSenior Vice President(Real Estate)

Jeffrey J. LuekenSenior Vice President(Private Markets)

Jefferson V. DeAngelisVice President(Public Markets)

Gary M. HewittVice President(Investment Risk Management)

The company’s investment portfolio includes fi xed income, equity and real estate investments. Investment strategy and portfolio management are executed by teams of investment professionals within Mason Street Advisors, LLC (Mason Street Advisors) and Northwestern Investment Management Company, LLC (NIMCO), both wholly owned subsidiaries of The Northwestern Mutual Life Insurance Company. NIMCO is comprised of Northwestern Mutual Capital, which manages privately held debt and equity investments, and Northwestern Mutual Real Estate, which manages commercial real estate-related investments.

Northwestern Mutual Investment Operations

Mason Street Advisors, a federally registered investment advisor, is responsible for managing the public fi xed income, preferred stock and common stock investments in Northwestern Mutual’s portfolio. Mason Street Advisors maintains a disciplined investment process that emphasizes rigorous research and macroeconomic foresight. With an average of more than 18 years of institutional knowledge and experience, Mason Street Advisors’ team of 56 investment professionals bring maturity, consistency and continuity to the management of public market holdings within Northwestern Mutual’s portfolio.

Patricia L. Van KampenManaging Director(Common Stock)

Thomas A. CarrollManaging Director(Common Stock)

Jill M. GrueningerManaging Director(Common Stock)

David R. KeulerManaging Director(Common Stock)

William R. WalkerManaging Director(Common Stock)

Christopher P. SwainManaging Director(Public Fixed Income)

Michael R. BuchholzManaging Director(Public Fixed Income)

Dennis E. KorjenekManaging Director(Public Fixed Income)

Jason Steigman Managing Director(Public Fixed Income)

Steven P. SwansonManaging Director(Public Fixed Income)

Jefferson V. DeAngelisPresident

| 11

Northwestern Mutual Capital With offi ces in Milwaukee and London and a staff of over 30 investment professionals, Northwestern Mutual Capital invests globally, in North America, Europe, Australia and Asia. The company manages a diversifi ed portfolio that includes private fi xed income investments, mezzanine investments and equity co-investments in private equity transactions, private equity funds and convertible securities. With decades of experience as an investor in the private capital markets, Northwestern Mutual Capital serves as a committed, trusted source of capital for corporations and fi nancial sponsors worldwide.

Northwestern Mutual Real Estate Northwestern Mutual is one of the largest real estate investors in the nation, with investments in commercial mortgage loans, equities and securitized investments across all major property types. Northwestern Mutual is a trusted fi nancing source with more than 70 experienced investment professionals who provide quick, decisive action and fl exible, creative solutions. Origination, underwriting and servicing are enhanced by having real estate professionals in eight regional fi eld offi ces familiar with local markets, borrowers and investors.

David D. ClarkSenior Vice President

Michael P. CusickManaging Director(Mortgage Loan Production West)

Gregory WalzManaging Director(Mortgage Loan Production East)

Thomas D. ZaleManaging Director(Real Estate Equities)

Jeffrey J. LuekenSenior Vice President

Jerome R. BaierManaging Director(Energy and PublicConvertible Securities)

David A. BarrasManaging Director(Private Debt & Equity)

Timothy S. CollinsManaging Director(Private Debt & Equity)

Mark E. KishlerManaging Director(Private Debt & Equity)

Randal R. RalphManaging Director(Private Equity Funds)

Howard SternManaging Director(Private Debt & Equity)

Richard A. StraitManaging Director(Private Equity Funds and Private Debt & Equity)

12 |

Northwestern Mutual publishes its Investment Report annually to provide information on the asset mix of its portfolio and the investment results generated during the previous calendar year. Certain types of investments have been grouped differently for this report than in Northwestern Mutual’s Consolidated Financial Statements (CFS). The most signifi cant of these differences as of December 31, 2008 are: “Other investments” of $9.2 billion reported in the CFS includes subsidiaries and affi liates, joint ventures, and partnerships. This report classifi es these investments based on the character of the underlying assets, including investments in private equities, real estate, and public common stock of $4.4 billion, $2.8 billion and $0.4 billion, respectively.

Mortgage loans of $21.7 billion reported in the CFS includes $1.7 billion of loans made to real estate joint ventures in which the company is an equity investor. This report classifi es these assets as real estate investments.

Due and accrued investment income of $1.5 billion reported separately in the CFS is included in the respective asset classes to which the amounts due relate in this report. Total assets, investment income and capital gains in this report are consistent with the company’s CFS. The notes to the CFS provide further details as to the accounting and valuation methods applied to the reported investment values. PricewaterhouseCoopers LLP is the company’s independent accountant.

In respect to comments pertaining to the company’s year-end 2008 surplus total of $13.4 billion and surplus ratio of 11.5%, these fi gures included the effect of two permitted accounting practices. The fi rst allowed the company to refl ect some of the substantial value of Russell Investments, its global investment services subsidiary. The second change related to the treatment of deferred tax assets affected by investments that suffered market declines in 2008. Without the permitted practices, the company’s total surplus would have been $11.8 billion and its total surplus ratio would have been 10.1%, higher than company surplus ratios in all but 13 of the company’s 152-year history. ‘Total surplus,’ as cited in this report, is the combination of surplus and asset valuation reserve (AVR).

In respect to comments pertaining to Northwestern Mutual’s dividend payout and dividend scale interest rate, decisions with respect to the determination and allocation of divisible surplus are left to the discretion and sound business judgment of the company’s Board of Trustees. There is no guaranteed specifi c method or formula for the determination and allocation of divisible surplus. Accordingly, the company’s approach is subject to change. Neither the existence nor the amount of a dividend is guaranteed on any policy in any given policy year. Some policies may not receive any dividends in a particular year or years even while other policies receive dividends. In its 2009 dividend scale resolution, the Board of Trustees has exercised its discretion to guarantee a minimum amount of dividends to be paid in 2009 to the policyhoders as a group. If this guaranteed amount exceeds the aggregate amount of dividends actually paid to individual policyholders in 2009, that excess will be paid out in 2010 pursuant to the 2009 dividend scale resolution. The presence of a guaranteed minimum amount in the 2009 dividend scale resolution does not obligate Northwestern Mutual to declare a dividend in future years or to guarantee any portion of dividends that may be declared in future years.

A copy of Northwestern Mutual’s Consolidated Financial Statement is available on the company’s web site – www.nmfn.com, or by written request to: Northwestern Mutual, Corporate and Policyowner Relations, N04, 720 E. Wisconsin Ave., Milwaukee, WI 53202.

Reporting Considerations

Financial Strength Ratings*

The Northwestern Mutual Life Insurance Company has among the highest ratings in the life insurance industry from the four major rating agencies: Standard & Poor’s, Moody’s Investors Service, Fitch Ratings and A.M. Best.

*Ratings are subject to change. Third-party ratings are a measure of a company’s relative fi nancial strength and security but are not a refl ection of the performance of stability of funds invested in a company’s separate accounts.

The Northwestern Mutual Life Insurance Company • Milwaukee, WIwww.northwesternmutual.com

19-1205 (0309)

“The ambition of the Northwestern has been less to be large than to be safe: its aim is to rank fi rst in benefi ts to policyowners rather than fi rst in size. Valuing quality above quantity, it has preferred to secure its business under certain salutary restrictions and limitations rather than write a much larger business at the possible sacrifi ce of those valuable points which have made the Northwestern preeminently the policyowner’s company.” – 1888 Executive Committee

As a mutual company, Northwestern Mutual has no shareholders. The company’s mutual structure

allows it to focus solely and directly on serving the best interests of its policyowners and clients.

The company’s vision and values are echoed in a statement made by its Executive Committee

and printed in the company’s 1888 Annual Report to Policyowners.