the Power of the Portfolio

An essential ingredient in maintaining Northwestern Mutual’s financial strength

and ability to deliver value to policyowners is the performance of the company’s

general account investment portfolio, which at year-end 2009 included about

$132 billion of managed assets backing the company’s insurance products.

The investment earnings generated by this portfolio produce capital that helps

build the company’s strong financial base. They are also the primary determinant

of the dividend scale interest rate applied to traditional permanent life

insurance policies.

In 2010, Northwestern Mutual expects to pay more than $4.7 billion in dividends,

mostly on traditional life insurance policies, fueled in part by the company’s

highly competitive 6.15 percent dividend scale interest rate. In 2009,

the company’s total surplus grew by more than $800 million over the prior year

to more than $14.2 billion.

All of these results that drive the company’s financial strength and life insurance

cash values are possible in part because of the power of the company’s general

account investment portfolio.

Read on for more information about the investment strategies Northwestern

Mutual follows, how it is able to invest in ways that some other companies

cannot and how the company’s team of investment professionals has proven

its ability to consistently beat competitive investment performance benchmarks.

| 1

Northwestern Mutual’s investment objective is to generate superior returns under a variety of economic conditions, while maintaining a well-balanced and diversified portfolio to preserve the company’s exceptional financial strength. This time-tested strategy fundamentally supports Northwestern Mutual’s ability to deliver lifelong financial 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 managed assets in accordance with the company’s investment policy. Consistent with this policy, the company invests approximately 80 percent of managed assets in investment- grade bonds and other fixed income instruments, and the remaining 20 percent in equities and high- yield bonds.

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 fixed income investments is largely highly rated and is well diversified within and among fixed income sectors to minimize risk.

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

Northwestern Mutual’s significant allocation to equities and high-yield bonds – investments with a higher risk level and corresponding higher return potential – relative to fellow insurers is a distinguishing component of the company’s investment portfolio. Over the long term, these investments have generated higher returns

than investment-grade fixed income securities, providing a distinct advantage to Northwestern Mutual policyowners.

Consistent with the company’s investment policy, Northwestern Mutual may also enter into transactions that are designed to manage the company’s exposure to fluctuations in interest rates, foreign currency exchange rates and market volatility. These strategies include the use of forwards, futures, options and swaps. In implementing these 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 diversification, active portfolio management and a long-term perspective supports outstanding product value and enhances the company’s financial strength. Northwestern Mutual’s prudent investment strategy and unique business model have contributed to more than 150 years of strength and stability. n

Long-term Disciplined Investment Strategy

Investment Principles• Maintain a balance between high-quality fixed

income investments and higher-risk assets.

• Diversify among and within asset classes and specific investments.

• Participate in all major asset classes and market sectors.

• Manage risk across the entire investment portfolio and preserve capital to assure financial strength.

• Seek opportunity in investment activity.

• Manage portfolios to maximize total returns.

2 |

Northwestern Mutual’s great financial strength allows the company to invest its general account portfolio in a steady and consistent manner. It provides the confidence to endure the ups and downs of the investment markets that often produce favorable returns. Financial strength results from the company’s core strategic attributes, including its mutual company structure, excellent persistency and mortality, conservative expense management and significant capitalization.

One measure of financial strength is the company’s total surplus level, which provides a cushion against the volatility of higher risk assets (that come with commensurately higher rewards), while maintaining the overall strength of the company. Northwestern Mutual’s total surplus, composed of surplus and asset valuation reserve (AVR), remains sound compared to its historical levels (as illustrated in the chart below). Surplus provides the company and its policyowners with protection against the unexpected, while AVR supports a long-term investment strategy by cushioning surplus against market volatility.

The company benefits from a longer-term liability structure than most other companies in the industry, which also allows it to invest with a longer investment horizon. The product mix supported by the investment portfolio (illustrated below) is composed mostly of traditional participating life insurance, which is considered one of the most stable financial products. Owners of participating life insurance policies tend to hold those policies for the long term, thus assuring that the assets backing those policies can be put to work regardless of short-term market conditions.

Northwestern Mutual’s Advantage

2009 2008200520001995199019851980197519700%

3%

6%

9%

12%

15%

9.96

%

AVR

Surplus

1.48

%

Surplus RatioSurplus and asset valuation reserve (AVR) as a percentage of general account insurance reserves (consolidated statutory basis)

Life Insurance 89%

Annuities 6%

Disability and Long-Term Care Insurance 5%

Investment Portfolio Product Mix

89%

5%6%

Investment Portfolio Product Mix 2009 Year-End

Percentage of assets attributable to specific products

| 3

Northwestern Mutual Asset Class Performance RankOne-Year Total Returns

Highest-Performing

Class

Lowest-Performing

Class

2000 20082001 2002 2003 2004 2005

PrivateMezzanine

PrivateMezzanine

PrivateMezzanine

R.E.Equities

Private FixedIncome

R.E.Mortgages

PublicEquities

R.E.Equities

R.E.Mortgages

R.E.Mortgages

Public FixedIncome

Public HighYield

PrivateMezzanine

PrivateEquities

ConvertiblesPublic

EquitiesPrivate

MezzaninePrivateEquities

Public HighYield

PrivateEquities

Public FixedIncome

Public FixedIncome

Private FixedIncome

R.E.Equities

ConvertiblesPrivate

Mezzanine

Public HighYield

Public HighYield

Public HighYield

Private FixedIncome

Private FixedIncome

R.E.Equities

R.E.Equities

PrivateMezzanine

PublicEquities

PublicEquities

Convertibles Convertibles

R.E.Equities

PrivateEquities

R.E.Equities

Public HighYield

R.E.Mortgages

Public HighYield

Private FixedIncome

Private FixedIncome

Private FixedIncome

Convertibles

Convertibles

Convertibles

PublicEquities

PrivateEquities

PrivateEquities

R.E.Mortgages

R.E.Mortgages

Public FixedIncome

Private FixedIncome

PrivateEquities

Public FixedIncome

2009

Public FixedIncome

R.E.Mortgages

Private FixedIncome

Public HighYield

Private FixedIncome

PrivateEquities

R.E.Equities

PrivateMezzanine

PublicEquities

Convertibles

PublicEquities

PublicEquities

Public FixedIncome

Public FixedIncome

R.E.Mortgages

2006

Convertibles

PrivateEquities

PrivateMezzanine

PublicEquities

Public HighYield

Private FixedIncome

Public FixedIncome

R.E.Mortgages

2007

PrivateMezzanine

Convertibles

PublicEquities

R.E.Equities

PrivateEquities

Public HighYield

R.E.Mortgages

Public FixedIncome

Private FixedIncome

R.E.Equities

Northwestern Mutual Asset Class Performance RankOne-year total returns

Northwestern Mutual’s optimum portfolio balance relies largely on a portfolio of investment-grade fixed income assets, with the balance made up of equities and high-yield and mezzanine debt. This balanced strategy is expected to provide above- average returns through a variety of business cycles and economic conditions.

In addition to maintaining a balanced portfolio, the company diversifies by investing in a variety of asset classes. The fixed income portfolio primarily includes public and private bonds and commercial

mortgage loans. The equity portfolio includes commercial real estate and public and private common stock. Northwestern Mutual achieves even greater diversification by selecting a large number of investments within each asset class. In other words, we don’t “bet the ranch” on any one investment. Company investment managers also participate in all major asset classes and market sectors because history has proven that no single asset class is always the highest-performing. As shown in the graph below, the performance of asset classes varies from year to year. n

Balance and Diversification

This contrasts to some companies who must deal with the uncertainty of products that produce less predictable incoming and outgoing cash flows.

Financial strength. Stable products. In addition, policyowners who remain with Northwestern Mutual for many years, as a group, tend to live longer lives and pay premiums more consistently. This combination of factors provides the company with consistent and dependable cash flow for new investment activities, while allowing the patience needed for investments to grow. It also allows Northwestern Mutual to invest in more asset classes than its competitors. And it gives the latitude to invest in generally higher-yielding asset classes, such as private investments, while focusing the investment strategy and objectives on the long-term best interests of policyowners and clients. n

4 |

Fixed Income

Northwestern Mutual’s fixed income investments serve as the foundation of the overall investment portfolio. Fixed income assets include money market investments, public bonds and preferred stock, private bonds and preferred stock, and commercial mortgage loans. The fixed income portfolio is designed to provide liquidity and current income, while minimizing loss of principal.

This well-diversified portfolio is generally invested in investment-grade assets.

The company’s investments in fixed income instruments are actively managed to maximize returns, while preserving a high level of safety, liquidity and diversification. To manage portfolio risk, investments are broadly diversified by security type.

Northwestern Mutual’s investments in private bonds and preferred stock provide further diversification to the company’s overall portfolio and often benefit from higher yields and more attractive terms relative to public bonds.

Northwestern Mutual concentrates its mortgage lending in commercial mortgage loans on fixed- rate permanent loans greater than $15 million, secured by income-producing property. The company invests primarily in apartments, office buildings, shopping centers and industrial warehouses throughout the nation. These 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.

Opportunistic and Flexible

In 2009, Northwestern Mutual invested more than $15.7 billion in new investments, following a “flexible allocation” policy, which allows the company to allocate money to areas that offer the greatest value at the time. As the relative attractiveness and volatility of different assets changes, so does the allocation strategy. For

example, in 2009 most new purchases of fixed income instruments were directed to high-quality public bonds, with a focus on corporate issues and U. S. agency residential mortgage-backed securities, both of which offered relatively attractive yields in an environment of continued low interest rates. n

Investment Portfolio Breakdown

Corporate Bonds 49%

Mortgage Loans 17%

Residential Mortgage-Backed** 16%

US Government/Agency Bonds 7%

Commercial Mortgage-Backed 3%

Asset-Backed 3%

Money Market 2%

Other* 3%

49%

17%

7%

16%

3%3%

3%2%

Fixed Income Portfolio Composition 2009 Year-End

Total fixed income investments: $116.3 billion (statement value)

* Includes U.S. Agency PTCs & CMOs** Includes municipals

| 5

Equities

Equity investments are a distinguishing element of the company’s investment portfolio. Northwestern Mutual’s equity portfolio is broadly diversified across private equities, real estate and public common stock. At year-end 2009, this portfolio represented 12 percent of total managed assets.

Over time, the company expects equities to contribute higher returns and provide incremental diversification to the overall portfolio. The company’s significant allocation to equities has enhanced Northwestern Mutual’s dividend scale and financial strength.

Private EquitiesPrivate equity investments at year-end 2009 totaled $6.5 billion, or 5 percent of total managed assets. The private equity portfolio includes direct mezzanine and equity investments in buyouts of companies, 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 have generally exhibited lower volatility than their public market counterparts and provide diversification benefits. Northwestern Mutual’s long-term investment horizon allows the company to hold significant investments in this asset class.

Real Estate EquitiesCommercial real estate equity investments at year-end 2009 totaled $5.3 billion, or 4 percent of total managed assets. The real estate equity portfolio consists primarily of apartment, warehouse and office 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 regional real estate field offices, monitor local markets and actively manage the investment properties, creating additional value.

Public Common StockAt year-end 2009, the public common stock portfolio totaled $3.5 billion, or 3 percent of total managed assets. The public equity portfolio includes investments in domestic large-, medium- and small-capitalization companies, as well as in foreign companies. Risk is well diversified by company size, industry and country.

Equity Portfolio Composition 2009 Year-End

Total equity investments: $15.3 billion (statement value)

Private Equities 43%

Real Estate 34%

Public Common Stock 23%

Investment Portfolio Product Mix

43%23%

34%

Over time, the company expects equities to contribute higher returns and provide incremental diversification to the overall portfolio. The company’s significant allocation to equities has enhanced Northwestern Mutual’s dividend scale history and financial strength.

6 |

Investment Portfolio PerformanceNorthwestern Mutual’s portfolio strategy is to hold a higher percentage than most other insurance companies of equities and high-yield bonds – investments with a higher risk level and corresponding higher return potential – in a well-diversified, actively managed portfolio. This strategy has proven to reduce overall portfolio volatility, while increasing returns over time.

That may sound counterintuitive, but the reason it works can be explained by modern portfolio theory, which includes a concept known as the efficient frontier. If your portfolio consisted of 100 percent common stocks, you would expect high returns, but with high risk or high volatility of return. This portfolio would be far too risky for Northwestern Mutual policyowners and, probably, for most other people.

At the other end of the spectrum is a portfolio 100 percent composed of bonds. Obviously, the risk in this portfolio would be much less than that of an all-stock portfolio, but could not be expected to generate the same high returns.

Given the characteristics of different types of investments and how they perform relative to one another (covariance), modern portfolio theory says public, private and real estate equities can be mixed with a bond portfolio and, in the process, reduce risk while adding return. Northwestern Mutual not only believes this in theory, it has proven it in practice.

During the 20-year period ending in 2009, the investment return to policyowners in the form of the dividend scale interest rate was higher than it would have been if the portfolio had been 100 percent invested in bonds, as shown in the “Risk vs. Reward” graph on the next page. Just as important, this additional return was earned with lower volatility than if the assets had been 100 percent invested in stocks.

Quality of Public and Private Bond and Preferred Stock Investments 2009 Year-End

AAA 36%

AA 9%

A 17%

BBB 28%

BB 4%

B 3%

CCC & Below 3%

Quality of Fixed Income PortfolioColors on all charts should follow this sequence from the highest number to lowest percentages/values – PMS 293 blue, PMS 7449 purple, PMS 145 orange, Green, Gray, light blue, light green.

36%

17% 9%

28%

4%3%3%

Investment Grade

Below Investment Grade

Ninety percent of the company’s portfolio of public and private bonds and preferred stock was rated investment grade (BBB or greater), and 36 percent held the highest-quality rating of AAA.

Credit quality is defined as the ability of the issuer to pay interest and principal on a timely basis. These ratings are based on the higher of the credit ratings from Standard & Poor’s, Moody’s Investors Service or Fitch Ratings when available, or internal rating evaluations when third-party ratings are not available. n

| 7

Rat

e of

Ret

urn

(Rew

ard)

Standard Deviation (Risk)

100% Stocks

100% Bonds

80% Bonds 12% Stock 8% Real Estate

Hypothetical Portfolio

In�ation

T-Bills

Northwestern MutualDividend Scale Interest Rate*

“The Efficient Frontier”

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%2%

4%

6%

8%

10%

100% Real Estate

Risk vs. Reward 1990-2009

Investment Performance Summary Total rates of return through 2009 year-end

0%

5-Year Total Return 10-Year Total Return

2%

4%

6%

8%

5.1%4.4%

7.1%

6.2%

Northwestern Mutual Return

Corporate Benchmark*

* Individual benchmarks are selected for each fixed income and equity class, based on common and custom indicies having similar investment profiles, objectives and timing factors. These individual benchmarks are then blended to arrive at the aggregate benchmarks displayed above.

Source: The performance data above is based on the following investment indices: BarCap US Agg Bond TR USD, S&P 500 TR, NCREIF Property and Ibbotson US 30 Day T-Bill TR.All points in graphic assume no taxes or transaction costs.* Rate for unborrowed funds after charges (see description on back cover).

Because Northwestern Mutual invests a greater portion of its portfolio in assets with a higher risk level and corresponding higher return potential, the portfolio enjoys an investment return greater than if invested completely in investment-grade fixed income instruments (see “Risk vs. Reward” at the top of the page).

But Northwestern Mutual offers an additional advantage: expert investment management. Over the past five and ten year periods, the actual total rates of return for the general account investment portfolio have exceeded the competitive benchmarks. For policyowners, the performance of the portfolio is the primary factor that determines the company dividend scale interest rate. n

8 |

Portfolio Performance and Northwestern Mutual’s Dividend Scale Interest Rate

How can Northwestern Mutual achieve a dividend scale interest rate applied to life insurance cash values that currently exceeds the yield available through most government-backed securities?

Two key factors explain how the company can support a competitive dividend scale interest rate in a variety of different financial environments.

• First, the dividend scale interest rate is a portfolio rate, based on the total yield of all applicable investments. The portfolio includes older fixed income investments made at higher rates and newer fixed income investments made at the current lower rates. Thus, the collective performance of the portfolio will differ from prevailing new investment rates. This approach for determining an interest rate is called the portfolio method.

• Second, Northwestern Mutual’s investment strategy is to actively manage a well-diversified portfolio with a long-term investment horizon, as explained earlier in this piece. The company’s ability to generate competitive total returns, including both current income and capital appreciation, while preserving the company’s exceptional financial strength determines future dividend scale interest rates.

It is, of course, impossible to know what the dividend scale interest rate will be in the future. The graph below provides a historical view of how Northwestern Mutual’s dividend scale interest rate compares to rates on U.S. government securities. Note that the portfolio dividend scale interest rate tends to follow the general trend of new money rates, but lags and is less volatile. In other words, it is generally lower than the new money rate when new money rates are rising and higher than the new money rates when new money rates are falling. n

0

2

4

6

8

10

12

14

16

0

2

4

6

8

10

12

14

16NMDIR

2009

2006

2003199819931988198319781973196819631958195319481943193819331928

Northwestern Mutual Dividend Interest Rate

Long-Term Government Bond Yields

Year

Perc

enta

ge

Northwestern Mutual Dividend Scale Interest Rate

Long-Term Government Bond Yields

4.811 4.908 4.682 4.844 4.814 5.011 5.125 4.903 4.823 4.837 4.747 4.38 4.4534.453 4.323 4.403 4.293 4.468 4.716 4.525 4.574 4.424 4.312 4.367 3.438 2.676

Long-Term Government Bond Yields Compared to Northwestern Mutual’s Dividend Scale Interest RateSource: Bloomberg 30-Year Treasury Bonds

How Is the Dividend Scale Interest Rate Determined?

Northwestern Mutual’s dividend scale interest rate is based on the actual investment performance of the applicable assets in the investment portfolio. This performance is referred to as the portfolio earned rate. A portfolio earned rate reflects a company’s overall rate of return on its assets, regardless of when the assets were acquired, so the portfolio approach is quite simple: determine the ratio of total investment earnings (interest, dividends, rents, capital gains and so on) to invested assets (bonds, stocks, mortgages and other investments). The result is one interest rate – even though the assets consist of many different investments made at different times, each earning a different rate of return.

To arrive at the dividend scale interest rate, a deduction is made from the portfolio earned rate, to cover certain items such as investment expenses, taxes and a contribution to surplus. The dividend scale interest rate is credited to all applicable life policies even though premiums were paid at different times and were invested at different interest rates.

Northwestern Mutual has always used the portfolio method of crediting interest in determining life insurance policy dividends. Most other major life insurers have historically followed the portfolio method, until interest rates began to climb in the late 1970s. That’s when “new money” methods were adopted by some – with the rationale that newer policyowners should benefit from the higher interest rates available when their premiums were paid, while older policyowners should be credited at the lower rates existing when their premiums were paid.

The “new money” method of crediting interest, in contrast to the portfolio method, has a lot of glamour when interest rates are rising. In a rising interest rate environment, a company could pay

higher dividend rates to its new customers than it could under the portfolio method. But there’s a catch; since there is only so much total investment income regardless of how it is distributed, paying more to new policyowners means paying less to older policyowners. Northwestern Mutual believes that the portfolio method of crediting interest is currently the best approach for its regular, fixed-premium life insurance policies. These policies have premiums that are paid over a long period, during both rising and falling interest rate cycles. The portfolio method of crediting interest protects policyowners by smoothing the effects of large swings in current interest rates.

It is important to note that the dividend scale interest rate, which reflects the performance of the company’s investments, is just one element that determines the actual dollar amount of dividends. The other important factors include mortality charges (representing the cost of death benefits paid to survivors) and expense charges. In fact, about 60 percent of the expected 2010 payout is attributable to favorable expense and claims experience. It is also important to note that Northwestern Mutual’s goal is to pay the highest possible policyowner dividends consistent with maintaining a strong financial position. Since Northwestern Mutual is a mutual company, it has no stockholders and, thus, no dividends to be paid to stockholders. All the money earned over and above what is needed to pay benefits to policyowners, to run the operation and to keep the company on a solid financial footing, is returned to policyowners as dividends.

| 9

[inside back cover]

This material describes the investment strategy for the managed assets in Northwestern Mutual’s general account and the investment performance of these assets. The company’s dividend scale interest rate for unborrowed funds reflects the investment performance of the managed assets net of taxes and any contribution to surplus. This rate is used for crediting interest on policy values after deducting mortality and expense charges. Because of the mortality and expense charges, the dividend scale interest rate should not be used as a measure of the policy’s internal rate of return. The dividend scale and the underlying interest rates are reviewed annually and are subject to change. Future dividends are not guaranteed, although Northwestern Mutual has paid a dividend every year since 1872.

Decisions with respect to the amount and appropriate allocation of divisible surplus for participating policies of Northwestern Mutual are left to the discretion and business judgment of the Board of Trustees. There is no guaranteed approach or formula for determining the amount of divisible surplus or the manner in which it is allocated as dividends. Further, there is no guarantee that any dividend will be paid on an individual policy in any given year. Therefore, the approach described in this brochure for determining dividends, the dividend scale interest rate and other dividend factors are subject to change without notice.

The dividend scale interest rate for a particular policy is the interest rate used for crediting interest on policy values after deducting mortality and expense charges. It reflects investment performance of both managed assets and policy loans. Depending on the type of policy, either individual policy loan activity or average loan activity of all policies in the dividend class is reflected.

The Northwestern Mutual Life Insurance Company’s operational results, investment holdings and financial position for the year ending 12/31/2009 are reported in the company’s Consolidated Financial Statement (CFS). PricewaterhouseCoopers LLP is the company’s independent auditor. A copy of Northwestern Mutual’s CFS is available online at www.northwesternmutual.com | About Northwestern Mutual | Financial Information and Reports, or by written request to: Northwestern Mutual, Corporate and Executive Communications, N04, 720 E. Wisconsin Avenue, Milwaukee, WI 53202.

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

29-4692 (0502) (REV 0810)