Northwestern Mutual Variable Life Account (VLI)

497 1 d497985d497.htm NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT (VLI) Northwestern Mutual Variable Life Account (VLI)

Prospectus

May 1, 2013

Variable Life

Whole Life

Extra Ordinary Life

Single Premium Life

Issued by The Northwestern Mutual Life Insurance Company

and the Northwestern Mutual Variable Life Account

This prospectus describes three Variable Life Insurance Policies (each a “Policy”, together the “Policies”). You may choose to invest your Net Premiums in up to six Divisions of the Northwestern Mutual Variable Life Account (the “Separate Account”), each of which invests in one of the corresponding Portfolios listed below:


Northwestern Mutual Series Fund, Inc.
Growth Stock Portfolio		International Growth Portfolio
Focused Appreciation Portfolio		Research International Core Portfolio
Large Cap Core Stock Portfolio		International Equity Portfolio
Large Cap Blend Portfolio		Emerging Markets Equity Portfolio
Index 500 Stock Portfolio		Money Market Portfolio
Large Company Value Portfolio		Short-Term Bond Portfolio
Domestic Equity Portfolio		Select Bond Portfolio
Equity Income Portfolio		Long-Term U.S. Government Bond Portfolio
Mid Cap Growth Stock Portfolio		Inflation Protection Portfolio
Index 400 Stock Portfolio		High Yield Bond Portfolio
Mid Cap Value Portfolio		Multi-Sector Bond Portfolio
Small Cap Growth Stock Portfolio		Commodities Return Strategy Portfolio*
Index 600 Stock Portfolio		Balanced Portfolio
Small Cap Value Portfolio		Asset Allocation Portfolio

Fidelity^® Variable Insurance Products		Neuberger Berman Advisers Management Trust
VIP Mid Cap Portfolio		Socially Responsive Portfolio
VIP Contrafund^® Portfolio

Russell Investment Funds		Russell Investment Funds LifePoints^® Variable Target Portfolio Series
Multi-Style Equity Fund
Aggressive Equity Fund		Moderate Strategy Fund
Global Real Estate Securities Fund		Balanced Strategy Fund
Non-U.S. Fund		Growth Strategy Fund
Core Bond Fund		Equity Growth Strategy Fund

Please note that the Separate Account has requested approval from the Securities and Exchange Commission (the “SEC”) to remove the Commodities Return Strategy Portfolio as an investment option in the Policy. Following our receipt of the SEC’s approval we will set a date to automatically transfer any Invested Assets you have in the Division investing in the Commodities Return Strategy Portfolio to the Division investing in the Commodity Return Strategy Portfolio, a portfolio of Credit Suisse Trust (the “Credit Suisse Commodity Portfolio”). See “Substitution of Fund Shares and Other Changes” for more information. Once this date has been determined, we will provide you with written notice notifying you of the date. You will receive a prospectus or summary prospectus for the Credit Suisse Commodity Portfolio prior to the date of the Substitution. The Credit Suisse Commodity Portfolio is not currently available as an investment option in the Policy and will only be available as of the date of the Substitution following SEC approval.

Please note that the Policies and the Portfolios are not guaranteed to achieve their goals

and are not federally insured. The Policies and the Portfolios have not been endorsed by any bank or government agency and are subject to risks, including loss of the principal amount invested.

Each Policy is subject to the law of the state in which it is issued. Some of the terms of a Policy may differ from the terms of a Policy delivered in another state because of state specific legal requirements. Areas where state specific Policy provisions may apply include, but are not limited to:

•

certain investment options and certain policy features; and

•

portfolio transfer rights.

Please read carefully this prospectus and the accompanying prospectuses for the corresponding Portfolios and keep them for future reference. These prospectuses provide information that you should know before investing in the Policies. No person is authorized to make any representation in connection with the offering of the Policies other than those contained in these prospectuses.

The Securities and Exchange Commission (“SEC”) has not approved or disapproved the Policies or determined

that this prospectus is accurate or complete. It is a criminal offense to state otherwise.

We no longer issue the three Policies described in this prospectus. The variable life policies we presently offer are described in separate prospectuses.

LOGO

Contents for this Prospectus


	Page
SUMMARY OF BENEFITS AND RISKS		1
Benefits of the Policies		1
Death Benefit		1
Access to Your Values		1
Flexibility		1
Optional Benefits		1
Income Plan Options		1
Tax Benefits		1
Risks of the Policies		1
Investment Risk		1
Default Risk		1
Policy for Long-Term Protection		1
Policy Lapse		1
Policy Loan Risks		1
Limitations on Access to Your Values		2
Adverse Tax Consequences		2
Risk of an Increase in Current Fees and Expenses		2
FEE AND EXPENSE TABLES		2
Transaction Fees		2
Periodic Charges (Other than Portfolio Operating Expenses)		3
Whole Life Policy		3
Extra Ordinary Life Policy		4
Single Premium Life Policy		5
Annual Portfolio Operating Expenses		6
THE COMPANY		9
THE SEPARATE ACCOUNT		9
THE FUNDS		10
Northwestern Mutual Series Fund, Inc.		10
Fidelity^® Variable Insurance Products		11
Neuberger Berman Advisers Management Trust		12
Russell Investment Funds		12
Payments We Receive		12
INFORMATION ABOUT THE POLICIES		13
Premiums		13
Whole Life Policy		13
Extra Ordinary Life Policy		14
Single Premium Life Policy		14
Grace Period		14
Allocating Premiums to the Separate Account		14
Transfers Between Divisions		15
Short-Term and Excessive Trading		15
Deductions and Charges		16
Deductions from Premiums for Whole Life and Extra Ordinary Life Policies		16
Deductions for Single Premium Life Policies		17
Charges Against the Separate Account Assets		18
Optional Benefits		18


	Page
Guarantee of Premiums, Deductions and Charges		18
Death Benefit		18
Variable Insurance Amount		19
Whole Life Policy and Single Premium Life Policy		20
Extra Ordinary Life Policy		20
Cash Value		21
Annual Dividends		22
Policy Loans and Automatic Premium Loans		22
Policy Loans		22
Automatic Premium Loans		22
General Loan Terms		22
Extended Term and Paid-Up Insurance		23
Reinstatement		23
Reinvestments After Surrender		24
Right to Exchange for a Fixed Benefit Policy		24
Modifying a Policy		24
Other Policy Provisions		24
Owner		24
Beneficiary		24
Incontestability		25
Misstatement of Age or Sex		25
Collateral Assignment		25
Optional Benefits		25
Income Plans		25
Deferral of Determination and Payment		25
Voting Rights		25
Substitution of Fund Shares and Other Changes		25
Reports and Financial Statements		26
Special Policy for Employers		26
Householding		27
Abandoned Property Requirements		27
Legal Proceedings		27
Speculative Investing		27
Owner Inquiries		27
Illustrations		27
TAX CONSIDERATIONS		28
General		28
Life Insurance Qualification		28
Tax Treatment of Life Insurance		28
Modified Endowment Contracts (MEC)		29
Estate and Generation Skipping Taxes		30
Business-Owned Life Insurance		30
Policy Split Right		30
Split Dollar Arrangements		30
Valuation of Life Insurance		31
Other Tax Considerations		31
DISTRIBUTION OF THE POLICY		31
GLOSSARY OF TERMS		32
ADDITIONAL INFORMATION		34

Variable Life

•

Whole Life

•

Extra Ordinary Life

•

Single Premium Life

Summary of Benefits and Risks

The following summary identifies some of the benefits and risks of the three Policies described in this prospectus. It omits important information which is included elsewhere in this prospectus, in the attached mutual fund prospectuses, and in the terms of the Policies. Unless clear from their context or otherwise appropriate, all of the capitalized terms used in this prospectus are defined herein or at the end of this prospectus in the Glossary of Terms.

Benefits of the Policies

Death Benefit The primary benefit of each Policy is the life insurance protection that it provides. For each Policy the Death Benefit includes a guaranteed amount which will not be reduced during the lifetime of the Insured so long as you pay premiums when they are due and no Policy Debt is outstanding. The remainder of the Death Benefit is the variable insurance amount which fluctuates in response to actual investment results and is not guaranteed. The Extra Ordinary Life Policy also provides some term insurance during the early Policy Years. The Death Benefit is increased by the amount of any paid-up additions which you have purchased with any dividends that we pay, except that for Extra Ordinary Life Policies, variable insurance amount and paid-up additions will first be used to replace term insurance before increasing the Death Benefit. The relationships among the guaranteed and variable amounts and any paid-up additions and term insurance depend on the design of the particular Policy.

Access to Your Values The Policy provides access to Cash Value during the lifetime of the Insured. You may surrender your Policy for the Cash Value at any time during the lifetime of the Insured. We will permit a Death Benefit reduction so long as the Policy that remains meets our minimum size requirements. Under some circumstances there may be a release of Cash Value upon the reduction of your Death Benefit. You may borrow up to 90% of your Policy’s Cash Value using the Policy as security.

Flexibility You may direct the allocation of your premiums and apportion the Separate Account assets supporting your Policy among the various Divisions of the Separate Account, using as many as six Divisions at any time. Subject to certain limits, you may transfer accumulated amounts from one Division to another as often as four times in a Policy Year.

Optional Benefits Whole Life and Extra Ordinary Life Policies may include two optional benefits: a Waiver of Premium Benefit and an Additional Purchase Benefit. These optional benefits are not available for all Issue Ages and underwriting classifications, and may not be available in all states.

Income Plan Options There are several ways of receiving proceeds under the Death Benefit and surrender provisions of the Policy, other than in a lump sum. More detailed information concerning these options is included elsewhere in this prospectus. You may also call our Income Benefits Department at 1-866-269-2950 for more information.

Tax Benefits You are generally not taxed on your Policy’s investment gains until you surrender the Policy.

Risks of the Policies

Investment Risk Your Policy allows you to participate in the investment experience of the Divisions you select. You bear the corresponding investment risks. You will be subject to the risk that the investment performance of the Divisions will be unfavorable and that, due both to the unfavorable performance and the resulting higher insurance charges, the Policy Value and Cash Value will decrease. You could lose everything you invest. You may find a comprehensive discussion of these investment risks in the attached mutual fund prospectuses. You will also be subject to the risk that the investment performance of the Divisions you choose may be less favorable than that of other Divisions, and in order to keep the Extra Life Protection of an Extra Ordinary Life Policy from decreasing, you may be required to pay more premiums than originally planned.

Default Risk Because certain guarantees under the Policies are guaranteed by the Company’s General Account assets, the ability to make good on these guarantees depends on the financial strength and claims-paying ability of the Company. Therefore, guaranteed benefits in excess of Invested Assets in the Separate Account are subject to the risk of default to the extent the Company is unable to satisfy some or all of these guarantees.

Policy for Long-Term Protection Your Policy is designed to serve your need for long-term life insurance protection. It is not a suitable investment for short-term goals. We have not designed the Policies for frequent trading.

Policy Lapse Your Whole Life or Extra Ordinary Life Policy will lapse unless you pay the premiums when they are due, unless the Policy is continued as extended term insurance or a reduced amount of paid-up insurance.

Policy Loan Risks A loan, whether or not repaid, will affect your Policy Value and Cash Value over time because the amounts borrowed do not participate in the investment performance of the Divisions; in addition, a charge is deducted from your Policy Value while there is Policy Debt. The effect of a loan may be either favorable or unfavorable,


Variable Life Prospectus			1

depending on whether the earnings rate credited to the loan amount is higher or lower than the investment performance of the unborrowed amounts left in the Divisions. The Death Benefit is reduced by the amount of any Policy Debt outstanding. If you surrender the Policy or allow it to lapse while Policy Debt is outstanding, the amount of the loan, to the extent it has not previously been taxed, will be considered as an amount you received and taxed accordingly.

Limitations on Access to Your Values The Policies permit access to Cash Value by Policy loans and by surrender of the Policy. A partial withdrawal of the Cash Value is not permitted, except to the extent there is a reduction of Death Benefit which leads to a release of Cash Value.

Adverse Tax Consequences Our understanding of the principal tax considerations for the Policy under current tax law is set forth in this prospectus. There are areas of some uncertainty under current law, and we do not address the likelihood of future changes in the law or interpretations thereof. Among other risks, your Policy may become a modified endowment contract. A modified endowment contract (“MEC”) is a life insurance contract that is taxed less favorably on lifetime distributions than other life insurance

contracts because the contract is considered too investment oriented. A Policy will be classified as a MEC if cumulative premiums paid during the first seven Policy years after issue exceed a “seven-pay” limit defined in the Internal Revenue Code. Distributions, including loans, from a Policy classified as a MEC are taxable to the extent of the gain in the Policy and may be subject to a 10% premature withdrawal penalty if taken before the Owner attains age 59¹⁄₂. Moreover, excessive Policy loans could cause a Policy to terminate with no value with which to pay the tax liability. In addition, please note that you may no longer change Insureds on your Policy, unless you exchange your Policy for a new Policy with mortality tables recognized by the Internal Revenue Service when satisfying the definitional test for life insurance. (See “Tax Treatment of Policy Benefits”). Death Benefit proceeds may be subject to state and/or inheritance taxes.

Risk of an Increase in Current Fees and Expenses Certain fees and expenses are currently assessed at less than their maximum levels. We may increase these current charges in the future up to the guaranteed maximum levels. If fees and expenses are increased, you may need to increase the amount of premiums to keep the Extra Life Protection of an Extra Ordinary Life Policy from decreasing.

Fee and Expense Tables

The following tables describe the fees and expenses that you will pay when owning or surrendering a Policy. See “Deductions and Charges” for a more detailed description.

Transaction Fees¹

This table describes the fees and expenses you will pay when you pay premiums, surrender the Policy or transfer amounts between the Divisions.


	Charge	When Charge is Deducted	Current Amount Deducted	Maximum Amount Deducted
Whole Life and Extra Ordinary Life Policies	Premium Taxes	When you pay premiums	2% of the basic premium²	2% of the basic premium²
	Sales Load	When you pay premiums	Year 1: 30% of basic premium² Years 2-4: 10% of basic premium² Years 5-on: Not more than 7% of basic premium²	Same as the current amount
	Charge for Issuance Expenses	When you pay premiums—first Policy Year only	Not more than $5 for each $1,000 of insurance	Same as the current amount
Single Premium Life Policy	Administrative Charge	When we issue the Policy	$150	$150
Single Premium Life Policy	Surrender Charge	When you surrender the Policy during the first ten Policy Years	0%	Not more than 9% of the premium paid for the Policy³
All Policies	Fee for Transfer of Assets	When you transfer assets among the Divisions	Currently waived	The fee will not exceed our administrative costs of transfers


2		Variable Life Prospectus


	Charge	When Charge is Deducted	Current Amount Deducted	Maximum Amount Deducted
Whole Life and Extra Ordinary Life Policies	Extra Premium for Insureds Who Do Not Qualify as Select Risks	When you pay premiums	The amount depends on the underwriting classification	Same as current amount⁴; Variable Whole Life; Maximum: $52.70 per $1,000 of face amount; Variable Extra Ordinary Life Policies; Maximum: $58.71 per $1,000 of face amount
All Policies	Expedited Delivery Charge⁵	When express mail delivery is requested	$15 per delivery (up to $45 for next day, a.m. delivery)	$50 per delivery (up to $75 for next day, a.m. delivery) adjusted for inflation⁶
All Policies	Wire Transfer Fee⁵	When a wire transfer is requested	$25 per transfer (up to $50 for international wires)	$50 per transfer (up to $100 for international wires) adjusted for inflation⁶

¹	Some fees and expenses, such as fees applicable in Policy Years prior to your current Policy Year, may no longer apply because the Policies are no longer issued.

²	The basic premium for a Policy is the gross premium which would be payable if you paid the premium annually, less the annual deduction for administrative costs. See “Deductions and Charges” for more information.

³	This charge no longer applies because you have owned your Policy for longer than ten years.

⁴	This charge will vary depending on underwriting classification of the Insured.

⁵	This fee may increase over time to cover our administrative or other costs but will not exceed the maximum charge. We may discontinue this service at any time, with or without notice.

⁶

The maximum amount deducted is subject to a consumer price index adjustment in order to accommodate future increases in the costs associated with these requests. The maximum amount deducted will equal the maximum charge shown above multiplied by the CPI for the fourth month prior to the time of the charge, divided by the CPI for April, 2009. “CPI” means the Consumer Price Index for All Urban Consumers, United States City Average, All Items, as published by the United States Bureau of Labor Statistics. If the method for determining the CPI is changed, or it is no longer published, it will be replaced by some other index found by the Company to serve the same purpose.

Periodic Charges (Other than Portfolio Operating Expenses)

These tables describe the fees and expenses, other than operating expenses for the Portfolios, that you will pay periodically during the time that you own a Policy. Please refer to the table specific to your Policy.

Whole Life Policy


Charge	When Charge is Deducted	Current Amount Deducted	Maximum Amount Deducted
Charge for Administrative Costs	Annually, on the Policy Anniversary	$35	$35
Charge for Death Benefit Guarantee	Annually, on the Policy Anniversary	1¹⁄₂ % of the basic premium¹	1¹⁄₂ % of the basic premium¹
Charge for Mortality and Expense Risks	Daily	Annual rate of .50% of the Separate Account Assets	Annual rate of .50% of the Separate Account Assets
Charge for Federal Income Taxes	Daily	Annual rate of .05% of the Separate Account Assets	A rate which reflects that portion of our actual tax expenses which is fairly allocable to the Policies
Cost of Insurance	Calculated at least annually on the Policy Anniversary	Maximum: $1,000 per $1,000 of net amount at risk (Attained Age 99)² Minimum: $0.69 per $1,000 of net amount at risk (Attained Age 10 female)² Representative: $7.30 per $1,000 of net amount at risk (Attained Age 51 male)	Same as current amount, without the current dividend
Charge for Mortality and Expense Risks and Expenses for Loans	Daily	Annual rate of .85% of the borrowed amount³	Annual rate of 1.00% of the borrowed amount³


Variable Life Prospectus			3


Charge	When Charge is Deducted	Current Amount Deducted	Maximum Amount Deducted
Waiver of Premium Benefit⁴	Annually, on the Policy Anniversary, if this benefit is attached to your Policy and the Attained Age is less than 65	Maximum: $2.05 per $1,000 of face amount (Issue Age 58) Minimum: $0.13 per $1,000 of face amount (Issue Age 0-6) Representative: $0.37 per $1,000 of face amount (Issue Age 35)	Same as current amount
Additional Purchase Benefit⁵	Annually, on the Policy Anniversary, if this benefit is attached to your Policy and the Attained Age is less than 40	Maximum: $2.21 per $1,000 of Additional Purchase Benefit (Issue Age 38)⁵ Minimum: $0.54 per $1,000 of Additional Purchase Benefit (Issue Age 0)⁵ Representative: $0.54 per $1,000 of Additional Purchase Benefit (Issue Age 0)	Same as current amount

¹	The basic premium for a Policy is the gross premium which would be payable if you paid the premium annually, less the annual deduction for administrative costs. See “Deductions and Charges” for more information.

The Policy includes no provisions for explicit deductions or charges for the cost of insurance, but this cost is reflected in the table of Cash Values at the front of the Policy and in the table of net single premiums we use to determine the variable insurance amount. The variable insurance amount is used to calculate both the Death Benefit and the Cash Value. The cost of insurance is based on factors including but not limited to the Insured’s Attained Age, the 1980 CSO Mortality Table and the net insurance amount at risk. The net insurance amount at risk is the Death Benefit minus the sum of the Cash Value and any Policy Debt. The rates shown in the table may not be representative of the charge a particular Owner may pay. The amount you pay for the cost of insurance is effectively reduced by the dividends, if any, we currently pay on your Policy. You may ask your Financial Representative for the current dividend amount. Future dividends are not guaranteed. (See “Annual Dividends”).

The charge is applied to the Policy Debt. The charge shown is a loan interest spread that is deducted from the Invested Assets. We add unpaid interest to the amount of the loan. Interest on a Policy loan accrues and is payable on a daily basis at an annual effective rate of 8% or an alternative variable rate based on a bond yield index. The amount of the Policy loan will be transferred from the Divisions to our General Account and credited on a daily basis with an annual earnings rate equal to the Policy loan interest rate less the charge shown.

⁴

The charges shown in the table may not be representative of the charge that a particular Owner may pay. The charge does not vary by sex. Generally, the charge increases for older Issue Ages. In addition, higher rates may apply to substandard underwriting classifications. The charge for the Waiver of Premium Benefit is less for Extra Ordinary Life Policies than for Whole Life Policies, all other factors being equal.

⁵	The maximum benefit amount is $100,000. The charges shown in the table may not be representative of the charge that a particular Owner may pay. The charge does not vary by sex. The charge increases for older Issue Ages.

Extra Ordinary Life Policy


Charge	When Charge is Deducted	Current Amount Deducted	Maximum Amount Deducted
Charge for Mortality and Expense Risks	Daily	Annual rate of .50% of the Separate Account Assets	Annual rate of .50% of the Separate Account Assets
Charge for Federal Income Taxes	Daily	Annual rate of .05% of the Separate Account Assets	A rate which reflects that portion of our actual tax expenses which is fairly allocable to the Policies
Cost of Insurance	Calculated at least annually on the Policy Anniversary	Maximum: $1,000 per $1,000 of net amount at risk (Attained Age 99)¹ Minimum: $0.85 per $1,000 of net amount at risk (Attained Age 15 female)¹ Representative: $11.46 per $1,000 of net amount at risk (Attained Age 56 male)	Same as current amount, without the current dividend
Charge for Mortality and Expense Risks and Expenses for Loans	Daily	Annual rate of .85% of the borrowed amount²	Annual rate of 1.00% of the borrowed amount²
Charge for Dividends³	Annually, on the Policy Anniversary	Maximum: 17% of the gross annual premium⁴	Same as current amount
Extra Premium for Extra Life Protection (after the expiry of the guaranteed period)	Annually, after the expiry of the guaranteed period, on the Policy Anniversary⁵	Maximum: $283.64 per $1,000 of term insurance⁶ (Attained Age 99 male standard) Minimum: $1.93 per $1,000 of term insurance⁶ (Attained Age 52 female select) Representative: $5.11 per $1,000 of term insurance⁶ (Attained Age 62 male select)	Maximum: $1,000 per $1,000 of term insurance, without the current dividend Minimum: $6.27 per $1,000 of term insurance, without the current dividend


4		Variable Life Prospectus


Charge	When Charge is Deducted	Current Amount Deducted	Maximum Amount Deducted
Charge for Administrative Costs	Annually, on the Policy Anniversary	$35	$35
Charge for Death Benefit Guarantee	Annually, on the Policy Anniversary	1¹⁄₂ % of the basic premium⁷	1¹⁄₂ % of the basic premium⁷
Waiver of Premium Benefit⁸	Annually, on the Policy Anniversary, if this benefit is attached to your Policy and the Attained Age is less than 65	Maximum: $1.48 per $1,000 of face amount (Issue Age 48) Minimum: $0.10 per $1,000 of face amount (Issue Age 15) Representative: $0.24 per $1,000 of face amount (Issue Age 35)	Same as current amount
Additional Purchase Benefit⁹	Annually, on the Policy Anniversary, if this benefit is attached to your Policy and the Attained Age is less than 40	Maximum: $2.21 per $1,000 of Additional Purchase Benefit (Issue Age 38)⁹ Minimum: $1.06 per $1,000 of Additional Purchase Benefit (Issue Age 15) ⁹ Representative: $1.33 per $1,000 of Additional Purchase Benefit (Issue Age 25)⁹	Same as current amount

³	This charge will vary by Issue Age of the Insured.

⁴	The charge for dividends is approximately 7% to 17% of the gross annual premium.

⁵

After the guaranteed period expires, if the sum of positive variable insurance amount plus the paid-up additions is less than the initial amount of Extra Life Protection, we may reduce the amount of term insurance for the Policy Year. Alternatively, you may choose to have the coverage maintained by paying a larger premium based on the term insurance rates described here. Your right to continue to purchase term insurance on this basis will terminate as of the first Policy Anniversary when you fail to pay the additional premium when due.

⁶	Estimated year-end dividends have the effect of reducing the term insurance amounts on which the charges are based.

⁷	The basic premium for a Policy is the gross premium which would be payable if you paid the premium annually, less the annual deduction for administrative costs. See “Deductions and Charges” for more information.

⁸

The charges shown in the table may not be representative of the charge that a particular Owner may pay. The charge does not vary by sex. Generally, the charge increases for older Issue Ages. In addition, higher rates may apply to substandard underwriting classifications. The charge for the Waiver of Premium benefit is less for Extra Ordinary Life Policies than for Whole Life Policies, all other factors being equal.

⁹	The maximum benefit amount is $100,000. The charges shown in the table may not be representative of the charge that a particular Owner may pay. The charge does not vary by sjex. The charge increases for older Issue Ages.

Single Premium Life Policy


Charge	When Charge is Deducted	Current Amount Deducted	Maximum Amount Deducted
Charge for Mortality and Expense Risks	Daily	Annual rate of .50% of the Separate Account assets	Annual rate of .50% of the Separate Account Assets
Charge for Federal Income Taxes	Daily	Annual rate of .05% of the Separate Account assets	A rate which reflects that portion of our actual tax expenses which is fairly allocable to the Policies
Cost of Insurance	Calculated at least annually on the Policy Anniversary	Maximum: $1,000 per $1,000 of net amount at risk (Attained Age 99)¹ Minimum: $0.69 per $1,000 of net amount at risk (Attained Age 10 female)¹ Representative: $14.77 per $1,000 of net amount at risk (Attained Age 59 male)	Same as current amount, without the current dividend


Variable Life Prospectus			5


Charge	When Charge is Deducted	Current Amount Deducted	Maximum Amount Deducted
Charge for Mortality and Expense Risks and Expenses for Loans	Daily	Annual rate of .85% of the borrowed amount²	Annual rate of 1.00% of the borrowed amount²

Annual Portfolio Operating Expenses

The table below shows the range (minimum and maximum) of total operating expenses, including investment advisory fees, distribution (12b-1) fees and other expenses of the Portfolios that you may pay periodically during the time you own the Policy. The first line of this table lists expenses that do not reflect fee waivers or expense limits and reimbursements, nor do they reflect short-term trading redemption fees, if any, charged by the Portfolios. The information is based on operations for the year ended December 31,2012. More details concerning these fees and expenses are contained in the attached prospectuses for the Funds.


	Minimum			Maximum
Range of Total Annual Portfolio Operating Expenses (expenses include investment advisory fees, distribution (12b-1) fees, and other expenses as a percentage of average Portfolio assets)*		0.22	%		1.50	%
Range of Total Annual Portfolio Operating Expenses After Contractual Fee Waiver or Reimbursement**		0.22	%		1.50	%

For certain Portfolios, certain expenses were reimbursed or fees waived during 2012. It is anticipated that these voluntary expense reimbursement and fee waiver arrangements will continue past the current year, although certain arrangements may be terminated at any time. After taking into account these arrangements and any contractual fee waiver or expense reimbursement arrangements, Annual Portfolio Operating Expenses would have ranged from a minimum of 0.22% to a maximum of 1.50%.

The “Range of Total Annual Portfolio Operating Expenses After Contractual Fee Waiver or Reimbursement” line in the above table shows the minimum and maximum fees and expenses charged by all of the Portfolios after taking into account contractual fee waiver or reimbursement arrangements in place. Those contractual arrangements are designed to reduce Total Annual Portfolio Operating Expenses for Owners and will continue for at least one year from the date of this prospectus. For more information about which Portfolios currently have such contractual reimbursement or fee waiver arrangements in place, see the prospectuses of the underlying Funds.

The following table shows total annual operating expenses of each Portfolio available for investment under the Policy. Operating expenses are expressed as a percentage of average net assets for the year ended December 31, 2012, except as otherwise set forth in the notes to the table. The Russell Investment Funds LifePoints^® Variable Target Portfolio Series are funds of funds and because of their two-tiered structure, may have fees that are higher than other funds. The Portfolio expenses used to prepare the table were provided to the Company by the Portfolios. The expenses shown are based on expenses incurred for the year ended December 31, 2012, or restated to reflect current expenses (see attached prospectuses for the Funds). Current or future expenses may be higher or lower than those shown, especially in periods of market volatility.


Portfolio	Investment Advisory Fees		Other Expenses		12b-1 Fees		Acquired Fund Fees and Expenses		Total Operating Expenses		Fee Waivers & Reimbursements			Total Net Operating Expenses
*Northwestern Mutual Series Fund, Inc.*
Growth Stock Portfolio⁽²⁾		0.43%		0.02%		0.00%		0.00%		0.45%		0.00%			0.45%
Focused Appreciation Portfolio⁽¹⁾⁽³⁾		0.76%		0.03%		0.00%		0.00%		0.79%		(0.06%	)		0.73%
Large Cap Core Stock Portfolio⁽⁴⁾		0.44%		0.03%		0.00%		0.00%		0.47%		0.00%			0.47%
Large Cap Blend Portfolio⁽¹⁾		0.77%		0.11%		0.00%		0.00%		0.88%		(0.03%	)		0.85%
Index 500 Stock Portfolio		0.20%		0.02%		0.00%		0.00%		0.22%		0.00%			0.22%
Large Company Value Portfolio⁽¹⁾		0.72%		0.11%		0.00%		0.00%		0.83%		(0.03%	)		0.80%
Domestic Equity Portfolio⁽¹⁾		0.56%		0.03%		0.00%		0.00%		0.59%		0.00%			0.59%
Equity Income Portfolio⁽¹⁾		0.65%		0.03%		0.00%		0.00%		0.68%		0.00%			0.68%
Mid Cap Growth Stock Portfolio⁽⁵⁾		0.53%		0.02%		0.00%		0.00%		0.55%		(0.02%	)		0.53%
Index 400 Stock Portfolio⁽⁶⁾		0.25%		0.04%		0.00%		0.01%		0.30%		0.00%			0.30%
Mid Cap Value Portfolio⁽¹⁾⁽⁷⁾		0.85%		0.09%		0.00%		0.01%		0.95%		0.00%			0.95%
Small Cap Growth Stock Portfolio⁽⁸⁾		0.56%		0.04%		0.00%		0.01%		0.61%		0.00%			0.61%
Index 600 Stock Portfolio⁽¹⁾		0.25%		0.19%		0.00%		0.07%		0.51%		(0.09%	)		0.42%


6		Variable Life Prospectus


Portfolio	Investment Advisory Fees		Other Expenses		12b-1 Fees		Acquired Fund Fees and Expenses		Total Operating Expenses		Fee Waivers & Reimbursements			Total Net Operating Expenses
Small Cap Value Portfolio⁽¹⁾⁽⁹⁾		0.85%		0.04%		0.00%		0.20%		1.09%		0.00%			1.09%
International Growth Portfolio⁽¹⁾		0.67%		0.13%		0.00%		0.00%		0.80%		0.00%			0.80%
Research International Core Portfolio⁽¹⁾		0.86%		0.26%		0.00%		0.00%		1.12%		0.00%			1.12%
International Equity Portfolio⁽¹⁰⁾		0.66%		0.07%		0.00%		0.00%		0.73%		(0.06%	)		0.67%
Emerging Markets Equity Portfolio⁽¹⁾		1.14%		0.36%		0.00%		0.00%		1.50%		0.00%			1.50%
Money Market Portfolio⁽¹¹⁾		0.30%		0.02%		0.00%		0.00%		0.32%		0.00%			0.32%
Short-Term Bond Portfolio^(1)(12)		0.34%		0.07%		0.00%		0.00%		0.41%		0.00%			0.41%
Select Bond Portfolio		0.30%		0.02%		0.00%		0.00%		0.32%		0.00%			0.32%
Long-Term U.S. Government Bond Portfolio⁽¹⁾		0.55%		0.12%		0.00%		0.00%		0.67%		0.00%			0.67%
Inflation Protection Portfolio⁽¹⁾		0.56%		0.07%		0.00%		0.00%		0.63%		0.00%			0.63%
High Yield Bond Portfolio⁽¹³⁾		0.44%		0.05%		0.00%		0.00%		0.49%		0.00%			0.49%
Multi-Sector Bond Portfolio⁽¹⁾		0.78%		0.09%		0.00%		0.00%		0.87%		0.00%			0.87%
Commodities Return Strategy Portfolio^(1)(14)		0.80%		0.16%		0.00%		0.07%		1.03%		(0.08%	)		0.95%
Balanced Portfolio⁽¹⁵⁾		0.30%		0.01%		0.00%		0.16%		0.47%		(0.05%	)		0.42%
Asset Allocation Portfolio^(1)(16)		0.54%		0.11%		0.00%		0.22%		0.87%		(0.19%	)		0.68%

*Fidelity^® Variable Insurance Products*
VIP Mid Cap Portfolio		0.56%		0.09%		0.25%		0.00%		0.90%		0.00%			0.90%
VIP Contrafund^® Portfolio		0.56%		0.08%		0.25%		0.00%		0.89%		0.00%			0.89%

*Neuberger Berman Advisers Management Trust*
Socially Responsive Portfolio⁽¹⁷⁾		0.85%		0.19%		0.00%		0.00%		1.04%		0.00%			1.04%

*Russell Investment Funds*
Multi-Style Equity Fund		0.73%		0.13%		0.00%		0.00%		0.86%		0.00%			0.86%
Aggressive Equity Fund⁽¹⁸⁾		0.90%		0.18%		0.00%		0.00%		1.08%		(0.05%	)		1.03%
Global Real Estate Securities Fund		0.80%		0.15%		0.00%		0.00%		0.95%		0.00%			0.95%
Non-U.S. Fund⁽¹⁸⁾		0.90%		0.16%		0.00%		0.00%		1.06%		(0.05%	)		1.01%
Core Bond Fund⁽¹⁸⁾		0.55%		0.17%		0.00%		0.00%		0.72%		(0.05%	)		0.67%

*Russell Investment Funds LifePoints^® Variable* *Target Portfolio Series*
Moderate Strategy Fund⁽¹⁹⁾		0.20%		0.16%		0.00%		0.78%		1.14%		(0.26%	)		0.88%
Balanced Strategy Fund⁽¹⁹⁾		0.20%		0.12%		0.00%		0.91%		1.23%		(0.22%	)		1.01%
Growth Strategy Fund⁽¹⁹⁾		0.20%		0.14%		0.00%		0.99%		1.33%		(0.24%	)		1.09%
Equity Growth Strategy Fund⁽¹⁹⁾		0.20%		0.24%		0.00%		1.05%		1.49%		(0.34%	)		1.15%

⁽¹⁾

Northwestern Mutual Series Fund, Inc.’s investment adviser, Mason Street Advisors, LLC (“MSA”) has contractually agreed to waive the management fee and absorb certain other operating expenses of the below portfolios to the extent necessary so that Total Operating Expenses for such portfolios will not exceed the following annual rates of each portfolio’s respective average net assets. These fee waivers may be terminated at any time after April 30, 2014.


Portfolio	Expense Limitation
Focused Appreciation		0.90	%
Large Cap Blend		0.85	%
Large Company Value		0.80	%
Domestic Equity		0.75	%
Equity Income		0.75	%
Mid Cap Value		1.00	%
Index 600 Stock		0.35	%
Small Cap Value		1.00	%
International Growth		1.10	%
Research International Core		1.15	%
Emerging Markets Equity		1.50	%
Short-Term Bond		0.45	%
Long-Term U.S. Government Bond		0.65	%
Inflation Protection		0.65	%
Multi-Sector Bond		0.90	%
Commodities Return Strategy		0.95	%
Asset Allocation		0.75	%

⁽²⁾

Growth Portfolio—MSA has agreed to waive a portion of its management fee such that the management fee is 0.60% on the Portfolio’s first $50 million of assets, 0.50% on the next $50 million, 0.40% of the next $400 million and 0.35% on assets in excess of $500 million. MSA may terminate this fee waiver agreement at any time after April 30, 2014.

⁽³⁾

Focused Appreciation Portfolio—MSA has agreed to waive a portion of its management fee such that the management fee is 0.75% on the Portfolio’s first $100 million of assets, 0.70% on the next $200 million, 0.65% on the next $200 million and 0.60% on assets in excess of $500 million. MSA may terminate this fee waiver agreement at any time after April 30, 2014.


Variable Life Prospectus			7

⁽⁴⁾

Large Cap Core Stock Portfolio—MSA has agreed to waive a portion of its management fee such that the management fee is 0.60% on the Portfolio’s first $50 million of assets, 0.50% on the next $50 million, 0.40% of the next $400 million and 0.35% on assets in excess of $500 million. MSA may terminate this fee waiver agreement at any time after April 30, 2014.

⁽⁵⁾

Mid Cap Growth Portfolio—MSA has agreed to waive a portion of its management fee such that the management fee is 0.80% on the Portfolio’s first $50 million of assets, 0.65% on the next $50 million, 0.50% of the next $400 million and 0.45% on assets in excess of $500 million. MSA may terminate this fee waiver agreement at any time after April 30, 2014.

⁽⁶⁾	Index 400 Stock Portfolio—MSA has agreed to waive a portion of its management fee such that the management fee is 0.25% on the Portfolio’s first $500 million of assets and 0.20% on assets in excess of $500 million. MSA may terminate this fee waiver agreement at any time after April 30, 2014.

⁽⁷⁾

Mid Cap Value Portfolio—MSA has agreed to waive a portion of its management fee such that the management fee is 0.85% on the Portfolio’s first $150 million of assets, 0.80% of the next $150 million and 0.75% on assets in excess of $300 million. MSA may terminate this fee waiver agreement at any time after April 30, 2014.

⁽⁸⁾

Small Cap Growth Portfolio—MSA has agreed to waive a portion of its management fee such that the management fee is 0.80% on the Portfolio’s first $50 million of assets, 0.65% on the next $50 million, 0.50% of the next $400 million and 0.45% on assets in excess of $500 million. MSA may terminate this fee waiver agreement at any time after April 30, 2014.

⁽⁹⁾	Small Cap Value Portfolio—MSA has agreed to waive a portion of its management fee such that the management fee is 0.85% on the Portfolio’s first $500 million of assets and 0.80% on assets in excess of $500 million. MSA may terminate this fee waiver agreement at any time after April 30, 2014.

⁽¹⁰⁾

International Equity Portfolio—MSA has agreed to waive a portion of its management fee such that the management fee for the Portfolio is 0.80% on the Portfolio’s first $50 million of assets, 0.60% on the next $950 million, 0.58% on the next $500 million and 0.51% on assets in excess of $1.5 billion. MSA may terminate this fee waiver agreement at any time after April 30, 2014.

⁽¹¹⁾	Money Market Portfolio—MSA has voluntarily agreed to waive its entire management fee on a temporary basis. This voluntary waiver will be reviewed periodically by MSA in light of market and economic developments and may be revised or discontinued at any time without advance notice.

⁽¹²⁾

Short-Term Bond Portfolio—MSA has agreed to waive a portion of its management fee such that the management fee is 0.35% on the Portfolio’s first $100 million of assets, 0.33% on the next $150 million, 0.30% of the next $250 million and 0.28% on assets in excess of $500 million. MSA may terminate this fee waiver agreement at any time after April 30, 2014.

⁽¹³⁾

High Yield Bond Portfolio—MSA has agreed to waive a portion of its management fee such that the management fee is 0.60% on the Portfolio’s first $50 million of assets, 0.50% on the next $50 million, 0.40% of the next $900 million and 0.35% on assets in excess of $1 billion. MSA may terminate this fee waiver agreement at any time after April 30, 2014.

⁽¹⁴⁾

Commodities Return Strategy Portfolio—MSA has agreed to waive its management fee in an amount equal to the management fee paid to it by the Portfolio’s wholly owned Cayman Islands subsidiary fund. The fee waiver agreement will remain in effect for as long as the Portfolio remains invested in the subsidiary fund. We have requested approval from the SEC to remove the Commodities Return Strategy Portfolio as an investment option in the Policy. Following our receipt of the SEC’s approval, we will set a date to automatically transfer any Invested Assets you have in the Division investing in the Commodities Return Strategy Portfolio to the Division investing in the Commodity Return Strategy Portfolio, a portfolio of Credit Suisse Trust (the “Credit Suisse Commodity Portfolio”). See “Substitution of Fund Shares and Other Changes” for more information. The Credit Suisse Commodity Portfolio is not currently available as an investment option in the Policy and will only be available as of the date of the Substitution following SEC approval.

⁽¹⁵⁾

Balanced Portfolio—MSA has agreed to waive a portion of its management fee such that its management fee on assets invested in the Large Cap Core, Mid Cap Growth, Small Cap Growth, International Growth, Research International Core Portfolio, International Equity Portfolio, and Emerging Markets Portfolio (“Underlying Portfolios”) is 0.05%.

⁽¹⁶⁾

Asset Allocation Portfolio—MSA has agreed to waive a portion of its management fee such that the management fee is 0.55% on the Portfolio’s first $100 million of assets, 0.45% on the next $150 million, and 0.35% on assets in excess of $250 million. In addition, MSA has agreed to waive a portion of its management fee such that its management fee on assets invested in Underlying Portfolios is 0.05%. MSA may terminate these fee waiver agreements at any time after April 30, 2014.

⁽¹⁷⁾

Neuberger Berman Management LLC (“NBM”) has undertaken through December 31, 2016 to waive fees and/or reimburse certain operating expenses, including the compensation of NBM and excluding taxes, interest, and extraordinary expenses, brokerage commissions and transaction costs that exceed, in the aggregate 1.30% of the average daily net asset value of the Socially Responsive Portfolio. The expense limitation arrangements for the Portfolio are contractual and any excess expenses can be repaid to NBM within three years of the year incurred, provided such recoupment would not cause a Portfolio to exceed its respective limitation.

⁽¹⁸⁾	Russell Investment Management Company (“RIMCo”) has contractually agreed, until April 30, 2014, to waive 0.05% of its advisory fee on the Aggressive Equity Fund, Non-U.S. Fund and Core Bond Fund. These waivers may not be terminated during the relevant period except with Board approval.

⁽¹⁹⁾

For each of the Russell Investment Funds LifePoints^® Variable Target Portfolio Series funds individually, RIMCo has contractually agreed to waive up to the full amount of its 0.20% advisory fee and then to reimburse the Fund for other direct Fund-level expenses to the extent that direct Fund-level expenses exceed 0.10% of the average daily net assets of the Fund on an annual basis. Direct Fund-level expenses do not include extraordinary expenses or the expenses of other investment companies in which the Fund invests, including the Underlying Funds, which are borne indirectly by the Fund. This waiver and reimbursement may not be terminated during the relevant period except with Board approval.


8		Variable Life Prospectus

The Company

The Northwestern Mutual Life Insurance Company is a mutual life insurance company organized by a special act of the Wisconsin Legislature in 1857. It is licensed to conduct a conventional life insurance business in the District of Columbia and in all states of the United States. The total assets of Northwestern Mutual were over $202 billion as of December 31, 2012. The Home Office of Northwestern Mutual is located at 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202.

“Northwestern Mutual,” “Company,” “we,” “us,” and “our” in this prospectus mean The Northwestern Mutual Life Insurance Company.

General Account assets are used to guarantee the payment of certain benefits under the Policies, including death benefits. To the extent that we are required to pay you amounts under these benefits that are in addition to Invested Assets in the

Separate Account, such amounts will come from General Account assets. Thus, Owners must look to the strength of the Company and its General Account with regard to guarantees under the Policies. The General Account is exposed to the risks normally associated with the operation of a life insurance company, including insurance pricing, asset liability management and interest rate risk, operational risks, and the investment risks of a portfolio of securities that consists largely, though not exclusively, of fixed-income securities. Some of the risks associated with such a portfolio include interest rate, option, liquidity, and credit risk. The financial statements contained in the Statement of Additional Information include a further discussion of risks inherent within the General Account investments. The assets in the General Account are subject to the claims of the Company’s general creditors.

The Separate Account

We established the Separate Account by action of our Trustees on November 23, 1983, in accordance with the provisions of Wisconsin insurance law. The Separate Account is registered with the SEC as a unit investment trust under the Investment Company Act of 1940 (the “1940 Act”). We own the assets in the Separate Account and we are obligated to pay all benefits under the Policies. We may use the Separate Account to support other variable life insurance policies we issue. We have divided the Separate Account into Divisions, each of which invests in shares of one Portfolio of the Funds.

Under Wisconsin law, Separate Account assets are held separate from our other assets and are not part of our General Account. Income, gains, and losses, whether or not realized, from assets allocated to the Separate Account will be credited to or charged against the Separate Account without regard to our other income, gains, or losses. Income, gains, and losses credited to, or charged against, a Division reflect that Division’s own investment performance and not the investment performance of our other assets. We may not use the Separate Account’s assets to pay any of our liabilities other than those arising from the Policies and any other variable life insurance Policies funded by the Separate Account. We may, however, use all of our assets (except those held in certain other separate accounts) to satisfy our obligations under your Policy.

Where permitted by law and subject to any required regulatory approvals or votes by Owners, we reserve the right to:

•

operate the Separate Account or a Division either as a unit investment trust or a management investment company under the 1940 Act, or in any other form permitted by law, if deemed by the Company to be in the best interest of Owners;

•

invest current and future assets of a Division in securities of another Portfolio as a substitute for shares of a Portfolio already purchased or to be purchased;

•

transfer cash from time to time between the General Account and the Separate Account as deemed necessary or appropriate and consistent with the terms of the Policy, including but not limited to transfers for the deduction of charges and in support of payment options;

•

transfer assets of the Separate Account in excess of reserve requirements applicable to the Policies supported by the Separate Account to the General Account (Invested Assets remaining in the Separate Account necessary to fulfill its obligations under the Policy are not subject to claims against or losses in the General Account);

•

create new separate accounts;

•

add, delete or make substitutions for the securities and other assets held or purchased by the Separate Account;

•

restrict or eliminate any voting rights of Owners or other persons having voting rights as to the Separate Account; and

•

make any changes to the Separate Account to conform with, or required by any change in, federal tax law, the 1940 Act and regulations promulgated thereunder, or any other applicable federal or state laws.

In the event that we take any of these actions, we may make an appropriate endorsement of your Policy and take other actions necessary to comply with applicable law.


Variable Life Prospectus			9

The Funds

A variety of investment options are offered under the Policy for the allocation of your premiums. However, the Company does not endorse or recommend a particular option, nor does it provide investment advice. You are responsible for choosing your investment options and should make your choices based on your individual situation and risk tolerances. After making your initial allocation decisions, you should monitor your allocations and periodically review the options you select and the amounts allocated to each to ensure your selections continue to be appropriate. The amounts you invest in a particular Division are not guaranteed and, because both principal and any return on the investment are subject to market risk, you can lose money.

The assets of each Division are invested in a corresponding Portfolio that is a series of one of the following mutual funds: Northwestern Mutual Series Fund, Inc.; Fidelity^® Variable Insurance Products; Neuberger Berman Advisers Management Trust; and the Russell Investment Funds. The Separate Account buys shares of the Portfolios at their respective net asset values without sales charge. The Portfolios are available

for investment only by separate accounts supporting variable insurance products and are not publicly traded. Their performance can differ substantially from publicly traded mutual funds with similar names. The specific Portfolios available under your Policy may change from time to time, and not all Portfolios in which assets of the Separate Account are invested may be available under your Policy. Your ability to invest in a Portfolio may be affected by the actions of such Portfolio, such as when a Portfolio closes.

The investment objectives of each Portfolio are set forth below. There is no assurance that any of the Portfolios will achieve its stated objective(s). You can find more detailed information about the Portfolios, including a description of each Portfolio, in the attached Portfolio prospectuses. Read the prospectuses for the Portfolios carefully before investing. Note: If you received a summary prospectus for a Portfolio listed below, please follow the directions on the first page of the summary prospectus to obtain a copy of the full fund prospectus.

Northwestern Mutual Series Fund, Inc. (the “Series Fund”)

The principal investment adviser for the Portfolios of the Series Fund is Mason Street Advisors, LLC (“MSA”), our wholly-owned company. The investment advisory agreements for the respective Portfolios provide that MSA will provide services and bear certain expenses of the Series Fund. MSA employs a staff of investment professionals to manage the assets of the Series Fund and the other advisory clients of MSA. We provide related facilities and personnel, which MSA uses in performing its investment advisory functions. MSA has retained and oversees a number of asset management firms under investment sub-advisory agreements to provide day-to-day management of the Portfolios indicated below. Each such sub-adviser may be replaced without the approval of shareholders. Please see the attached prospectuses for the Northwestern Mutual Series Fund, Inc. for more information.


Portfolio	Investment Objective	Sub-adviser (if applicable)
Growth Stock Portfolio	Long-term growth of capital; current income is a secondary objective	N/A
Focused Appreciation Portfolio	Long-term growth of capital	Janus Capital Management LLC
Large Cap Core Stock Portfolio	Long-term growth of capital and income	N/A
Large Cap Blend Portfolio	Long-term growth of capital and income	Fiduciary Management, Inc.
Index 500 Stock Portfolio	Investment results that approximate the performance of the Standard & Poor’s 500^® Composite Stock Price Index	N/A
Large Company Value Portfolio	Long-term capital growth; income is a secondary objective	American Century Investment Management, Inc.
Domestic Equity Portfolio	Long-term growth of capital and income	Delaware Management Company, a series of Delaware Management Business Trust,
Equity Income Portfolio	Long-term growth of capital and income	T. Rowe Price Associates, Inc.
Mid Cap Growth Stock Portfolio	Long-term growth of capital	N/A
Index 400 Stock Portfolio	Investment results that approximate the performance of the S&P MidCap Stock Price 400^® Index	N/A
Mid Cap Value Portfolio	Long-term capital growth; current income is a secondary objective	American Century Investment Management, Inc.
Small Cap Growth Stock Portfolio	Long-term growth of capital	N/A


10		Variable Life Prospectus


Portfolio	Investment Objective	Sub-adviser (if applicable)
Index 600 Stock Portfolio	Investment results that approximate the performance of the Standard & Poor’s SmallCap 600^® Index	N/A
Small Cap Value Portfolio	Long-term growth of capital	T. Rowe Price Associates, Inc.
International Growth Portfolio	Long-term growth of capital	Janus Capital Management LLC
Research International Core Portfolio	Capital appreciation	Massachusetts Financial Services Company
International Equity Portfolio	Long-term growth of capital	Templeton Investment Counsel, LLC
Emerging Markets Equity Portfolio	Capital appreciation	Massachusetts Financial Services Company
Money Market Portfolio	Maximum current income to the extent consistent with liquidity and stability of capital⁽¹⁾	N/A
Short-Term Bond Portfolio	To provide as high a level of current income as is consistent with prudent investment risk	N/A
Select Bond Portfolio	To provide as high a level of total return as is consistent with prudent investment risk; a secondary objective is to seek preservation of shareholders’ capital	N/A
Long-Term U.S. Government Bond Portfolio	Maximum total return, consistent with preservation of capital and prudent investment management	Pacific Investment Management Company LLC
Inflation Protection Portfolio	Pursue total return using a strategy that seeks to protect against U.S. inflation	American Century Investment Management, Inc.
High Yield Bond Portfolio	High current income and capital appreciation⁽²⁾	N/A
Multi-Sector Bond Portfolio	Maximum total return, consistent with prudent investment management	Pacific Investment Management Company LLC
Commodities Return Strategy Portfolio⁽³⁾	Total return	Credit Suisse Asset Management, LLC
Balanced Portfolio	To realize as high a level of total return as is consistent with prudent investment risk, through income and capital appreciation	N/A
Asset Allocation Portfolio	To realize as high a level of total return as is consistent with reasonable investment risk	N/A

⁽¹⁾

Although the Money Market Portfolio seeks to preserve its value at $1.00 per share, it is possible to lose money by investing in the Money Market Portfolio. An investment in a money market portfolio is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any government agency. During extended periods of low interest rates, the yield of a money market portfolio may also become extremely low and possibly negative.

⁽²⁾	High yield bonds are commonly referred to as junk bonds.

⁽³⁾

We have requested approval from the SEC to remove the Commodities Return Strategy Portfolio as an investment option in the Policy. Following our receipt of the SEC’s approval, we will set a date to automatically transfer any Invested Assets you have in the Division investing in the Commodities Return Strategy Portfolio to the Division investing in the Commodity Return Strategy Portfolio, a portfolio of Credit Suisse Trust (the “Credit Suisse Commodity Portfolio”). See “Substitution of Fund Shares and Other Changes” for more information. The Credit Suisse Commodity Portfolio is not currently available as an investment option in the Policy and will only be available as of the date of the Substitution following SEC approval.

Fidelity^® Variable Insurance Products

The Fidelity^® VIP Mid Cap Portfolio and the Fidelity^® VIP Contrafund^® Portfolio are series of Variable Insurance Products Fund III and the Variable Insurance Products Fund II, respectively. The Separate Account buys Service Class 2 shares of the Portfolios, the investment adviser for which is the Fidelity Management & Research Company (FMR). The following affiliates of FMR also assist with foreign investments: Fidelity Management & Research (U.K.) Inc., Fidelity Management & Research (Hong Kong) Limited, and Fidelity Management & Research (Japan) Inc.


Portfolio	Investment Objective	Sub-adviser
VIP Mid Cap Portfolio	Long-term growth of capital	FMR Co., Inc.
VIP Contrafund^® Portfolio	Long-term capital appreciation	FMR Co., Inc.


Variable Life Prospectus			11

Neuberger Berman Advisers Management Trust

The Neuberger Berman Advisers Management Trust Socially Responsive Portfolio is a series of the Neuberger Berman Advisers Management Trust. The Separate Account buys Class I shares of the Portfolio, the investment adviser for which is Neuberger Berman Management LLC.


Portfolio	Investment Objective	Sub-adviser
Socially Responsive Portfolio	Long-term growth of capital by investing primarily in securities of companies that meet the Portfolio’s financial criteria and social policy	Neuberger Berman LLC

Russell Investment Funds

The assets of each of the Portfolios comprising the Russell Investment Funds are invested by one or more investment management organizations researched and recommended by Frank Russell Company (“Russell”), and an affiliate of Russell, the Russell Investment Management Company (“RIMCo”). RIMCo is the investment adviser of the Russell Investment Funds. Russell is our majority-owned subsidiary.


Portfolio		Investment Objective
Multi-Style Equity Fund		Long-term growth of capital
Aggressive Equity Fund		Long-term growth of capital
Global Real EstateSecurities Fund		Current income and long-term growth of capital
Non-U.S. Fund		Long-term growth of capital
Core Bond Fund		Current income and, as a secondary objective, capital appreciation
LifePoints^® Variable Target Portfolio Series Moderate Strategy Fund		High current income and moderate long-term capital appreciation
LifePoints^® Variable Target Portfolio Series Balanced Strategy Fund		Above-average capital appreciation and a moderate level of current income
LifePoints^® Variable Target Portfolio Series Growth Strategy Fund		High long-term capital appreciation with low current income
LifePoints^® Variable Target Portfolio Series Equity Growth Strategy Fund		High long-term capital appreciation

Payments We Receive

We select the Portfolios offered through this Policy based on several criteria, including asset class coverage, the strength of the investment adviser’s or sub-adviser’s reputation and tenure, brand recognition, performance, and the capability and qualification of each investment firm. Another factor we consider during the selection process is whether the Portfolio’s investment adviser or an affiliate will make payments to us or our affiliates. We review the Portfolios periodically and may remove a Portfolio or limit its availability to new premiums and/or transfers of accumulated amounts if we determine that the Portfolio no longer meets one or more of the selection criteria, and/or if the Portfolio has not attracted significant allocations from Owners. The

Northwestern Mutual Series Fund, Inc. and the Russell Investment Funds have been included in part because they are managed by subsidiaries of the Company.

We do not provide any investment advice and do not recommend or endorse any particular Portfolio. You bear the risk of any decline in the Policy Value of your Policy resulting from the performance of the Portfolios you have chosen.

Owners, through their indirect investment in the Portfolios, bear the costs of the investment advisory or management fees that the Portfolios pay to their respective investment advisors (see the Portfolios’ prospectuses for more information). As described above, an investment adviser of a Portfolio, or its affiliates, may make payments to the Company and/or certain of our affiliates, which is generally a positive factor when selecting Portfolios. However, the amount of such payments is not determinative as to whether a Portfolio is offered through the Policy. These payments may be derived, in whole or in part, from the advisory fee deducted from Portfolio assets. The amount of the compensation is based on a percentage of assets of the Portfolios attributable to the Policies and certain other variable insurance products that the Company issues. The percentages differ and some investment advisers (or other affiliates) may pay more than others. The percentages currently range up to 0.25%. These payments may be used for any corporate purpose, including payment of expenses that the Company and/or its affiliates incur for services performed on behalf of the Policies and the Portfolios. The Company and its affiliates may profit from these payments.

Certain Portfolios have adopted a Distribution (and/or Shareholder Servicing) Plan under Rule 12b-1 of the 1940 Act, which is described in more detail in the Portfolios’ prospectuses. These payments, which may be up to 0.25%, are deducted from assets of the Portfolios and are paid to our distributor, Northwestern Mutual Investment Services, LLC. These payments decrease a Portfolio’s investment return.

Additionally, an investment adviser or sub-adviser of a Portfolio (or of an underlying fund in which a Portfolio invests) or its affiliate may provide the Company with wholesaling services that assist in the distribution of the Policies and may pay the Company and/or certain of our affiliates amounts to participate in sales meetings. These amounts may be significant and may provide the investment adviser or sub-adviser (or their affiliate) with increased access to persons involved in the distribution of the Policies.


12		Variable Life Prospectus

Information About the Policies

We are no longer issuing these Policies.

This prospectus describes the material provisions of the Policies. You should consult your Policy for more information about its terms and conditions, and for any state specific variations that may apply to your Policy.

Premiums

For Whole Life Policies and, except as explained below, for Extra Ordinary Life Policies, premiums are level, fixed and payable in advance during the Insured’s lifetime on a monthly, quarterly, semiannual or annual basis. You may change the premium frequency. The change will be effective when we accept the premium on the new frequency. The amount of the premium depends on the amount of insurance for which the Policy was issued and the Insured’s age and underwriting classification. The amount of the premium also reflects the sex of the Insured except where state or federal law requires that premiums and other charges and values be determined without regard to sex. We send a notice to the Owner not less than two weeks before each premium is due. If you select the monthly premium frequency, we may require that you make Premium Payments through an automatic payment plan arranged with your bank.

Premiums you pay other than on an annual basis are increased to (1) reflect the time value of money, based on a 12% interest rate, and (2) cover the administrative costs to process the additional Premium Payments. You may obtain information from your Northwestern Mutual Financial Representative about annual percentage rate (APR) calculations for premiums paid other than annually. The APR calculation is also available through www.northwesternmutual.com.

Premium added to the Separate Account will increase your Policy Value according to a formula specified in your Policy that takes into account certain actuarially determined values and the 1980 CSO mortality tables.

If the Insured dies after payment of the premium for the period which includes the date of death, we will refund the portion of

the premium for the remainder of that period as part of the Policy proceeds.

You may send Premium Payments to our Home Office or to a payment center designated by us. All payments must be made in U.S. Dollars payable through a U.S. financial institution. We accept Premium Payments by check or electronic funds transfer (“EFT”). We generally will not accept cash, money orders, traveler’s checks or “starter” checks; however, in limited circumstances, we may accept some cash equivalents in accord with our anti-money laundering procedures. If you make a Premium Payment with a check or bank draft and, for whatever reason, it is later returned unpaid or uncollected, or if a Premium Payment by EFT is reversed, we reserve the right to reverse the transaction. If mandated under applicable law, we may be required to reject a Premium Payment. We may also be required to provide information about you and your account to government regulators.

We accept Premium Payments via our website if eligible. Electronic payments via our website must be made in accordance with our current procedures. However, we are not required to accept electronic payments, and we will not be responsible for losses resulting from transactions based on unauthorized electronic payments, provided we follow procedures reasonably designed to verify the authenticity of electronic payments. For more information on electronic payments see “Owner Inquiries.” We reserve the right to limit, modify, suspend or terminate the ability to make payments via our website at any time.

Whole Life Policy The following table for Whole Life Policies shows representative premiums for male select, standard plus, and standard risks for various face amounts of insurance. Premiums you pay other than on an annual basis are increased to (1) reflect the time value of money, based on a 12% interest rate and (2) cover the administrative costs associated with additional Premium Payments. For example, two semi-annual payments will total more than an annual premium payment.


Age at Issue	Face Amount		Annual Premium		Monthly Premium		Annual Sum of Monthly Premiums^*		Annual Sum of Monthly Premiums Minus the Annual Premium
						SELECT
15	$	50,000	$	382.50	$	33.60	$	403.20	$	20.70
35		100,000		1,536.00		135.10		1,621.20		85.20
55		100,000		3,766.00		331.10		3,973.20		207.20
				STANDARD PLUS
15	$	50,000	$	406.00	$	35.60	$	427.20	$	21.20
35		100,000		1,683.00		148.10		1,777.20		94.20
55		100,000		4,125.00		363.10		4,357.20		232.20
						STANDARD
15	$	50,000	$	491.50	$	43.10	$	517.20	$	25.70
35		100,000		1,912.00		168.10		2,017.20		105.20
55		100,000		4,587.00		404.10		4,849.20		262.20

^*	In some cases for policies with smaller premiums, the sum of 12 monthly premiums may be less than the sum of other periodic premium amounts due to lower administrative costs.


Variable Life Prospectus			13

Extra Ordinary Life Policy The following table for Extra Ordinary Life Policies shows representative annual premiums for male select, standard plus and standard risks for various amounts of insurance. Premiums you pay other than on an annual basis are increased to (1) reflect the time value of money, based on a 12% interest rate and (2) cover the administrative costs associated with additional Premium Payments. For example, two semi-annual payments will total

more than an annual premium payment. The amounts of insurance shown in the table are the total amounts in effect when the Extra Ordinary Life Policy is issued, including both the guaranteed minimum death benefit noted in your Policy (“Minimum Death Benefit”), which we guarantee for the lifetime of the Insured, and the Extra Life Protection, which we guarantee for a shorter period. (See “Death Benefit” and “Extra Ordinary Life Policy”).


Age at Issue	Face Amount		Annual Premium		Monthly Premium		Annual Sum of Monthly Premiums^*		Annual Sum of Monthly Premiums Minus the Annual Premium
						SELECT
15	$	50,000	$	261.50	$	23.10	$	277.20	$	15.70
35		100,000		1,014.00		89.10		1,069.20		55.20
55		100,000		2,612.00		230.10		2,761.20		149.20
				STANDARD PLUS
15	$	50,000	$	285.00	$	25.10	$	301.20	$	16.20
35		100,000		1,161.00		102.10		1,225.20		64.20
55		100,000		2,971.00		261.10		3,133.20		162.20
						STANDARD
15	$	50,000	$	357.50	$	31.60	$	379.20	$	21.70
35		100,000		1,377.00		121.10		1,453.20		76.20
55		100,000		3,425.00		301.10		3,613.20		188.20

^*	In some cases for policies with smaller premiums, the sum of 12 monthly premiums may be less than the sum of other periodic premium amounts due to lower administrative costs.

Single Premium Life Policy The Single Premium Life Policy was available only for applicants who met select or standard plus underwriting criteria as we determined. The premiums for these Policies are the same for both select and standard plus risks, but we expect that the dividends will be lower for Policies issued to Insureds in the standard plus classification.

The following table for Single Premium Life Policies shows representative gross single premiums for male select and standard plus risks for various face amounts of insurance:


Age at Issue	Face Amount of Insurance		Gross Single Premium
15	$	10,000	$	1,498.40
35		25,000		6,443.25
55		50,000		23,502.00

Grace Period

For the Whole Life and Extra Ordinary Life Policies there is a grace period of 31 days for any premium that is not paid when due. The Policy remains in force during this period. If you do not pay the premium within the grace period, the Policy will terminate as of the date when the premium was due and will no longer be in force, unless it is continued as extended term or paid-up insurance (see “Extended Term and Paid-Up Insurance”), or the Automatic Premium Loan provision is currently in effect (see “Policy Loans and Automatic Premium Loans”) to pay any overdue premiums and the premium due is less than the maximum amount allowable. If the Insured dies during the grace period we will deduct any overdue premium from the proceeds of the Policy. If the Insured dies after payment of the premium for the period which includes the date of death, we will refund the portion of the premium for the remainder of that period as part of the Policy proceeds.

Allocating Premiums to the Separate Account

We place the net annual premium for a Whole Life Policy or an Extra Ordinary Life Policy in the Separate Account on the Policy Date and on the Policy Anniversary each year. The net annual premium is the annual premium less the deductions. See “Deductions and Charges” for more information.

You determine how the net annual premium for a Whole Life or an Extra Ordinary Life Policy is apportioned among the Divisions. If you direct any portion of a premium to a Division, the Division must receive at least 10% of that premium. You may change the apportionment for future premiums by written request at any time, but the change will be effective only when we place the net annual premium in the Separate Account on the next Policy Anniversary, even if you are paying premiums other than on an annual basis. Your Financial Representative may provide us with instructions on your behalf involving the allocation of amounts among available Divisions, subject to our rules and requirements, including the restrictions on short-term and excessive trading.

Eligible Owners may also submit allocation requests via Northwestern Mutual Express (1-800-519-4665) or via our website at www.northwesternmutual.com (“Electronic Instructions”) in accordance with out then-current procedures for Electronic Instructions provided you have properly authorized us to accept Electronic Instructions in advance of your request. For more information see “Owner Inquiries.” However, we are not required to accept Electronic Instructions, and we will not be responsible for losses resulting from transactions based on unauthorized Electronic Instructions, provided we follow procedures reasonably designed to verify the authenticity of Electronic Instructions.


14		Variable Life Prospectus

For a Single Premium Policy we placed the entire single premium, less an administrative charge of $150, in the Separate Account on the Policy Date, and we apportioned the amount among the Divisions as you determined.

You may apportion the Separate Account assets supporting your Policy among as many as six Divisions at any time.

Transfers Between Divisions Subject to the short-term and excessive trading limitations described below, you may transfer accumulated amounts from one Division to another so long as you are invested in no more than six Divisions at a time. Transfer requests will be effective after our receipt of your request in Good Order at our Home Office. If we receive your request for transfer before the close of trading (typically, 4:00 p.m. Eastern Time) on the NYSE, we will deem your request to be received and effective that day. If we receive your request for transfer on or after the close of trading on the NYSE, we will deem your request to be received and effective on the next regular trading session of the NYSE. If your request is not in Good Order, either we or your Financial Representative may notify you in writing, by telephone or by email in an effort to conform your request to our then-current requirements.

In order to take full advantage of these features, you should carefully consider, on a continuing basis, which investment options are best suited to your long-term investment needs. Although no fee is presently charged, we reserve the right where allowed by state law to charge a fee that will cover the administrative costs of transfers. In addition, certain Portfolios in which the Divisions invest may impose redemption fees. These fees are described in the Portfolios’ prospectuses. Transfer requests must be in whole percentages and in amounts greater than or equal to 1% of Invested Assets or the request will not be processed. When a transfer is made from any Division, the resulting allocation of Invested Assets must be in whole percentages in all Divisions that have any Invested Assets as a result of the transfer. Your Financial Representative may provide us with instructions on your behalf involving the transfer of accumulated amounts among available Divisions, subject to our rules and requirements, including the restrictions on short-term and excessive trading discussed below.

You may request the transfer in writing at our Home Office, via Northwestern Mutual Express (1-800-519-4665) or, if eligible, via our website at www.northwesternmutual.com. The submission of transfer instructions by telephone or through our website (“Electronic Instructions”) must be made in accordance with our current procedures for Electronic Instructions and you must properly authorize us to accept Electronic Instructions in advance of your request. For more information see “Owner Inquiries.” However, we are not required to accept Electronic Instructions, and we will not be responsible for losses resulting from transactions based on unauthorized Electronic Instructions, provided we follow procedures reasonably designed to verify the authenticity of Electronic Instructions. We reserve the right to limit, modify, suspend or terminate the ability to make transfers via Electronic Instructions.

Short-Term and Excessive Trading Short-term and excessive trading (sometimes referred to as “market timing”) may present risks to a Portfolio’s long-term investors, such as Owners and other persons who may have material rights under the Policy (e.g., beneficiaries), because it can, among other things, disrupt Portfolio investment strategies, increase Portfolio transaction and administrative costs, require higher than normal levels of cash reserves to fund unusually large or unexpected redemptions, and adversely affect investment performance. These risks may be greater for Portfolios that invest in securities that may be more vulnerable to arbitrage trading, including foreign securities and thinly traded securities, such as small cap stocks and non-investment grade bonds. These types of trading activities also may dilute the value of long-term investors’ interests in a Portfolio if it calculates its net asset value using closing prices that are no longer accurate. Accordingly, we discourage market timing activities.

To deter short-term and excessive trading, we have adopted and implemented policies and procedures which are designed to control abusive trading practices. We seek to apply these policies and procedures uniformly to all Owners. Any exceptions must be either expressly permitted by our policies and procedures or subject to an approval process described in them. We may also be prevented from uniformly applying these policies and procedures under applicable state or federal law or regulation. Because exceptions are permitted, it is possible that investors may be treated differently and, as a result, some may be allowed to engage in trading activity that might be viewed as market timing.

Among the steps we have taken to reduce the frequency and effect of these practices are monitoring trading activity and imposing trading restrictions, including the prohibition of more than twelve transfers among Divisions under a single Policy during a Policy Year. Multiple transfers with the same effective date made by the same Owner will be counted as a single transfer for purposes of applying the twelve transfer limitation. Further, an investor who is identified as having made a transfer in and out of the same Division, excluding the Money Market Division, (“round trip transfer”) in an amount in excess of $10,000 within fourteen calendar days will be restricted from making additional transfers after making two more such round trip transfers within any Policy Year, including the year in which the first such round trip transfer was made. The restriction will last until the next Policy Anniversary and the Policy Owner will be sent a letter informing him or her of the restriction. An Owner who is identified as having made one round trip transfer within thirty calendar days aggregating more than one percent (1%) of the total assets of the Portfolio underlying a Division, excluding the Money Market Division and the Divisions corresponding to the Portfolios of the Russell Investment Funds LifePoints^® Variable Target Portfolio Series, will be restricted from making additional transfers after making one more such round trip transfer within any Policy Year, including the year in which the first such round trip transfer was made. The restriction will last until the next Policy Anniversary and the Policy Owner will be sent a letter informing him or her of the


Variable Life Prospectus			15

restriction. These limitations do not apply to automatic asset transfers, scheduled or systematic transactions involving portfolio rebalancing, dollar cost averaging, initial allocations or changes in future allocations. Once a Policy is restricted, we will allow one additional transfer into the Money Market Division until the next Policy Anniversary. Additionally, in accordance with our procedures, we may modify some of these limitations to allow for transfers that would not count against the total transfer limit but only as necessary to alleviate any potential hardships to Owners (e.g., in situations involving a substitution of an underlying fund).

Policies such as yours (or other Policies supported by the Separate Account) may be purchased by a corporation or other entity as a means to informally fund the liabilities created by the entity’s employee benefit or similar plan. These Policies may be aggregately managed to match liabilities under such plans. Policies sold under these circumstances may be subject to special transfer restrictions. Namely, transactions involving portfolio rebalancing programs may be exempt from the twelve transfers per Policy year limitation where: (1) the purpose of the portfolio rebalancing program is to match the Policy to the entity’s employee benefit or similar plan; (2) the portfolio rebalancing program adequately protects against short-term or excessive trading; and (3) the portfolio rebalancing program is managed by a third party administrator that meets our requirements. We reserve the right to monitor or limit transactions involving portfolio rebalancing programs where we believe such transactions may be potentially harmful to a Portfolio.

We may change these policies and procedures from time to time in our sole discretion without notice; provided, however, Owners will be given advance, written notice if the policies and procedures are revised to accommodate market timing. Additionally, the Funds may have their own policies and procedures described in their prospectuses that are designed to limit or restrict frequent trading. Such policies may be different from our policies and procedures, and may be more or less restrictive. As the Funds may accept purchase payments from other investors, including other insurance company separate accounts on behalf of their variable product customers and retirement plans, we cannot guarantee that the Funds will not be harmed by any abusive market timing activity relating to the retirement plans and/or other insurance companies that may invest in the Funds. The Funds’ policies and procedures may provide for the imposition of a redemption fee and, upon request from the Fund, require us to provide transaction information to the Fund (including an Owner’s tax identification number) and to restrict or prohibit transfers and other transactions that involve the purchase of shares of a Portfolio. In the event a Fund instructs us to restrict or prohibit transfers or other transactions involving shares of a Portfolio, you may not be able to make additional purchases in a Division until the restriction or prohibition ends. If you submit a request that includes a purchase or transfer into such a restricted Division, we will consider the request “not in Good Order” and it will not be processed. You may, however, submit a new transfer request.

If we believe your trading activity is in violation of, or inconsistent with, our policies and procedures or otherwise is potentially disruptive to the interests of other investors, you may be asked to stop such activities, and future investments and allocations or transfers by you may be rejected without prior notice. Because we retain discretion to determine what action is appropriate in a given situation, investors may be treated differently and some may be allowed to engage in activities that might be viewed as market timing.

We intend to monitor events and the effectiveness of our policies and procedures in order to identify whether instances of potentially abusive trading practices are occurring. However, we may not be able to identify all instances of abusive trading practices, nor completely eliminate the possibility of such activities, and there may be technological limitations on our ability to impose restrictions on the trading practices of Owners.

Deductions and Charges

The Net Premiums we place in the Separate Account for Whole Life, Extra Ordinary Life and Single Premium Life Policies are the gross premiums after the deductions described in the next two sections below. The Net Premiums for Whole Life and Extra Ordinary Life Policies exclude any extra premium we charge for Insureds who do not qualify as select risks and the extra premium for any optional benefits. We make a charge for mortality and expense risks against the assets of the Separate Account. There is also a charge for taxes. (See “Charges Against the Separate Account Assets”). In addition, the funds in which the Separate Account assets are invested pay an investment advisory fee and certain other expenses. (See “Fee and Expense Tables—Annual Portfolio Operating Expenses” and the attached Fund prospectuses.)

We may impose a fee for transfers that will not exceed our administrative costs associated with transfers. This fee is currently being waived.

You may have the option of receiving funds via wire transfer or priority mail. Currently, a fee of $25 is charged for wire transfers (up to $50 for international wires) and a $15 fee (up to $45 for next day, a.m. delivery) for priority mail. These fees are to cover our administrative costs or other expenses. We may discontinue the availability of these options at any time, with or without notice.

Deductions from Premiums for Whole Life and Extra Ordinary Life Policies The deductions described in this section are for Whole Life and Extra Ordinary Life Policies only. The deductions for Single Premium Life Policies are described under the next caption below.

For the first Policy Year there was a one-time deduction of not more than $5 for each $1,000 of insurance, based on the face amount for Whole Life or the Minimum Death Benefit stated in the Policy for Extra Ordinary Life. This was for the costs of processing applications, medical examinations, determining insurability and establishing records.


16		Variable Life Prospectus

There is an annual deduction of $35 for administrative costs to maintain the Policy. Expenses include costs of premium billing and collection, processing claims, keeping records and communicating with Owners.

There is a deduction each year for sales costs. This amount may be considered a sales load. The deduction will be not more than 30% of the basic premium (as defined below) for the first Policy Year, not more than 10% for each of the next three years and not more than 7% each year thereafter. The basic premium for a Policy is the gross premium which would be payable if you paid the premium annually, less the annual deduction of $35 for administrative costs. The basic premium is based on the cost of insurance for Insureds who qualify as select risks and does not include any extra premium amounts for Insureds whom we place in other underwriting classifications. The basic premium does not include the extra premium for any optional benefits. For an Extra Ordinary Life Policy, the basic premium does not include any extra premium for the Extra Life Protection; the amount of term insurance included in the Extra Life Protection affects the dividends payable on the Extra Ordinary Life Policies. The current charge is a maximum of $1,000 per $1,000 of term insurance, without current dividend, and the minimum is $6.27 per $1,000 of the term insurance, without the current dividend, depending on the age and sex of the Insured.

The amount of the deduction for sales costs for any Policy Year is not specifically related to sales costs we incur for that year. We expect to recover our total sales expenses from the amounts we deduct for sales costs over the period while the Policies are in force. To the extent that sales expenses exceed the amounts deducted, we will pay the expenses from our other assets. These assets may include, among other things, any gain realized from the charge against the assets of the Separate Account for the mortality and expense risks we assume. (See “Charges Against the Separate Account Assets”). To the extent that the amounts deducted for sales costs exceed the amounts needed, we will realize a gain.

We make a deduction equal to 2% of each basic premium for state premium taxes. Premium taxes vary from state to state and currently range from 0% to 3.5% of life insurance premiums. The 2% rate is an average, and we charge the same percentage regardless of the state in which you live, which may be more or less than the percentage charged by your state of residence.

Provided that all premiums are paid when due, we guarantee that the Death Benefit, before adjustments, for a Whole Life Policy will never be less than the face amount of the Policy, regardless of the investment experience of the Separate Account and that, for an Extra Ordinary Life Policy, the Death Benefit, before adjustments, will never be less than the Minimum Death Benefit stated in the Policy. For both Policies, there is a deduction equal to 1.5% of each basic premium to compensate us for the risk that the Insured may die at a point in time when the Death Benefit that would ordinarily be paid is less than this guaranteed minimum amount.

For an Extra Ordinary Life Policy there is a deduction for dividends that may be paid or credited in accordance with the dividend scale in effect on the issue date of the Policy. This deduction will vary by age of the Insured and duration of the Policy, and we expect it to be in the range of approximately 7-17% of the gross annual premium. Future dividends are not guaranteed. (See “Annual Dividends”).

The following tables illustrate the amount of net annual premium, for select and standard risks, to be placed in the Separate Account at the beginning of each Policy Year after the deductions described above:

Whole Life


Beginning of Policy Year	Male Age 35—Select Risk Annual Premium
Beginning of Policy Year	$500		$1,000		$5,000
1	$	154.28	$	320.16	$	1,647.28
2 through 4		402.11		834.48		4,293.51
5 and later		416.05		863.41		4,442.36

Beginning of Policy Year	Male Age 35—Standard Risk Annual Premium
Beginning of Policy Year	$500		$1,000		$5,000
1	$	123.37	$	256.03	$	1,317.30
2 through 4		321.57		667.33		3,433.44
5 and later		332.71		690.46		3,552.48

Extra Ordinary Life


Beginning of Policy Year	Male Age 35—Select Risk Annual Premium
Beginning of Policy Year	$500		$1,000		$5,000
1	$	134.23	$	278.56	$	1,433.21
2 through 4		369.62		767.07		3,946.64
5 and later		383.58		796.05		4,095.74

Beginning of Policy Year	Male Age 35—Standard Risk Annual Premium

	$500		$1,000		$5,000
1	$	97.92	$	203.21	$	1,045.54
2 through 4		269.65		559.59		2,879.11
5 and later		279.83		580.73		2,987.88

Deductions for Single Premium Life Policies For a Single Premium Life Policy, the only deduction from the single premium was an administrative charge of $150. The administrative costs for issuing and maintaining a Single Premium Life Policy are similar to those we incur with a Whole Life Policy or an Extra Ordinary Life Policy, except for the costs of premium billing and collection. (See “Deductions from Premiums for Whole Life and Extra Ordinary Life Policies”). We placed the entire premium for a Single Premium Life Policy, after this deduction of $150, in the Separate Account when we issued the Policy without any of the other deductions which apply to premiums for Whole Life and Extra Ordinary Life Policies. There is no annual fee for a Single Premium Life Policy.

For a Single Premium Life Policy during the first ten Policy Years, the Cash Value payable on surrender of the Policy was reduced by a deduction for sales costs. The deduction during


Variable Life Prospectus			17

the first Policy Year was not more than 9% of the Policy’s tabular Cash Value. (See “Cash Value”). The deduction decreased over time until it was eliminated at the end of the tenth Policy Year. We intended the deduction to recover the costs we incurred in distributing Single Premium Life Policies which were surrendered in their early years. The deduction was never more than 9% of the single premium paid for the Policy, excluding the administrative charge of $150.

The following table illustrates the schedule for the decreasing deduction for sales costs for a policy surrendered at the end of each of the first ten Policy Years. The illustration is for a Single Premium Life Policy, male age 35. The schedule varies slightly by age and sex and amount of insurance.


Policy Year End When Policy Is Surrendered	Deduction as % of Tabular Cash Value
1		7.9	%
2		7.1
3		6.3
4		5.4
5		4.6
6		3.7
7		2.8
8		1.9
9		0.9
10 and subsequent years		0

Charges Against the Separate Account Assets There is a daily charge to the Separate Account for the mortality and expense risks that we have assumed. The charge is at the annual rate of .50% of the assets of the Separate Account. The mortality risk is that Insureds may not live as long as we estimated. The expense risk is that expenses of issuing and administering the Policies may exceed the estimated costs, including other costs such as those related to marketing and distribution. The actual mortality and expense experience under the Policies will be a factor used in determining dividends. (See “Annual Dividends”).

The Policies provide that we may make a charge for taxes against the assets of the Separate Account. Currently, we are making a daily charge for income taxes we incur at the annual rate of .05% of the assets of the Separate Account. We may increase, decrease or eliminate the charge for taxes in the future to reflect the portion of our actual tax expenses which is fairly allocable to the Policies.

Optional Benefits There is a separate charge for any optional benefit you have selected. (See “Other Policy Provisions—Optional Benefits”). For a Whole Life Policy, the Waiver of Premium Benefit has a maximum charge of $2.05 per $1,000 of face amount and a minimum charge of $0.13 per $1,000 of face amount. The Additional Purchase Benefit has a maximum charge of $2.21 per $1,000 of Additional Purchase Benefit and a minimum charge of $0.54 per $1,000 of Additional Purchase Benefit.

For an Extra Ordinary Life Policy, the Waiver of Premium Benefit has a maximum charge of $1.48 per $1,000 of face amount and a minimum charge of $0.10 per $1,000 of face amount. The Additional Purchase Benefit has a maximum charge of $2.21 per $1,000 of Additional Purchase Benefit and

a minimum charge of $1.06 per $1,000 of Additional Purchase Benefit.

We will realize a gain from these charges to the extent they are not needed to provide benefits and pay expenses under the Policies, in which case the gain may be used for any Company purpose.

The Portfolios in which the assets that support your Policy are invested also bear expenses which reduce the investment rate of return. (See “Fee and Expense Tables—Range of Total Annual Portfolio Operating Expenses” and attached mutual fund prospectuses.)

Guarantee of Premiums, Deductions and Charges

We guarantee that the premiums, the amounts we deduct from premiums, and the charge for mortality and expense risks will not increase over time. These amounts will not increase regardless of future changes in longevity or increases in expenses. The Extra Ordinary Life Policy provides an opportunity to pay an additional amount of premium after the guaranteed period for the Extra Life Protection has expired if the total Death Benefit would otherwise fall below the initial amount of insurance. (See “Extra Ordinary Life Policy”).

Death Benefit

Your beneficiary may receive the Death Benefit as a cash settlement either by electing to receive a lump sum check or by electing the Northwestern Access Fund account (an interest-bearing account), if the case settlement amount meets our criteria. If no affirmative election is made, the beneficiary will receive the Death Benefit as a lump sum check. If a Northwestern Access Fund account is elected, payment of the full Death Benefit is accomplished by the opening of the Northwestern Access Fund account in the name of the beneficiary. Northwestern Access Fund account information, along with a book of drafts (which function much like checks from a checking account at a bank), will be sent to the beneficiary, and the beneficiary will have access to funds in the account simply by writing a draft for all or part of the amount of the Death Benefit (or other available balance), and depositing or using the draft as desired. When the draft is paid through the bank that administers the account for Northwestern Mutual, the bank will receive the amount the beneficiary requests as a transfer from the Company’s General Account. The Northwestern Access Fund is part of the Company’s General Account. Any interest paid within a Northwestern Access Fund may be taxable, so please consult your tax advisor. The Northwestern Access Fund is not a bank account, and it is not insured by the FDIC or any other government agency. As part of our General Account, the Northwestern Access Fund is backed by the financial strength of the Company, although it is subject to the claims of our creditors. In addition, funds held in the Northwestern Access Fund are guaranteed by State Insurance Guarantee Associations. The Company may make a profit on all amounts held in the Northwestern Access Fund. We may discontinue the Northwestern Access Fund at any time, with or without notice.


18		Variable Life Prospectus

If an Income Plan was not previously elected by the Owner and in lieu of a lump sum payment, Death Benefits, less any Policy Debt, may be paid under an Income Plan selected by your beneficiary after the death of the Insured. Available Income Plans include an interest income plan, installment income plans, and life income plans. The Company may offer additional Income Plans. Generally, (1) an interest Income Plan accrues interest on the Death Benefit, the interest may be received monthly, and any remaining proceeds or interest may be withdrawn at any time; (2) an installment Income Plan pays the Death Benefit in installments for a fixed period of time, and any remaining proceeds may be withdrawn at any time; and (3) a life Income Plan makes payments monthly for a chosen period and after that, for the life of the person on whose life the payments are based (or two persons if the joint option is selected). Any proceeds added to increase the amount payable under a monthly income plan may be subject to a 2.00% expense charge plus any applicable state premium tax. The choice of income plans will vary depending on financial situation and the amount of income desired monthly for a chosen time period. The Owner may elect an Income Plan while the Insured is living or, if the Insured is not the Owner, during the first 60 days after the Insured’s date of death. An Income Plan that is elected by the Owner will take effect on the date of death of the Insured if the notice of election is received in our Home Office while the Insured is living. In all other cases, the Income Plan will take effect on the date of receipt of the notice of election. If no Income Plan is elected, the benefit is paid to the beneficiary with interest based on rates declared by the Company or as required by applicable state law on the date of death of the Insured.

The amount payable under the Death Benefit will be reduced by the amount of any Policy Debt. Subject to the terms and conditions of the Policy, the proceeds will be paid to a beneficiary or other payee after proof of the death of the Insured is received in our Home Office. The amount of proceeds will be determined as of the date of death. We will pay interest on the proceeds from that date until payment is made.

The Death Benefit for a variable life insurance policy is, in part, a guaranteed amount which will not be reduced during the lifetime of the Insured so long as you pay premiums when they are due and no Policy Debt is outstanding. The remainder of the Death Benefit is the variable insurance amount which fluctuates in response to actual investment results and is not guaranteed. The amount of any paid-up additions is also included in the total Death Benefit and, in addition, the Extra Ordinary Life Policy provides some term insurance during the early Policy Years. Paid-up additions are amounts of permanent insurance, paid for with dividends and added to a basic life insurance policy, and for which the premium for the entire lifetime of the Insured has been paid. Paid-up additions have Cash Value and loan value. The relationships among the guaranteed and variable amounts and any paid-up additions and term insurance depend on the design of the particular Policy. For a more detailed description of how the Death Benefit is calculated for your Policy, see “Whole Life Policy and Single Premium Life Policy” and “Extra Ordinary Life Policy” below.

Variable Insurance Amount The variable insurance amount reflects, on a cumulative basis, the investment experience of the Divisions in which the Policy has participated. We adjust the variable insurance amount annually on each Policy Anniversary. For the first Policy Year the variable insurance amount was zero. For any subsequent year it may be either positive or negative. If the variable insurance amount is positive, subsequent good investment results will produce a larger variable insurance amount and therefore an increase in the Death Benefit. If the variable insurance amount is negative, subsequent good investment results will first have to offset the negative amount before the Death Benefit will increase.

In setting the premium rates for each Policy we have assumed that investment results will cause the Separate Account assets supporting the Policy to grow at a net annual rate of 4%. If the assets grow at a net rate of exactly 4% for a Policy Year, the variable insurance amount will neither increase nor decrease on the following Policy anniversary. If the net rate of growth exceeds 4%, the variable insurance amount will increase. If it is less than 4%, the variable insurance amount will decrease.

The method for calculating the changes in the Death Benefit is described in the Policy. The Policy includes a table of net single premiums used to convert the investment results for a Policy into increases or decreases in the variable insurance amount. The insurance rates in the table depend on the sex and the Attained Age of the Insured for each Policy Year. For a Whole Life Policy, the changes in the Death Benefit will be smaller for a Policy issued with a higher premium for extra mortality risk. The net single premium for a particular variable insurance amount is the price for that amount of paid-up whole life insurance based on the Insured’s age on the Policy Anniversary.

To illustrate how the variable insurance amount affects the Death Benefit for a Whole Life Policy, suppose that on your Policy Anniversary investment results since your last Policy Anniversary (excluding investment results on paid-up additions) were $500 less than the amount that would have been expected assuming a net annual growth rate of 4%. By way of example, if your net single premium (based on your underwriting classification as indicated in your Policy) per $1.00 of insurance was .40440, the variable insurance amount for the current year will decrease by $1,236 ($500/.40440), thereby decreasing the Death Benefit if the variable insurance amount had been positive. (See “Whole Life Policy and Single Premium Life Policy”).

Because the variable insurance amount is adjusted only on the Policy Anniversary, we bear the risk that the Insured may die before the next anniversary after an interim period of adverse investment experience. If investment experience during the interim period is favorable, you will forgo the benefit and we will realize a gain. However, if on the date of death of the Insured the value of the Policy, considered as a net single premium, would buy more Death Benefit than the amount otherwise determined under the Policy, we will pay this increased Death Benefit.


Variable Life Prospectus			19

The cost of life insurance increases with the advancing age of the Insured, and therefore a larger dollar amount of investment earnings is required to produce the same increase in the Death Benefit in the later Policy Years. In general, however, the effect of investment results on the Death Benefit will tend to be greater in the later Policy Years because the amount of assets invested for the Policy will tend to increase as the Policy remains in force.

The cost of providing insurance protection under a Policy is reflected in the Cash Value of the Policy. (See “Cash Value”). The cost is actuarially computed for each Policy each year, based on the Insured’s Attained Age, the 1980 Commissioners Standard Ordinary Mortality Table and the net insurance amount at risk under the Policy. The net insurance amount at risk is the Death Benefit for the Policy minus the sum of the Cash Value and any Policy Debt. The cost of insurance differs each year because the probability of death increases as the Insured advances in age, and the net insurance amount at risk decreases or increases from year to year depending on investment experience. The cost assumes that all Insureds are in the select underwriting classification. The differences in the mortality rates of the various underwriting classifications are reflected in the different premiums (or different dividend scales) for those underwriting classifications. The cost of insurance is based on the mortality table identified above and we guarantee it for the life of a Policy regardless of any future changes in mortality experience. Our revenues attributable to this charge may exceed our costs attributable to this charge, in which case we may realize a gain.

Whole Life Policy and Single Premium Life Policy For a Whole Life Policy or a Single Premium Life Policy the Death Benefit is the face amount of the Policy plus any positive variable insurance amount in force. We adjust the Death Benefit on each Policy Anniversary when we determine the variable insurance amount for the following year. The total Death Benefit also includes the amount of insurance provided by any paid-up additions which you have purchased with dividends. The Death Benefit for a Whole Life Policy will not be less than the face amount so long as you pay premiums when they are due. For a Single Premium Life Policy the Death Benefit will not be less than the face amount. The amount payable at death is reduced by the amount of any Policy Debt outstanding.

Paid-up additions you have purchased with dividends are not counted for purposes of the guarantee that the Death Benefit of a Whole Life Policy or a Single Premium Life Policy will never be less than the face amount of the Policy. If the variable insurance amount is negative, the total Death Benefit will be the guaranteed face amount plus the amount of insurance provided by any paid-up additions. Paid-up additions are amounts of permanent insurance, paid for with dividends and added to a basic life insurance policy, and for which the premium for the entire lifetime of the Insured has been paid. Paid-up additions have Cash Value and loan value.

Extra Ordinary Life Policy The Death Benefit for an Extra Ordinary Life Policy is affected by the amount of Extra Life Protection in force. Initially, the amount of Extra Life

Protection is 40% of the total amount of insurance and is in the form of one year term insurance; the amount of term insurance may be adjusted on each Policy Anniversary thereafter. Term insurance is life insurance which pays a Death Benefit only if the Insured dies during the term for which the insurance has been purchased. Term insurance is ordinarily purchased on an annual basis at a cost which rises with the increasing age of the Insured. It has no cash surrender value or loan value. Over time, positive variable insurance amounts and paid-up additions purchased with dividends will reduce the one year term insurance portion of the Extra Life Protection to an amount that (with variable insurance amounts and paid-up additions) will maintain the total Death Benefit at the amount for which the Policy was issued. The term insurance is eliminated at any time when the sum of positive variable insurance amount plus the paid-up additions equals or exceeds the initial amount of Extra Life Protection.

The amount of Extra Life Protection may increase over time but it will not decrease below the initial amount during the Policy’s guaranteed period, so long as you pay premiums when they are due, all dividends are applied to purchase paid-up additions and no paid-up additions are surrendered for their Cash Value. The length of the guaranteed period depends on the age of the Insured at issue. Please note that neither the actual investment results nor the dividends to be paid on the Policy are guaranteed. You may request an in-force illustration to illustrate the effect of various future rates of return on the amount of Extra Life Protection.

After the guaranteed period expires, if the sum of positive variable insurance amounts plus the paid-up additions is less than the initial amount of Extra Life Protection on any Policy Anniversary, we may reduce the amount of your term insurance for the Policy Year. We will give you notice of the reduction and you will have an opportunity to pay an additional amount of premium in order to keep the initial amount of insurance in force. The maximum premium rate is set forth in the Policy. Your right to continue the Extra Life Protection will terminate as of the first Policy Anniversary when you fail to pay the additional premium when due.

The Death Benefit for an Extra Ordinary Life Policy is the sum of the Minimum Death Benefit plus the amount of Extra Life Protection in force. The Minimum Death Benefit is 60% of the total amount of insurance for which the Policy was issued. We guarantee the Minimum Death Benefit for the lifetime of the Insured so long as you pay premiums when they are due.

The total Death Benefit is not affected by either investment results or the amount of dividends paid, so long as the Policy is within the guaranteed period of Extra Life Protection unless the term insurance has been eliminated by positive variable insurance amount and paid-up additions as described above. Good investment results and increases in dividends increase the likelihood that the total Death Benefit will begin to rise before the guaranteed period of Extra Life Protection expires. Adverse investment results or decreases in dividends could cause the total Death Benefit to fall below the amount of insurance which was initially in force, after the guaranteed


20		Variable Life Prospectus

period of Extra Life Protection expires, but it cannot fall below the Minimum Death Benefit so long as you pay premiums when they are due. In each case the amount payable at death is reduced by any Policy Debt outstanding.

The following three examples illustrate how Extra Life Protection operates during the guaranteed period. In each example the Policy was issued for a total amount of $250,000. The minimum death benefit is $150,000 (60% of $250,000) and the initial amount of Extra Life Protection is $100,000 (40% of $250,000).

•

Example 1: On a Policy Anniversary, there is a total positive variable insurance amount of $10,000 and paid-up additions are $15,000. The Extra Life Protection for the following year would consist of term insurance in the amount of $75,000 ($100,000 minus the sum of $10,000 and $15,000) in order to maintain the initial amount of Extra Life Protection. There would be no effect on the current Death Benefit because the total of the variable insurance amount and paid-up additions has not exceeded the initial amount of Extra Life Protection.

•

Example 2: On a Policy Anniversary, there is a total negative variable insurance amount of -$12,000 and paid-up additions are $15,000. The Extra Life Protection for the following year would consist of term insurance in the amount of $85,000, reflecting a reduction for paid-up additions but not negative variable insurance amounts. Again, there would be no effect on the current Death Benefit. In subsequent years positive variable insurance amounts will need to make up for the negative variable insurance amounts in order to affect the amount of term insurance.

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Example 3: On a Policy Anniversary, there is a total positive variable insurance amount of $60,000 and paid-up additions are $50,000. The Extra Life Protection for the following year would consist of no term insurance and would increase to $110,000 (the sum of $60,000 and $50,000). In this case the current Death Benefit would increase to reflect variable insurance amounts and paid-up insurance in excess of the Extra Life Protection (see “Variable Insurance Amount” above).

We have designed the Extra Ordinary Life Policy for a purchaser who intends to use all dividends to purchase paid-up additions. If you use dividends for any other purpose, or if any paid-up additions are surrendered for their Cash Value, the term insurance in force will immediately terminate, any remaining guaranteed period of Extra Life Protection will terminate and your right to continue the amount of Extra Life Protection as described above will terminate. The amount of Extra Life Protection thereafter will be the sum of positive variable insurance amount plus any paid-up additions which remain in force.

Cash Value

The Cash Value of a Policy is equal to the amount you are eligible to receive when you surrender the Policy. If investment results were a net level 4% every year, the Cash Value would increase each year according to a table in your

Policy (“tabular Cash Value”). However, the Cash Value for all Policies will change daily in response to investment results. For any given date, to calculate the Cash Value, the tabular Cash Value for the last Policy Anniversary is adjusted to reflect the time elapsed since the last Policy Anniversary. We then adjust the sum of the tabular Cash Value and the net single premium for the variable insurance amount (see the discussion of net single premiums under “Variable Insurance Amount”) to reflect investment results from the last Policy Anniversary to the date for which the calculation is being made. The Cash Value is increased by the value of any paid-up additions which have been purchased with dividends. If a portion of the premium for the current Policy Year has not been paid, the Cash Value of a Whole Life Policy or an Extra Ordinary Life Policy will be reduced. The Cash Value for all Policies will be reduced by any Policy Debt outstanding. No minimum Cash Value is guaranteed.

If a portion of the premium for the current Policy Year has not been paid, the Cash Value of a Whole Life Policy or an Extra Ordinary Life Policy will be reduced.

The Cash Value for the Whole Life Policy, the Extra Ordinary Life Policy and the Single Premium Life Policy will be reduced by the amount of any Policy Debt outstanding.

We determine the Cash Value for a Policy at the end of each valuation period (typically, 4:00 p.m. Eastern Time each business day). Each business day, together with any non-business days before it, is a valuation period. A business day is any day on which the NYSE is open for trading. In accordance with the requirements of the 1940 Act, we may also determine the Cash Value for a Policy on any other day on which there is sufficient trading in securities to materially affect the value of the securities held by the Portfolios.

You may surrender a Policy for the Cash Value at any time during the lifetime of the Insured. We will surrender your Policy upon receiving a surrender request in Good Order at our Home Office. Requests for surrender received before the close of trading (typically, 4:00 p.m. Eastern Time) on the NYSE are deemed to be received and effective that day. If received on or after the close of trading, requests are deemed to be received and effective as of the close of the next regular trading session of the NYSE. If your request is not in Good Order, either we or your Financial Representative may notify you in writing, by telephone or by email in an effort to conform your request to our then-current requirements. Alternatively, you may use the Cash Value of a Whole Life Policy or an Extra Ordinary Life Policy to provide extended term insurance or a reduced amount of fixed or variable paid-up insurance. (See “Extended Term and Paid-Up Insurance”). Surrender proceeds may be paid under an Income Plan requested by an Owner at the time of surrender. Available Income Plans include an interest income plan, installment income plans, and life income plans. The Company may offer additional Income Plans.

You may request a Death Benefit reduction, so long as the Policy’s Death Benefit after reduction meets the regular minimum size requirements. A proportionate refund of the


Variable Life Prospectus			21

Policy’s Cash Value will result from any Death Benefit reduction. The refund of Cash Value will first be applied toward any existing loan balance. The remainder of the Cash Value refunded will be returned to the Owner. The remaining Policy will be based on the age and underwriting classification of the Insured at the time of issuance of the original Policy. We will allocate reductions among the Divisions in proportion to the amounts in the Divisions.

Annual Dividends

The Policies are eligible to share in the divisible surplus, if any, of the Company. Each year we determine, in our sole discretion, the amount and appropriate allocation of divisible surplus. Divisible surplus allocated to your Policy is referred to as a “dividend.” A Policy’s share, if any, will be credited as a dividend on the Policy Anniversary. We will not pay a dividend on a Whole Life Policy or an Extra Ordinary Life Policy which is in force as extended term insurance. There is no guaranteed method or formula for the determination or allocation of divisible surplus. The Company’s approach is subject to change. There is no guarantee of a divisible surplus. Even if there is a divisible surplus, the payment of a dividend on a Policy is not guaranteed.

Illustrated dividends published at the time a life insurance policy is issued generally reflect the actual recent experience of the issuing company with respect to mortality and expenses and hypothetical investment results. State law generally prohibits a company from projecting or estimating future results.

If you receive dividends, you may use them to purchase variable paid-up additions, unless the Policy is in force as reduced fixed paid-up insurance. We will also pay dividends in cash, or you may use them to pay premiums or leave them to accumulate with interest (see “Tax Consideration—Tax Treatment of Life Insurance”); but unless you use all dividends we pay on an Extra Ordinary Life Policy to purchase paid-up additions, the term insurance portion of the Extra Life Protection will be terminated. (See “Extra Ordinary Life Policy”). We hold dividends you leave to accumulate with interest in our General Account and we will credit them with a rate of interest we determine annually. The interest rate will not be less than an annual effective rate of 3.5%. If a Whole Life Policy or an Extra Ordinary Life Policy is in force as reduced fixed benefit paid-up insurance, dividends may be used to purchase fixed benefit paid-up additions. (See “Extended Term and Paid-Up Insurance”). Dividends used to purchase variable benefit paid-up additions will be allocated to the Divisions of the Separate Account according to the allocation of Net Premiums then in effect.

Policy Loans and Automatic Premium Loans

Described below are certain terms and conditions that apply when you borrow amounts under the Policy. For information on the tax treatment of loans, see “Tax Treatment of Policy Benefits” and consult with your tax advisor.

Policy Loans You may borrow an amount that, when added to existing Policy Debt, is not more than the loan value. The

loan value is 90% of the sum of the Cash Value and any existing Policy Debt on the date of the loan. You may take loan proceeds in cash or, for the Whole Life and Extra Ordinary Life Policies, you may use them to pay premiums on the Policy. We normally pay the loan proceeds within seven days after we receive a proper loan request at our Home Office. Eligible Owners may also submit loan requests via the Variable Life Service Center (1-866-424-2609). Written and telephone requests will be processed based on the date and time they are received in the Home Office, provided the request is received in Good Order. If your request is not in Good Order, either we or your Financial Representative may notify you in writing, by telephone or by email in an effort to conform your request to our then-current requirements. Based on our administrative procedures, you may have the option of receiving funds via wire transfer or priority mail, and we may charge a fee for this service to cover our administrative costs. We may postpone payments of loans under certain conditions described in the “Deferral of Determination and Payment” section of this prospectus.

Automatic Premium Loans If you have chosen the Automatic Premium Loan provision or it is currently in effect for your Policy, a premium loan, which is a form of Policy loan, will automatically be made to pay an overdue premium if the premium is less than the maximum amount available for a new loan. A confirmation statement will be sent each time an automatic premium loan occurs.

General Loan Terms Interest on a loan accrues and is payable on a daily basis. We add unpaid interest to the amount of the loan. The Policy’s Cash Value is reduced by the amount of the loan. If the Cash Value decreases to zero, the Policy will terminate unless a sufficient portion of the loan is repaid. We will send you a notice at least 31 days before the termination date. The notice will show how much you must repay to keep the Policy in force.

You select the loan interest rate. The loan interest rate is applied to both the amount of the loan and accrued interest. A specified annual effective rate of 8% is one choice. (The specified annual effective rate may be lower in Arkansas.) The other choice is a variable rate based on a corporate bond yield index. We will adjust the variable rate annually. It will not be less than 5%.

We will take the amount of a loan, including interest as it accrues, from the Divisions in proportion to the amounts in the Divisions. We will transfer the amounts withdrawn to our General Account and will credit those amounts on a daily basis with an annual earnings rate equal to the loan interest rate less a charge for the mortality and expense risks we have assumed and for expenses, including taxes. The aggregate charge is currently at the annual rate of .85% for the 8% specified loan interest rate and .85% for the variable loan interest rate. For example, the earnings rate corresponding to an 8% loan interest rate is currently 7.15%. A loan, even if you repay it, will have a permanent effect on the Policy’s variable insurance amount and Cash Value because the amounts you have borrowed will not participate in the


22		Variable Life Prospectus

Separate Account’s investment results while the loan is outstanding. The effect may be either favorable or unfavorable depending on whether the earnings rate credited to the loan amount is higher or lower than the investment performance of the unborrowed amounts left in the Divisions of the Separate Account.

The amount payable at death will also be reduced by the amount of any Policy Debt outstanding. If you surrender or exchange the Policy or allow it to lapse while Policy Debt is outstanding, the amount of the loan, to the extent it has not previously been taxed, will be considered as an amount you received and taxed accordingly.

You may repay a loan, and any accrued interest outstanding, in whole or in part, at any time while the Insured is alive. If we receive a payment without specific instructions, we will first apply the payment to any premium due, with any remaining amount being applied to any outstanding loans. Payments in excess of outstanding debt and premiums due will be returned unless such amounts are deemed to be de minimis according to our procedures. Except as described below, if we receive your loan payments before the close of trading (typically, 4:00 p.m. Eastern Time) on the NYSE, we will credit payments as of the date we receive them and transfer them from our General Account to the Divisions, in proportion to the amounts in the Divisions, as of the same date. If we receive your loan payments on or after the close of trading on the NYSE, we will credit payments as of the close of the next regular trading session of the NYSE and transfer them from our General Account to the Divisions, in proportion to the amounts in the Divisions, as of the date we credit the payment. Payments must be in Good Order to be processed. If your payment is not in Good Order, either we or your Financial Representative may notify you in writing, by telephone or by email in an effort to conform your payment to our then-current requirements.

Policy loan payments received within 34 days after the loan interest billing date will be credited as of the loan interest billing date. Automatic premium loans are effective as of the premium due date unless a loan payment is received between the premium due date and the date the Automatic Premium Loan is made. Automatic premium loan payments received up to 66 days after the loan interest billing date will be credited as of the Policy Anniversary, depending on your premium payment schedule. We will send you a notice indicating your loan interest billing date. Loan repayments are not subject to transaction fees.

Extended Term and Paid-Up Insurance

If a premium for a Whole Life Policy or an Extra Ordinary Life Policy is not paid when due or within the 31-day grace period (see “Grace Period”), and you have not chosen the Automatic Premium Loan (APL) provision or do not have sufficient loan value to pay the premium, (see “Policy Loans and Automatic Premium Loans”), the Cash Value will purchase extended term insurance, or, at your request, a reduced amount of either fixed or variable benefit paid-up insurance.

If you use the Cash Value to provide a reduced amount of fixed benefit paid-up insurance or for extended term

insurance, we will transfer the amount of the Cash Value from the Separate Account to our General Account at the conclusion of the 31 day grace period. Thereafter the Policy will not participate in the Separate Account’s investment results unless the Policy is subsequently reinstated. (See “Reinstatement”). You may select variable benefit paid-up insurance only if the Policy has at least $1,000 of Cash Value. The minimum guaranteed death benefit (the face amount for Whole Life or the Minimum Death Benefit for Extra Ordinary Life) is not in effect for variable paid-up insurance.

For fixed paid-up insurance, you must have selected paid-up insurance within three months after the due date of your first unpaid premium. We determine the amount of paid-up insurance by the amount of Cash Value and the age and sex of the Insured, using the table of net single premiums at the Attained Age. Fixed benefit paid-up insurance has guaranteed cash and loan values. Paid-up insurance remains in force for the lifetime of the Insured unless the Policy is surrendered or the Cash Value is reduced to zero because of a Policy loan.

If the Policy remains in force as extended term insurance, the amount of insurance will equal the Death Benefit prior to the date the premium was due, less any Policy Debt. The amount of Cash Value and the age and sex of the Insured will determine how long the insurance continues. We will, upon your request, tell you the amount of insurance and how long the term will be. Extended term insurance is not available if the Policy was issued with a higher premium for extra mortality risk. Extended term insurance has a Cash Value but no loan value.

Reinstatement

If a premium for a Whole Life Policy or an Extra Ordinary Life Policy is due and remains unpaid at the end of the grace period, the Policy will lapse. The Policy may be reinstated after lapse within five years after the premium due date. The Insured must provide satisfactory evidence of insurability. Any premium or other payment due, including any applicable interest, will also be required. If we approve your request for reinstatement and the request is received before the close of trading (typically, 4:00 p.m. Eastern Time) on the NYSE, we will deem your request to be received and effective that day. If we receive your request on or after the close of trading on the NYSE, we will deem your request to be received and effective on the next regular trading session of the NYSE. Applications must be received in Good Order to be processed. If your request is not in Good Order, either we or your Financial Representative may notify you in writing, by telephone or by email in an effort to conform your request to our then-current requirements.

The Company may waive the requirement to provide satisfactory evidence of insurability if the reinstatement is applied for, and any premium or other payment due is paid, within 90 days after the premium due date and while the Insured is alive. Upon reinstatement, your Policy Date will not change. Therefore, fees and charges that vary by Policy year will take into account the period of time your Policy was terminated. In addition, following the reinstatement the Policy will have the same Death Benefit and amount in each Division as if all premiums had been paid when due. We will make an


Variable Life Prospectus			23

adjustment for any Policy Debt or the debt may be reinstated. A reinstatement may have important tax consequences. If you contemplate any such transaction you should consult a qualified tax adviser.

Reinvestments After Surrender

While Owners have no right to reinvestment after a surrender, we may, at our sole discretion, permit such reinvestments as described in this paragraph. In special limited circumstances, we may allow payments into a Policy in the form of returned surrender proceeds in connection with a request to void a surrender if the request is received by the Company within a reasonable time after the surrender proceeds are mailed. These payments may be processed without a sales load in the case of a Whole Life Policy or an Extra Ordinary Life Policy. The period for which we will accept requests for the return of surrender proceeds after a surrender may vary in accordance with our administrative procedures. The returned surrender proceeds will be reinvested after our receipt of the reinvestment request in Good Order at our Home Office. If we receive your request before the close of trading (typically, 4:00 p.m. Eastern Time) on the NYSE, we will deem your request to be received and effective that day. If we receive your request on or after the close of trading on the NYSE, we will deem your request to be received and effective on the next regular trading session of the NYSE. If your request is not in Good Order, either we or your Financial Representative may notify you in writing, by telephone or by email in an effort to conform your request to our then-current requirements. Proceeds will be applied to the same Division from which the surrender was made.

Depending on the Insured’s underwriting classification, we may not accept the reinvestment or we may accept the reinvestment with different charges and expenses under the Policy. We may refuse to process reinvestments where it is not administratively feasible. Decisions regarding requests for reinvestment will take into consideration differences in costs and services and will not be unfairly discriminatory. Policies with reinvested surrender proceeds will have the same Death Benefit as if the proceeds had not been surrendered, except the values will reflect the fact that amounts were not invested in the Separate Account during the period of time the surrender proceeds were not in the Policy as well as any changes in charges and expenses due to a change in underwriting classification. We will make an adjustment for any Policy Debt or the debt may be reinstated.

Right to Exchange for a Fixed Benefit Policy

It is currently Company practice to allow you to exchange your Policy for a policy that does not vary with the investment experience of the Separate Account (“Fixed Benefit Policy”). We may require evidence of insurability. The Fixed Benefit Policy will be on the life of the same Insured and at the time of the exchange will have the same Policy Date and Issue Age and a Death Benefit at least as great as the initial guaranteed Death Benefit of your Policy (assuming no reduction in Death Benefit prior to the exchange). The premiums and Cash Value

will be the same as those for fixed benefit policies that we issue on the issue date of the Fixed Benefit Policy. The exchange may be subject to an equitable cash adjustment, which will recognize the investment performance of the Policy through the effective date of the exchange, and may have tax consequences. An exchange will be effective when we receive a proper written request, as well as the Policy, and any amount due on the exchange. We may modify or terminate this accommodation at any time, with or without notice.

In addition, you may exchange a Policy for a Fixed Benefit Policy if, at any time, a Fund changes its investment adviser, if there is a material change in the investment objectives or restrictions of a Portfolio, or a Portfolio is substituted for another portfolio (see “Substitution of Fund Shares and Other Changes”). There may be a cost associated with the exchange. We will give you notice of any such change and you will have 60 days to make the exchange.

Modifying a Policy

Any Policy change that you request is subject to our then current insurability and processing requirements. Processing requirements may include, for example, completion of certain forms and satisfying certain evidentiary requirements.

If the Policy is changed or modified, we may make appropriate endorsements to the Policy, and we may require you to send your Policy to our Home Office for endorsement. Any modification or waiver of our rights or requirements under the Policy must be in writing and signed by an officer of the Company. No agent or other person may bind us by waiving or changing any provision contained in the Policy.

Upon notice to you, we may modify a Policy:

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to conform the Policy, our operations, or the Separate Account’s operations to the requirements of any law (including any regulation issued by a government agency) to which the Policy, the Company, or the Separate Account is subject;

•

to ensure continued qualification of the Policy as a life insurance contract under the federal tax laws; or

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to reflect a change in the Separate Account’s operation.

Other Policy Provisions

Owner The Owner is identified in the Policy. The Owner may exercise all rights under the Policy while the Insured is living. Ownership may be transferred to another. Written proof of the transfer must be received by Northwestern Mutual at its Home Office. In this prospectus “you” means the Owner of a Policy. Generally, only Owners are entitled to important information about the Policy. Other persons, such as beneficiaries or payors, are entitled to only limited information.

Beneficiary The beneficiary is the person to whom the Death Benefit is payable. The beneficiary is named in the Application. You may change the beneficiary in accordance with the Policy provisions.


24		Variable Life Prospectus

Incontestability We will not contest a Policy after it has been in force during the lifetime of the Insured for two years from the Date of Issue or two years from the effective date of a reinstatement.

Misstatement of Age or Sex If the age or sex of the Insured has been misstated, we will adjust benefits under a Policy to reflect the correct age and sex.

Collateral Assignment You may assign a Policy as collateral security. We are not responsible for the validity or effect of a collateral assignment and will not be deemed to know of an assignment before receipt of the assignment in writing at our Home Office.

Optional Benefits If available in your state, there are two optional benefits available for purchase under the Whole Life Policy or Extra Ordinary Life Policy: (1) a Waiver of Premium Benefit; and (2) an Additional Purchase Benefit.

Subject to the terms and conditions of the benefit, the Waiver of Premium Benefit waives the payment of all premiums that come due during the total disability of the Insured if the disability is due to accident or sickness and it begins on or before the Policy Anniversary nearest the Insured’s 60^th birthday. If the disability occurs after the Policy Anniversary nearest the Insured’s 60^th birthday, the benefit waives the payment of all premiums that come due during the total disability of the Insured until the Policy Anniversary nearest the Insured’s 65^th birthday.

Subject to the terms and conditions of the benefit, the Additional Purchase Benefit guarantees the right to buy more insurance without proof of insurability.

If you selected one or both of these optional benefits, you are subject to a separate charge. (See “Periodic Charges (Other than Fund Operating Expenses)” and “Deductions and Charges—Optional Benefits” for more information about the charges.) Any charge will continue to be assessed as long as the benefit remains in force. Once the Policy has been issued, an optional benefit may be issued only upon mutual agreement.

Income Plans The Policy provides a variety of Income Plans for Policy benefits. Any Northwestern Mutual Financial Representative authorized to sell the Policies can explain these provisions on request.

Deferral of Determination and Payment So long as premiums have been paid when due, we will ordinarily pay Policy benefits within seven days after we receive all required documents at our Home Office. However, we may defer determination and payment of benefits during any period when it is not reasonably practicable to value securities because the NYSE is closed, or the SEC, by order, either has determined that an emergency exists or permits deferral of the determination and payment of benefits for the protection of Owners. If a Whole Life Policy or an Extra Ordinary Life Policy is continued in force as extended term or reduced fixed benefit paid-up insurance, we have the right to defer payment of the Cash Value for up to six months from the date of a Policy loan or surrender. If payment of surrender proceeds is deferred

for 30 days or more, we will pay interest at an annual effective rate of 4%. If, under SEC rules, the Money Market Portfolio suspends payments of redemption proceeds in connection with a liquidation of the Portfolio, we will delay payment of any transfer, partial surrender, surrender, death benefit from the Money Market Division until the Portfolio is liquidated.

If you have submitted a check or draft to our Home Office, we have the right to defer payment of surrender proceeds, Cash Value resulting from a Death Benefit reduction, Death Benefit or loan proceeds or Income Plan benefits until the check or draft has been honored.

If mandated under applicable law, we may be required to block an Owner’s account and thereby refuse to pay any requests for transfer, Death Benefit reduction, surrender, loans, or Death Benefits, until instructions are received from the appropriate legal authority. We may also be required to provide additional information about an Owner and an Owner’s account to government authorities.

Voting Rights

As long as the Separate Account continues to be registered as a unit investment trust under the 1940 Act, and as long as Separate Account assets of a particular Division are invested in shares of a given Portfolio, we will vote the shares of that Portfolio held in the Separate Account in accordance with instructions we receive from Owners. Periodic reports relating to the Portfolios, proxy material, and a form on which one can give instructions with respect to the proportion of shares of the Portfolio held in the Separate Account corresponding to the Owner’s Policy Value, will be made available to the Owner(s). We will vote shares for which no instructions have been received and shares held in our General Account in the same proportion as the shares for which instructions have been received from Owners. The effect of such proportional voting is that a small number of Owners may control the outcome of a particular vote.

Substitution of Fund Shares and Other Changes

If, in our judgment, a Portfolio or Fund becomes unsuitable for continued use with the Policies because of a change in investment objectives or restrictions, we may substitute shares of another Portfolio or Fund or another mutual fund. Any substitution of shares will be subject to any required approval of the SEC, the Wisconsin Commissioner of Insurance or other regulatory authority. We have also reserved the right, subject to applicable federal and state law, to operate the Separate Account or any of its Divisions as a management company under the 1940 Act, or in any other form permitted, or to terminate registration of the Separate Account if registration is no longer required, and to change the provisions of the Policies to comply with any applicable laws. In the event we take any of these actions, we may make an appropriate endorsement of your Policy and take other actions to carry out what we have done.

Northwestern Mutual and the Separate Account have requested approval of the SEC to remove the Commodities


Variable Life Prospectus			25

Return Strategy Portfolio of the Series Fund (the “Commodities Portfolio”) as an investment option under your Policy. Following the receipt of the SEC’s approval, we will set a date to automatically transfer any amounts you have in the Division investing in the Commodities Portfolio to the Division investing in the Commodity Return Strategy Portfolio, a portfolio of the Credit Suisse Trust (the “Credit Suisse Commodity Portfolio”), as part of a transaction referred to as the “Substitution.” Allocations to the Commodities Portfolio through preexisting dollar-cost averaging programs, portfolio rebalancing elections, asset allocation models or other automatic transfers or scheduled or systematic transactions will be replaced with the Credit Suisse Commodity Portfolio. Once the date of the Substitution has been determined, we will provide you with written notice notifying you of the date. You will receive a prospectus or summary prospectus for the Credit Suisse Commodity Portfolio before the date of the Substitution. The Credit Suisse Commodity Portfolio is not currently available as an investment option in the Policy and will only be available as of the date of the Substitution following SEC approval. If the SEC does not approve the Substitution, the Company will assess its options and consider other alternatives, including but not limited to (i) pursuing another substitution of a different portfolio with comparable investment objectives or a money market portfolio or (ii) making other changes in response to actions of the Commodities Portfolio, such as closing the Portfolio to new investments or changing its investment objectives and strategies via a proxy vote where required (see “Voting Rights”).

If we receive approval from the SEC, as of the date of the Substitution, the Commodities Portfolio will cease to be available under your Policy. The Substitution will not result in a change in your Policy Value or death benefit. You will not incur any fees or charges as a result of the Substitution, nor will your rights or our obligations under the Policy be altered. We or our affiliates will bear all expenses incurred in connection with the Substitution.

Except as noted below, you may continue to transfer amounts from the Division investing in the Commodities Portfolio to other Divisions until the date of the Substitution. The first transfer made from the Commodities Portfolio between May 1, 2013 and the Substitution will be free of charge and will not count toward your limit on transfers as part of our policies and procedures on short-term and excessive trading (see “Short-term and Excessive Trading”). For those Policy Owners with amounts in the Commodities Portfolio that were substituted to the Credit Suisse Commodity Portfolio on the date of the Substitution, we will not charge a fee for the first transfer out of the Credit Suisse Commodity Portfolio for 30 days after the Substitution and any such transfer will not count toward your limit on transfers as part our policies on short-term and excessive trading. Within five days after the Substitution, we will forward Policy Owners affected by the Substitution a written notice informing them of the details regarding the Substitution.

In addition to closing the Division investing in the Commodities Portfolio in response to the Portfolio’s decision to close the Portfolio to new investments irrespective of the Substitution (see “The Funds” section of the prospectus for more information regarding investments by a Division in a particular Portfolio), while it is not our present intention, in conjunction with the Substitution and the liquidation of the assets of the Commodities Portfolio in anticipation of the Substitution and in order to minimize any effect on the Portfolio’s ability to meet the Separate Account’s redemption request or transfer of assets to the Credit Suisse Commodity Portfolio as part of the Substitution transaction, we may also close the Commodities Portfolio and/or the Division investing in the Commodities Portfolio and not accept additional payments. In the case of a Portfolio closure, allocations or transfers to the Commodities Portfolio on or after the date of the close will be deemed not in Good Order and either we or your Financial Representative may notify you in writing, by telephone or by email in an effort to conform your request. You will be given sufficient advance notice of any intent to close the Commodities Portfolio.

Reports and Financial Statements

For each Policy Year you will receive a statement showing the Death Benefit, Cash Value and any Policy loan (including interest charged) as of the Policy anniversary. We will also send you a confirmation statement when you transfer among Divisions, take a Policy loan, or surrender the Policy. The annual statement and confirmation statements will show your apportioned amounts among the Divisions. If the Policy is in force as extended term or fixed benefit paid-up insurance, statements and reports will be limited to an annual Policy statement showing the Death Benefit, Cash Value and any Policy loan.

Annually, we will send you a report containing financial statements of the Separate Account and semi-annually, we will send you reports containing financial information and schedules of investments for the Portfolios underlying the Divisions to which your Invested Assets are allocated. The financial statements of the Company appear in the Statement of Additional Information. To receive a copy of the Annual Report, Semi-Annual Report and/or the Statement of Additional Information, call 1-866-424-2609. Certain reports and other information can be obtained on our website at www.northwesternmutual.com.

Special Policy for Employers

The premium for the standard Policy is based in part on the sex of the Insured. The standard annuity rates for Income Plans which last for the lifetime of the payee are also based, in part, on the sex of the payee. However, if your Policy was issued in connection with an employer sponsored benefit plan or arrangement, federal law and the laws of certain states may require that premiums and annuity rates be determined without regard to sex. You are urged to review any questions in this area with qualified counsel.


26		Variable Life Prospectus

Householding

To reduce costs, we may send only a single copy of the same disclosure document(s) (such as prospectuses, prospectus supplements, reports, announcements, proxy statements, notices, and information statements) to each consenting household (rather than sending copies to each Owner residing in a household). If you are or become a member of such a household, you can revoke your consent to “householding” at any time, and can begin receiving your own copy of such disclosure documents, by calling us at 1-866-424-2609.

Abandoned Property Requirements

Every state has unclaimed property laws which generally declare insurance contracts/policies to be abandoned after a period of inactivity of three to five years from the contract’s/policy’s maturity date, the date the death benefit is due and payable, or in some states, the date the insurer learns of the death of the insured. For example, if the payment of the death benefit has been triggered, but, if after a thorough search, we are still unable to locate the beneficiary, or if the beneficiary does not come forward to claim the death benefit proceeds in a timely manner, the death benefit proceeds will be paid to the abandoned property division or unclaimed property office of the state in which the beneficiary or you last resided, as shown on our books and records, or to our state of domicile. This “escheatment” is revocable, however, and the state is obligated to pay the death benefit proceeds (without interest) if your beneficiary steps forward to claim it with the proper documentation. To prevent such escheatment, it is important that you update your beneficiary designations, including addresses, if and as they change. Please contact your Financial Representative or call 1-866-424-2609 for assistance in making such changes.

Legal Proceedings

Northwestern Mutual, like other life insurance companies, is generally involved in litigation at any given time. Although the outcome of any litigation cannot be predicted with certainty, we believe that, as of the date of this prospectus, there are no pending or threatened lawsuits that will have a materially adverse impact on the ability of Northwestern Mutual to meet its obligations under the Policy, on the Separate Account, or on Northwestern Mutual Investment Services, LLC, the principal underwriter for the Separate Account, and its ability to perform its duties as underwriter for the Separate Account.

Speculative Investing

This Policy, or any of its riders, should not be used for any type of speculative collective investment scheme (including, for example, arbitrage). Your Policy is not intended to be traded on any stock exchange or secondary market, and attempts to engage in such trading may violate state and/or federal law.

Owner Inquiries

If eligible, you may get up-to-date information about your Policy at your convenience with your Policy number and your Personal Identification Number (PIN). Call Northwestern Mutual Express toll-free at 1-800-519-4665 to review Policy values, make transfers among Divisions, change the allocation and obtain performance information. With your User ID and password, you can also visit our website www.northwesternmutual.com to access performance information, forms for routine service, and daily Policy values for Policies you own. Eligible Owners may also set up certain electronic payments, transfer accumulated amounts among Divisions and change the allocation of future contributions online, subject to our administrative procedures. For enrollment information, please visit our website www.northwesternmutual.com. Please note that electronic devices may not always be available. Any electronic device, whether it is yours, your service provider’s, your agent’s or ours, can experience outages or slowdowns for a variety of reasons, which may delay or prevent our processing of your request or payment. Although we have taken precautions to limit these problems, we cannot promise complete reliability under all circumstances. If you are experiencing problems, you should make your request or payment in writing at our Home Office. Electronic requests or payments are deemed to be received by us upon receipt at the electronic location designated by us in our procedures. If you have questions about surrendering your Policy, please call your Financial Representative or the Variable Life Service Center at 1-866-424-2609. To file a claim, please call your Financial Representative or Life Benefits at 1-800-635-8855.

Illustrations

Your Northwestern Mutual Financial Representative will provide you with an illustration for your Policy upon request. The illustration will reflect the performance of your Policy to date and will show how the amount payable at death and Cash Value would vary based on hypothetical future investment results.

Illustrations for variable life insurance policies do not project or predict investment results. The illustrated values assume that non-guaranteed elements such as dividends, policy charges and level investment returns will not change. Given the volatility of the securities markets over time, the illustrated scenario is unlikely to occur and the Policy’s actual Cash Value, amount payable at death, and certain expenses (which will vary with the investment performance of the Portfolios) will be more or less than those illustrated. In addition, the actual timing and amounts of payments, deductions, expenses and any values removed from the policy will also impact product performance. Due to these variations, even a Portfolio that averaged the same return as illustrated will produce values which will be more or less than those which were illustrated.


Variable Life Prospectus			27

Tax Considerations

General The following discussion provides a general description of federal tax considerations relating to your Policy. The discussion is based on current provisions of the Internal Revenue Code (“Code”) as currently interpreted by the Treasury and the Internal Revenue Service (“IRS”). The discussion is not exhaustive, it does not address the likelihood of future changes in federal tax law or interpretations thereof, and it does not address state or local tax considerations which may be significant in the purchase and ownership of a Policy.

This tax discussion is intended to describe the tax consequences associated with your Policy. It does not constitute legal or tax advice, and is not intended to be used and cannot be used to avoid any penalties that may be imposed on a taxpayer. Taxpayers should seek advice based on their particular circumstances from an independent tax advisor.

Life Insurance Qualification Section 7702 of the Code defines life insurance for federal income tax purposes. Under Section 7702, a Policy will generally be treated as life insurance for federal tax purposes if at all times it meets either a guideline premium test or a cash value accumulation test. We have designed your Policy to comply with only the cash value accumulation test. We may take any action that may be necessary for the Policy to qualify as life insurance for tax purposes.

The definitional tests under the Code are based on the Commissioner’s Standard Ordinary (CSO) mortality tables in effect when the Policies were issued. For Policies issued or materially changed after 2008, the tests must be based on the 2001 CSO mortality tables. Because Policies issued based on the 1980 CSO mortality tables may not satisfy the definitional tests using the 2001 CSO mortality tables, certain changes to those Policies will not be permitted (as defined by IRS Notices 2004-61 and 2006-95). Special safe harbor calculation rules apply to life insurance after the Insured attains age 100. See IRS Rev. Proc. 2010-28.

As provided by Section 817(h) of the Code, the Secretary of the Treasury has set standards for diversification of the investments underlying variable life insurance policies. Failure to meet the diversification requirements would disqualify your Policy as life insurance for purposes of Section 7702 of the Code. We believe that your Policy complies with the provisions of Sections 7702 and 817(h) of the Code, but the application of these rules is not entirely clear. We may make changes to your Policy if necessary for the Policy to qualify as life insurance for tax purposes.

IRS Rev. Ruls. 2003-91 and 2003-92 provide guidance on when an Owner’s control of Separate Account assets will cause the Owner, and not the life insurance company, to be treated as the owner of those assets. Important indicators of investor control are the ability of the Owner to select the investment advisor, the investment strategy or the particular investments of the Separate Account. If the Owner of a Policy were treated as the owner of the mutual fund shares held in the

Separate Account, the income and gains related to those shares would be included in the Owner’s gross income for federal income tax purposes. We believe that we own the assets of the Separate Account under current federal income tax law.

Tax Treatment of Life Insurance While your Policy is in force, increases due to investment experience are not subject to federal income tax until there is a distribution as defined by the Code. The Death Benefit received by a beneficiary will generally not be subject to federal income tax.

Unless the Policy is a MEC, as described below, a loan received under your Policy will not be treated as a distribution subject to current federal income tax. Interest paid by individual Owners of a Policy will ordinarily not be deductible. You should consult a qualified tax advisor as to the deductibility of interest paid, or accrued, by business Owners of a Policy. (See “Business-Owned Life Insurance”).

So long as your Policy is not classified as a MEC (see “Modified Endowment Contract”), as a general rule, the proceeds from a surrender or withdrawal will be taxable only to the extent that the proceeds exceed the basis of the Policy. The basis of the Policy is generally equal to the premiums paid less any amounts previously received as tax-free distributions. Dividends paid in cash (or, if allowable under your Policy, used to purchase additional insurance or used to pay premiums) are generally taxable as withdrawals with a resulting reduction in basis. However, when the dividend is applied to increase Cash Value or to pay premiums, the reduction in the basis of the Policy is offset by a corresponding increase in basis. In certain circumstances, a withdrawal of Cash Value during the first 15 Policy Years may be taxable to the extent that the Cash Value exceeds the basis of the Policy. This means that the amount withdrawn may be taxable even if that amount is less than the basis of the Policy.

Caution must be used when taking cash out of a Policy through policy loans. If interest is not paid annually, it is added to the principal amount and the total amount will continue to accrue for as long as the loan is maintained on the Policy. If the Policy remains in force until the death of the Insured or, in the case of joint life insurance, the second death, the loan will be repaid from the tax-free Death Benefit. However, if the Policy terminates by any method other than death, the loan will be repaid from the Cash Value of the Policy, and the total Cash Value, including the total amount of the loan, will be taxable to the extent it exceeds the basis of the Policy. If the extended term insurance nonforfeiture option is available in your Policy, and it lapses to extended term insurance, the loan will be repaid from Cash Value of the Policy and the loan repayment will be treated as income and taxable to the extent it exceeds the amount of premiums paid. In extreme situations, Owners can face what is called the “surrender squeeze.” The surrender squeeze occurs when the unborrowed value remaining in the Policy is insufficient to


28		Variable Life Prospectus

cover the interest payment required to keep the Policy in force or to cover the tax due if the Policy terminates. Either the interest would have to be paid annually or it would be added to the Policy loan, causing the Policy to terminate and any income tax due on the loan amount to be payable with other assets of the Owner.

Subject to the agreement of the Company, and the Owner meeting any conditions set by the Company, a Policy may be exchanged tax-free for another life insurance policy covering the same Insured (or, in the case of joint life insurance, covering the Insureds or a surviving Insured) or an annuity contract with the same owner. The Code also allows certain policies to be exchanged for stand-alone and combination long-term care policies on a tax-free basis. Policies that are exchanged for life insurance policies after 2008 may only be exchanged for life insurance policies using 2001 CSO mortality tables. Any cash received or loan repaid in an exchange will be taxed to the extent of the gain in the Policy (i.e., on gain-first basis).

Ownership of a Policy may be transferred to a new owner and is taxable to the extent the sales proceeds exceed the basis of the Policy. In Rev. Rul. 2009-13, the IRS ruled that, when a life insurance policy is sold to a person with no insurable interest in the insured, the taxable gain is calculated by reducing the basis of the policy by the annual cost of the insurance protection provided by the policy. Legislation has been proposed that would revoke this rule. The death benefit of a policy in excess of the basis also may become taxable as a result of a transfer, unless the new owner is the insured, a partner of the insured, a partnership in which the insured is a partner or a corporation in which the insured is a shareholder or officer. You should seek qualified tax advice if you plan a transfer of ownership.

For taxable years beginning in 2013, part or all of the taxable benefits from and sales of the Policies may be subject to an additional 3.8% Medicare tax. The tax will be assessed on the Owner’s net investment income for the year to the extent that the Owner’s adjusted gross income (with slight modifications) exceeds $250,000 (married filing jointly or surviving spouse), $125,000 (married filing separately) or $200,000 (other filers) (not indexed). Although the term “net investment income” does not specifically refer to life insurance, there is a possibility that it could be construed to include transfers of and/or distributions from life insurance, to the extent they are taxable. The Treasury has recently issued proposed regulations, however, that indicate in the preamble that “net investment income” would not include transfers of, or distributions from, life insurance contracts other than periodic payments under payment plans.

Modified Endowment Contracts (MEC) A modified endowment contract (“MEC”) is a life insurance contract that is taxed less favorably on lifetime distributions than other life insurance contracts because the contract is considered too investment oriented. A Policy may be classified as a MEC if cumulative premiums paid during the first seven Policy Years after issue exceed a “seven-pay” limit defined in section 7702A of the Internal Revenue Code. The seven-pay limit is

the sum of the premiums (net of expense and administrative charges) that would have to be paid in order for the Policy to be fully paid for after seven level annual payments based on defined interest and mortality assumptions. A Policy will be treated as a MEC unless any excess premiums are reversed from the Policy and returned with interest within 60 days after the end of the Policy Year in which they are paid. If excess premium is reversed, all Policy values are recalculated as though the excess premium had never been paid.

Whenever there is a “material change” under a Policy, it will generally be treated as a new contract for purposes of determining whether the Policy is a MEC, and it will be subjected to a new seven-pay period and a new seven-pay limit. The new seven-pay limit would be determined taking into account the value of the Policy at the time of such change. A materially changed Policy would be considered a MEC if it failed to satisfy the new seven-pay limit. A material change could occur as a result of certain changes to the benefits or terms of the Policy, such as a change in a death benefit option or a change in the Insured, if allowable under your Policy. A material change could occur as a result of an increase in the death benefit, the addition of a benefit or the payment of a premium after the seven-pay period, which could be considered “unnecessary” under the Code.

If the benefits under the Policy are reduced during the first seven Policy Years after entering into the Policy (or within seven years after a material change) or, in the case of joint life Policies, the lifetime of either Insured, the seven-pay premium limit will be redetermined based on the reduced level of benefits and applied retroactively for purposes of the seven-pay test. If the premiums previously paid are greater than the recalculated seven-pay premium level limit, the Policy will become a MEC. A reduction in benefits includes a decrease in the amount of coverage, a withdrawal or any other action resulting in a surrender of Cash Value to you according to the terms of the Policy, an election of the paid-up option or, in some cases, a lapsing of the Policy where the Policy is not reinstated within 90 days. A life insurance policy which is received in exchange for a MEC will also be considered a MEC.

If a Policy is a MEC, any distribution from the Policy will be taxed on a gain-first basis. Distributions for this purpose include a loan (including any increase in the loan amount to pay interest on an existing loan or an assignment or a pledge to secure a loan), a withdrawal of Cash Value or a surrender of the Policy. Distributions taken within the two-year period prior to the Policy becoming a MEC may also be taxed under the MEC tax rules. If a Policy terminates while there is a Policy loan, the cancellation of the loan and accrued loan interest also will be treated as a distribution to the extent not previously treated as such. Any such distributions will be considered taxable income to the extent the Cash Value exceeds the basis in the Policy. For MECs, the basis would be increased by the amount of any prior loan under the Policy that was considered taxable income. For purposes of determining the taxable portion of any distribution, all MECs issued by Northwestern Mutual to the same Owner (excluding


Variable Life Prospectus			29

certain qualified plans) during any calendar year are to be aggregated. The Secretary of the Treasury has authority to prescribe additional rules to prevent avoidance of gain-first taxation on distributions from MECs.

A 10% penalty tax will apply to the taxable portion of a distribution from a MEC. The penalty tax will not, however, apply to distributions (i) to taxpayers 59¹⁄₂ years of age or older, (ii) in the case of a disability (as defined in the Code) or (iii) received as part of a series of substantially equal periodic annuity payments for the life (or life expectancy) of the taxpayer or the joint lives (or joint life expectancies) of the taxpayer and the taxpayer’s beneficiaries. The exceptions generally do not apply to life insurance policies owned by corporations or other entities.

Estate and Generation Skipping Taxes The amount of the Death Benefit will generally be includible in the Owner’s estate for federal estate tax purposes and any applicable state inheritance tax. If your Policy is a joint life Policy, the Life Insurance Benefit will be includible in the Owner’s estate if the second of the Insureds to die owns the Policy, and the fair market value of the Policy will be includible in the Owner’s estate if the Owner is not the last surviving Insured. An unlimited marital deduction permits deferral of federal estate and gift taxes until the death of the Owner’s surviving spouse.

If ownership of a Policy is transferred, either directly or in trust, to a person two or more generations younger than the Owner, the value of the Policy may be subject to a generation skipping transfer tax.

For tax years beginning after December 31, 2012, an exemption limit of $5 million (single)/$10 million (married) (with inflation indexing after 2011) and a maximum rate of 40% will apply for purposes of the estate, gift and generation skipping transfer taxes. In addition, any unused estate exemption limit may be carried over to the surviving spouse.

Business-Owned Life Insurance Business-owned life insurance may be subject to certain additional rules. Section 101(j) of the Code provides that the Death Benefit payable under business-owned life insurance in which the business is also the beneficiary will be taxable unless (i) the Insured is an eligible employee and (ii) the employee is given notice of the insurance and the maximum face amount and consents to be insured and to the continuation of the insurance after the employee terminates service with the employer. Generally, an eligible employee is an officer, a director, a person who owns more than 5% of the business, an employee earning more than $110,000 annually (increased for cost of living) or an employee who is among the highest paid 35% of employees. The law also imposes an annual reporting and record-keeping obligation on the employer. Increases in Policy or Cash Value may also be subject to tax under the corporation alternative minimum tax provisions.

Section 264(a)(1) of the Code generally disallows a deduction for premiums paid on Policies by anyone who is directly or indirectly a beneficiary under the Policy. Section 264(a)(4) of the Code limits the Owner’s deduction for interest on loans taken against life insurance policies to interest on an aggregate

total of $50,000 of loans per covered life only with respect to life insurance policies covering key persons. Generally, a key person means an officer or a 20% owner. However, the number of key persons will be limited to the greater of (a) five individuals, or (b) the lesser of 5% of the total officers and employees of the taxpayer or 20 individuals. Deductible interest for these Policies will be subject to limits based on current market rates.

In addition, Section 264(f) of the Code disallows a proportionate amount of a business’s interest deduction on non-life insurance indebtedness based on the amount of unborrowed Cash Value of non-exempt life insurance policies held in relation to other business assets. Exempt policies include policies held by natural persons unless the business is a direct or indirect beneficiary under the policy and policies owned by a business and insuring an individual who at the time the policy is issued is an employee, director, officer or 20% owner (as well as joint policies insuring 20% owners and their spouses). The IRS ruled in 2011 that a policy received in a tax-free exchange is newly issued for this purpose.

The IRS ruled privately in 2009 that losses in business-owned life insurance could be deducted upon the surrender of the policy if there was no reasonable prospect of recovery, but that the losses would be calculated by reducing the basis of the policy by the annual cost of the insurance protection provided by the policy. Private rulings apply only to the taxpayer who receives the ruling but may be indicative of the IRS’s thinking on an issue.

IRS Notice 2007-61 has established a safe harbor under which the annual increase in the cash value of life insurance policies owned by life insurance companies is not taxable provided the policies cover no more than 35% of the company’s employees, directors, officers and 20% owners. The Notice adds that there is an unresolved issue whether cash value increases of other policies owned by life insurance companies may be taxable.

Policy Split Right If your Policy is a joint life Policy, your Policy permits the Owner to exchange the Policy for two policies, one on the life of each Insured, without evidence of insurability, if a change in the federal estate tax law results in either the repeal of the unlimited marital deduction or a 50% or greater reduction in the maximum estate tax rate set forth in the law. The exchange must be made while both Insureds are alive (and neither Insured is classified as a Joint Insurable). The request for exchange must be received no later than 180 days after the earlier of the enactment of the law repealing the unlimited marital deduction or the enactment of the law reducing the estate tax rate by at least 50%.

The IRS has ruled with respect to one taxpayer that such a transaction would be treated as a non-taxable exchange. If not so treated, such a split of the Policy could result in the recognition of taxable income.

Split Dollar Arrangements Life insurance purchased under a split dollar arrangement is subject to special tax rules. IRS Notice 2002-8 provides that (1) the value of the current life insurance protection provided to the employee under the


30		Variable Life Prospectus

arrangement is taxed to the employee each year and, until the issuance of further guidance, can be determined using the government’s Table 2001 rates or the insurer’s lower one year term rates (which, for arrangements entered into after January 28, 2002, must satisfy additional sales requirements); and (2) for split dollar arrangements entered into on or before September 17, 2003, taxation of the equity (cash surrender value in excess of the amount payable to the employer) is governed by prior law and is subject to the following three safe harbors: (a) the annual accrual of income will not, by itself, be enough to trigger a taxable transfer; (b) equity will not be taxed regardless of the level of the employer’s economic interest in the life insurance policy as long as the value of the life insurance protection is treated and reported as an economic benefit; and (c) the employee can elect loan treatment at any time, provided all premiums paid by the employer are treated as a loan entered into at the beginning of the first year in which payments are treated as loans.

The Treasury and IRS regulations regarding the taxation of split dollar arrangements apply only to arrangements entered into or materially changed after September 17, 2003. The regulations provide that such split dollar arrangements must be taxed under one of two mutually exclusive tax regimes depending on the ownership of the underlying life insurance policy. Collateral assignment split dollar arrangements, in which the employee owns the policy, must be taxed under a loan regime. Where such an arrangement imposes a below market interest rate or no interest rate, the employee is taxed on the imputed interest under Section 7872 of the Code. Endorsement split dollar arrangements, in which the employer owns the policy, must be taxed under an economic benefit regime. Under this regime, the employee is taxed each year on (i) the value of the current life insurance protection provided to the employee, (ii) the increase in the amount of policy Cash Value to which the employee has current access, and (iii) the value of any other economic benefits provided to the employee during the taxable year.

Under the Sarbanes-Oxley Act of 2002, it is a criminal offense for an employer with publicly traded stock to extend or arrange a personal loan to a director or executive officer after July 30, 2002. One issue that has not been clarified is whether each premium paid by such an employer under a split dollar arrangement with a director or executive officer is a personal loan subject to the new law.

Section 409A of the Code imposes requirements for nonqualified deferred compensation plans with regard to the

timing of deferrals, distribution triggers, funding mechanisms and reporting requirements. Nonqualified deferred compensation plans that fail to meet these conditions are taxed currently on all compensation previously deferred and interest earned thereon and assessed an additional 20% penalty. The law does not limit the use of life insurance as an informal funding mechanism for nonqualified deferred compensation plans, but IRS Notice 2007-34 treats certain split dollar arrangements as nonqualified deferred compensation plans that must comply with the new rules. The effective date of these rules was December 31, 2008. Congress has also considered limiting an individual’s annual aggregate deferrals to a nonqualified deferred compensation plan to $1,000,000.

Valuation of Life Insurance Special valuation rules apply to life insurance contracts distributed from a qualified plan to a participant or transferred by an employer to an employee. IRS Notice 2005-25 provides safe harbor formulas for valuing variable and non-variable life insurance under which the value is the greater of the interpolated terminal reserve increased by a pro rata portion of the estimated dividends for the Policy Year or the cash value without reduction for any surrender charges (but adjusted by a surrender factor for policies distributed from qualified plans). These rules do not apply to split dollar arrangements entered into on or before September 17, 2003 and not materially modified thereafter.

Other Tax Considerations Taxpayers are required by regulation to annually report all “reportable transactions” as defined in the regulations. “Reportable transactions” include transactions that are offered under conditions of confidentiality as to tax treatment and involve an advisor who receives a fee of $250,000 or more, or transactions that include a tax indemnity. Rev. Proc. 2003-25 further held that the purchase of life insurance policies by a business does not, by itself, constitute a “reportable transaction.”

Depending on the circumstances, the exchange of a Policy, a Policy loan (including the addition of unpaid loan interest to a Policy loan), or a change in ownership or an assignment of the Policy may have federal income tax consequences. In addition, federal, state and local transfer, estate, inheritance, and other tax consequences of Policy ownership, premium payments and receipt of Policy proceeds depend on the circumstances of each Owner or beneficiary. If you contemplate any such transaction you should consult a qualified tax adviser. In addition, a Death Benefit under the Policy may be subject to federal estate tax and state inheritance taxes.

Distribution of the Policy

We sell the Policy through our Financial Representatives who also are registered representatives of Northwestern Mutual Investment Services, LLC (“NMIS”). NMIS, our wholly-owned company, was organized under Wisconsin law in 1998 and is located at 611 East Wisconsin Avenue, Milwaukee, Wisconsin 53202. NMIS is a registered broker-dealer under

the Securities Exchange Act of 1934 and is a member of the Financial Industry Regulatory Authority. NMIS is the principal underwriter and distributor of the Policy and has entered into a Distribution Agreement with us.

Northwestern Mutual variable insurance and annuity products are available exclusively through NMIS and its registered


Variable Life Prospectus			31

representatives and cannot be held with or transferred to an unaffiliated broker-dealer. Except in limited circumstances, NMIS registered representatives are required to offer Northwestern Mutual variable insurance and annuity products. The amount and timing of sales compensation paid by insurance companies varies. The commissions, benefits, and other sales compensation that NMIS and its registered representatives receive for the sale of a Northwestern Mutual variable insurance or annuity product might be more or less than that received for the sale of a comparable product from another company.

The maximum commission payable to the registered representative who sold the Whole Life or Extra Ordinary Life Policy is 55% of the premium during the first Policy Year; 9% of the premium in Policy Years 2-3; 6% of the premium in Policy Years 4-7; 3% of the premium in Policy Years 8-10; and 2% of Premium Payments thereafter. For the Single Premium Life Policy, commissions were 2.75% of the premium. Registered representatives may receive less than the maximum commission or no commission in certain circumstances according to pre-established guidelines. We may also pay new registered representatives differently during a training period. The entire amount of sales commissions paid to registered representatives is passed through NMIS to the registered representative who sold the Policy and to his or her managers. The Company pays compensation and bonuses for the management team of NMIS, and other expenses of distributing the Policies.

Because registered representatives of NMIS are also our appointed agents, they may be eligible for various cash benefits, such as bonuses, insurance benefits, retirement benefits, and non-cash compensation programs that we offer, such as conferences, achievement recognition, prizes, and awards. In addition, registered representatives of NMIS who meet certain productivity, persistency, and length of service standards and/or their managers may be eligible for additional compensation. For example, registered representatives who meet certain annual sales production requirements with respect to their sales of Northwestern Mutual insurance and annuity products may qualify to receive additional cash compensation for their other sales of investment products and services. Sales of the Policies may help registered representatives and/or their managers qualify for such compensation and benefits. Certain registered representatives of NMIS may receive other payments from us for the recruitment, training, development, and supervision of financial representatives, production of promotional literature and similar services.

Commissions and other incentives and payments described above are not charged directly to Owners or to the Separate Account. We intend to recoup commissions and other sales expenses through fees and charges deducted under the Policy. NMIS registered representatives receive ongoing servicing compensation related to the Policies, but may be ineligible to receive ongoing servicing compensation paid by issuers of other investment products for certain smaller accounts.

Glossary of Terms

APPLICATION

The form completed by the applicant when applying for coverage under the Policy. This includes any:

1. amendments or endorsements;

2. supplemental Applications;

3. reinstatement Applications; and

4. Policy change Applications.

ATTAINED AGE

The Insured’s Issue Age listed in the Policy, plus the number of complete Policy Years that have elapsed since the Policy Date.

CASH VALUE

The amount available in cash if the Policy is surrendered.

DATE OF ISSUE

The date on which insurance coverage takes effect as shown in the Policy.

DEATH BENEFIT

The gross amount payable to the beneficiary upon the death of the Insured, before the deduction of Policy Debt and other adjustments.

DIVISION

A subdivision of the Separate Account. We invest each Division’s assets exclusively in shares of one Portfolio.

FINANCIAL REPRESENTATIVE

An individual who is authorized to sell you the Policy and who is both licensed as a Northwestern Mutual insurance agent and registered as a representative of our affiliate, Northwestern Mutual Investment Services, LLC, the principal underwriter of the Policy.

FUND

Each Fund is registered under the 1940 Act as an open-end management investment company or as a unit investment trust, or is not required to be registered under the Act. Each Portfolio of the Funds is available as an investment option under the Policy. The assets of each of the Divisions of the Separate Account are used to purchase shares of the corresponding Portfolio of a Fund.

GENERAL ACCOUNT

All assets of the Company, other than those held in the Separate Account or in other separate accounts that have been or may be established by the Company.

GOOD ORDER

Your request or payment meets all the current requirements necessary for us to process it. For certain requests this may include, as applicable, the return of proceeds, evidence of insurability, underwriting, MEC-limit (or insurance qualification) requirements or any premium payments due.


32		Variable Life Prospectus

HOME OFFICE

Our office at 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202-4797.

INCOME PLAN

An optional method of receiving the Death Benefit, maturity benefit, surrender proceeds or withdrawal proceeds of an insurance policy or annuity contract through a series of periodic payments. An Income Plan may also be known as a “payment plan.”

INSURED

The person named as the Insured on the Application and in the Policy.

INVESTED ASSETS

The sum of all amounts in the Divisions of the Separate Account.

ISSUE AGE

The Insured’s age on his or her birthday nearest the Policy Date.

MEC

Modified endowment contract as described in section 7702A of the Internal Revenue Code. A modified endowment contract is a life insurance contract that is taxed less favorably on lifetime distributions than other life insurance contracts because the contract is considered too investment oriented. A Policy will be classified as a MEC if cumulative premiums paid during the first seven Policy years after issue exceed a “seven-pay” limit defined in the Internal Revenue Code.

NET PREMIUM

The amount of Premium Payment remaining after Premium charges have been deducted.

NYSE

New York Stock Exchange.

OWNER (You, Your)

The person named in the Application as the Owner, or the person who becomes Owner of a Policy by transfer or succession.

POLICY ANNIVERSARY

The same day and month as the Policy Date in each year following the first Policy Year.

POLICY DATE

The date shown in the Policy from which the following are computed, among other things:

1. Policy Year;

2. Policy Anniversary;

3. the Issue Age of Insured; and

4. the Attained Age of the Insured.

POLICY DEBT

The total amount of all outstanding Policy loans, including both principal and accrued interest.

POLICY VALUE

The sum of Invested Assets and Policy Debt less applicable charges.

POLICY YEAR

A year that starts on the Policy Date or on a Policy Anniversary.

PORTFOLIO

A series of a Fund available for investment under the Policy, which corresponds to a particular Division of the Separate Account.

PREMIUM PAYMENTS

All payments you make under the Policy other than loan repayments and transaction charges.

SEPARATE ACCOUNT

Northwestern Mutual Variable Life Account.


Variable Life Prospectus			33

Additional Information

More information about the Separate Account is included in a Statement of Additional Information (“SAI”), which is dated the same day as this prospectus and is available free of charge from the Company. To request a free copy of the Separate Account’s SAI, or current annual report, call us toll-free at 1-866-424-2609. Information about the Separate Account (including the SAI) can be reviewed and copied at the Public Reference Room of the SEC in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-551-8090. Reports and other information about the Separate Account are available on the SEC’s Internet site at http://www.sec.gov, or they may be obtained, upon payment of a duplicating fee, by writing the Public Reference Section of the SEC, 100 F Street, NE, Washington, DC 20549-0102.

Your Northwestern Mutual Financial Representative will provide you with illustrations for your Policy free of charge upon your request. The illustrations show how the Death Benefit, Invested Assets and cash surrender value for the Policy would vary based on hypothetical investment results. Your Northwestern Mutual Financial Representative will also respond to other inquiries you may have regarding the Policy, or you may contact the Variable Life Service Center at 1-866-424-2609.

Investment Company Act File No. 811-3989


34		Variable Life Prospectus

STATEMENT OF ADDITIONAL INFORMATION

May 1, 2013

VARIABLE LIFE

Whole Life

Extra Ordinary Life

Single Premium Life

Issued by The Northwestern Mutual Life Insurance Company

and

Northwestern Mutual Variable Life Account

We no longer issue the three Policies described in this Statement of Additional Information.

The Policies we currently offer are described in separate Prospectuses and

Statements of Additional Information.

This Statement of Additional Information (“SAI”) is not a prospectus, but supplements, and should be read in conjunction with the prospectus for the Policies identified above and dated the same date as this SAI. The prospectus may be obtained by writing The Northwestern Mutual Life Insurance Company (“Northwestern Mutual”), 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202, or by calling telephone number 1-866-424-2609.

B-1

TABLE OF CONTENTS


	Page

DISTRIBUTION OF THE POLICIES		B-3

EXPERTS		B-3

FINANCIAL STATEMENTS OF THE ACCOUNT		F-1

FINANCIAL STATEMENTS OF NORTHWESTERN MUTUAL		F-26

B-2

DISTRIBUTION OF THE POLICIES

The Policies are offered on a continuous basis exclusively through individuals who, in addition to being life insurance agents of Northwestern Mutual, are registered representatives of Northwestern Mutual Investment Services, LLC (“NMIS”). NMIS is our wholly-owned company. The principal business address of NMIS is 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202.

NMIS is the principal underwriter of the Policies for purposes of the federal securities laws. We paid the following amounts to NMIS with respect to sales of variable life insurance policies issued in connection with the Account during each of the last three fiscal years representing commission payments NMIS made to our agents and related benefits. None of these amounts was retained by NMIS and no amounts were paid to other underwriters or broker-dealers. We also paid additional amounts to NMIS in reimbursement for other expenses related to the distribution of variable life insurance policies


Year	Amount
2012	$	12,321,208
2011	$	15,981,855
2010	$	22,325,029

NMIS also provides certain services related to the administration of payment plans under the Policies pursuant to an administrative services contract with Northwestern Mutual. In exchange for these services, NMIS receives compensation to cover the actual costs incurred by NMIS in performing these services.

EXPERTS

The financial statements of the Account, and the related notes and report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, included in this Statement of Additional Information and the consolidated financial statements of Northwestern Mutual, and the related notes and report of PricewaterhouseCoopers LLP included in this Statement of Additional Information are so included in reliance on the reports of PricewaterhouseCoopers LLP given on the authority of said firm as experts in auditing and accounting. PricewaterhouseCoopers LLP provides audit services for the Account. The address of PricewaterhouseCoopers LLP is 100 East Wisconsin Avenue, Suite 1800, Milwaukee, Wisconsin 53202.

B-3

Annual Report December 31, 2012

Northwestern Mutual Variable Life Account

Financial Statements

F-1

Northwestern Mutual Variable Life Account Financial

Statements

Table of Contents



Northwestern Mutual Variable Life Account

Statements of Assets and Liabilities			F-3

Statements of Operations			F-9

Statements of Changes in Net Assets			F-12

Notes to Financial Statements			F-19

Report of Independent Registered Public Accounting Firm			F-25

F-2

Statements of Assets and Liabilities

Northwestern Mutual Variable Life Account

December 31, 2012

(in thousands, except accumulation unit values)


	Growth Stock Division		Focused Appreciation Division		Large Cap Core Stock Division		Large Cap Blend Division		Index 500 Stock Division		Large Company Value Division
Assets:
Investments, at value (1)
Northwestern Mutual Series Fund, Inc	$	284,685	$	96,087	$	191,924	$	3,615	$	785,477	$	3,112
Fidelity Variable Insurance Products		—		—		—		—		—		—
Neuberger Berman Advisers Management Trust		—		—		—		—		—		—
Russell Investment Funds		—		—		—		—		—		—
Due from Northwestern Mutual Life Insurance Company		—		—		—		—		57		—

Total Assets		284,685		96,087		191,924		3,615		785,534		3,112

Liabilities:
Due to Northwestern Mutual Life Insurance Company		97		—		21		—		—		—

Total Liabilities		97		—		21		—		—		—

Total Net Assets	$	284,588	$	96,087	$	191,903	$	3,615	$	785,534	$	3,112

Net Assets:
Variable Life Policies Issued
Before October 11, 1995
Policyowners’ Equity	$	25,207	$	6,890	$	21,416	$	146	$	114,495	$	520
Northwestern Mutual Equity		511		112		478		3		1,952		4
Variable CompLife Policies Issued Between
October 11, 1995 and December 31, 2008 (2)
Policyowners’ Equity		239,806		78,836		155,523		3,141		607,057		2,487
Northwestern Mutual Equity		9,225		3,429		6,061		102		23,146		90
Variable Executive Life Policies Issued Between
March 2, 1998 and December 31, 2008 (3)
Policyowners’ Equity		4,416		3,227		4,232		204		16,817		—
Variable Joint Life Policies Issued Between
December 10, 1998 and December 31, 2008 (4)
Policyowners’ Equity		5,423		3,593		4,193		19		22,067		11

Total Net Assets	$	284,588	$	96,087	$	191,903	$	3,615	$	785,534	$	3,112


(1) Investments, at cost	$	230,751	$	80,654	$	162,689	$	3,451	$	725,318	$	2,979
Mutual Fund Shares Held		121,349		45,932		143,440		4,361		276,674		3,709
(2) Accumulation Unit Value	$	2.690097	$	2.245328	$	2.155410	$	1.080633	$	3.043500	$	1.120811
Units Outstanding		92,573		36,639		74,967		3,001		207,065		2,299
(3) Accumulation Unit Value	$	36.785012	$	23.543734	$	29.198468	$	9.155103	$	69.136117	$	9.343226
Units Outstanding		120		137		145		22		243		—
(4) Accumulation Unit Value	$	36.785012	$	23.543734	$	29.198468	$	9.155103	$	69.136117	$	9.343226
Units Outstanding		147		153		144		2		319		1

The Accompanying Notes are an Integral Part of the Financial Statements.

Statements of Assets and Liabilities

F-3

Statements of Assets and Liabilities

Northwestern Mutual Variable Life Account

December 31, 2012

(in thousands, except accumulation unit values)


	Domestic Equity Division		Equity Income Division		Mid Cap Growth Stock Division		Index 400 Stock Division		Mid Cap Value Division		Small Cap Growth Stock Division
Assets:
Investments, at value (1)
Northwestern Mutual Series Fund, Inc	$	134,621	$	90,309	$	374,575	$	213,742	$	39,419	$	185,205
Fidelity Variable Insurance Products		—		—		—		—		—		—
Neuberger Berman Advisers Management Trust		—		—		—		—		—		—
Russell Investment Funds		—		—		—		—		—		—
Due from Northwestern Mutual Life Insurance Company		7		—		23		2		—		—

Total Assets		134,628		90,309		374,598		213,744		39,419		185,205

Liabilities:
Due to Northwestern Mutual Life Insurance Company		—		9		—		—		88		137

Total Liabilities		—		9		—		—		88		137

Total Net Assets	$	134,628	$	90,300	$	374,598	$	213,744	$	39,331	$	185,068

Net Assets:
Variable Life Policies Issued
Before October 11, 1995
Policyowners’ Equity	$	12,283	$	7,423	$	53,782	$	10,630	$	2,543	$	8,524
Northwestern Mutual Equity		231		133		1,093		162		45		153
Variable CompLife Policies Issued Between
October 11, 1995 and December 31, 2008 (2)
Policyowners’ Equity		107,803		72,999		299,402		183,091		33,001		160,391
Northwestern Mutual Equity		4,901		2,878		11,187		7,022		1,478		6,782
Variable Executive Life Policies Issued Between
March 2, 1998 and December 31, 2008 (3)
Policyowners’ Equity		4,213		2,989		3,450		6,093		901		2,899
Variable Joint Life Policies Issued Between
December 10, 1998 and December 31, 2008 (4)
Policyowners’ Equity		5,197		3,878		5,684		6,746		1,363		6,319

Total Net Assets	$	134,628	$	90,300	$	374,598	$	213,744	$	39,331	$	185,068


(1) Investments, at cost	$	136,572	$	82,577	$	324,604	$	192,260	$	37,007	$	184,662
Mutual Fund Shares Held		137,790		67,244		114,830		143,163		30,253		98,409
(2) Accumulation Unit Value	$	1.419182	$	1.864547	$	2.733618	$	2.643527	$	2.019864	$	2.434726
Units Outstanding		79,414		40,695		113,619		71,917		17,070		68,663
(3) Accumulation Unit Value	$	15.037814	$	19.550985	$	75.402575	$	29.923387	$	21.179677	$	31.582975
Units Outstanding		280		153		46		204		43		92
(4) Accumulation Unit Value	$	15.037814	$	19.550985	$	75.402575	$	29.923387	$	21.179677	$	31.582975
Units Outstanding		346		198		75		225		64		200

The Accompanying Notes are an Integral Part of the Financial Statements.

Statements of Assets and Liabilities

F-4


Index 600 Stock Division		Small Cap Value Division		International Growth Division		Research International Core Division		International Equity Division		Emerging Markets Equity Division		Money Market Division		Short-Term Bond Division


$	6,205	$	143,950	$	82,923	$	12,231	$	504,516	$	21,471	$	170,040	$	6,957
	—		—		—		—		—		—		—		—
	—		—		—		—		—		—		—		—
	—		—		—		—		—		—		—		—
	1		23		—		2		—		—		—		3

	6,206		143,973		82,923		12,233		504,516		21,471		170,040		6,960


	—		—		82		—		35		2		100		—

	—		—		82		—		35		2		100		—

$	6,206	$	143,973	$	82,841	$	12,233	$	504,481	$	21,469	$	169,940	$	6,960




$	448	$	10,954	$	4,203	$	880	$	61,399	$	1,209	$	11,625	$	296
	6		182		77		23		1,159		23		233		5


	5,062		118,419		68,559		9,639		399,391		17,639		123,358		5,690
	202		5,036		3,218		347		15,749		637		6,663		197


	470		3,540		3,551		1,018		13,496		1,198		10,415		535


	18		5,842		3,233		326		13,287		763		17,646		237

$	6,206	$	143,973	$	82,841	$	12,233	$	504,481	$	21,469	$	169,940	$	6,960


$	6,038	$	120,119	$	93,873	$	11,283	$	459,722	$	19,701	$	170,041	$	6,979
	6,162		76,123		68,644		14,718		281,224		20,294		170,041		6,780
$	1.081019	$	2.438620	$	1.616718	$	0.975017	$	2.943691	$	0.963548	$	1.549943	$	1.009629
	4,869		50,625		44,396		10,242		141,028		18,968		83,888		5,831
$	11.903891	$	25.839588	$	17.130842	$	9.205651	$	4.474566	$	11.369632	$	41.497953	$	12.076410
	39		137		207		111		3,016		105		251		44
$	11.903891	$	25.839588	$	17.130842	$	9.205651	$	4.474566	$	11.369632	$	41.497953	$	12.076410
	2		226		189		35		2,969		67		425		20

The Accompanying Notes are an Integral Part of the Financial Statements.

Statements of Assets and Liabilities

F-5

Statements of Assets and Liabilities

Northwestern Mutual Variable Life Account

December 31, 2012

(in thousands, except accumulation unit values)


	Select Bond Division		Long-Term U.S. Government Bond Division		Inflation Protection Division		High Yield Bond Division		Multi- Sector Bond Division		Commodities Return Strategy Division
Assets:
Investments, at value (1)
Northwestern Mutual Series Fund, Inc	$	268,346	$	7,933	$	10,670	$	106,436	$	18,873	$	10,797
Fidelity Variable Insurance Products		—		—		—		—		—		—
Neuberger Berman Advisers Management Trust		—		—		—		—		—		—
Russell Investment Funds		—		—		—		—		—		—
Due from Northwestern Mutual Life Insurance Company		—		—		—		—		—		—

Total Assets		268,346		7,933		10,670		106,436		18,873		10,797

Liabilities:
Due to Northwestern Mutual Life Insurance Company		272		—		—		166		1		—

Total Liabilities		272		—		—		166		1		—

Total Net Assets	$	268,074	$	7,933	$	10,670	$	106,270	$	18,872	$	10,797

Net Assets:
Variable Life Policies Issued
Before October 11, 1995
Policyowners’ Equity	$	25,647	$	1,585	$	597	$	8,342	$	887	$	297
Northwestern Mutual Equity		449		12		9		128		14		6
Variable CompLife Policies Issued Between
October 11, 1995 and December 31, 2008 (2)
Policyowners’ Equity		197,563		5,771		8,486		86,734		16,383		9,096
Northwestern Mutual Equity		8,031		200		255		3,133		612		345
Variable Executive Life Policies Issued Between
March 2, 1998 and December 31, 2008 (3)
Policyowners’ Equity		25,749		27		893		4,569		252		810
Variable Joint Life Policies Issued Between
December 10, 1998 and December 31, 2008 (4)
Policyowners’ Equity		10,635		338		430		3,364		724		243

Total Net Assets	$	268,074	$	7,933	$	10,670	$	106,270	$	18,872	$	10,797


(1) Investments, at cost	$	256,517	$	8,521	$	10,481	$	96,059	$	17,681	$	11,288
Mutual Fund Shares Held		205,787		7,429		8,753		141,723		16,483		13,703
(2) Accumulation Unit Value	$	2.609587	$	1.289646	$	1.136621	$	3.143457	$	1.161278	$	8.629822
Units Outstanding		78,784		4,631		7,690		28,588		14,635		1,094
(3) Accumulation Unit Value	$	204.702189	$	17.875038	$	14.701699	$	41.068270	$	15.698283	$	7.880392
Units Outstanding		126		1		61		111		16		103
(4) Accumulation Unit Value	$	204.702189	$	17.875038	$	14.701699	$	41.068270	$	15.698283	$	7.880392
Units Outstanding		52		19		29		82		46		31

The Accompanying Notes are an Integral Part of the Financial Statements.

Statements of Assets and Liabilities

F-6


Balanced Division		Asset Allocation Division		Fidelity VIP Mid Cap Division		Fidelity VIP Contrafund Division		Neuberger Berman AMT Socially Responsive Division		Russell Multi-Style Equity Division		Russell Aggressive Equity Division		Russell Non-U.S. Division


$	331,282	$	39,575	$	—	$	—	$	—	$	—	$	—	$	—
	—		—		128,383		20,234		—		—		—		—

	—		—		—		—		1,683		—		—		—
	—		—		—		—		—		162,557		80,741		115,683

	—		—		1		—		—		—		—		—

	331,282		39,575		128,384		20,234		1,683		162,557		80,741		115,683



	201		2		—		—		—		476		3		16

	201		2		—		—		—		476		3		16

$	331,081	$	39,573	$	128,384	$	20,234	$	1,683	$	162,081	$	80,738	$	115,667




$	150,065	$	5,266	$	11,161	$	1,199	$	71	$	6,928	$	4,608	$	7,060
	1,874		85		197		13		1		129		78		131


	156,544		30,164		103,095		16,748		1,162		131,367		67,212		91,703
	5,939		1,286		4,665		554		49		5,859		2,976		3,943


	10,909		1,149		4,616		1,178		132		11,378		2,968		7,562


	5,750		1,623		4,650		542		268		6,420		2,896		5,268

$	331,081	$	39,573	$	128,384	$	20,234	$	1,683	$	162,081	$	80,738	$	115,667


$	334,006	$	36,042	$	125,681	$	18,948	$	1,577	$	134,782	$	77,194	$	127,222
	219,829		34,960		4,282		778		106		10,730		6,201		11,220
$	2.839508	$	1.576122	$	2.835677	$	1.067828	$	1.005443	$	1.101694	$	1.684569	$	1.415380
	57,222		19,954		38,001		16,203		1,204		124,556		41,666		67,577
$	153.677764	$	16.700324	$	29.733518	$	11.458810	$	10.715212	$	12.171877	$	19.088862	$	15.277391
	71		69		155		103		12		935		155		495
$	153.677764	$	16.700324	$	29.733518	$	11.458810	$	10.715212	$	12.171877	$	19.088862	$	15.277391
	37		97		156		47		25		527		152		345

The Accompanying Notes are an Integral Part of the Financial Statements.

Statements of Assets and Liabilities

F-7

Statements of Assets and Liabilities

Northwestern Mutual Variable Life Account

December 31, 2012

(in thousands, except accumulation unit values)


	Russell Core Bond Division		Russell Global Real Estate Securities Division		Russell LifePoints Moderate Strategy Division		Russell LifePoints Balanced Strategy Division		Russell LifePoints Growth Strategy Division		Russell LifePoints Equity Growth Strategy Division
Assets:
Investments, at value (1)
Northwestern Mutual Series Fund, Inc	$	—	$	—	$	—	$	—	$	—	$	—
Fidelity Variable Insurance Products		—		—		—		—		—		—
Neuberger Berman Advisers Management Trust		—		—		—		—		—		—
Russell Investment Funds		100,186		152,730		2,140		9,674		11,342		5,373
Due from Northwestern Mutual Life Insurance Company		—		—		—		—		3		—

Total Assets		100,186		152,730		2,140		9,674		11,345		5,373

Liabilities:
Due to Northwestern Mutual Life Insurance Company		253		159		1		1		—		2

Total Liabilities		253		159		1		1		—		2

Total Net Assets	$	99,933	$	152,571	$	2,139	$	9,673	$	11,345	$	5,371

Net Assets:
Variable Life Policies Issued
Before October 11, 1995
Policyowners’ Equity	$	6,526	$	9,795	$	207	$	1,673	$	1,729	$	574
Northwestern Mutual Equity		143		150		5		25		28		11
Variable CompLife Policies Issued Between
October 11, 1995 and December 31, 2008 (2)
Policyowners’ Equity		68,603		126,305		1,510		7,205		9,185		4,099
Northwestern Mutual Equity		2,743		5,446		60		265		403		159
Variable Executive Life Policies Issued Between
March 2, 1998 and December 31, 2008 (3)
Policyowners’ Equity		17,029		5,635		—		35		—		—
Variable Joint Life Policies Issued Between
December 10, 1998 and December 31, 2008 (4)
Policyowners’ Equity		4,889		5,240		357		470		—		528

Total Net Assets	$	99,933	$	152,571	$	2,139	$	9,673	$	11,345	$	5,371


(1) Investments, at cost	$	95,510	$	147,413	$	2,106	$	9,131	$	10,799	$	5,122
Mutual Fund Shares Held		9,268		9,937		212		1,013		1,265		654
(2) Accumulation Unit Value	$	2.116915	$	3.553123	$	1.062654	$	1.048620	$	1.030529	$	1.023971
Units Outstanding		33,703		37,080		1,477		7,124		9,304		4,159
(3) Accumulation Unit Value	$	22.402721	$	37.550773	$	12.706153	$	11.789785	$	10.802768	$	9.799317
Units Outstanding		760		150		—		3		—		—
(4) Accumulation Unit Value	$	22.402721	$	37.550773	$	12.706153	$	11.789785	$	10.802768	$	9.799317
Units Outstanding		218		140		28		40		—		54

The Accompanying Notes are an Integral Part of the Financial Statements.

Statements of Assets and Liabilities

F-8

Statements of Operations

Northwestern Mutual Variable Life Account

For the Year Ended December 31, 2012

(in thousands)


	Growth Stock Division			Focused Appreciation Division			Large Cap Core Stock Division			Large Cap Blend Division		Index 500 Stock Division			Large Company Value Division
Income:
Dividend income	$	1,658		$	261		$	2,326		$	34	$	13,713		$	56
Expenses:
Mortality and expense risk charges		1,273			399			841			16		3,340			14
Taxes		13			3			11			—		57			—

Net investment income (loss)		372			(141	)		1,474			18		10,316			42

Realized gain (loss) on investments:
Realized gain (loss) on sale of fund shares		2,428			2,462			119			121		(1,152	)		310
Realized gain distributions		—			—			—			144		14,039			—

Realized gains (losses)		2,428			2,462			119			265		12,887			310

Change in unrealized appreciation/ depreciation of investments during the period		30,637			14,195			18,456			53		84,509			(48	)

Net increase (decrease) in net assets resulting from operations	$	33,437		$	16,516		$	20,049		$	336	$	107,712		$	304


	Domestic Equity Division			Equity Income Division			Mid Cap Growth Stock Division			Index 400 Stock Division		Mid Cap Value Division			Small Cap Growth Stock Division
Income:
Dividend income	$	2,904		$	1,312		$	469		$	1,917	$	521		$	—
Expenses:
Mortality and expense risk charges		572			358			1,692			893		164			815
Taxes		6			3			27			5		1			5

Net investment income (loss)		2,326			951			(1,250	)		1,019		356			(820	)

Realized gain (loss) on investments:
Realized gain (loss) on sale of fund shares		(3,094	)		(850	)		(2,650	)		6,296		(764	)		2,533
Realized gain distributions		—			—			—			9,136		—			—

Realized gains (losses)		(3,094	)		(850	)		(2,650	)		15,432		(764	)		2,533

Change in unrealized appreciation/ depreciation of investments during the period		18,183			12,820			44,477			16,161		6,183			14,651

Net increase (decrease) in net assets resulting from operations	$	17,415		$	12,921		$	40,577		$	32,612	$	5,775		$	16,364

The Accompanying Notes are an Integral Part of the Financial Statements.

Statements of Operations

F-9

Statements of Operations

Northwestern Mutual Variable Life Account

For the Year Ended December 31, 2012

(in thousands)


	Index 600 Stock Division			Small Cap Value Division			International Growth Division			Research International Core Division			International Equity Division			Emerging Markets Equity Division
Income:
Dividend income	$	148		$	522		$	1,054		$	153		$	12,106		$	25
Expenses:
Mortality and expense risk charges		19			595			329			34			2,000			66
Taxes		—			5			2			—			29			—

Net investment income (loss)		129			(78	)		723			119			10,077			(41	)

Realized gain (loss) on investments:
Realized gain (loss) on sale of fund shares		123			3,627			(3,011	)		(34	)		1,918			(59	)
Realized gain distributions		138			1,605			—			—			—			8

Realized gains (losses)		261			5,232			(3,011	)		(34	)		1,918			(51	)

Change in unrealized appreciation/ depreciation of investments during the period		121			15,350			15,053			1,117			77,414			2,264

Net increase (decrease) in net assets resulting from operations	$	511		$	20,504		$	12,765		$	1,202		$	89,409		$	2,172


	Balanced Division			Asset Allocation Division			Fidelity VIP Mid Cap Division			Fidelity VIP Contrafund Division			Neuberger Berman AMT Socially Responsive Division			Russell Multi-Style Equity Division
Income:
Dividend income	$	3,878		$	91		$	495		$	221		$	3		$	1,847
Expenses:
Mortality and expense risk charges		1,496			167			536			58			5			663
Taxes		75			3			6			—			—			4

Net investment income (loss)		2,307			(79	)		(47	)		163			(2	)		1,180

Realized gain (loss) on investments:
Realized gain (loss) on sale of fund shares		(4,873	)		(614	)		55			42			25			7,889
Realized gain distributions		—			—			10,252			—			—			—

Realized gains (losses)		(4,873	)		(614	)		10,307			42			25			7,889

Change in unrealized appreciation/ depreciation of investments during the period		31,524			4,672			6,397			1,292			89			14,317

Net increase (decrease) in net assets resulting from operations	$	28,958		$	3,979		$	16,657		$	1,497		$	112		$	23,386

The Accompanying Notes are an Integral Part of the Financial Statements.

Statements of Operations

F-10


Money Market Division			Short-Term Bond Division			Select Bond Division			Long-Term U.S. Government Bond Division			Inflation Protection Division		High Yield Bond Division		Multi-Sector Bond Division		Commodities Return Strategy Division

$	229		$	87		$	6,989		$	150		$	220	$	6,414	$	58	$	—

	630			25			1,022			36			32		430		51		36
	6			—			13			1			—		4		—		—

	(407	)		62			5,954			113			188		5,980		7		(36	)


	—			(10	)		1,806			(527	)		76		593		40		(215	)
	—			—			5,634			631			89		—		50		—

	—			(10	)		7,440			104			165		593		90		(215	)


	—			34			(1,974	)		(58	)		128		6,185		1,414		(104	)

$	(407	)	$	86		$	11,420		$	159		$	481	$	12,758	$	1,511	$	(355	)


Russell Aggressive Equity Division			Russell Non-U.S. Division			Russell Core Bond Division			Russell Global Real Estate Securities Division			Russell LifePoints Moderate Strategy Division		Russell LifePoints Balanced Strategy Division		Russell LifePoints Growth Strategy Division		Russell LifePoints Equity Growth Strategy Division

$	868		$	1,962		$	2,298		$	7,083		$	47	$	195	$	175	$	78

	341			445			350			590			5		32		34		17
	2			3			3			4			—		1		1		—

	525			1,514			1,945			6,489			42		162		140		61


	(750	)		(1,834	)		1,181			(943	)		24		61		35		79
	—			—			2,455			—			5		—		—		—

	(750	)		(1,834	)		3,636			(943	)		29		61		35		79


	11,819			20,094			1,968			27,649			37		532		606		265

$	11,594		$	19,774		$	7,549		$	33,195		$	108	$	755	$	781	$	405

The Accompanying Notes are an Integral Part of the Financial Statements.

Statements of Operations

F-11

Statements of Changes in Net Assets

Northwestern Mutual Variable Life Account

(in thousands)


	Growth Stock Division						Focused Appreciation Division

	Year Ended December 31, 2012			Year Ended December 31, 2011			Year Ended December 31, 2012			Year Ended December 31, 2011

Operations:
Net investment income (loss)	$	372		$	999		$	(141	)	$	(220	)
Net realized gains (losses)		2,428			1,424			2,462			824
Net change in unrealized appreciation/depreciation		30,637			(6,980	)		14,195			(6,641	)

Net increase (decrease) in net assets resulting from operations		33,437			(4,557	)		16,516			(6,037	)


Policy Transactions:
Policyowners’ net payments		19,641			21,162			6,448			7,535
Policy loans, surrenders and death benefits		(23,795	)		(23,482	)		(7,950	)		(6,377	)
Mortality and other (net)		(7,517	)		(7,489	)		(2,450	)		(2,392	)
Transfers from other divisions		17,447			52,311			13,134			14,189
Transfers to other divisions		(23,930	)		(57,341	)		(15,549	)		(18,843	)

Net increase (decrease) in net assets resulting from policy transactions		(18,154	)		(14,839	)		(6,367	)		(5,888	)

Net increase (decrease) in net assets		15,283			(19,396	)		10,149			(11,925	)

Net Assets:
Beginning of period		269,305			288,701			85,938			97,863

End of period	$	284,588		$	269,305		$	96,087		$	85,938

Units issued during the period		11,669			15,047			6,960			8,098
Units redeemed during the period		(16,722	)		(19,141	)		(9,268	)		(10,082	)

Net units issued (redeemed) during period		(5,053	)		(4,094	)		(2,308	)		(1,984	)


	Domestic Equity Division						Equity Income Division
	Year Ended December 31, 2012			Year Ended December 31, 2011			Year Ended December 31, 2012			Year Ended December 31, 2011

Operations:
Net investment income (loss)	$	2,326		$	2,274		$	951		$	826
Net realized gains (losses)		(3,094	)		(2,543	)		(850	)		(1,190	)
Net change in unrealized appreciation/depreciation		18,183			886			12,820			(675	)

Net increase (decrease) in net assets resulting from operations		17,415			617			12,921			(1,039	)


Policy Transactions:
Policyowners’ net payments		9,596			11,271			5,151			5,408
Policy loans, surrenders and death benefits		(9,944	)		(9,263	)		(5,788	)		(5,061	)
Mortality and other (net)		(3,419	)		(3,477	)		(2,085	)		(1,885	)
Transfers from other divisions		9,421			15,874			22,379			21,711
Transfers to other divisions		(19,571	)		(18,524	)		(19,131	)		(16,121	)

Net increase (decrease) in net assets resulting from policy transactions		(13,917	)		(4,119	)		526			4,052

Net increase (decrease) in net assets		3,498			(3,502	)		13,447			3,013

Net Assets:
Beginning of period		131,130			134,632			76,853			73,840

End of period	$	134,628		$	131,130		$	90,300		$	76,853

Units issued during the period		11,427			17,257			10,303			11,385
Units redeemed during the period		(20,151	)		(18,848	)		(9,917	)		(9,705	)

Net units issued (redeemed) during period		(8,724	)		(1,591	)		386			1,680

The Accompanying Notes are an Integral Part of the Financial Statements.

Statements of Changes in Net Assets

F-12


Large Cap Core Stock Division						Large Cap Blend Division						Index 500 Stock Division						Large Company Value Division
Year Ended December 31, 2012			Year Ended December 31, 2011			Year Ended December 31, 2012			Period June 30 to December 31, 2011			Year Ended December 31, 2012			Year Ended December 31, 2011			Year Ended December 31, 2012			Period June 30 to December 31, 2011


$	1,474		$	1,351		$	18		$	20		$	10,316		$	9,066		$	42		$	39
	119			(1,127	)		265			(20	)		12,887			12,042			310			(5	)
	18,456			(3,230	)		53			111			84,509			(9,438	)		(48	)		180


	20,049			(3,006	)		336			111			107,712			11,670			304			214



	13,425			14,918			168			13			48,384			52,024			182			12
	(16,361	)		(14,770	)		(52	)		(53	)		(57,081	)		(56,552	)		108			(4	)
	(5,195	)		(5,030	)		(19	)		(10	)		(19,423	)		(18,584	)		(17	)		(10	)
	13,014			10,296			2,322			3,300			59,917			98,356			2,708			2,606
	(15,634	)		(12,799	)		(2,253	)		(248	)		(67,775	)		(104,005	)		(2,766	)		(225	)


	(10,751	)		(7,385	)		166			3,002			(35,978	)		(28,761	)		215			2,379

	9,298			(10,391	)		502			3,113			71,734			(17,091	)		519			2,593


	182,605			192,996			3,113			—			713,800			730,891			2,593			—

$	191,903		$	182,605		$	3,615		$	3,113		$	785,534		$	713,800		$	3,112		$	2,593

	9,995			11,623			2,053			3,387			28,184			30,791			2,085			2,728
	(13,292	)		(13,974	)		(2,232	)		(183	)		(34,908	)		(36,979	)		(2,407	)		(106	)

	(3,297	)		(2,351	)		(179	)		3,204			(6,724	)		(6,188	)		(322	)		2,622


Mid Cap Growth Stock Division						Index 400 Stock Division						Mid Cap Value Division						Small Cap Growth Stock Division
Year Ended December 31, 2012			Year Ended December 31, 2011			Year Ended December 31, 2012			Year Ended December 31, 2011			Year Ended December 31, 2012			Year Ended December 31, 2011			Year Ended December 31, 2012			Year Ended December 31, 2011


$	(1,250	)	$	(842	)	$	1,019		$	934		$	356		$	519		$	(820	)	$	(146	)
	(2,650	)		(3,274	)		15,432			16,212			(764	)		(1,096	)		2,533			(591	)
	44,477			(21,248	)		16,161			(21,657	)		6,183			238			14,651			(5,368	)


	40,577			(25,364	)		32,612			(4,511	)		5,775			(339	)		16,364			(6,105	)



	24,276			26,627			11,950			13,583			2,788			3,025			12,935			14,969
	(31,077	)		(30,326	)		(18,503	)		(16,422	)		(4,949	)		(4,695	)		(15,686	)		(17,477	)
	(9,553	)		(9,977	)		(4,793	)		(4,919	)		(1,057	)		(1,037	)		(4,652	)		(4,963	)
	11,029			12,173			24,530			25,722			10,431			35,955			14,520			37,633
	(19,151	)		(18,710	)		(27,687	)		(26,339	)		(10,991	)		(35,414	)		(22,037	)		(41,545	)


	(24,476	)		(20,213	)		(14,503	)		(8,375	)		(3,778	)		(2,166	)		(14,920	)		(11,383	)

	16,101			(45,577	)		18,109			(12,886	)		1,997			(2,505	)		1,444			(17,488	)


	358,497			404,074			195,635			208,521			37,334			39,839			183,624			201,112

$	374,598		$	358,497		$	213,744		$	195,635		$	39,331		$	37,334		$	185,068		$	183,624

	12,303			14,362			9,747			12,107			3,749			5,869			9,232			12,966
	(20,061	)		(20,678	)		(14,981	)		(15,191	)		(5,002	)		(6,457	)		(14,640	)		(16,931	)

	(7,758	)		(6,316	)		(5,234	)		(3,084	)		(1,253	)		(588	)		(5,408	)		(3,965	)

The Accompanying Notes are an Integral Part of the Financial Statements.

Statements of Changes in Net Assets

F-13

Statements of Changes in Net Assets

Northwestern Mutual Variable Life Account

(in thousands)


	Index 600 Stock Division						Small Cap Value Division
	Year Ended December 31, 2012			Period June 30 to December 31, 2011			Year Ended December 31, 2012			Year Ended December 31, 2011

Operations:
Net investment income (loss)	$	129		$	9		$	(78	)	$	257
Net realized gains (losses)		261			27			5,232			2,993
Net change in unrealized appreciation/depreciation		121			46			15,350			(5,814	)

Net increase (decrease) in net assets resulting from operations		511			82			20,504			(2,564	)


Policy Transactions:
Policyowners’ net payments		329			35			8,877			10,251
Policy loans, surrenders and death benefits		(147	)		(30	)		(10,350	)		(11,020	)
Mortality and other (net)		(100	)		(14	)		(3,432	)		(3,602	)
Transfers from other divisions		6,537			2,184			12,209			27,569
Transfers to other divisions		(2,643	)		(538	)		(18,815	)		(29,663	)

Net increase (decrease) in net assets resulting from policy transactions		3,976			1,637			(11,511	)		(6,465	)

Net increase (decrease) in net assets		4,487			1,719			8,993			(9,029	)

Net Assets:
Beginning of period		1,719			—			134,980			144,009

End of period	$	6,206		$	1,719		$	143,973		$	134,980

Units issued during the period		4,990			1,613			7,572			10,510
Units redeemed during the period		(1,464	)		(229	)		(11,861	)		(12,882	)

Net units issued (redeemed) during period		3,526			1,384			(4,289	)		(2,372	)


	Money Market Division						Short-Term Bond Division
	Year Ended December 31, 2012			Year Ended December 31, 2011			Year Ended December 31, 2012			Period June 30 to December 31, 2011

Operations:
Net investment income (loss)	$	(407	)	$	(441	)	$	62		$	44
Net realized gains (losses)		—			—			(10	)		1
Net change in unrealized appreciation/depreciation		—			—			34			(56	)

Net increase (decrease) in net assets resulting from operations		(407	)		(441	)		86			(11	)


Policy Transactions:
Policyowners’ net payments		70,588			87,004			156			(92	)
Policy loans, surrenders and death benefits		(46,227	)		(46,782	)		(1,471	)		(60	)
Mortality and other (net)		(5,835	)		(6,659	)		(110	)		(21	)
Transfers from other divisions		121,247			155,964			6,676			4,315
Transfers to other divisions		(136,334	)		(191,294	)		(2,058	)		(450	)

Net increase (decrease) in net assets resulting from policy transactions		3,439			(1,767	)		3,193			3,692

Net increase (decrease) in net assets		3,032			(2,208	)		3,279			3,681

Net Assets:
Beginning of period		166,908			169,116			3,681			—

End of period	$	169,940		$	166,908		$	6,960		$	3,681

Units issued during the period		91,022			101,014			6,193			3,774
Units redeemed during the period		(91,873	)		(102,533	)		(3,457	)		(615	)

Net units issued (redeemed) during period		(851	)		(1,519	)		2,736			3,159

The Accompanying Notes are an Integral Part of the Financial Statements.

Statements of Changes in Net Assets

F-14


International Growth Division						Research International Core Division						International Equity Division						Emerging Markets Equity Division
Year Ended December 31, 2012			Year Ended December 31, 2011			Year Ended December 31, 2012			Period June 30 to December 31, 2011			Year Ended December 31, 2012			Year Ended December 31, 2011			Year Ended December 31, 2012			Period June 30 to December 31, 2011


$	723		$	668		$	119		$	40		$	10,077		$	8,316		$	(41	)	$	48
	(3,011	)		(2,274	)		(34	)		(33	)		1,918			(226	)		(51	)		(32	)
	15,053			(11,026	)		1,117			(170	)		77,414			(59,757	)		2,264			(493	)

	12,765			(12,632	)		1,202			(163	)		89,409			(51,667	)		2,172			(477	)



	6,960			8,100			383			(27	)		32,343			35,844			950			16
	(6,421	)		(8,991	)		(387	)		(68	)		(37,666	)		(37,992	)		(733	)		(98	)
	(1,975	)		(2,216	)		(171	)		(17	)		(11,103	)		(11,663	)		(309	)		(38	)
	11,369			55,545			11,221			4,491			50,411			105,190			18,438			8,736
	(15,997	)		(58,640	)		(3,703	)		(528	)		(57,673	)		(109,675	)		(6,547	)		(641	)

	(6,064	)		(6,202	)		7,343			3,851			(23,688	)		(18,296	)		11,799			7,975

	6,701			(18,834	)		8,545			3,688			65,721			(69,963	)		13,971			7,498


	76,140			94,974			3,688			—			438,760			508,723			7,498			—

$	82,841		$	76,140		$	12,233		$	3,688		$	504,481		$	438,760		$	21,469		$	7,498

	8,966			13,075			9,163			4,002			30,666			43,234			16,977			8,626
	(12,568	)		(14,443	)		(2,334	)		(443	)		(38,362	)		(48,456	)		(5,832	)		(631	)

	(3,602	)		(1,368	)		6,829			3,559			(7,696	)		(5,222	)		11,145			7,995


Select Bond Division						Long-Term U.S. Government Bond Division						Inflation Protection Division						High Yield Bond Division
Year Ended December 31, 2012			Year Ended December 31, 2011			Year Ended December 31, 2012			Period June 30 to December 31, 2011			Year Ended December 31, 2012			Period June 30 to December 31, 2011			Year Ended December 31, 2012			Year Ended December 31, 2011


$	5,954		$	7,160		$	113		$	116		$	188		$	(4	)	$	5,980		$	6,238
	7,440			5,977			104			704			165			19			593			268
	(1,974	)		2,859			(58	)		(529	)		128			61			6,185			(2,712	)

	11,420			15,996			159			291			481			76			12,758			3,794



	11,986			15,162			232			142			270			66			5,142			5,718
	(18,396	)		(21,106	)		(561	)		(49	)		(601	)		(196	)		(6,662	)		(7,736	)
	(6,114	)		(5,987	)		(163	)		(31	)		(164	)		(26	)		(2,426	)		(2,327	)
	94,839			79,175			8,647			7,135			10,330			5,479			19,716			17,350
	(77,079	)		(70,627	)		(7,157	)		(712	)		(4,461	)		(584	)		(16,986	)		(14,452	)

	5,236			(3,383	)		998			6,485			5,374			4,739			(1,216	)		(1,447	)

	16,656			12,613			1,157			6,776			5,855			4,815			11,542			2,347


	251,418			238,805			6,776			—			4,815			—			94,728			92,381

$	268,074		$	251,418		$	7,933		$	6,776		$	10,670		$	4,815		$	106,270		$	94,728

	18,767			17,708			5,621			3,822			6,376			4,139			5,763			6,259
	(16,896	)		(18,781	)		(4,507	)		(285	)		(2,237	)		(498	)		(6,106	)		(6,610	)

	1,871			(1,073	)		1,114			3,537			4,139			3,641			(343	)		(351	)

The Accompanying Notes are an Integral Part of the Financial Statements.

Statements of Changes in Net Assets

F-15

Statements of Changes in Net Assets

Northwestern Mutual Variable Life Account

(in thousands)


	Multi-Sector Bond Division						Commodities Return Strategy Division
	Year Ended December 31, 2012			Period June 30 to December 31, 2011			Year Ended December 31, 2012			Period June 30 to December 31, 2011

Operations:
Net investment income (loss)	$	7		$	228		$	(36	)	$	(6	)
Net realized gains (losses)		90			55			(215	)		(17	)
Net change in unrealized appreciation/depreciation		1,414			(222	)		(104	)		(386	)

Net increase (decrease) in net assets resulting from operations		1,511			61			(355	)		(409	)


Policy Transactions:
Policyowners’ net payments		677			(23	)		523			71
Policy loans, surrenders and death benefits		(681	)		(157	)		(330	)		(134	)
Mortality and other (net)		(272	)		(30	)		(175	)		(59	)
Transfers from other divisions		15,795			5,418			10,264			6,229
Transfers to other divisions		(3,008	)		(419	)		(4,230	)		(598	)

Net increase (decrease) in net assets resulting from policy transactions		12,511			4,789			6,052			5,509

Net increase (decrease) in net assets		14,022			4,850			5,697			5,100

Net Assets:
Beginning of period		4,850			—			5,100			—

End of period	$	18,872		$	4,850		$	10,797		$	5,100

Units issued during the period		13,147			4,785			1,305			671
Units redeemed during the period		(2,600	)		(635	)		(634	)		(114	)

Net units issued (redeemed) during period		10,547			4,150			671			557


	Neuberger Berman AMT Socially Responsive Division						Russell Multi-Style Equity Division
	Year Ended December 31, 2012			Period June 30 to December 31, 2011			Year Ended December 31, 2012			Year Ended December 31, 2011

Operations:
Net investment income (loss)	$	(2	)	$	1		$	1,180		$	973
Net realized gains (losses)		25			(5	)		7,889			3,439
Net change in unrealized appreciation/depreciation		89			16			14,317			(7,328	)

Net increase (decrease) in net assets resulting from operations		112			12			23,386			(2,916	)


Policy Transactions:
Policyowners’ net payments		114			(20	)		10,276			12,264
Policy loans, surrenders and death benefits		(96	)		(26	)		(16,258	)		(16,304	)
Mortality and other (net)		(30	)		(6	)		(4,068	)		(4,095	)
Transfers from other divisions		1,551			790			9,464			14,425
Transfers to other divisions		(656	)		(62	)		(18,642	)		(18,959	)

Net increase (decrease) in net assets resulting from policy transactions		883			676			(19,228	)		(12,669	)

Net increase (decrease) in net assets		995			688			4,158			(15,585	)

Net Assets:
Beginning of period		688			—			157,923			173,508

End of period	$	1,683		$	688		$	162,081		$	157,923

Units issued during the period		1,107			701			16,127			21,757
Units redeemed during the period		(472	)		(95	)		(29,592	)		(28,058	)

Net units issued (redeemed) during period		635			606			(13,465	)		(6,301	)

The Accompanying Notes are an Integral Part of the Financial Statements.

Statements of Changes in Net Assets

F-16


Balanced Division						Asset Allocation Division						Fidelity VIP Mid Cap Division						Fidelity VIP Contrafund Division
Year Ended December 31, 2012			Year Ended December 31, 2011			Year Ended December 31, 2012			Year Ended December 31, 2011			Year Ended December 31, 2012			Year Ended December 31, 2011			Year Ended December 31, 2012			Period June 30 to December 31, 2011


$	2,307		$	7,395		$	(79	)	$	816		$	(47	)	$	(537	)	$	163		$	44
	(4,873	)		(4,806	)		(614	)		(388	)		10,307			630			42			3
	31,524			2,597			4,672			(668	)		6,397			(15,640	)		1,292			(5	)


	28,958			5,186			3,979			(240	)		16,657			(15,547	)		1,497			42



	17,602			19,521			2,729			2,910			9,071			10,060			881			(21	)
	(24,948	)		(22,410	)		(3,576	)		(2,372	)		(10,160	)		(11,123	)		(305	)		(30	)
	(8,578	)		(8,560	)		(1,098	)		(1,121	)		(3,221	)		(3,408	)		(295	)		(23	)
	31,553			28,307			2,761			3,498			19,297			49,251			16,799			7,127
	(32,331	)		(26,468	)		(4,799	)		(3,958	)		(24,194	)		(48,965	)		(4,873	)		(565	)


	(16,702	)		(9,610	)		(3,983	)		(1,043	)		(9,207	)		(4,185	)		12,207			6,488

	12,256			(4,424	)		(4	)		(1,283	)		7,450			(19,732	)		13,704			6,530


	318,825			323,249			39,577			40,860			120,934			140,666			6,530			—

$	331,081		$	318,825		$	39,573		$	39,577		$	128,384		$	120,934		$	20,234		$	6,530

	8,265			9,337			3,258			4,296			6,664			9,506			12,918			6,326
	(12,391	)		(11,076	)		(5,579	)		(4,720	)		(9,008	)		(10,284	)		(2,487	)		(404	)

	(4,126	)		(1,739	)		(2,321	)		(424	)		(2,344	)		(778	)		10,431			5,922


Russell Aggressive Equity Division						Russell Non-U.S. Division						Russell Core Bond Division						Russell Global Real Estate Securities Division

Year Ended December 31, 2012			Year Ended December 31, 2011			Year Ended December 31, 2012			Year Ended December 31, 2011			Year Ended December 31, 2012			Year Ended December 31, 2011			Year Ended December 31, 2012			Year Ended December 31, 2011


$	525		$	67		$	1,514		$	1,589		$	1,945		$	2,783		$	6,489		$	2,527
	(750	)		(767	)		(1,834	)		(1,013	)		3,636			2,475			(943	)		(846	)
	11,819			(2,959	)		20,094			(17,209	)		1,968			(1,098	)		27,649			(11,857	)


	11,594			(3,659	)		19,774			(16,633	)		7,549			4,160			33,195			(10,176	)



	5,446			6,612			7,944			9,406			4,301			3,858			9,304			10,408
	(6,655	)		(7,090	)		(9,121	)		(11,850	)		(9,603	)		(11,170	)		(11,957	)		(11,413	)
	(2,051	)		(2,096	)		(2,645	)		(2,905	)		(2,340	)		(2,336	)		(3,496	)		(3,374	)
	4,744			8,913			9,282			14,220			24,930			36,957			19,582			29,977
	(10,225	)		(10,048	)		(16,617	)		(17,049	)		(21,824	)		(32,698	)		(18,918	)		(30,271	)


	(8,741	)		(3,709	)		(11,157	)		(8,178	)		(4,536	)		(5,389	)		(5,485	)		(4,673	)

	2,853			(7,368	)		8,617			(24,811	)		3,013			(1,229	)		27,710			(14,849	)


	77,885			85,253			107,050			131,861			96,920			98,149			124,861			139,710

$	80,738		$	77,885		$	115,667		$	107,050		$	99,933		$	96,920		$	152,571		$	124,861

	5,358			8,306			10,327			13,814			8,333			10,383			6,642			7,879
	(9,929	)		(9,853	)		(16,909	)		(16,807	)		(8,565	)		(10,082	)		(8,071	)		(8,777	)

	(4,571	)		(1,547	)		(6,582	)		(2,993	)		(232	)		301			(1,429	)		(898	)

The Accompanying Notes are an Integral Part of the Financial Statements.

Statements of Changes in Net Assets

F-17

Statements of Changes in Net Assets

Northwestern Mutual Variable Life Account

(in thousands)


	Russell LifePoints Moderate Strategy Division						Russell LifePoints Balanced Strategy Division
	Year Ended December 31, 2012			Period June 30 to December 31, 2011			Year Ended December 31, 2012			Period June 30 to December 31, 2011

Operations:
Net investment income (loss)	$	42		$	4		$	162		$	39
Net realized gains (losses)		29			(6	)		61			(18	)
Net change in unrealized appreciation/depreciation		37			(4	)		532			12

Net increase (decrease) in net assets resulting from operations		108			(6	)		755			33


Policy Transactions:
Policyowners’ net payments		79			22			394			(28	)
Policy loans, surrenders and death benefits		161			(1	)		(154	)		(186	)
Mortality and other (net)		(26	)		(6	)		(156	)		(30	)
Transfers from other divisions		2,126			432			5,895			4,348
Transfers to other divisions		(641	)		(109	)		(1,143	)		(55	)

Net increase (decrease) in net assets resulting from policy transactions		1,699			338			4,836			4,049

Net increase (decrease) in net assets		1,807			332			5,591			4,082

Net Assets:
Beginning of period		332			—			4,082			—

End of period	$	2,139		$	332		$	9,673		$	4,082

Units issued during the period		1,644			440			4,953			3,685
Units redeemed during the period		(459	)		(120	)		(1,082	)		(389	)

Net units issued (redeemed) during period		1,185			320			3,871			3,296


	Russell LifePoints Growth Strategy Division						Russell LifePoints Equity Growth Strategy Division
	Year Ended December 31, 2012			Period June 30 to December 31, 2011			Year Ended December 31, 2012			Period June 30 to December 31, 2011

Operations:
Net investment income (loss)	$	140		$	29		$	61		$	12
Net realized gains (losses)		35			(34	)		79			(10	)
Net change in unrealized appreciation/depreciation		606			(62	)		265			(14	)

Net increase (decrease) in net assets resulting from operations		781			(67	)		405			(12	)


Policy Transactions:
Policyowners’ net payments		260			(400	)		355			30
Policy loans, surrenders and death benefits		(309	)		(85	)		(510	)		92
Mortality and other (net)		(165	)		(36	)		(90	)		(29	)
Transfers from other divisions		8,049			3,676			4,123			1,431
Transfers to other divisions		(305	)		(54	)		(365	)		(59	)

Net increase (decrease) in net assets resulting from policy transactions		7,530			3,101			3,513			1,465

Net increase (decrease) in net assets		8,311			3,034			3,918			1,453

Net Assets:
Beginning of period		3,034			—			1,453			—

End of period	$	11,345		$	3,034		$	5,371		$	1,453

Units issued during the period		8,263			2,341			3,870			1,145
Units redeemed during the period		(891	)		(409	)		(788	)		(14	)

Net units issued (redeemed) during period		7,372			1,932			3,082			1,131

The Accompanying Notes are an Integral Part of the Financial Statements.

Statements of Changes in Net Assets

F-18

Notes to Financial Statements

Northwestern Mutual Variable Life Account

December 31, 2012

1. Organization — Northwestern Mutual Variable Life Account (“the Account”) is registered as a unit investment trust under the Investment Company Act of 1940 and is a segregated asset account of The Northwestern Mutual Life Insurance Company (“Northwestern Mutual”) used to fund variable life insurance policies (“the Policies”).

All assets of each Division of the Account are invested in shares of the corresponding Portfolio of Northwestern Mutual Series Fund, Inc., Fidelity Variable Insurance Products, Neuberger Berman Advisers Management Trust and the Russell Investment Funds (collectively known as “the Funds”). The Funds are open-end investment companies registered under the Investment Company Act of 1940.

2. Significant Accounting Policies

Use of Estimates — 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.

Investment Valuation — The shares are valued at the Funds’ offering and redemption prices per share. As of December 31, 2012, all of the Account’s investments are identified as Level 1 securities for valuation purposes under the Fair Value Measurement Topic of the FASB Accounting Standards Codification. Level 1 securities are valued at fair value as determined by quoted prices in active markets for identical securities.

Investment Income, Securities Transactions and Policy Dividends — Transactions in the Funds’ shares are accounted for on the trade date. The basis for determining cost on sale of the Funds’ shares is identified cost. Dividend income and distributions of net realized gains from the Funds are recorded on the ex–date of the dividends. Dividends and distributions received are reinvested in additional shares of the respective portfolios of the Funds. The Policies are eligible to receive policy dividends from Northwestern Mutual. Any dividends reinvested in the Account are reflected in Policyowners’ net payments in the accompanying financial statements.

Taxes — Northwestern Mutual is taxed as a “life insurance company” under the Internal Revenue Code. The Policies, which are funded in the Account, are taxed as part of the operations of Northwestern Mutual. The Policies provide that a charge for taxes may be made against the assets of the Account. Generally, for Variable Life policies issued before October 11, 1995, Northwestern Mutual charges the Account at an annual rate of 0.05% of the Account’s net assets and reserves the right to increase, decrease or eliminate the charge for taxes in the future. Generally, for Variable CompLife policies issued on or after October 11, 1995, Variable Executive Life policies issued on or after March 2, 1998, and Variable Joint Life policies issued on or after December 10, 1998, there is no charge being made against the assets of the Account for federal income taxes, but Northwestern Mutual reserves the right to charge for taxes in the future.

Premium Payments — For Variable Life and Variable CompLife policies, the Account is credited for the policyowners’ net annual premiums at the respective policy anniversary dates regardless of when policyowners actually pay their premiums. Northwestern Mutual’s equity represents any unpaid portion of net annual premiums.

3. Purchases and Sales of Investments — Purchases and sales of the Funds’ shares for the year ended December 31, 2012 were as follows: (in thousands)


Division	Purchases		Sales
Growth Stock	$	10,468	$	28,146
Focused Appreciation		3,259		9,774
Large Cap Core Stock		10,314		19,586
Large Cap Blend		447		116
Index 500 Stock		56,257		67,886
Large Company Value		326		71
Domestic Equity		5,245		16,847
Equity Income		8,820		7,370
Mid Cap Growth Stock		10,345		36,080
Index 400 Stock		17,002		21,360
Mid Cap Value		2,099		5,434
Small Cap Growth Stock		3,076		18,696
Index 600 Stock		4,518		275
Small Cap Value		4,792		14,855
International Growth		2,634		7,865
Research International Core		8,163		702
International Equity		31,716		45,068
Emerging Markets Equity		12,840		1,067
Money Market		56,810		53,737
Short-Term Bond		4,836		1,593
Select Bond		41,753		24,714
Long-Term U.S. Government Bond		2,385		645
Inflation Protection		6,367		708
High Yield Bond		13,164		8,247

Notes to Financial Statements

F-19

Notes to Financial Statements


Division	Purchases		Sales
Multi-Sector Bond	$	13,454	$	877
Commodities Return Strategy		6,730		713
Balanced		15,106		29,273
Asset Allocation		905		4,959
Fidelity VIP Mid Cap		13,600		12,591
Fidelity VIP Contrafund		13,205		833
Neuberger Berman AMT Socially Responsive		1,077		197
Russell Multi-Style Equity		4,819		22,408
Russell Aggressive Equity		2,282		10,511
Russell Non-U.S.		3,984		13,594
Russell Core Bond		10,783		10,858
Russell Global Real Estate Securities		15,448		14,284
Russell LifePoints Moderate Strategy		1,888		143
Russell LifePoints Balanced Strategy		5,328		331
Russell LifePoints Growth Strategy		8,156		487
Russell LifePoints Equity Growth Strategy		4,101		527

4. Expenses and Related Party Transactions — A deduction for mortality and expense risks is paid to Northwestern Mutual. Mortality risk is the risk that insureds may not live as long as estimated. Expense risk is the risk that expenses of issuing and administering the Policies may exceed the estimated costs.

For Variable Life and Variable CompLife policies, the deduction is determined daily at an annual rate of 0.50% and 0.45%, respectively, of the net assets of the Account. These charges are reflected as a reduction in invested assets and are included in Mortality and expense risk charges in the accompanying financial statements.

A deduction for the mortality and expense risks for Variable Executive Life policies is determined monthly at an annual rate of 0.60% of the amount invested in the Account for the Policy for the first ten Policy years, and 0.17% thereafter for policies with the Cash Value Amendment, or 0.15% thereafter

for policies without the Cash Value Amendment. A deduction for the mortality and expense risks for Variable Joint Life policies is determined monthly at an annual rate of 0.10% of the amounts invested in the Account for the Policy. Additional Variable Joint Life mortality and expense risks deductions are determined annually and are paid to Northwestern Mutual for the first ten Policy years based on the age of the insured individuals at the time the policy was issued.

Additional mortality costs are deducted from the Policies annually for Variable Life and Variable CompLife policies, and monthly for Variable Executive Life and Variable Joint Life policies, and are paid to Northwestern Mutual to cover the cost of providing insurance protection. For Variable Life and Variable CompLife policies this cost is actuarially calculated based upon the insured’s age, the 1980 Commissioners Standard Ordinary Mortality Table and the amount of insurance provided under the policy. For Variable Executive Life and Variable Joint Life policies the cost reflects expected mortality costs based upon actual experience.

Certain deductions are also made from the annual, single or other premiums before amounts are allocated to the Account. These deductions are for sales load, administrative expenses, taxes and a risk charge for the guaranteed minimum death benefit among other charges which are detailed in the Prospectus.

Mortality and expense risks deductions for Variable Executive Life and Variable Joint Life policies as well as the noted additional mortality costs and additional deductions are reflected as a reduction in units and are included in Mortality and other in the accompanying financial statements.

5. Financial Highlights

(For a unit outstanding during the period)


	As of the respective period end date:						For the respective period ended:
Division	Units Outstanding (000’s)		Unit Value, Lowest to Highest		Net Assets (000’s)		Dividend Income as a % of Average Net Assets		Expense Ratio, Lowest to Highest		Total Return Lowest to Highest (1)
Growth Stock
Year Ended 12/31/12		92,840	$	2.690097 to $36.785012	$	284,588		0.57%		0.10% to 0.60%		12.32	%	to	12.94	%
Year Ended 12/31/11		97,893		2.392591 to 32.569595		269,305		0.78		0.10 to 0.60		(1.84	)	to	(1.30	)
Year Ended 12/31/10		101,987		2.434967 to 32.998214		288,701		0.82		0.10 to 0.60		11.76		to	12.37
Year Ended 12/31/09		106,648		2.176678 to 29.365924		275,067		1.16		0.10 to 0.60		36.42		to	37.17
Year Ended 12/31/08		108,071		1.594004 to 21.408736		198,816		1.06		0.10 to 0.60		(39.19	)	to	(38.86	)
Focused Appreciation
Year Ended 12/31/12		36,929	$	2.245328 to $23.543734	$	96,087		0.27%		0.10% to 0.60%		19.48	%	to	20.14	%
Year Ended 12/31/11		39,237		1.877354 to 19.596705		85,938		0.18		0.10 to 0.60		(6.61	)	to	(6.10	)
Year Ended 12/31/10		41,221		2.008299 to 20.869750		97,863		0.00		0.10 to 0.60		8.73		to	9.33
Year Ended 12/31/09		40,615		1.845162 to 19.088595		87,828		0.00		0.10 to 0.60		41.70		to	42.47
Year Ended 12/31/08		38,427		1.300904 to 13.397864		59,135		0.35		0.10 to 0.60		(40.34	)	to	(40.01	)

(1)	Total Return includes deductions for management and other expenses; it excludes deductions for sales loads and other charges. Returns are not annualized for periods less than one year.

Notes to Financial Statements

F-20

Notes to Financial Statements


	As of the respective period end date:						For the respective period ended:
Division	Units Outstanding (000’s)		Unit Value, Lowest to Highest		Net Assets (000’s)		Dividend Income as a % of Average Net Assets		Expense Ratio, Lowest to Highest		Total Return Lowest to Highest (1)
Large Cap Core Stock
Year Ended 12/31/12		75,256	$	2.155410 to $29.198468	$	191,903		1.20%		0.10% to 0.60%		11.02	%	to	11.63	%
Year Ended 12/31/11		78,553		1.939589 to 26.156583		182,605		1.14		0.10 to 0.60		(1.75	)	to	(1.21	)
Year Ended 12/31/10		80,904		1.972165 to 26.477036		192,996		1.20		0.10 to 0.60		12.29		to	12.91
Year Ended 12/31/09		83,903		1.754516 to 23.449551		177,955		1.84		0.10 to 0.60		28.63		to	29.33
Year Ended 12/31/08		85,074		1.362693 to 18.131181		138,236		1.62		0.10 to 0.60		(39.08	)	to	(38.74	)
Large Cap Blend
Year Ended 12/31/12		3,025	$	1.080633 to $ 9.155103	$	3,615		0.92%		0.10% to 0.60%		14.57	%	to	15.20	%
Period Ended 12/31/11 (3)		3,204		0.942304 to 7.947227		3,113		2.05		0.10 to 0.60		(5.82	)	to	(5.56	)
Index 500 Stock
Year Ended 12/31/12		207,627	$	3.043500 to $69.136117	$	785,534		1.77%		0.10% to 0.60%		15.12	%	to	15.76	%
Year Ended 12/31/11		214,351		2.641136 to 59.726031		713,800		1.66		0.10 to 0.60		1.39		to	1.95
Year Ended 12/31/10		220,539		2.602259 to 58.583796		730,891		2.02		0.10 to 0.60		14.27		to	14.89
Year Ended 12/31/09		227,457		2.275083 to 50.989051		655,118		2.82		0.10 to 0.60		25.71		to	26.40
Year Ended 12/31/08		229,493		1.808068 to 40.340674		525,673		2.26		0.10 to 0.60		(37.29	)	to	(36.94	)
Large Company Value
Year Ended 12/31/12		2,300	$	1.120811 to $ 9.343226	$	3,112		1.90%		0.10% to 0.60%		15.83	%	to	16.47	%
Period Ended 12/31/11 (3)		2,622		0.966635 to 8.021755		2,593		4.57		0.10 to 0.60		(3.38	)	to	(3.12	)
Domestic Equity
Year Ended 12/31/12		80,040	$	1.419182 to $15.037814	$	134,628		2.16%		0.10% to 0.60%		13.72	%	to	14.35	%
Year Ended 12/31/11		88,764		1.246743 to 13.151218		131,130		2.09		0.10 to 0.60		0.36		to	0.91
Year Ended 12/31/10		90,355		1.241092 to 13.033112		134,632		2.28		0.10 to 0.60		13.99		to	14.62
Year Ended 12/31/09		90,798		1.087659 to 11.370681		119,939		3.49		0.10 to 0.60		28.81		to	29.52
Year Ended 12/31/08		88,942		0.843525 to 8.778981		91,308		2.91		0.10 to 0.60		(38.83	)	to	(38.49	)
Equity Income
Year Ended 12/31/12		41,046	$	1.864547 to $19.550985	$	90,300		1.53%		0.10% to 0.60%		16.59	%	to	17.23	%
Year Ended 12/31/11		40,660		1.597678 to 16.677245		76,853		1.50		0.10 to 0.60		(1.46	)	to	(0.92	)
Year Ended 12/31/10		38,980		1.619759 to 16.832155		73,840		1.70		0.10 to 0.60		14.70		to	15.33
Year Ended 12/31/09		37,014		1.410806 to 14.595160		61,572		2.93		0.10 to 0.60		23.90		to	24.58
Year Ended 12/31/08		34,561		1.137525 to 11.715261		46,210		0.03		0.10 to 0.60		(36.16	)	to	(35.81	)
Mid Cap Growth Stock
Year Ended 12/31/12		113,740	$	2.733618 to $75.402575	$	374,598		0.12%		0.10% to 0.60%		11.35	%	to	11.97	%
Year Ended 12/31/11		121,498		2.452507 to 67.344023		358,497		0.23		0.10 to 0.60		(6.69	)	to	(6.18	)
Year Ended 12/31/10		127,814		2.625759 to 71.778944		404,074		0.28		0.10 to 0.60		23.18		to	23.86
Year Ended 12/31/09		135,424		2.129518 to 57.953082		348,854		0.28		0.10 to 0.60		31.37		to	32.09	(2)
Year Ended 12/31/08		137,949		1.619377 to 43.872392		269,129		0.30		0.10 to 0.60		(40.41	)	to	(40.08	)
Index 400 Stock
Year Ended 12/31/12		72,346	$	2.643527 to $29.923387	$	213,744		0.91%		0.10% to 0.60%		17.00	%	to	17.64	%
Year Ended 12/31/11		77,580		2.257202 to 25.435391		195,635		0.86		0.10 to 0.60		(2.46	)	to	(1.92	)
Year Ended 12/31/10		80,664		2.311836 to 25.934506		208,521		1.09		0.10 to 0.60		25.60		to	26.29
Year Ended 12/31/09		84,846		1.838809 to 20.535699		177,545		1.82		0.10 to 0.60		36.25		to	37.00
Year Ended 12/31/08		87,209		1.348229 to 14.989442		134,400		1.54		0.10 to 0.60		(36.63	)	to	(36.28	)
Mid Cap Value
Year Ended 12/31/12		17,177	$	2.019864 to $21.179677	$	39,331		1.34%		0.10% to 0.60%		15.93	%	to	16.57	%
Year Ended 12/31/11		18,430		1.740555 to 18.168731		37,334		1.74		0.10 to 0.60		(1.15	)	to	(0.61	)
Year Ended 12/31/10		19,018		1.759035 to 18.279525		39,839		1.41		0.10 to 0.60		19.27		to	19.93
Year Ended 12/31/09		18,679		1.473346 to 15.242180		31,825		1.20		0.10 to 0.60		22.56		to	23.24
Year Ended 12/31/08		18,377		1.200893 to 12.367958		25,466		0.00		0.10 to 0.60		(35.43)		to	(35.07	)

(1)	Total Return includes deductions for management and other expenses; it excludes deductions for sales loads and other charges. Returns are not annualized for periods less than one year.

(2)

Total Return reflects the effect of a one-time class action settlement received on June 18, 2009. Absent the payment, the returns would have ranged from 31.27% to 31.99% for the Mid Cap Growth Stock Division, from 31.66% to 32.39% for the International Equity Division and from 0.06% to 0.61% for the Money Market Division.

(3)	Divisions commenced operations on June 30, 2011.

Notes to Financial Statements

F-21

Notes to Financial Statements


	As of the respective period end date:						For the respective period ended:
Division	Units Outstanding (000’s)		Unit Value, Lowest to Highest		Net Assets (000’s)		Dividend Income as a % of Average Net Assets		Expense Ratio, Lowest to Highest		Total Return Lowest to Highest (1)
Small Cap Growth Stock
Year Ended 12/31/12		68,955	$	2.434726 to $31.582975	$	185,068		0.00%		0.10% to 0.60%		8.88	%	to	9.48	%
Year Ended 12/31/11		74,363		2.233915 to 28.847575		183,624		0.35		0.10 to 0.60		(3.31	)	to	(2.78	)
Year Ended 12/31/10		78,328		2.308077 to 29.671998		201,112		0.75		0.10 to 0.60		25.16		to	25.85
Year Ended 12/31/09		81,371		1.842237 to 23.577314		166,342		0.28		0.10 to 0.60		30.46		to	31.17
Year Ended 12/31/08		82,700		1.410759 to 17.974245		128,895		0.17		0.10 to 0.60		(44.18	)	to	(43.87	)
Index 600 Stock
Year Ended 12/31/12		4,910	$	1.081019 to $11.903891	$	6,206		3.11%		0.10% to 0.60%		15.16	%	to	15.80	%
Period Ended 12/31/11 (3)		1,384		0.937768 to 10.280016		1,719		2.07		0.10 to 0.60		(6.27	)	to	(6.01	)
Small Cap Value
Year Ended 12/31/12		50,988		$2.438620 to $ 25.839588	$	143,973		0.37%		0.10% to 0.60%		15.69	%	to	16.33	%
Year Ended 12/31/11		55,277		2.105813 to 22.212770		134,980		0.60		0.10 to 0.60		(1.90	)	to	(1.36	)
Year Ended 12/31/10		57,649		2.144514 to 22.519799		144,009		1.09		0.10 to 0.60		21.28		to	21.95
Year Ended 12/31/09		58,899		1.766442 to 18.466637		122,050		0.85		0.10 to 0.60		27.48		to	28.18
Year Ended 12/31/08		59,740		1.384260 to 14.406429		97,357		0.34		0.10 to 0.60		(28.53)		to	(28.13	)
International Growth
Year Ended 12/31/12		44,792		$1.616718 to $ 17.130842	$	82,841		1.33%		0.10% to 0.60%		17.34	%	to	17.99	%
Year Ended 12/31/11		48,394		1.376437 to 14.519220		76,140		1.13		0.10 to 0.60		(13.64)		to	(13.17	)
Year Ended 12/31/10		49,762		1.592294 to 16.720938		94,974		0.92		0.10 to 0.60		15.79		to	16.43
Year Ended 12/31/09		47,784		1.373759 to 14.361577		76,761		0.66		0.10 to 0.60		22.49		to	23.16
Year Ended 12/31/08		46,945		1.120404 to 11.660588		61,590		1.52		0.10 to 0.60		(46.48)		to	(46.19	)
Research International Core
Year Ended 12/31/12		10,388		$0.975017 to $ 9.205651	$	12,233		1.72%		0.10% to 0.60%		16.12	%	to	16.76	%
Period Ended 12/31/11 (3)		3,559		0.838851 to 7.884380		3,688		4.07		0.10 to 0.60		(16.16)		to	(15.93	)
International Equity
Year Ended 12/31/12		147,013		$2.943691 to $ 4.474566	$	504,481		2.59%		0.10% to 0.60%		20.85	%	to	21.52	%
Year Ended 12/31/11		154,709		2.433405 to 3.682261		438,760		2.10		0.10 to 0.60		(10.59)		to	(10.10	)
Year Ended 12/31/10		159,931		2.718891 to 4.095847		508,723		3.01		0.10 to 0.60		7.08		to	7.67
Year Ended 12/31/09		164,503		2.536491 to 3.803991		489,245		4.66		0.10 to 0.60		32.38		to	33.11	(2)
Year Ended 12/31/08		163,327		1.914107 to 2.857743		368,042		2.67		0.10 to 0.60		(44.09)		to	(43.78	)
Emerging Markets Equity
Year Ended 12/31/12		19,140		$0.963548 to $ 11.369632	$	21,469		0.15%		0.10% to 0.60%		18.18	%	to	18.83	%
Period Ended 12/31/11 (3)		7,995		0.814525 to 9.567929		7,498		2.54		0.10 to 0.60		(18.59)		to	(18.36)
Money Market
Year Ended 12/31/12		84,564		$1.549943 to $ 41.497953	$	169,940		0.14%		0.10% to 0.60%		(0.41%)		to	0.15	%
Year Ended 12/31/11		85,415		1.554696 to 41.437528		166,908		0.14		0.10 to 0.60		(0.41)		to	0.14
Year Ended 12/31/10		86,934		1.559508 to 41.380226		169,116		0.29		0.10 to 0.60		(0.25)		to	0.29
Year Ended 12/31/09		96,331		1.561917 to 41.258586		188,748		0.75		0.10 to 0.60		0.21		to	0.76	(2)
Year Ended 12/31/08		94,558		1.557129 to 40.947848		177,934		2.65		0.10 to 0.60		2.20		to	2.76
Short-Term Bond
Year Ended 12/31/12		5,895		$1.009629 to $ 12.076410	$	6,960		1.43%		0.10% to 0.60%		1.51	%	to	2.07	%
Period Ended 12/31/11 (3)		3,159		0.993622 to 11.832025		3,681		4.36		0.10 to 0.60		(0.69)		to	(0.42)
Select Bond
Year Ended 12/31/12		78,962		$2.609587 to $204.702189	$	268,074		2.69%		0.10% to 0.60%		4.39	%	to	4.96	%
Year Ended 12/31/11		77,091		2.497424 to 195.021673		251,418		3.32		0.10 to 0.60		6.58		to	7.16
Year Ended 12/31/10		78,164		2.341027 to 181.992325		238,805		3.75		0.10 to 0.60		6.00		to	6.59
Year Ended 12/31/09		78,213		2.206231 to 170.745431		223,452		5.05		0.10 to 0.60		8.77		to	9.37
Year Ended 12/31/08		72,690		2.026282 to 156.116892		191,100		4.60		0.10 to 0.60		2.69		to	3.26
Long-Term U.S. Government Bond
Year Ended 12/31/12		4,651		$1.289646 to $ 17.875038	$	7,933		1.85%		0.10% to 0.60%		3.18	%	to	3.75	%
Period Ended 12/31/11 (3)		3,537		1.248644 to 17.228764		6,776		8.82		0.10 to 0.60		24.80		to	25.15

(1)	Total Return includes deductions for management and other expenses; it excludes deductions for sales loads and other charges. Returns are not annualized for periods less than one year.

(2)

(3)	Divisions commenced operations on June 30, 2011.

Notes to Financial Statements

F-22

Notes to Financial Statements


	As of the respective period end date:						For the respective period ended:
Division	Units Outstanding (000’s)		Unit Value, Lowest to Highest		Net Assets (000’s)		Dividend Income as a % of Average Net Assets			Expense Ratio, Lowest to Highest		Total Return Lowest to Highest (1)
Inflation Protection
Year Ended 12/31/12		7,780	$	1.136621 to $ 14.701699	$	10,670		2.68	%		0.10% to 0.60%		6.76% to 7.35%
Period Ended 12/31/11 (3)		3,641		1.063572 to 13.694886		4,815		0.03			0.10 to 0.60		6.30 to 6.60
High Yield Bond
Year Ended 12/31/12		28,781		$3.143457 to $ 41.068270	$	106,270		6.24	%		0.10% to 0.60%		13.26% to 13.89%
Year Ended 12/31/11		29,124		2.772582 to 36.059875		94,728		6.97			0.10 to 0.60		4.02 to 4.59
Year Ended 12/31/10		29,475		2.662698 to 34.475967		92,381		7.13			0.10 to 0.60		13.93 to 14.56
Year Ended 12/31/09		30,444		2.334783 to 30.094875		84,272		8.96			0.10 to 0.60		44.60 to 45.39
Year Ended 12/31/08		29,285		1.613065 to 20.699102		55,203		8.18			0.10 to 0.60		(21.78) to (21.35)
Multi-Sector Bond
Year Ended 12/31/12		14,697	$	1.161278 to $ 15.698283	$	18,872		0.46	%		0.10% to 0.60%		14.31% to 14.94%
Period Ended 12/31/11 (3)		4,150		1.014872 to 13.657358		4,850		16.21			0.10 to 0.60		1.44 to 1.71
Commodities Return Strategy
Year Ended 12/31/12		1,228	$	7.880392 to $ 8.629822	$	10,797		0.00	%		0.10% to 0.60%		(2.89%) to (2.35%)
Period Ended 12/31/11 (3)		557		8.070260 to 8.877726		5,100		0.00			0.10 to 0.60		(11.27) to (11.02)
Balanced
Year Ended 12/31/12		57,330	$	2.839508 to $153.677764	$	331,081		1.17	%		0.10% to 0.60%		9.09% to 9.69%
Year Ended 12/31/11		61,456		2.600265 to 140.096515		318,825		2.75			0.10 to 0.60		1.55 to 2.11
Year Ended 12/31/10		63,195		2.557927 to 137.200077		323,249		2.12			0.10 to 0.60		11.34 to 11.96
Year Ended 12/31/09		65,258		2.295052 to 122.549243		299,014		4.56			0.10 to 0.60		20.77 to 21.43
Year Ended 12/31/08		67,009		1.898456 to 100.918470		254,821		1.30			0.10 to 0.60		(23.15) to (22.72)
Asset Allocation
Year Ended 12/31/12		20,120	$	1.576122 to $ 16.700324	$	39,573		0.23	%		0.10% to 0.60%		10.41% to 11.02%
Year Ended 12/31/11		22,441		1.426114 to 15.042893		39,577		2.41			0.10 to 0.60		(0.62) to (0.08)
Year Ended 12/31/10		22,865		1.433617 to 15.054442		40,860		2.92			0.10 to 0.60		12.39 to 13.01
Year Ended 12/31/09		23,519		1.274289 to 13.321541		37,345		3.04			0.10 to 0.60		26.40 to 27.09
Year Ended 12/31/08		23,518		1.007179 to 10.482012		28,949		2.95			0.10 to 0.60		(30.51) to (30.13)
Fidelity VIP Mid Cap
Year Ended 12/31/12		38,312	$	2.835677 to $ 29.733518	$	128,384		0.39	%		0.10% to 0.60%		13.93% to 14.56%
Year Ended 12/31/11		40,656		2.486413 to 25.953961		120,934		0.02			0.10 to 0.60		(11.34) to (10.85)
Year Ended 12/31/10		41,434		2.801620 to 29.113348		140,666		0.13			0.10 to 0.60		27.87 to 28.57
Year Ended 12/31/09		40,262		2.188843 to 22.643898		105,355		0.47			0.10 to 0.60		38.99 to 39.75
Year Ended 12/31/08		38,253		1.573285 to 16.202990		72,239		0.24			0.10 to 0.60		(39.94) to (39.61)
Fidelity VIP Contrafund
Year Ended 12/31/12		16,353	$	1.067828 to $ 11.458810	$	20,234		1.49	%		0.10% to 0.60%		15.50% to 16.14%
Period Ended 12/31/11 (3)		5,922		0.923581 to 9.866342		6,530		2.81			0.10 to 0.60		(7.69) to (7.43)
Neuberger Berman AMT Socially Responsive
Year Ended 12/31/12		1,241	$	1.005443 to $ 10.715212	$	1,683		0.25	%		0.10% to 0.60%		10.37% to 10.98%
Period Ended 12/31/11 (3)		606		0.910063 to 9.655117		688		0.90			0.10 to 0.60		(9.04) to (8.79)
Russell Multi-Style Equity
Year Ended 12/31/12		126,018	$	1.101694 to $ 12.171877	$	162,081		1.12	%		0.10% to 0.60%		15.05% to 15.69%
Year Ended 12/31/11		139,483		0.956587 to 10.521100		157,923		0.97			0.10 to 0.60		(2.08) to (1.55)
Year Ended 12/31/10		145,784		0.975990 to 10.686543		173,508		0.91			0.10 to 0.60		15.82 to 16.46
Year Ended 12/31/09		155,703		0.841815 to 9.176223		161,462		1.34			0.10 to 0.60		30.68 to 31.40
Year Ended 12/31/08		158,057		0.643528 to 6.983334		128,007		1.44			0.10 to 0.60		(40.89) to (40.56)
Russell Aggressive Equity
Year Ended 12/31/12		41,973	$	1.684569 to $ 19.088862	$	80,738		1.07	%		0.10% to 0.60%		15.20% to 15.84%
Year Ended 12/31/11		46,544		1.460862 to 16.479338		77,885		0.49			0.10 to 0.60		(4.72) to (4.20)
Year Ended 12/31/10		48,091		1.531783 to 17.202203		85,253		0.47			0.10 to 0.60		24.20 to 24.88
Year Ended 12/31/09		49,083		1.232123 to 13.775086		71,135		0.53			0.10 to 0.60		30.68 to 31.39
Year Ended 12/31/08		49,040		0.941939 to 10.483725		54,462		0.87			0.10 to 0.60		(43.23) to (42.92)

(1)	Total Return includes deductions for management and other expenses; it excludes deductions for sales loads and other charges. Returns are not annualized for periods less than one year.

(3)	Divisions commenced operations on June 30, 2011.

Notes to Financial Statements

F-23

Notes to Financial Statements


	As of the respective period end date:						For the respective period ended:
Division	Units Outstanding (000’s)		Unit Value, Lowest to Highest		Net Assets (000’s)		Dividend Income as a % of Average Net Assets			Expense Ratio, Lowest to Highest		Total Return Lowest to Highest (1)
Russell Non-U.S.
Year Ended 12/31/12		68,417	$	1.415380 to $ 15.277391	$	115,667		1.77	%		0.10% to 0.60%		19.16% to 19.81%
Year Ended 12/31/11		74,999		1.186647 to 12.750860		107,050		1.66			0.10 to 0.60		(13.36) to (12.88)
Year Ended 12/31/10		77,992		1.368210 to 14.635995		131,861		0.93			0.10 to 0.60		10.81 to 11.42
Year Ended 12/31/09		80,748		1.233456 to 13.135524		124,379		2.86			0.10 to 0.60		25.80 to 26.49
Year Ended 12/31/08		82,308		0.979547 to 10.384851		103,094		0.00			0.10 to 0.60		(42.73) to (42.41)
Russell Core Bond
Year Ended 12/31/12		34,681		$2.116915 to $22.402721	$	99,933		2.33%			0.10% to 0.60%		7.78% to 8.38%
Year Ended 12/31/11		34,913		1.962151 to 20.671320		96,920		3.19			0.10 to 0.60		4.11 to 4.68
Year Ended 12/31/10		34,612		1.882787 to 19.746605		98,149		3.79			0.10 to 0.60		9.42 to 10.02
Year Ended 12/31/09		33,064		1.719005 to 17.948158		86,412		4.70			0.10 to 0.60		15.18 to 15.81
Year Ended 12/31/08		31,488		1.490991 to 15.497865		64,747		4.06			0.10 to 0.60		(4.09) to (3.57)
Russell Global Real Estate Securities
Year Ended 12/31/12		37,370		$3.553123 to $37.550773	$	152,571		5.00%			0.10% to 0.60%		26.86% to 27.56%
Year Ended 12/31/11		38,799		2.798128 to 29.438654		124,861		2.25			0.10 to 0.60		(7.56) to (7.05)
Year Ended 12/31/10		39,697		3.023867 to 31.671345		139,710		2.23			0.10 to 0.60		22.25 to 22.92
Year Ended 12/31/09		39,114		2.471078 to 25.765834		113,878		4.65			0.10 to 0.60		28.24 to 28.94
Year Ended 12/31/08		37,643		1.925035 to 19.982226		85,950		1.92			0.10 to 0.60		(37.03) to (36.68)
Russell LifePoints Moderate Strategy
Year Ended 12/31/12		1,505		$1.062654 to $12.706153	$	2,139		3.29%			0.10% to 0.60%		10.46% to 11.07%
Period Ended 12/31/11 (3)		320		0.961095 to 11.440046		332		3.14			0.10 to 0.60		(3.94) to (3.67)
Russell LifePoints Balanced Strategy
Year Ended 12/31/12		7,167		$1.048620 to $11.789785	$	9,673		2.60%			0.10% to 0.60%		12.34% to 12.96%
Period Ended 12/31/11 (3)		3,296		0.932549 to 10.437591		4,082		3.47			0.10 to 0.60		(6.79) to (6.53)
Russell LifePoints Growth Strategy
Year Ended 12/31/12		9,304		$1.030529 to $10.802768	$	11,345		2.26%			0.10% to 0.60%		13.59% to 14.22%
Period Ended 12/31/11 (3)		1,932		0.906329 to 9.458077		3,034		3.58			0.10 to 0.60		(9.41) to (9.16)
Russell LifePoints Equity Growth Strategy
Year Ended 12/31/12		4,213		$1.023971 to $ 9.799317	$	5,371		1.87%			0.10% to 0.60%		15.04% to 15.68%
Period Ended 12/31/11 (3)		1,131		0.889198 to 8.471141		1,453		3.08			0.10 to 0.60		(11.12) to (10.88)

(1)	Total Return includes deductions for management and other expenses; it excludes deductions for sales loads and other charges. Returns are not annualized for periods less than one year.

(3)	Divisions commenced operations on June 30, 2011.

6. Subsequent Event — Northwestern Mutual is in the process of filing an application with the Securities and Exchange Commission (the “SEC”) seeking approval to substitute an unaffiliated mutual fund for the Commodities Return Strategy Portfolio (the “Commodities Portfolio”) as an investment option under the variable life insurance contracts issued by Northwestern Mutual (the “Substitution”). The date for completing the Substitution is subject to SEC approval which has not yet been received. The Commodities Portfolio is expected to dissolve immediately following the date of the Substitution. Northwestern Mutual or its affiliates will bear all expenses incurred in connection with the Substitution.

Notes to Financial Statements

F-24

Report of Independent Registered Public Accounting Firm

To The Northwestern Mutual Life Insurance Company Board of Trustees and

Policyowners of the Northwestern Mutual Variable Life Account

In our opinion, the accompanying statements of assets and liabilities and the related statements of operations and of changes in net assets present fairly, in all material respects, the financial position of the Northwestern Mutual Variable Life Account and its Growth Stock Division, Focused Appreciation Division, Large Cap Core Stock Division, Large Cap Blend Division, Index 500 Stock Division, Large Company Value Division, Domestic Equity Division, Equity Income Division, Mid Cap Growth Stock Division, Index 400 Stock Division, Mid Cap Value Division, Small Cap Growth Stock Division, Index 600 Stock Division, Small Cap Value Division, International Growth Division, Research International Core Division, International Equity Division, Emerging Markets Equity Division, Money Market Division, Short-Term Bond Division, Select Bond Division, Long-Term U.S. Government Bond Division, Inflation Protection Division, High Yield Bond Division, Multi-Sector Bond Division, Commodities Return Strategy Division, Balanced Division, Asset Allocation Division, Fidelity VIP Mid Cap Division, Fidelity VIP Contrafund Division, Neuberger Berman AMT Socially Responsive Division, Russell Multi-Style Equity Division, Russell Aggressive Equity Division, Russell Non-US Division, Russell Core Bond Division, Russell Global Real Estate Securities Division, Russell LifePoints Moderate Strategy Division, Russell LifePoints Balanced Strategy Division, Russell LifePoints Growth Strategy Division, Russell LifePoints Equity Growth Strategy Division at December 31, 2012, and the results of each of their operations for the year then ended and the changes in each of their net assets for the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of The Northwestern Mutual Life Insurance Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, 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 confirmation of securities owned at December 31, 2012 by correspondence with Northwestern Mutual Series Fund, Inc., Neuberger Berman Advisers Management Trust, Fidelity Variable Insurance Products and the Russell Investment Funds, provide a reasonable basis for our opinion.

LOGO

February 28, 2013

Report of Independent Registered Public Accounting Firm

F-25

The following consolidated financial statements of Northwestern Mutual should be considered only as bearing upon the ability of Northwestern Mutual to meet its obligations under the Contract.

The Northwestern Mutual Life Insurance Company

Consolidated Financial Statements

December 31, 2012, 2011 and 2010

F-26

CONSOLIDATED FINANCIAL STATEMENTS OF NORTHWESTERN MUTUAL


	December 31,
	2012		2011
Assets:
Bonds	$	114,524	$	103,753
Mortgage loans		24,346		22,804
Policy loans		15,789		15,147
Common and preferred stocks		4,266		7,420
Real estate		1,304		1,632
Other investments		11,356		11,047
Cash and temporary investments		2,393		2,421


Total investments		173,978		164,224
Due and accrued investment income		1,819		1,806
Net deferred tax assets		2,556		2,356
Deferred premium and other assets		2,721		2,603
Separate account assets		21,376		18,697


Total assets	$	202,450	$	189,686

Liabilities and surplus:
Reserves for policy benefits	$	149,599	$	140,917
Policyowner dividends payable		5,041		4,976
Interest maintenance reserve		1,224		1,112
Asset valuation reserve		3,216		3,349
Income taxes payable		507		605
Other liabilities		5,311		5,217
Separate account liabilities		21,376		18,697


Total liabilities		186,274		174,873

Surplus:
Surplus notes		1,750		1,750
Unassigned surplus		14,426		13,063

Total surplus		16,176		14,813


Total liabilities and surplus	$	202,450	$	189,686

The Accompanying Notes are an Integral Part of the Financial Statements.

F-27

The Northwestern Mutual Life Insurance Company

Consolidated Statements of Changes in Surplus

(in millions)


	For the year ended December 31,
	2012			2011				2010
Revenue:
Premiums		$	15,394		$	14,618			$	14,252
Net investment income			8,677			8,439				8,306
Other income			550			538				551


Total revenue			24,621			23,595				23,109


Benefits and expenses:
Benefit payments to policyowners and beneficiaries			7,302			7,074				6,876
Net additions to policy benefit reserves			8,561			7,949				7,950
Net transfers to separate accounts			492			481				382


Total benefits			16,355			15,504				15,208

Commissions and operating expenses			2,609			2,437				2,320


Total benefits and expenses			18,964			17,941				17,528


Gain from operations before dividends and taxes			5,657			5,654				5,581

Policyowner dividends			5,045			4,973				4,861


Gain from operations before taxes			612			681				720
Income tax expense (benefit)			37			6				(224	)


Net gain from operations			575			675				944
Net realized capital gains (losses)			208			(30	)			(188	)


Net income		$	783		$	645			$	756

The Accompanying Notes are an Integral Part of the Financial Statements.

F-28

The Northwestern Mutual Life Insurance Company

Consolidated Statements of Cash Flows

(in millions)


	For the year ended December 31,
	2012				2011				2010

Beginning of year balance		$	14,813			$	14,385			$	12,403

Net income			783				645				756

Change in net unrealized capital gains (losses)			379				(213	)			1,278

Change in net deferred tax assets			315				242				(119	)

Change in nonadmitted assets and other			(173	)			(142	)			(407	)

Change in asset valuation reserve			133				(99	)			(1,407	)

Change in reserve valuation basis			(59	)			-				131

Surplus note issuance			-				-				1,750

Change in accounting principle			(15	)			(5	)			-


Net increase in surplus			1,363				428				1,982


End of year balance		$	16,176			$	14,813			$	14,385

The Accompanying Notes are an Integral Part of the Financial Statements.

F-29

The Northwestern Mutual Life Insurance Company

Consolidated Statements of Cash Flows

(in millions)


	For the year ended December 31,
	2012				2011				2010
Cash flows from operating activities:
Premiums and other income received		$	11,211			$	10,529			$	10,169
Investment income received			8,901				8,537				8,309
Benefit payments to policyowners and beneficiaries			(7,702	)			(7,336	)			(7,206	)
Net transfers to separate accounts			(474	)			(459	)			(355	)
Commissions, expenses and taxes paid			(3,118	)			(2,607	)			(1,988	)

Net cash provided by operating activities			8,818				8,664				8,929


Cash flows from investing activities:
Proceeds from investments sold or matured:
Bonds			52,715				44,677				37,109
Common and preferred stocks			7,360				8,618				7,301
Mortgage loans			3,581				2,974				3,190
Real estate			785				151				138
Other investments			1,733				1,725				1,453

			66,174				58,145				49,191


Cost of investments acquired:
Bonds			63,083				51,051				42,791
Common and preferred stocks			3,801				7,040				8,970
Mortgage loans			5,129				4,485				3,488
Real estate			192				233				247
Other investments			1,731				2,127				2,350

			73,936				64,936				57,846

Disbursement of policy loans, net of repayments			642				674				755

Net cash applied to investing activities			(8,404	)			(7,465	)			(9,410	)


Cash flows from financing and miscellaneous sources:
Surplus notes issuance			-				-				1,750
Net inflows (outflows) on deposit-type contracts			113				(154	)			56
Other cash applied			(555	)			(552	)			(2,007	)

Net cash applied to financing and miscellaneous sources			(442	)			(706	)			(201	)


Net increase (decrease) in cash and temporary investments			(28	)			493				(682	)
Cash and temporary investments, beginning of year			2,421				1,928				2,610


Cash and temporary investments, end of year		$	2,393			$	2,421			$	1,928

The Accompanying Notes are an Integral Part of the Financial Statements.

F-30

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

1.	Basis of Presentation

The accompanying consolidated statutory financial statements include the accounts of The Northwestern Mutual Life Insurance Company and its wholly-owned subsidiary, Northwestern Long Term Care Insurance Company (together, “the Company”). All intercompany balances and transactions have been eliminated. The Company offers life, annuity, disability and long-term care insurance products to the personal, business and estate markets throughout the United States of America.

The consolidated financial statements were prepared in accordance with accounting practices prescribed or permitted by the Office of the Commissioner of Insurance of the State of Wisconsin (“statutory basis of accounting”), which are based on the Accounting Practices and Procedures Manual of the National Association of Insurance Commissioners (“NAIC”). Financial statements prepared on the statutory basis of accounting differ from financial statements prepared in accordance with generally accepted accounting principles (“GAAP”), primarily because on a GAAP basis: (1) certain policy acquisition costs are deferred and amortized, (2) most bond and preferred stock investments are reported at fair value, (3) policy benefit reserves are established using different actuarial methods and assumptions, (4) deposit-type contracts, for which premiums, benefits and reserve changes are not included in revenue or benefits as reported in the statements of operations, are defined differently, (5) majority-owned, non-insurance subsidiaries are consolidated, (6) changes in deferred taxes are reported as a component of net income and (7) no deferral of realized investment gains and losses is permitted. The effects on the Company’s financial statements attributable to the differences between the statutory basis of accounting and GAAP are material.

Certain accounting practices used by the Company vary from the Accounting Practices and Procedures Manual of the NAIC with the permission of the Office of the Commissioner of Insurance of the State of Wisconsin (“permitted practices”). Permitted practices are used in situations where the NAIC does not provide accounting guidance specific to a transaction entered into by the Company or where the Company and the Office of the Commissioner of Insurance of the State of Wisconsin (“OCI”) agree that an alternative accounting practice would be more appropriate based on the Company’s circumstances.

The Company currently utilizes permitted accounting practices for valuation of its oil and gas investments (see Note 3) and its investment in Frank Russell Company common stock (see Note 11).

2.	Summary of Significant Accounting Policies

The preparation of financial statements in accordance with the statutory basis of accounting requires management to make estimates or assumptions about the future that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the annual periods presented. Actual future results could differ from these estimates and assumptions.

Investments

See Notes 3, 4 and 15 regarding the statement value and fair value of the Company’s investments in bonds, mortgage loans, common and preferred stocks, real estate and other investments, including derivative instruments.

F-31

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

Policy Loans

Policy loans represent amounts borrowed from the Company by life insurance policyowners, secured by the cash value of the related policies, and are reported at unpaid principal balance. Policy loans earn interest at either a fixed rate or at a variable rate that is reset annually, dependent on the related election made by the policyowner when applying for their policy. Some policies with a fixed rate loan provision permit the Company, at its discretion, to set an interest rate below that specified by the policy. Annual interest rates on policy loans ranged from 4.60% to 8.00% for loans outstanding at December 31, 2012. Policy loans have no stated maturity date, with repayment of principal made at the discretion of the policyowner. Policyowner dividends available on the portion of life insurance cash values that serve as collateral for policy loans are generally determined using the “direct recognition method,” whereby dividends on the loaned portion of such policies are calculated with reference to the interest rate charged on the policy loan. As a result, the Company considers the unpaid principal balance of policy loans to approximate fair value.

Temporary Investments

Temporary investments represent securities that had maturities of one year or less at purchase, primarily money market funds and short-term commercial paper. These investments are reported at amortized cost, which approximates fair value.

Separate Accounts

Separate account assets and related reserve liabilities represent the segregation of balances attributable to variable life insurance and variable annuity products, as well as a group annuity separate account used to fund certain of the Company’s employee and financial representative benefit plan obligations. All separate account assets are legally insulated from claims by the Company’s general account policyowners and creditors. Variable product policyowners bear the investment performance risk associated with these products. Separate account assets related to variable products 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 stated-rate investment options through the Company’s general account. Separate account assets are generally reported at fair value based primarily on quoted market prices for the underlying investment securities. See Note 7 and Note 15 for more information regarding the Company’s separate accounts and Note 8 for more information regarding the Company’s employee and financial representative benefit plans.

Reserves for Policy Benefits

Reserves for policy benefits generally represent the net present value of future policy benefits less future policy premiums, calculated using actuarial methods, mortality and morbidity experience tables and valuation interest rates prescribed or permitted by the OCI. These actuarial tables and methods include assumptions regarding future mortality and morbidity experience. Actual future experience could differ from the assumptions used to make these reserve estimates. See Note 5 and Note 15 for more information regarding the Company’s reserves for policy benefits.

Policyowner Dividends

All life, disability and long-term care insurance policies and certain annuity policies issued by the Company are participating. Annually, the Company’s Board of Trustees approves dividends payable on participating policies during the subsequent fiscal year, which are accrued and charged to operations when approved. Depending on the type of policy they own, participating policyowners generally have the option to receive their dividends in cash, use them to reduce future premiums due, use them to purchase additional insurance benefits or leave them on deposit with the Company to accumulate interest. Dividends used by policyowners to purchase additional

F-32

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

insurance benefits are reported as premiums in the consolidated statements of operations but are not included in premiums received or benefit payments in the consolidated statements of cash flows. The Company’s annual approval and declaration of policyowner dividends includes a guarantee of a minimum aggregate amount of dividends to be paid to policyowners as a group in the subsequent calendar year. If this guaranteed amount is greater than the aggregate of actual dividends paid to policyowners in the subsequent year, the difference is paid in the immediately succeeding calendar year.

Interest Maintenance Reserve

The Company is required to maintain an interest maintenance reserve (“IMR”). The IMR is used to defer realized capital gains and losses, net of any income tax, on fixed income investments and derivatives that are attributable to changes in market interest rates, including both changes in risk-free market interest rates and market credit spreads. Net realized capital gains and losses deferred to the IMR are amortized into investment income over the estimated remaining term to maturity of the investment sold or the asset/liability hedged by an interest rate-related derivative instrument.

Asset Valuation Reserve

The Company is required to maintain an asset valuation reserve (“AVR”). The AVR represents a reserve for invested asset valuation using a formula prescribed by the NAIC. The AVR is intended to protect surplus by absorbing declines in the value of the Company’s investments that are not related to changes in interest rates. Increases or decreases in the AVR are reported as direct adjustments to surplus in the consolidated statements of changes in surplus.

Premium Revenue

Most life insurance premiums are recognized as revenue at the beginning of each respective policy year. Universal life insurance and annuity premiums are recognized as revenue when received. Considerations received on supplementary annuity contracts without life contingencies are deposit-type transactions and excluded from revenue in the consolidated statements of operations. Disability and long-term care insurance premiums are recognized as revenue when due. Premium revenue is reported net of ceded reinsurance. See Note 9 for more information regarding the Company’s use of reinsurance.

Net Investment Income

Net investment income primarily represents interest and dividends received or accrued on bonds, mortgage loans, common and preferred stocks, policy loans and other investments. Net investment income also includes dividends and distributions paid to the Company from the accumulated earnings of joint ventures, partnerships and unconsolidated non-insurance subsidiaries and prepayment fees on bonds and mortgage loans. Net investment income is reduced by investment management expenses, real estate depreciation, depletion related to oil and natural gas investments, interest costs associated with securities lending and interest and issuance costs related to the Company’s surplus notes. See Note 3 for more information regarding net investment income and Note 14 for more information regarding the Company’s surplus notes.

Other Income

Other income primarily represents ceded reinsurance expense allowances and various insurance policy charges. See Note 9 for more information regarding the Company’s use of reinsurance.

Benefit Payments to Policyowners and Beneficiaries

Benefit payments to policyowners and beneficiaries include death, surrender, disability and long-term care benefits, as well as matured endowments and payments on supplementary annuity

F-33

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

contracts that include life contingencies. Benefit payments on supplementary annuity contracts without life contingencies are deposit-type transactions and excluded from benefits in the consolidated statements of operations. Benefit payments are reported net of ceded reinsurance recoveries. See Note 9 for more information regarding the Company’s use of reinsurance.

Commissions and Operating Expenses

Commissions and other operating costs, including costs of acquiring new insurance policies, are generally charged to expense as incurred.

Information Technology Equipment and Software

The cost of information technology (“IT”) equipment and operating system software is generally capitalized and depreciated over three years using the straight-line method. Non-operating system software is generally capitalized and depreciated over a maximum of five years. IT equipment and operating software assets of $35 million and $30 million at December 31, 2012 and 2011, respectively, are included in other assets in the consolidated statements of financial position and are net of accumulated depreciation of $233 million and $219 million, respectively. Non-operating software costs, net of accumulated depreciation, are nonadmitted assets and thereby excluded from assets and surplus in the consolidated statements of financial position. Depreciation expense for IT equipment and software totaled $67 million, $71 million and $80 million for the years ended December 31, 2012, 2011 and 2010, respectively.

Furniture, Fixtures and Equipment

The cost of furniture, fixtures and equipment, including leasehold improvements, is generally capitalized and depreciated over the useful life of the assets using the straight-line method. The cost of furniture, fixtures and equipment, net of accumulated depreciation, are nonadmitted assets and thereby excluded from assets and surplus in the consolidated statements of financial position. Depreciation expense for furniture, fixtures and equipment totaled $7 million for each of the years ended December 31, 2012, 2011 and 2010.

Investment Capital Gains and Losses

Realized capital gains and losses are recognized based upon specific identification of investment assets sold. Realized capital losses also include valuation adjustments for impairment of bonds, mortgage loans, common and preferred stocks, real estate and other investments that have experienced a decline in fair value that management considers to be “other than temporary.” Realized capital gains and losses as reported in the consolidated statements of operations are net of any capital gains tax (or benefit) and exclude any deferrals to the IMR of interest-rate related capital gains or losses. See Note 3 for more information regarding realized capital gains and losses, including other-than-temporary valuation adjustments.

Unrealized capital gains and losses include currency translation adjustments or foreign-denominated bonds and changes in the fair value of common stocks and other equity investments and are reported net of any related changes in deferred taxes. Other changes in the Company’s equity method share of the accumulated earnings of joint ventures, partnerships and unconsolidated non-insurance subsidiaries are also reported as changes in unrealized capital gains and losses. Changes in unrealized capital gains and losses are reported in the consolidated statements of changes in surplus. See Note 3 for more information regarding unrealized capital gains and losses.

Nonadmitted Assets

Certain assets are designated as “nonadmitted” on the statutory basis of accounting. Such assets, principally related to pension funding, amounts advanced to or due from the Company’s financial

F-34

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

representatives, furniture, fixtures, equipment and non-operating software (net of accumulated depreciation), deferred tax assets in excess of statutory limits and certain equity-method investments for which audits are not performed are excluded from assets and surplus in the consolidated statements of financial position. Changes in nonadmitted assets are reported as a direct adjustment to surplus in the consolidated statements of changes in surplus.

Foreign Currency Translation

All of the Company’s insurance operations are conducted in the United States of America on a U.S. dollar-denominated basis. The Company does make bond, equity and other investments that are denominated in a foreign currency or issued by an entity doing business in another country. Investments denominated in a foreign currency are translated to U.S. dollars at each reporting date using then-current market foreign exchange rates. Translation gains or losses relating to fluctuations in market exchange rates are reported as a change in unrealized capital gains and losses until the related investment security is sold or matures, at which time a realized capital gain or loss is reported. Transactions denominated in a foreign currency, such as receipt of foreign-denominated interest or dividends, are translated to U.S. dollars based on the actual exchange rate at the time of the transaction. See Note 4 for more information regarding the Company’s use of derivatives to mitigate exposure to fluctuations in foreign currency exchange rates.

Subsequent Events

Company management has evaluated events subsequent to December 31, 2012 through February 27, 2013, the date these consolidated financial statements were available to be issued. Based on this evaluation, it is management’s opinion that no events subsequent to December 31, 2012 have occurred that are material to the Company’s financial position at that date or the results of its operations for the periods then ended. On January 23, 2013 the Company announced prospective amendments to its employee defined benefit and employee postretirement benefit plans that will have material effects on its accounting for these plans beginning in 2013. See Note 8 for more information regarding these plan amendments.

Reclassifications

Certain amounts in prior year financial statements balances and footnote disclosures have been reclassified to conform to the current year presentation.

3.	Investments

Bonds

The Securities Valuation Office (“SVO”) of the NAIC evaluates the credit quality of the Company’s bond investments and issues related credit ratings. Bonds rated at “1” (highest quality), “2” (high quality), “3” (medium quality), “4” (low quality) or “5” (lower quality) are reported in the financial statements at amortized cost, less any valuation adjustment. Bonds rated “6” (lowest quality) are reported at the lower of amortized cost or fair value. The interest method is used to amortize any purchase premium or discount, including estimates of future prepayments that are obtained from independent sources. Prepayment assumptions are updated at least annually, with the retrospective method used to adjust net investment income for changes in the estimated yield to maturity.

The statutory basis of accounting permits fair value disclosures for bonds to be based on valuations published by the SVO, quoted market prices, independent pricing services or internally-developed pricing models. The disclosure of fair value for bonds is primarily based on independent pricing services or internally-developed pricing models utilizing observable market data. See Note 15 for more information regarding the fair value of the Company’s investments in

F-35

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

bonds.

Statement value and fair value of bonds at December 31, 2012 and 2011, summarized by asset categories required in the NAIC Annual Statement, were as follows:


December 31, 2012	Reconciliation to Fair Value
	Statement Value		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in millions)
U.S. Government	$	7,203	$	1,393	$	(1	)	$	8,595
States, territories and possessions		677		135		-			812
Special revenue and assessments		24,183		1,375		(10	)		25,548
All foreign governments		326		66		-			392
Hybrid securities		450		35		(36	)		449
Industrial and miscellaneous		81,685		9,009		(212	)		90,482

Total bonds	$	114,524	$	12,013	$	(259	)	$	126,278


December 31, 2011	Reconciliation to Fair Value
	Statement Value			Gross Unrealized Gains			Gross Unrealized Losses				Fair Value
	(in millions)
U.S. Government		$	7,444		$	1,370		$	-			$	8,814
States, territories and possessions			739			55			(4	)			790
Special revenue and assessments			20,489			1,298			(16	)			21,771
All foreign governments			353			61			-				414
Hybrid securities			559			22			(81	)			500
Industrial and miscellaneous			74,169			6,556			(755	)			79,970

Total bonds		$	103,753		$	9,362		$	(856	)		$	112,259

Bonds classified by the NAIC as “special revenue and assessments” consist primarily of government agency-issued residential mortgage-backed securities and municipal bonds issued by political subdivisions to finance specific public projects. Bonds classified as “industrial and miscellaneous” bond category consists primarily of notes issued by corporate entities, private utilities and structured securities not issued by government agencies.

F-36

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

Statement value of bonds by NAIC rating category at December 31, 2012 and 2011 was as follows:


December 31, 2012	NAIC Rating
	1			2			3			4			5			6			Total
	(in millions)
U.S. Government		$	7,203		$	-		$	-		$	-		$	-		$	-		$	7,203
States, territories and possessions			677			-			-			-			-			-			677
Special revenue and assessments			24,080			28			31			44			-			-			24,183
All foreign governments			300			26			-			-			-			-			326
Hybrid securities			144			208			42			56			-			-			450
Industrial and miscellaneous			36,839			34,676			5,015			3,628			1,370			157			81,685

Total bonds		$	69,243		$	34,938		$	5,088		$	3,728		$	1,370		$	157		$	114,524


December 31, 2011	NAIC Rating
	1			2			3			4			5			6			Total
	(in millions)
U.S. Government		$	7,444		$	-		$	-		$	-		$	-		$	-		$	7,444
States, territories and possessions			719			20			-			-			-			-			739
Special revenue and assessments			20,445			11			33			-			-			-			20,489
All foreign governments			327			26			-			-			-			-			353
Hybrid securities			236			224			86			8			-			5			559
Industrial and miscellaneous			34,351			30,135			4,590			3,301			1,586			206			74,169

Total bonds		$	63,522		$	30,416		$	4,709		$	3,309		$	1,586		$	211		$	103,753

Based on statement value, 91% of the Company’s bond portfolio was rated either 1 or 2 (i.e., was rated as “investment grade”) by the NAIC at each of December 31, 2012 and 2011.

F-37

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

Statement value and fair value of bonds by contractual maturity at December 31, 2012 are summarized below. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment premiums.


	Statement Value			Fair Value
	(in millions)
Due in one year or less		$	2,454		$	2,510
Due after one year through five years			26,466			28,460
Due after five years through ten years			35,269			39,335
Due after ten years			19,192			23,194

			83,381			93,499
Structured securities			31,143			32,779

Total bonds		$	114,524		$	126,278

The Company’s bond portfolio includes investments in structured securities, with a significant concentration in residential mortgage-backed securities issued by government agencies. Statement value and fair value of structured securities at December 31, 2012 and 2011, aggregated by investment grade or “below investment grade” (i.e., rated 3, 4, 5 or 6 by the NAIC), were as follows:


December 31, 2012	Investment Grade						Below Investment Grade						Total
	Statement Value			Fair Value			Statement Value			Fair Value			Statement Value			Fair Value
	(in millions)
Residential mortgage-backed:
Government agencies		$	22,738		$	23,783		$	-		$	-		$	22,738		$	23,783
Other prime			289			304			9			8			298			312
Other below-prime			163			167			41			42			204			209
Commercial mortgage-backed:
Government agencies			414			454			-			-			414			454
Conduit			1,902			2,003			136			97			2,038			2,100
Re-REMIC			514			561			31			32			545			593
Collateralized debt obligations			21			18			19			12			40			30
Other commercial mortgage-backed			61			70			9			8			70			78
Other asset-backed			4,594			5,015			202			205			4,796			5,220

Total structured securities		$	30,696		$	32,375		$	447		$	404		$	31,143		$	32,779

F-38

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010


December 31, 2011	Investment Grade						Below Investment Grade						Total
	Statement Value			Fair Value			Statement Value			Fair Value			Statement Value			Fair Value
	(in millions)
Residential mortgage-backed:
Government agencies		$	19,398		$	20,589		$	-		$	-		$	19,398		$	20,589
Other prime			850			876			7			6			857			882
Other below-prime			314			305			70			58			384			363
Commercial mortgage-backed:
Government agencies			605			650			-			-			605			650
Conduit			2,211			2,304			238			141			2,449			2,445
Re-REMIC			343			367			54			51			397			418
Collateralized debt obligations			28			24			21			11			49			35
Other commercial mortgage-backed			67			74			7			7			74			81
Other asset-backed			4,529			4,934			465			497			4,994			5,431

Total structured securities		$	28,345		$	30,123		$	862		$	771		$	29,207		$	30,894

Based on statement value, 99% and 97% of the Company’s structured securities portfolio was rated as investment grade at December 31, 2012 and 2011, respectively.

Mortgage Loans

Mortgage loans consist solely of commercial mortgage loans underwritten and originated by the Company and are reported at unpaid principal balance, less any valuation adjustments or unamortized commitment or origination fees. Such fees are generally deferred upon receipt and amortized into net investment income over the life of the loan using the interest method.

The statement value of mortgage loans by collateral property type and U.S. geographic location at December 31, 2012 and 2011 was as follows:


December 31, 2012	East			Midwest			South			West			Total
	(in millions)
Apartment		$	2,092		$	372		$	1,556		$	2,760		$	6,780
Office			2,292			416			1,599			3,057			7,364
Retail			2,368			649			2,110			1,892			7,019
Warehouse/Industrial			468			231			493			1,083			2,275
Other			205			143			299			261			908

Total		$	7,425		$	1,811		$	6,057		$	9,053		$	24,346


December 31, 2011	East			Midwest			South			West			Total
	(in millions)
Apartment		$	1,995		$	353		$	1,456		$	2,675		$	6,479
Office			2,076			482			1,703			2,327			6,588
Retail			2,190			475			1,690			1,834			6,189
Warehouse/Industrial			464			368			515			1,263			2,610
Other			178			146			389			225			938

Total		$	6,903		$	1,824		$	5,753		$	8,324		$	22,804

F-39

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

The statement value of mortgage loans by contractual maturity at December 31, 2012 is summarized below. Actual maturities may differ from contractual maturities because certain borrowers have the right to prepay obligations with or without prepayment premiums.


	Statement Value
	(in millions)
Due in one year or less		$	1,606
Due after one year through two years			1,262
Due after two years through five years			6,304
Due after five years through eight years			6,134
Due after eight years			9,040


		$	24,346

The maximum and minimum interest rates for mortgage loans originated during 2012 were 6.00% and 3.50%, respectively, while these rates during 2011 were 8.50% and 3.83%, respectively. The aggregate weighted-average ratio of amounts loaned to the fair value of collateral (“loan-to-value ratio”) for mortgage loans originated or refinanced during 2012 and 2011 was 60% and 59%, respectively, with a maximum of 100% for any single loan during each of 2012 and 2011. Mortgage loans that were refinanced at market rates to existing borrowers represented $1.1 billion and $0.8 billion of new loan originations for the years ended December 31, 2012 and 2011, respectively. Loans with a 100% loan-to-value (“LTV”) ratio at origination are made on a very limited basis and generally represent construction loans on build-to-suit properties. These loans are expected to be refinanced with conventional mortgage loans having a LTV ratio between 50% and 70% upon completion of construction. At December 31, 2012 and 2011, the aggregate weighted-average LTV ratio for the mortgage loan portfolio was 57% and 59%, respectively.

The statement value of mortgage loans by collateral property type and LTV ratio at December 31, 2012 and 2011 was as follows:


December 31, 2012	< 50%		51%-70%		71%-90%		> 90%		Total
	(in millions)
Apartment	$	1,476	$	4,485	$	562	$	257	$	6,780
Office		2,175		4,513		626		50		7,364
Retail		1,607		4,876		497		39		7,019
Warehouse/Industrial		464		1,017		728		66		2,275
Other		127		635		74		72		908

Total	$	5,849	$	15,526	$	2,487	$	484	$	24,346


December 31, 2011	< 50%			51%-70%			71%-90%			> 90%			Total
	(in millions)
Apartment		$	1,478		$	3,869		$	1,022		$	110		$	6,479
Office			2,096			3,256			1,048			188			6,588
Retail			1,436			3,743			950			60			6,189
Warehouse/Industrial			490			997			937			186			2,610
Other			169			537			184			48			938

Total		$	5,669		$	12,402		$	4,141		$	592		$	22,804

F-40

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

The aggregate statement value of mortgage loans with LTV ratios in excess of 100% was$104 million and $242 million at December 31, 2012 and 2011, respectively.

The estimated fair value of the collateral securing each commercial mortgage loan is updated at least annually by the Company’s real estate professionals. More frequent updates are performed if deemed necessary by changes in market capitalization rates, borrower financial strength and/or property operating performance. Fair value of the collateral is estimated using the income capitalization approach based on stabilized property income and market capitalization rates. Stabilized property income is derived from actual property financial statements adjusted for non-recurring items, normalized market vacancy and lease rollover, among other factors. Other collateral, such as excess land and additional capital required to maintain property income, is also factored into fair value estimates. Both private market transactions and public market alternatives are considered in determining appropriate market capitalization rates. See Note 15 for more information regarding the fair value of the Company’s investments in mortgage loans.

In the normal course of business, the Company may refinance or otherwise modify the terms of an existing mortgage loan, typically in reaction to a proposal by the borrower. These modifications can include a partial repayment of outstanding loan principal, changes to interest rates, extensions of loan maturity and/or changes to loan covenants. When such modifications are made, statutory accounting guidance requires that the new terms of the loan be evaluated to determine whether the modification qualifies as a “troubled debt restructuring.” If new terms are extended to a borrower that are less favorable to the Company than those currently being offered to new borrowers under similar circumstances in an arms-length transaction, a realized capital loss is reported for the estimated amount of the economic concessions made and the reported value of the mortgage loan is reduced. The Company reported $9 million, $0 and $2 million of realized capital losses related to troubled debt restructuring of mortgage loans for the years ended December 31, 2012, 2011 and 2010, respectively. At December 31, 2012 and 2011, the Company had $68 million and $34 million, respectively, of principal outstanding on mortgage loans that were considered “restructured.”

In circumstances where management has deemed it probable that the Company will be unable to collect all contractual principal and interest on a mortgage loan, a valuation allowance is established to reduce the statement value of the mortgage loan to its net realizable value. Changes to mortgage loan valuation allowances are reported as a change in unrealized capital gains and losses in the consolidated statements of changes in surplus. If management later determines that the decline in value is other than temporary, a realized capital loss is reported, and any temporary valuation allowance is reversed. The Company had no mortgage loan valuation allowances at either December 31, 2012 or 2011.

Common and Preferred Stocks

Common stocks are generally reported at fair value, with$3.6 billion and $6.6 billion of common stock included in the consolidated statements of financial position at December 31, 2012 and 2011, respectively. The statutory basis of accounting permits fair value for common stocks to be based on valuations published by the SVO, quoted market prices, independent pricing services or internally-developed pricing models. The fair value for publicly-traded common stocks is based primarily on quoted market prices. For private common stocks without quoted market prices, fair value is based upon internally-developed pricing models that utilize observable market data (such as prices for comparable public equities), external pricing sources (such as valuations by private equity firms holding controlling stakes in the underlying issuer) or internally-developed pricing models. The equity method is generally used to report investments in common stock of unconsolidated non-insurance subsidiaries. Common and preferred stocks as reported in the

F-41

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

consolidated statements of financial position do not include $7 million and $8 million of equity in unconsolidated subsidiaries that was nonadmitted at December 31, 2012 and 2011, respectively. See Note 11 regarding the Company’s investment in Frank Russell Company common stock and Note 15 for more information regarding the fair value of the Company’s investments in common stock.

Preferred stocks rated 1, 2 or 3 by the SVO are reported at amortized cost. Preferred stocks rated 4, 5 or 6 by the SVO are reported at the lower of amortized cost or fair value. At December 31, 2012 and 2011, the consolidated statements of financial position included $657 million and $785 million, respectively, of preferred stocks. The statutory basis of accounting permits fair value for preferred stocks to be based on valuations published by the SVO, quoted market prices, independent pricing services or internally-developed pricing models. The fair value for preferred stocks is based primarily on internally-developed pricing models. See Note 11 regarding the Company’s investments in Frank Russell Company preferred stock and Note 15 for more information regarding the fair value of the Company’s investments in preferred stock.

Real Estate

Real estate investments are reported at cost, less any valuation adjustments, encumbrances and accumulated depreciation of buildings and other improvements. Depreciation of real estate investments is recorded using a straight-line method over the estimated useful lives of the improvements. Fair value of real estate is estimated based primarily on the capitalization of stabilized net operating income (for multi-family residential properties) or the present value of estimated future cash flow (for other commercial properties).

The statement value of real estate investments by property type and U.S. geographic location at December 31, 2012 and 2011 was as follows:


December 31, 2012	East		Midwest		South		West		Total
	(in millions)
Apartment	$	182	$	28	$	35	$	235	$	480
Office		67		358		145		22		592
Warehouse/Industrial		11		-		-		164		175
Other		52		-		5		-		57

Total	$	312	$	386	$	185	$	421	$	1,304


December 31, 2011	East		Midwest		South		West		Total
	(in millions)
Apartment	$	218	$	73	$	9	$	240	$	540
Office		82		412		147		172		813
Warehouse/Industrial		11		-		48		164		223
Other		51		-		5		-		56

Total	$	362	$	485	$	209	$	576	$	1,632

The Company’s home office properties are included in the tables above (Office/Midwest) and had an aggregate statement value of $247 million and $255 million at December 31, 2012 and 2011, respectively.

F-42

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

Other Investments

Other investments primarily represent investments that are made through ownership interests in partnerships, joint ventures (“JVs”) and limited liability companies (“LLCs”). In some cases, these ownership interests are held directly by the Company, while in other cases these investments are held indirectly through a wholly-owned non-insurance investment holding company organized as a limited liability company. The statement value of other investments held directly or indirectly by the Company at December 31, 2012 and 2011 was as follows:


	December 31,
	2012		2011
	(in millions)
Securities partnerships and LLCs	$	4,362	$	4,273
Bonds		2,129		1,123
Real estate JVs, partnerships and LLCs		1,876		1,780
Real estate		905		1,043
Common and preferred stocks		604		996
Low income housing tax credit properties		412		405
Leveraged leases		276		276
Cash and temporary investments		168		735
Derivative instruments		106		156
Oil and gas investments		34		44
Other assets, net		484		216

Total	$	11,356	$	11,047

The aggregate statement value of other investments held indirectly through non-insurance investment holding companies was$5.9 billion at each of December 31, 2012 and 2011. Whether held directly by the Company or indirectly through its investment holding companies, securities or real estate partnerships, JVs, and LLCs are reported in the consolidated statements of financial position using the equity method based on the Company’s share of the underlying entities’ audited GAAP-basis equity. Other investments as reported in the consolidated statements of financial position does not include $79 million and $55 million of equity in unconsolidated subsidiaries that was nonadmitted at December 31, 2012 and 2011, respectively. For securities partnerships and LLCs, bonds, common and preferred stocks, cash and temporary investments and derivative instruments, the underlying entity generally reports these investments at fair value. For real estate-related investments (including JVs, partnerships and LLCs), tax credit properties and leveraged leases, the underlying entity generally reports these investments at cost, reduced where appropriate by depreciation or amortization.

Oil and gas investments are reported using the full cost method, under which all exploration and development costs, whether successful or not, are capitalized and amortized as a reduction of net investment income as oil and natural gas reserves are produced. This accounting method is permitted by the OCI, as the Accounting Practices and Procedures Manual of the NAIC does not provide accounting guidance for oil and gas investments.

See Note 4 for more information regarding the Company’s use of derivatives.

F-43

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

Net Investment Income

The sources of net investment income for the years ended December 31, 2012, 2011 and 2010 were as follows:


	For the year ended December 31,
	2012		2011		2010
	(in millions)
Bonds	$	5,398	$	5,382	$	5,366
Mortgage loans		1,453		1,336		1,317
Policy loans		1,056		1,068		1,017
Common and preferred stocks		226		246		227
Real estate		195		235		210
Derivative instruments		29		26		24
Other investments		653		545		571
Amortization of IMR		189		119		37

Gross investment income		9,199		8,957		8,769
Less: investment expenses		522		518		463

Net investment income	$	8,677	$	8,439	$	8,306

Accrued investment income more than ninety days past due is a nonadmitted asset and reported as a direct reduction of surplus in the consolidated statements of changes in surplus. Accrued investment income that is ultimately deemed uncollectible is included as a reduction of net investment income in the period that such determination is made.

Realized Capital Gains and Losses

Realized capital gains and losses for the years ended December 31, 2012, 2011 and 2010 were as follows:


	For the year ended December 31, 2012								For the year ended December 31, 2011								For the year ended December 31, 2010
	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)								(in millions)								(in millions)
Bonds	$	786	$	(397	)	$	389		$	988	$	(277	)	$	711		$	766	$	(711	)	$	55
Common and preferred stocks		756		(361	)		395			884		(514	)		370			581		(285	)		296
Mortgage loans		-		(9	)		(9	)		2		(1	)		1			-		(32	)		(32	)
Real estate		375		(69	)		306			66		(4	)		62			54		(9	)		45
Other investments		237		(315	)		(78	)		318		(595	)		(277	)		413		(535	)		(122	)

Subtotal	$	2,154	$	(1,151	)		1,003		$	2,258	$	(1,391	)		867		$	1,814	$	(1,572	)		242

Less: IMR gains (before taxes)							463								645								396
Less: Capital gains tax							332								252								34

Net realized capital gains (losses)						$	208							$	(30	)						$	(188	)

F-44

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

Realized capital gains and losses are generally the result of normal investment trading activity. Realized capital gains from real estate investments for the year ended December 31, 2012 included a $297 million pretax gain from the sale of a single commercial office property in Seattle, Washington. Proceeds from the sale of bonds totaled $41 billion, $34 billion and $24 billion for the years ended December 31, 2012, 2011 and 2010, respectively.

On a quarterly basis, the Company performs a review of bonds, mortgage loans, common and preferred stocks, real estate and other investments to identify those that have experienced a decline in fair value that is “other than temporary.” Factors considered include the duration and extent to which fair value has been less than cost, the financial condition and near-term financial prospects of the issuer and the Company’s ability and intent to hold the investment for a period of time sufficient to allow for an anticipated recovery in value. If the decline in an investment’s fair value is considered to be other than temporary, the statement value of the investment is generally written down to fair value and a realized capital loss is reported.

For fixed income investments, the review focuses on the issuer’s ability to remit all contractual interest and principal payments and the Company’s ability and intent to hold the investment until the earlier of a recovery in value or maturity. The Company’s intent and ability to hold an investment takes into consideration broad portfolio management parameters such as expected net cash flows and liquidity targets, asset/liability duration management and issuer and industry segment credit exposures. Mortgage loans considered to have experienced an other-than-temporary decline in value are written down to net realizable value based on appraisal of the collateral property.

For equity securities, greater weight and consideration is given to the duration and extent of the decline in fair value and the likelihood that the fair value of the security will recover in the foreseeable future. A real estate equity investment is evaluated for an other-than-temporary valuation adjustment when the fair value of the property is lower than its depreciated cost.

For real estate and other investments that represent ownership interests in partnerships, JVs and LLCs, the review focuses on the likelihood that the Company will ultimately recover its initial investment, adjusted for its share of subsequent net earnings and/or distributions. The review of securities partnerships will generally defer to GAAP-basis impairment reviews performed by the general partner absent compelling evidence of a permanent impairment of the Company’s partnership interest.

F-45

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

Realized capital losses related to declines in fair value of investments that were considered to be other than temporary for the years ended December 31, 2012, 2011 and 2010 were as follows:


	For the years ended December 31,
	2012			2011			2010
	(in millions)
Bonds, common and preferred stocks:
Structured securities	$	(36	)	$	(37	)	$	(259	)
Financial services		(42	)		(38	)		(65	)
Consumer discretionary		(26	)		(23	)		(39	)
Industrials		(35	)		(7	)		(24	)
Energy		(30	)		(22	)		(4	)
Other		(30	)		(13	)		(1	)

Subtotal		(199	)		(140	)		(392	)

Other investments:
Real estate and RE funds		(59	)		(49	)		(67	)
Mortgage loans		(9	)		-			(32	)
Securities partnerships		-			-			(5	)
Energy and transportation		-			(30	)		-

Subtotal		(68	)		(79	)		(104	)

Total	$	(267	)	$	(219	)	$	(496	)

In addition to the realized capital losses above, $42 million, $30 million and $23 million of other-than-temporary valuation adjustments were recorded by the Company’s unconsolidated non-insurance subsidiaries for the years ended December 31, 2012, 2011 and 2010, respectively. The decline in the Company’s equity in these subsidiaries resulting from these valuation adjustments is included in changes in net unrealized capital gains and losses in the consolidated statements of changes in surplus.

Other-than-temporary valuation adjustments on structured securities for the years ended December 31, 2012, 2011 and 2010, including the circumstances of the adjustment, were as follows:


	For the year ended December 31,
	2012			2011			2010
	(in millions)
Intent to sell	$	-		$	-		$	(45	)

Present value of cash flows expected to be collected is less than amortized cost basis		(36	)		(37	)		(214	)

	$	(36	)	$	(37	)	$	(259	)

At December 31, 2012, the Company continued to hold structured securities with aggregate statement values and fair values of $103 million and $108 million, respectively, for which other-than-temporary valuation adjustments totaling$243 million had been recognized since the adoption of Statement of Statutory Accounting Principle No. 43R, Loan-backed and Structured Securities (“SSAP 43R”) during 2009. These valuation adjustments were necessary because the present value of expected cash flows was less than the amortized cost of the security.

F-46

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

Unrealized Capital Gains and Losses

Changes in net unrealized capital gains and losses for the years ended December 31, 2012, 2011 and 2010 were as follows:


	For the years ended December 31,
	2012			2011			2010
	(in millions)
Bonds	$	165		$	(89	)	$	(16	)
Common and preferred stocks		10			(550	)		1,286
Other investments		279			248			359

		454			(391	)		1,629
Change in deferred taxes		(75	)		178			(351	)

Change in net unrealized capital gains (losses)	$	379		$	(213	)	$	1,278

Unrealized capital gains and losses include currency translation adjustments on foreign-denominated bonds and changes in the fair value of common stocks and other investments. Other changes in the Company’s equity-method share of the undistributed earnings of partnerships, JVs, LLCs and unconsolidated non-insurance subsidiaries are also reported as changes in unrealized capital gains and losses. Net unrealized capital gains (losses) for the years ended December 31, 2012, 2011 and 2010 included $(323) million, $(204) million and $(265) million, respectively, related to distributions of accumulated net earnings made to the Company from unconsolidated non-insurance subsidiaries. The Company’s share of the earnings or losses of these subsidiaries is reported as a change in unrealized capital gains and losses when earned under the equity method of accounting. If net earnings are distributed to the Company in the form of dividends, net investment income is recognized in the amount of the distribution and the previously unrealized net gains are reversed.

The amortized cost and fair value of bonds and common and preferred stocks for which fair value had declined and remained below cost at December 31, 2012 and 2011 were as follows:


	December 31, 2012
	Decline For Less Than 12 Months							Decline For Greater Than 12 Months
	Amortized Cost		Fair Value		Difference			Amortized Cost		Fair Value		Difference
	(in millions)
Bonds	$	5,388	$	5,296	$	(92	)	$	1,513	$	1,198	$	(315	)
Common and preferred stocks		326		303		(23	)		380		315		(65	)

Total	$	5,714	$	5,599	$	(115	)	$	1,893	$	1,513	$	(380	)

F-47

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010


	December 31, 2011
	Decline For Less Than 12 Months							Decline For Greater Than 12 Months
	Amortized Cost		Fair Value		Difference			Amortized Cost		Fair Value		Difference
	(in millions)
Bonds	$	8,701	$	8,198	$	(503	)	$	3,134	$	2,501	$	(633	)
Common and preferred stocks		2,034		1,786		(248	)		408		303		(105	)

Total	$	10,735	$	9,984	$	(751	)	$	3,542	$	2,804	$	(738	)

During 2012, the aggregate amount by which the fair value of bonds summarized above was below cost decreased, due primarily to a reduction in risk-free market interest rates and narrowing of market credit spreads. The vast majority of these bonds are current on contractual interest and principal payments and are otherwise performing according to their contractual terms at December 31, 2012. The decrease in the aggregate amount by which the fair value of common and preferred stocks was below cost was due primarily to market appreciation during 2012. Based on the results of the impairment review process described above, management considers these declines in fair value to be temporary based on current facts and circumstances.

At December 31, 2012 and 2011, the statement value of structured securities in an unrealized capital loss position for greater than 12 months were $219 million and $369 million, respectively, while structured securities in an unrealized capital loss position for less than 12 months were $10 million and $23 million, respectively.

Securities Lending

The Company participates in securities lending programs whereby general account investment securities are loaned to third parties, primarily major brokerage firms. These lending programs are intended to enhance the yield of the Company’s investment portfolio.

At December 31, 2012 and 2011, the aggregate statement value of loaned securities was$0.8 billion and $1.2 billion, respectively, while the aggregate fair value of these loaned securities was$0.8 billion and $1.3 billion, respectively. All of the securities on loan at December 31, 2012 and 2011 were bonds.

The Company manages counterparty and other risks associated with its securities lending program by adhering to guidelines that require counterparties to provide the Company with cash or other high-quality collateral of no less than 102% of the market value of the securities on loan plus accrued interest and by setting conservative standards for the Company’s reinvestment of cash collateral received. At December 31, 2012 and 2011, securities lending collateral held by the Company was$0.8 billion and $1.3 billion, respectively, which is reported at amortized cost as described below. The offsetting liability of $0.8 billion and $1.3 billion, reflecting the obligation to return the collateral, is reported in other liabilities in the consolidated statements of financial position at December 31, 2012 and 2011, respectively.

F-48

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

The following table summarizes the terms of securities lending arrangements outstanding at December 31, 2012 and 2011.


	December 31,
	2012		2011
	(in millions)
Open terms	$	816	$	917
30 days or less		-		80
31-60 days		-		334

Total	$	816	$	1,331

The amortized cost, fair value and remaining term to maturity of reinvested securities lending collateral held by the Company at December 31, 2012 and 2011 were as follows:


	December 31,
	2012				2011
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in millions)
30 days or less	$	286	$	286	$	666	$	666
31-60 days		18		18		2		2
61-90 days		60		60		67		67
91-120 days		14		14		115		115
121-180 days		110		110		61		61
181-365 days		4		4		126		127
1-2 years		244		246		176		175
2-3 years		25		25		107		102
Greater than 3 years		56		56		6		6

Total	$	817	$	819	$	1,326	$	1,321

At December 31, 2012, the consolidated statements of financial position included $365 million in bonds and $452 million in cash and temporary investments related to the collateral assets summarized above. At December 31, 2011, the consolidated statements of financial position included $848 million in bonds and $478 million in cash and temporary investments related to these collateral assets.

There were no securities on loan within the separate accounts at either December 31, 2012 or 2011.

F-49

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

4.	Derivative Financial Instruments

The Company enters into derivative transactions, generally to mitigate (or “hedge”) the risk to its assets, liabilities and surplus from fluctuations in interest rates, foreign currency exchange rates, credit conditions and other market risks. Derivatives that are designated as hedges for accounting purposes and meet the qualifications for statutory hedge accounting are reported on a basis consistent with the asset or liability being hedged (e.g., at amortized cost or fair value). Derivatives that are used to mitigate risk but are not designated as hedges for accounting purposes or otherwise do not meet the qualifications for statutory hedge accounting are reported at fair value.

To qualify for hedge accounting, the hedge relationship must be designated and formally documented at inception. This documentation details the risk management objective and strategy for the hedge, the derivative used in the hedge and the methodology for assessing hedge effectiveness. The hedge must also be “highly effective,” with an assessment of its effectiveness performed both at inception and on an ongoing basis over the life of the hedge.

In addition to hedging, the Company uses derivatives for the purpose of investment replication. A replication is a derivative transaction that, when entered into in conjunction with other cash market investments, replicates the risk and reward characteristics of otherwise permissible investment positions. Derivatives used as part of a replication are reported on a basis consistent with the investment position being replicated (e.g., at amortized cost or fair value).

The Company also uses derivatives for income generation purposes. These instruments are reported on a basis consistent with the accounting treatment that would be used for the covering asset or underlying interest to which the derivative relates (e.g., at amortized cost or fair value). The cash premium received by the Company at the inception of the contract is deferred until maturity of the contract or its exercise by the counterparty (if the term of the derivative is less than one year) or amortized over the life of the contract (if the term of the derivative is greater than one year).

The fair value of derivative instruments is based on quoted market prices, when available. In the absence of quoted market prices, fair value is estimated using third-party or internally-developed pricing models.

Derivative transactions expose the Company to the risk that a counterparty may not be able to fulfill its obligations under the contract. The Company manages this risk by dealing only with counterparties that maintain a minimum credit rating, by performing ongoing review of counterparties’ credit standing and by adhering to established limits for credit exposure to any single counterparty. The Company also utilizes collateral support agreements that require the daily exchange of collateral assets if counterparty credit exposure exceeds certain limits. At December 31, 2012 and 2011, the Company held $164 million and $243 million, respectively, of collateral under these agreements. The collateral is reported as cash and temporary investments in the consolidated statements of financial position, with a corresponding liability reflecting the Company’s obligation to return the collateral reported as other liabilities.

The Company has no embedded credit derivatives that expose it to the possibility of being required to make future payments.

F-50

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

Hedging - Designated as Hedging Instruments

The Company designates and accounts for the following derivative types as cash flow hedges, with the related derivative instrument reported at amortized cost (if any) in the consolidated statements of financial position. No component of these derivatives’ economic gain or loss was excluded from the assessment of hedge effectiveness. For the years ended December 31, 2012, 2011 and 2010, there were no gains or losses recorded with respect to derivatives that ceased to qualify for cash flow hedge accounting or for which the Company removed the cash flow hedge accounting designation.

Foreign currency covers are used to mitigate foreign exchange risk pending settlement of executed trades for investments denominated in foreign currencies. Foreign currency covers obligate the Company to pay to or receive from a counterparty a specified amount of a foreign currency at a specified exchange rate at a future date. Foreign exchange gains or losses on these contracts are reported as an adjustment to the cost basis of the hedged foreign investment.

Interest rate floors are used to mitigate the asset/liability management risk of a significant and sustained decrease in interest rates for certain of the Company’s insurance products. Interest rate floors entitle the Company to receive payments from a counterparty if market interest rates decline below a specified level. Amounts received on these contracts are reported as net investment income.

Interest rate swaps are used to mitigate interest rate risk for investments in variable interest rate and fixed interest rate bonds over a period of up to five years. Interest rate swaps obligate the Company and a counterparty to exchange amounts based on the difference between a variable interest rate index and a specified fixed rate of interest applied to the notional amount of the contract. Amounts received or paid on these contracts are reported as net investment income.

Foreign currency swaps are used to mitigate the foreign exchange risk for investments in bonds denominated in foreign currencies over a period of up to thirteen years. Foreign currency swaps obligate the Company and a counterparty to exchange the foreign currency-denominated interest and principal payments receivable on foreign bonds for U.S. dollar-denominated payments, based on currency exchange rates specified at trade inception. Foreign exchange gains or losses on these contracts are reported as a change in unrealized capital gains or losses until the maturity or termination of the contract, at which time a realized capital gain or loss is recognized.

Hedging - Not Designated as Hedging Instruments

The Company enters into other derivative transactions that mitigate economic risks but are not designated as a hedge for accounting purposes or otherwise do not qualify for statutory hedge accounting. These instruments are reported in the consolidated statements of financial position at fair value. Changes in the fair value of these instruments are reported as a change in unrealized capital gains or losses until the maturity or termination of the contract, at which time a realized capital gain or loss is recognized.

Swaptions are used to mitigate the asset/liability management risk of a significant and sustained increase in interest rates for certain of the Company’s insurance products. Swaptions provide the Company an option to enter into an interest rate swap with a counterparty on specified terms.

Fixed income futures are used to mitigate interest rate risk for investments in portfolios of fixed income securities. Fixed income futures obligate the Company to sell to or buy from a counterparty a specified bond at a specified price at a future date.

F-51

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

Foreign currency forwards are used to mitigate the foreign exchange risk for investments in bonds denominated in foreign currencies or common stock or other equity investments in companies operating in foreign countries. Foreign currency forwards obligate the Company to pay to or receive from a counterparty a specified amount of a foreign currency at a future date.

Foreign currency futures are used to mitigate the foreign exchange risk of investments in portfolios of foreign securities. Foreign currency futures obligate the Company to exchange a specified amount of a foreign currency at a specified rate on a future date.

Equity total return swaps are used to mitigate market risk for investments in portfolios of common stocks and other equity securities. Equity total return swaps obligate the Company and a counterparty to exchange amounts based on the difference between a variable equity index return and a specified fixed rate of return applied to the notional amount of the contract.

Equity index futures are used to mitigate market risk for investments in portfolios of common stock. Equity index futures obligate the Company to pay to or receive from a counterparty an amount based on a specified equity market index as of a future date applied to the notional amount of the contract.

Purchased credit default swaps are used to mitigate the credit risk for investments in bonds issued by specific debtors. Credit default swaps provide the Company an option to put a specific bond to a counterparty at par in the event of a “credit event” encountered by the bond issuer. A credit event is generally defined as a bankruptcy, failure to make required payments or acceleration of issuer obligations under the terms of the bond.

Investment Replications

Fixed income futures replications are used in conjunction with the purchase of cash market instruments to manage the duration of investment in portfolios of fixed income securities and to mitigate interest rate risk for such portfolios. Fixed income futures replications are reported at fair value, with changes in fair value reported as a change in unrealized capital gains or losses until the maturity or termination of the contract, at which time a realized capital gain or loss is recognized. The average fair value of open contracts was$0 and $9 million during 2012 and 2011, respectively.

Interest rate swap replications are used to replicate a bond investment through the use of cash market instruments combined with interest rate swaps. Interest rate swap replications, including the derivative components, are reported at amortized cost. The average fair value of open contracts was$3 million and $7 million during 2012 and 2011, respectively.

Equity total return swap replications are used in conjunction with the purchase of cash market instruments to replicate investment in portfolios of common stocks and other equity securities. Equity total return swaps obligate the Company and a counterparty to exchange amounts based on the difference between a variable equity index return and a specified fixed rate of return applied to the notional amount of the contract. Equity total return swaps are reported at fair value, with changes in fair value reported as a change in unrealized capital gains or losses until the maturity or termination of the contract, at which time a realized capital gain or loss is recognized. The average fair value of open contracts was$4 million and $(1) million during 2012 and 2011, respectively.

Equity index futures replications are used in conjunction with the purchase of cash market instruments to replicate investment in portfolios of common stocks and other equity securities.

F-52

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

Equity index futures replications are reported at fair value, with changes in fair value reported as a change in unrealized capital gains or losses until the maturity or termination of the contract, at which time a realized capital gain or loss is recognized. The average fair value of open contracts was$0 and $17 million during 2012 and 2011, respectively.

Income Generation

Written equity call options (covered) are used to generate income in exchange for potential future gains on a specific common stock owned by the Company. The Company receives a cash premium at the inception of the contract, and the counterparty has the right (but not the obligation) to purchase the underlying security from the Company at a specified price at any time during the term of the contract. Written equity call options are reported at fair value, with changes in fair value reported as a change in unrealized capital gains or losses until the contracts mature or are exercised by the counterparty, at which time a realized capital gain or loss is recognized. The average fair value of open contracts was$0 and $(18) million during 2012 and 2011, respectively.

The effects of the Company’s use of derivative instruments on the consolidated statements of financial position at December 31, 2012 and 2011 were as follows:


	December 31, 2012
	Notional Amount		Statement Value					Fair Value
	Notional Amount		Assets		Liabilities			Assets		Liabilities
	(in millions)
Derivatives designated as hedging instruments:
Interest rate contracts:
Interest rate floors	$	950	$	10	$	-		$	137	$	-
Interest rate swaps		52		-		-			14		-
Foreign exchange contracts:
Foreign currency swaps		999		20		(100	)		22		(61	)
Foreign currency covers		-		-		-			-		-
Derivatives not designated as hedging instruments:
Interest rate contracts:
Swaptions		2,441		67		-			67		-
Fixed income futures		811		5		-			5		-
Foreign exchange contracts:
Foreign currency forwards		871		1		(20	)		1		(20	)
Foreign currency futures		3		-		-			-		-
Equity contracts:
Equity total return swaps		101		-		(1	)		-		(1	)
Equity index futures		-		-		-			-		-
Credit contracts:
Purchased credit default swaps		138		-		(2	)		-		(2	)
Investment Replications:
Interest rate contracts:
Interest rate swaps		-		-		-			-		-
Equity contracts:
Equity total return swaps		167		3		-			3		-

Income Generation:
Equity contracts:
Written equity call options (covered)		-		-		-			-		-

Total derivatives			$	106	$	(123	)	$	249	$	(84	)

F-53

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010


	December 31, 2011
	Notional Amount		Statement Value					Fair Value
	Notional Amount		Assets		Liabilities			Assets		Liabilities
	(in millions)
Derivatives designated as hedging instruments:
Interest rate contracts:
Interest rate floors	$	1,025	$	11	$	-		$	142	$	-
Interest rate swaps		52		-		-			15		-
Foreign exchange contracts:
Foreign currency swaps		937		23		(79	)		40		(41	)
Foreign currency covers		11		-		-			-		-
Derivatives not designated as hedging instruments:
Interest rate contracts:
Swaptions		2,354		81		-			81		-
Fixed income futures		2,880		-		-			-		-
Foreign exchange contracts:
Foreign currency forwards		1,496		38		(7	)		38		(7	)
Equity contracts:
Equity total return swaps		20		-		-			-		-
Equity index futures		-		-		-			-		-
Credit contracts:
Purchased credit default swaps		201		1		(3	)		1		(3	)
Investment Replications:
Interest rate contracts:
Interest rate swaps		150		-		-			8		-
Fixed income futures		32		-		-			-		-
Equity contracts:
Equity total return swaps		182		2		-			2		-
Equity index futures		-		-		-			-		-
Income Generation:
Equity contracts:
Written equity call options (covered)		3		-		-			-		-

Total derivatives			$	156	$	(89	)	$	327	$	(51	)

The notional amounts shown above are used to denominate the derivative contracts and do not represent amounts exchanged between the Company and the derivative counterparties. Prior to 2012, the Company offset the statement values for derivatives executed with the same counterparty under the same master netting agreement. As of December 31, 2012, the Company began reporting statement value on a gross basis (i.e., as other investments and other liabilities) in the consolidated statements of financial position. Derivative investments reported as other investments and other liabilities at December 31, 2011 include a $41 million reclassification to conform with the new gross basis of reporting.

F-54

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

The effects of the Company’s use of derivative instruments on the consolidated statements of operations and changes in surplus for the years ended December 31, 2012, 2011 and 2010 were as follows:


	For the year ended December 31, 2012
	Change in Net Unrealized Capital Gains (Losses)			Net Realized Capital Gains (Losses)			Net Investment Income
	(in millions)
Derivatives designated as hedging instruments:
Interest rate contracts:
Interest rate floors	$	-		$	-		$	30
Interest rate swaps		-			-			-
Foreign exchange contracts:
Foreign currency swaps		(22	)		-			4
Foreign currency covers		-			-			-

Derivatives not designated as hedging instruments:
Interest rate contracts:
Swaptions		(25	)		-			(7	)
Fixed income futures		45			(131	)		-
Foreign exchange contracts:
Foreign currency forwards		(50	)		24			-
Foreign currency futures		-			-			-
Equity contracts:
Equity total return swaps		(1	)		(11	)		-
Equity index futures		-			(5	)		-
Credit contracts:
Purchased credit default swaps		(1	)		-			(2	)

Investment Replications:
Interest rate contracts:
Interest rate swaps		-			7			4
Equity contracts:
Equity total return swaps		2			33			-

Income Generation:
Equity contracts:
Written equity call options (covered)		-			-			-

Total derivatives	$	(52	)	$	(83	)	$	29

F-55

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010


	For the year ended December 31, 2011
	Change in Net Unrealized Capital Gains (Losses)			Net Realized Capital Gains (Losses)			Net Investment Income
	(in millions)
Derivatives designated as hedging instruments:
Interest rate contracts:
Interest rate floors	$	-		$	-		$	29
Interest rate swaps		-			-			3
Foreign exchange contracts:
Foreign currency swaps		51			(28	)		-
Foreign currency covers		-			-			-

Derivatives not designated as hedging instruments:
Interest rate contracts:
Swaptions		(35	)		-			(7	)
Fixed income futures		(72	)		(141	)		-
Foreign exchange contracts:
Foreign currency forwards		29			(23	)		-
Equity contracts:
Equity total return swaps		8			(11	)		-
Equity index futures		2			(10	)		-
Credit contracts:
Purchased credit default swaps		2			-			(3	)

Investment Replications:
Interest rate contracts:
Interest rate swaps		-			-			4
Fixed income futures		4			8			-
Equity contracts:
Equity total return swaps		(25	)		15			-
Equity index futures		-			2			-

Income Generation:
Equity contracts:
Written equity call options (covered)		15			(1	)		-

Total derivatives	$	(21	)	$	(189	)	$	26

F-56

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010


	For the year ended December 31, 2010
	Change in Net Unrealized Capital Gains (Losses)			Net Realized Capital Gains (Losses)			Net Investment Income
	(in millions)
Derivatives designated as hedging instruments:
Interest rate contracts:
Interest rate floors	$	-		$	-		$	27
Interest rate swaps		-			-			3
Foreign exchange contracts:
Foreign currency swaps		(21	)		-			-

Derivatives not designated as hedging instruments:
Interest rate contracts:
Swaptions		7			-			(6	)
Fixed income futures		36			(31	)		-
Foreign exchange contracts:
Foreign currency forwards		(8	)		(12	)		-
Equity contracts:
Equity total return swaps		(7	)		(26	)		-
Equity index futures		(2	)		(23	)		-
Credit contracts:
Purchased credit default swaps		3			-			(3	)

Investment Replications:
Interest rate contracts:
Interest rate swaps		-			-			4
Fixed income futures		(3	)		3			-
Equity contracts:
Equity total return swaps		25			4			(1	)
Equity index futures		-			(2	)		-

Income Generation:
Equity contracts:
Written equity call options (covered)		(15	)		-			-

Total derivatives	$	15		$	(87	)	$	24

F-57

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

5.	Reserves for Policy Benefits

General account reserves for policy benefits at December 31, 2012 and 2011 were as follows:


	December 31,
	2012		2011
	(in millions)
Life insurance reserves	$	133,545	$	125,983
Annuity reserves		5,572		5,262
Disability and long-term care unpaid claims and claim reserves		4,422		4,254
Disability and long-term care active life reserves		3,538		3,009
Deposit funds		2,522		2,409

Total reserves for policy benefits	$	149,599	$	140,917

See Note 9 for more information regarding the Company’s use of reinsurance and the related impact on policy benefit reserves.

Life Insurance Reserves

Life insurance reserves on substantially all policies issued since 1978 are based on the Commissioner’s Reserve Valuation Method (“CRVM”) using the 1958, 1980 or 2001 CSO mortality tables with valuation interest rates ranging from 3.50% to 5.50%. Other life insurance reserves are based primarily on the net level premium method, using various mortality tables at interest rates ranging from 2.00% to 4.50%. As of December 31, 2012, the Company had $1.4 trillion of total life insurance in force, including$9.0 billion of life insurance in force for which gross premiums were less than net premiums according to the standard valuation methods and assumptions prescribed by the OCI. Gross premiums are calculated in pricing and use mortality tables that reflect both the Company’s actual experience and the potential transfer of risk to reinsurers. Net premiums are determined in the calculation of statutory reserves, which must be based on industry-standard mortality tables.

As of January 1, 2010, the Company implemented the preferred mortality components of the 2001 CSO mortality table for the calculation of basic and deficiency reserves for term life insurance policies issued during 2006 and 2005. This change in reserve valuation basis resulted in a $131 million decrease in reserves that is reported as a direct increase to surplus in the consolidated statements of changes in surplus for the year ended December 31, 2010.

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 interest rate 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 on policies issued after January 1, 1956. Net level premium or CRVM mean reserves for these policies are based on multiples of mortality tables or one-half the net flat or other extra mortality charge. The Company waives deduction of

F-58

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

fractional premiums upon death of an insured and returns any portion of the final premium beyond the date of death. Cash values are not promised in excess of the legally computed reserves.

Each year, the Company must perform asset adequacy testing to demonstrate that reserves make adequate provision for the anticipated cash flows required by contractual obligations and related expenses, in light of assets held for the reserves. Asset adequacy testing is performed in accordance with presently accepted actuarial standards and must include assumptions necessary to determine the adequacy of reserves under moderately adverse conditions. This testing resulted in an additional increase in certain life insurance reserves of $1 million, $1 million and $0 for the years ended December 31, 2012, 2011 and 2010, respectively. These reserve increases were reported as an increase in reserves in the consolidated statements of operations.

Annuity Reserves

Deferred annuity reserves on policies issued since 1985 are based primarily on the Commissioner’s Annuity Reserve Valuation Method (“CARVM”) with valuation interest rates ranging from 3.50% to 6.25%. Other deferred annuity reserves are based on policy value, with additional reserves held to reflect guarantees under these contracts. Immediate annuity reserves are based on the present value of expected benefit payments with valuation interest rates ranging from 3.50% to 7.50%. Changes in future policy benefit reserves on supplementary contracts without life contingencies are deposit-type transactions and excluded from net additions to policy benefit reserves in the consolidated statements of operations.

At December 31, 2012 and 2011, the withdrawal characteristics of the Company’s general account and separate account annuity reserves and deposit liabilities were as follows:


	December 31,
	General Account				Separate Accounts				Total
	2012		2011		2012		2011		2012		2011
	(in millions)
Subject to discretionary withdrawal
- with market value adjustment	$	839	$	914	$	-	$	-	$	839	$	914
- at book value less surrender charge of 5% or more		577		575		-		-		577		575
- at fair value		-		-		12,548		10,808		12,548		10,808
- at book value without adjustment		4,123		3,873		-		-		4,123		3,873
Not subject to discretionary withdrawal		2,555		2,309		3,771		3,286		6,326		5,595

Total annuity reserves and deposit liabilities	$	8,094	$	7,671	$	16,319	$	14,094	$	24,413	$	21,765

Asset adequacy testing resulted in an additional increase in annuity reserves of $13 million, $33 million and $10 million for the years ended December 31, 2012, 2011 and 2010, respectively. These reserve increases were reported as an increase in reserves in the consolidated statements of operations.

F-59

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

Disability and Long-Term Care Reserves

Unpaid claims and claim reserves for disability policies are based on the present value of expected benefit payments, primarily using the 1985 Commissioner’s Individual Disability Table A (“CIDA”) modified for Company experience, with valuation interest rates ranging from 3.00% to 5.50%. Unpaid claims and claim reserves for long-term care policies are based on the present value of expected benefit payments using industry-based morbidity experience with valuation interest rates ranging from 4.00% to 4.50%.

Reserves for unpaid claims, losses and loss adjustment expenses on disability and long-term care policies were $4.4 billion and $4.3 billion at December 31, 2012 and 2011, respectively. Changes in these reserves for the years ended December 31, 2012 and 2011 were as follows:


	For the year ended December 31,
	2012				2011
	(in millions)
Balance at January 1		$	4,254			$	4,098
Incurred related to:
Current year			647				590
Prior years			76				93

Total incurred			723				683
Paid related to:
Current year			(22	)			(20	)
Prior years			(533	)			(507	)

Total paid			(555	)			(527	)

Balance at December 31		$	4,422			$	4,254

Changes in reserves for incurred claims related to prior years are generally the result of differences between assumed claim experience at the time reserves were originally estimated and subsequent actual claim experience.

Active life reserves for disability policies issued since 1987 are based primarily on the two-year preliminary term method using the 1985 CIDA for morbidity with a 4.00% valuation interest rate. Active life reserves for prior disability policies are based on the net level premium method, using the 1964 Commissioner’s Disability Table for morbidity with valuation interest rates ranging from 3.00% to 4.00%.

Active life reserves for long-term care policies consist of mid-terminal reserves and unearned premiums. Mid-terminal reserves are based on the one-year preliminary term method and industry-based morbidity experience. For policies issued prior to March 2002, reserves are based on a 4.00% valuation interest rate and total terminations based on the 1983 Individual Annuitant Mortality table without lapses. For policies issued from March 2002 through September 2010, minimum reserves are based on valuation interest rates of 4.00% or 4.50% and total terminations based on the 1994 Group Annuity Mortality table with lapses. For policies issued after September 2010, reserves are based on a 4.00% valuation interest rate and total terminations based on the 1994 Group Annuity Mortality table with lapses. A separate calculation is performed using valuation interest rates ranging from 4.87% to 5.60% and assuming no lapses. Reserves from the

F-60

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

separate calculation are compared in the aggregate to the minimum reserves as calculated above and the greater of the two is reported.

For valuations prior to 2012, the Company utilized the 1983 Individual Annuity Mortality table, the 1983 Group Annuity Mortality table, or the 1994 Group Annuity Mortality table for the calculation of minimum reserves for policies. At January 1, 2012, use of the 1983 Group Annuity Mortality table to calculate minimum reserves for policies issued from March 2002 through 2004 was replaced with a calculation using only the 1994 Group Annuity Mortality table and assumptions regarding interest rates and claim costs were adjusted to reflect current expectations. These changes in reserve valuation bases resulted in a $59 million increase in reserves that is reported as a direct decrease to surplus in the consolidated statements of changes in surplus for the year ended December 31, 2012.

Asset adequacy testing resulted in an additional increase in long-term care reserves of $165 million for the year ended December 31, 2012. The reserve increase was reported as an increase in reserves in the consolidated statements of operations. There were no additions to long-term care reserves related to asset adequacy testing for either of the years ended December 31, 2011 or 2010.

Deposit Funds

Deposit funds primarily represent reserves for supplementary annuity contracts without life contingencies and amounts left on deposit with the Company by beneficiaries or policyowners. Beneficiaries of the Company’s life insurance policies can choose to receive their death benefit in a single lump sum payment, through a payment plan consisting of a series of scheduled payments or by deposit of the proceeds (if$20,000 or more) into an interest-bearing retained asset account (“Northwestern Access Fund”). If the beneficiary does not affirmatively choose either the second or third option above, the proceeds are automatically paid to the beneficiary in a single lump sum. If the beneficiary chooses a Northwestern Access Fund account, the beneficiary receives negotiable drafts that they can use to access the balance in this account at their discretion. The total reserve liability for Northwestern Access Fund account balances held by the Company on behalf of beneficiaries was$0.8 billion and $0.9 billion at December 31, 2012 and 2011, respectively. Funds held on behalf of Northwestern Access Fund account holders are segmented in the Company’s general account and are invested primarily in short-term, liquid investments.

Northwestern Access Fund accounts are credited with interest at short-term market rates, with certain accounts subject to guaranteed minimum crediting rates. Northwestern Access Fund accounts were credited with interest at annual rates ranging from 0.02% to 3.50% during 2012 and 0.01% to 3.50% during 2011. The Company does not charge beneficiaries any fee to establish or maintain a Northwestern Access Fund account. Fees may be assessed for special account services such as stop-payment requests, drafts returned for insufficient funds or wire transfers.

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 and are reported as an asset in the consolidated statements of financial position.

F-61

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

Deferred and uncollected premiums at December 31, 2012 and 2011 were as follows:


	December 31, 2012						December 31, 2011
	Gross			Net			Gross			Net
	(in millions)
Ordinary new business		$	221		$	84		$	212		$	82
Ordinary renewal			2,112			1,727			2,026			1,666

Total deferred and uncollected premiums		$	2,333		$	1,811		$	2,238		$	1,748

7.	Separate Accounts

Separate account liabilities by withdrawal characteristic at December 31, 2012 and 2011were as follows:


	Variable Life						Variable Annuities						Total
	December 31,
	2012			2011			2012			2011			2012			2011
	(in millions)
Subject to discretionary withdrawal		$	4,969		$	4,488		$	12,548		$	10,808		$	17,517		$	15,296
Not subject to discretionary withdrawal			-			-			3,771			3,286			3,771			3,286

Total separate account reserves		$	4,969		$	4,488		$	16,319		$	14,094			21,288			18,582

Non-policy liabilities															88			115

Total separate account liabilities														$	21,376		$	18,697

While separate account liability values are not guaranteed by the Company, variable annuity and variable life insurance products do include guaranteed minimum death benefits (“GMDB”) underwritten by the Company. The maximum potential cost of these guarantees at December 31, 2012 and 2011 was$62 million and $188 million, respectively, which represents the aggregate difference between guaranteed values and otherwise available values for all variable products for which the guaranteed value was greater at the respective reporting dates. Because these benefits are only available upon the death of the annuitant or insured, reserves for these benefits are based upon NAIC-prescribed actuarial methods that take into account, among other factors, the likelihood of death based on standard mortality tables. General account reserves for policy benefits included $20 million and $19 million attributable to GMDB at December 31, 2012 and 2011, respectively.

Premiums and other considerations received from variable annuity and variable life insurance policyowners were $1.8 billion, $1.8 billion and $1.7 billion for the years ended December 31, 2012, 2011 and 2010, respectively. These amounts are reported as premiums in the consolidated statements of operations. The subsequent transfer of these premiums to the separate accounts is reported as transfers to separate accounts in the consolidated statements of operations, net of

F-62

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

amounts received from the separate accounts to provide for policy benefit payments to variable product policyowners.

Following are amounts reported as transfers to and from separate accounts in the summary of operations of the Company’s NAIC Separate Account Annual Statement, which agree with the amounts reported as net transfers to separate accounts in the consolidated statements of operations for the years ended December 31, 2012, 2011 and 2010.


	For the year ended December 31,
	2012				2011				2010
	(in millions)
From Separate Account Annual Statement:
Transfers to separate accounts		$	1,982			$	1,909			$	1,819
Transfers from separate accounts			(1,490	)			(1,428	)			(1,437	)

Net transfers to separate accounts		$	492			$	481			$	382

8.	Employee and Financial Representative Benefit Plans

The Company provides defined pension benefits for all eligible employees and financial representatives. This includes sponsorship of noncontributory defined benefit pension plans that are “qualified” under the terms of the Employee Retirement Income Security Act (“ERISA”), as well as “nonqualified” plans that provide benefits to certain participants in excess of limits set by ERISA for the qualified plans. The Company’s funding policy for the qualified plans is to make annual contributions that are no less than the minimum amount needed to comply with the requirements of ERISA and no greater than the maximum amount deductible for federal income tax purposes. The Company contributed $130 million and $145 million to the qualified employee retirement plan during the years ended December 31, 2012 and 2011, respectively.

In addition to defined pension benefits, the Company provides certain health care and life insurance benefits (“postretirement benefits”) to retired employees, retired financial representatives and their eligible dependents. The Company pays the entire cost of retiree life insurance coverage, while retirees may pay premiums to offset a portion of the cost of the health plan.

F-63

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

Aggregate plan assets and projected benefit obligations of the defined benefit pension plans and postretirement benefit plans at December 31, 2012 and 2011, and changes in assets and obligations for the years then ended, were as follows:


	Defined Benefit Plans								Postretirement Benefit Plans
	2012				2011				2012				2011
	(in millions)
Fair value of plan assets at January 1		$	3,084			$	2,992			$	67			$	73
Changes in plan assets:
Actual return on plan assets			411				20				9				-
Company contributions			130				145				-				-
Actual plan benefits paid			(80	)			(73	)			(6	)			(6	)

Fair value of plan assets at December 31		$	3,545			$	3,084			$	70			$	67

Projected benefit obligation at January 1		$	3,720			$	2,878			$	498			$	415
Changes in benefit obligation:
Service cost of benefits earned			131				100				38				26
Interest cost on projected obligations			166				164				21				23
Projected gross plan benefits paid			(97	)			(89	)			(24	)			(23	)
Projected Medicare Part D reimbursement			-				-				2				2
Experience losses			375				667				2				55

Projected benefit obligation at December 31		$	4,295			$	3,720			$	537			$	498

Plan assets consist of a share of a group annuity separate account (“GASA”) issued by the Company, which invests primarily in a diversified portfolio of public and private common stocks and corporate, government and mortgage-backed debt securities. The investment objective of the plans is to maximize long-term total rate of return, consistent with prudent standards for investment and asset/liability risk management and in accordance with ERISA requirements. Plan investments are managed for the sole benefit of the plans’ participants.

While significant exposure to public equity securities is warranted by the long-term duration of expected benefit payments, diversification across asset classes is maintained to provide a risk/reward profile consistent with the objectives of the plans’ participants. Diversified equity investments are subject to an aggregate maximum exposure of 75% of total assets, with holdings in any one issuer not to exceed 1% of total assets. Asset mix is rebalanced regularly to maintain holdings within target asset allocation ranges. The measurement date for plan assets is December 31, with the fair value of plan assets based primarily on quoted market prices.

The target asset allocations and the actual allocation of the plans’ investments on a fair value basis at December 31, 2012 and 2011 were as follows:


	2012						2011
	Target Allocation			Actual Allocation			Target Allocation			Actual Allocation
Bonds		34	%		33	%		34	%		35	%
Equity securities		65	%		60	%		65	%		63	%
Other investments		1	%		7	%		1	%		2	%

Total assets		100	%		100	%		100	%		100	%

F-64

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

At each of December 31, 2012 and 2011, other investments are comprised of cash and temporary investments.

The projected benefit obligation (“PBO”) represents the actuarial net present value of estimated future benefit obligations. For defined benefit plans, PBO includes assumptions for future salary increases for active employees. The accumulated benefit obligation (“ABO”) is similar to the PBO, but is based only on current salaries with no assumption of future salary increases. The aggregate ABO for the defined benefit plans was$3.7 billion and $3.2 billion at December 31, 2012 and 2011, respectively.

The PBO and ABO amounts above represent the estimated future benefit obligations due to vested participants only, as required by the statutory basis of accounting as of December 31, 2012. The estimated present value of additional future obligations for participants that have not yet vested in the defined benefit plans and the postretirement benefit plans at December 31, 2012 and 2011 were as follows:


	Defined Benefit Plans						Postretirement Benefit Plans
	2012			2011			2012			2011
	(in millions)
PBO		$	73		$	87		$	301		$	302
ABO			61			60			-			-

The assumptions used in estimating the projected benefit obligations at December 31, 2012, 2011 and 2010 and the net benefit cost for the years then ended were as follows:


	Defined Benefit Plans									Postretirement Benefit Plans
	2012			2011			2010			2012			2011			2010
Projected benefit obligation:
Discount rate		4.00	%		4.50	%		5.75	%		4.00	%		4.50	%		5.75	%
Annual increase in compensation		3.75	%		3.75	%		3.75	%		3.75	%		3.75	%		3.75	%
Net periodic benefit cost:
Discount rate		4.50	%		5.75	%		6.25	%		4.50	%		5.75	%		6.25	%
Annual increase in compensation		3.75	%		3.75	%		3.75	%		3.75	%		3.75	%		3.75	%
Long-term rate of return on plan assets		7.50	%		7.50	%		8.00	%		7.50	%		7.50	%		8.00	%

The long-term rate of return on plan assets is estimated assuming a target allocation of plan investments among asset classes, with expected returns by asset class based on several factors including economic projections, third-party research, long-term historical returns and correlations among asset classes. The Company currently anticipates that a long-term rate of return assumption of 6.75% will be used in the calculation of net periodic benefit cost beginning in 2013.

The PBO for postretirement benefits at December 31, 2012 assumed an annual increase in future retiree medical costs of 7.0%, grading down to 5.0% over four years and remaining level thereafter. At December 31, 2011, the comparable assumption was for an annual increase in future retiree medical costs of 7.5% grading down to 5.0% over five years and remaining level thereafter. A greater increase in the assumed health care cost trend of 1.0% in each year would

F-65

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

increase the accumulated postretirement benefit obligation at December 31, 2012 by $63 million and net periodic postretirement benefit expense for the year ended December 31, 2012 by $8 million. A decrease in the assumed health care cost trend of 1.0% in each year would reduce the accumulated postretirement benefit obligation as of December 31, 2012 and net periodic postretirement benefit expense for the year ended December 31, 2012 by the same amounts.

During 2010, the Patient Protection and Affordable Care Act (“PPACA”) and the Health Care and Education Reconciliation Act of 2010, which amended certain provisions of the PPACA, were enacted. The new laws created an excise tax beginning in 2018 on health plans that have an aggregate value to the participants greater than a threshold amount. Absent any prospective changes to benefits under the plan, the potential future impact on the Company’s PBO for postretirement medical benefit of this new excise tax is estimated to be an increase of $47 million. The new laws also revoked the non-taxable status of the prescription drug subsidies offered to companies that maintain retiree health plans that are actuarially equivalent to the Medicare Part D benefit. The Company previously recorded deferred tax assets based on the expectation of this tax benefit. As a result, the related deferred tax assets of $11 million were eliminated as a direct reduction of surplus for the year ended December 31, 2010 to reflect the expected future income tax on the subsidy.

Following is an aggregate reconciliation of the funded status of the plans to the related financial statement liabilities reported by the Company at December 31, 2012 and 2011:


	Defined Benefit Plans						Postretirement Benefit Plans
	2012			2011			2012			2011
	(in millions)
Fair value of plan assets	$	3,545		$	3,084		$	70		$	67
Projected benefit obligation		4,295			3,720			537			498

Funded status		(750	)		(636	)		(467	)		(431	)
Unrecognized net experience losses		1,620			1,509			180			188
Unrecognized prior service cost		1			1			(4	)		(4	)
Unrecognized initial net asset		(475	)		(515	)		-			-
Additional minimum liability		(73	)		(37	)		-			-
Nonadmitted asset		(920	)		(851	)		-			-

Financial statement liability	$	(597	)	$	(529	)	$	(291	)	$	(247	)

The projected benefit obligation for defined benefit plans shown above included $685 million and $584 million related to nonqualified, unfunded plans at December 31, 2012 and 2011, respectively. In the aggregate, the fair value of qualified defined benefit plan assets represented 98% of the projected benefit obligations of these qualified plans at each of December 31, 2012 and 2011.

Unrecognized net experience gains or losses represent cumulative amounts by which plan experience for return on plan assets or growth in projected benefit obligations have varied from related assumptions. These differences accumulate without recognition in the Company’s financial statements unless they exceed 10% of plan assets or 10% of the projected benefit obligation, whichever is greater. If they exceed this limit, they are amortized into net periodic benefit cost over the remaining average years of service until retirement of the plan participants, which is currently fourteen years for employee plans and twelve years for financial representative

F-66

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

plans. Unrecognized net experience losses primarily reflect the impact of reductions in the PBO discount rate, including a total of $1.2 billion of net experience losses related to reductions in the discount rate from 5.75% at December 31, 2010 to 4.00% at December 31, 2012.

Unrecognized initial net asset represents 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 guidance for defined benefit plans at January 1, 2001. The Company has elected not to record a direct increase to surplus for this excess, electing instead to amortize this unrecognized initial net asset on a discretionary basis as a reduction of net periodic benefit cost until exhausted.

An additional minimum liability is required if a plan’s ABO exceeds plan assets or related financial statement liabilities. This additional liability was$73 million, $37 million and $14 million at December 31, 2012, 2011 and 2010, respectively. Changes in the additional minimum liability are reported as a direct adjustment to surplus in the consolidated statements of changes in surplus.

Any net pension assets for funded plans are nonadmitted and are thereby excluded from assets and surplus in the consolidated statements of financial position.

The components of net periodic benefit cost for the years ended December 31, 2012, 2011 and 2010 were as follows:


	Defined Benefit Plans									Postretirement Benefit Plans
	2012			2011			2010			2012			2011			2010
	(in millions)
Components of net periodic benefit cost:
Service cost of benefits earned	$	131		$	100		$	84		$	38		$	26		$	26
Interest cost on projected obligations		166			164			154			21			23			21
Amortization of experience gains and losses		88			28			33			6			4			3
Amortization of initial net asset		(40	)		-			(2	)		-			-			-
Expected return on plan assets		(230	)		(222	)		(192	)		(5	)		(5	)		(5	)

Net periodic benefit cost	$	115		$	70		$	77		$	60		$	48		$	45

The expected benefit payments by the defined benefit plans and the postretirement benefit plans for the years 2013 through 2022 are as follows:


	Defined Benefit Plans		Postretirement Benefit Plans
	(in millions)
2013	$	113	$	23
2014		124		26
2015		137		29
2016		152		32
2017		168		35
2018-2022		1,147		233

Total	$	1,841	$	378

F-67

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

Effective January 1, 2013, the Company will adopt Statement of Statutory Accounting Principle No. 92, Accounting for Postretirement Benefits Other Than Pensions, A Replacement of SSAP No. 14 (“SSAP 92”) and Statement of Statutory Accounting Principle No. 102, Accounting for Pensions, A Replacement of SSAP No. 89 (“SSAP 102”). These new statutory accounting standards will require that estimates of PBO and ABO include future benefit obligations due to non-vested participants. They will also require that the Company’s surplus as reported in the consolidated statements of financial position fully reflect any net liability related to the plans’ projected benefit obligations, reduced by the fair value of any plan assets, including unrecognized net experience losses and prior service costs. Based on the funded status of the plans at December 31, 2012, the Company estimates that the new standards will reduce surplus by approximately $742 million once fully implemented. The new standards permit the Company an election to recognize this surplus reduction over a period of up to ten years, an election that the Company expects to make. The decrease in surplus during 2013 is estimated to be approximately $124 million, with additional annual reductions in surplus ranging from $94 million to $55 million during 2014-2022.

On January 23, 2013, the Company’s Board of Trustees approved certain prospective amendments to defined pension benefits and postretirement benefits to be provided to employees for service beginning on January 1, 2014. These changes include an amendment of the benefit formula for the qualified employee defined benefit pension plan (and a related nonqualified employee defined benefit pension plan) to a hybrid cash balance formula. The accrued benefits for each participant under the current final average pay formula as of December 31, 2013 will be frozen and available to participants upon retirement. In addition, eligible participants will receive cash-balance credits to an account using the new formula beginning in 2014 based on age and years of service, as well as annual investment-related credits based on market interest rates and subject to a guaranteed minimum crediting rate. In addition, a second nonqualified employee defined benefit pension plan will be terminated, with accrued benefits as of January 1, 2014 also available to eligible participants upon retirement. The aggregate impact of these changes on the PBO for defined benefit plans as of January 31, 2013 is estimated to be approximately $355 million, which will be recorded as a direct increase in surplus during 2013. The Company does not expect to make a contribution to the defined benefit pension plan during 2013.

These Board-approved amendments also include an amendment of benefits provided to most participants of the employee postretirement medical plan that will limit the Company’s exposure to the annual medical inflation rate for benefits to 3%. Any annual increase in medical costs in excess of 3% will be passed on to these participants in the form of increased plan premiums beginning January 1, 2019. This amendment to the postretirement medical plan will not impact any current plan participant age 65 or older on January 1, 2014. The impact of this amendment on the PBO for postretirement benefit plans as of January 31, 2013 is estimated to be approximately $150 million, which will be recorded as a direct increase in surplus during 2013.

The Company also sponsors a contributory 401(k) plan for eligible employees, for which the Company provides a matching contribution, and a noncontributory defined contribution plan for financial representatives. In addition, the Company sponsors nonqualified plans that provide benefits to certain participants in excess of limits set by ERISA for qualified defined contribution plans. For the years ended December 31, 2012, 2011 and 2010, the Company expensed total contributions to these plans of $33 million, $32 million and $31 million, respectively.

F-68

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

9.	Reinsurance

The Company limits its exposure to life insurance death benefits by ceding insurance coverage to various reinsurers. The Company retains a maximum of $35 million of individual life coverage and a maximum of $50 million of joint life coverage for any single mortality risk. The Company also participates in a life insurance catastrophic risk sharing pool.

The Company cedes 60% of the morbidity risk on group disability plans. The Company ceased reinsuring new individual disability policies in 1999 and new long-term care policies in 2002 but has maintained a portion of the reinsurance ceded on policies issued prior to those dates.

Amounts in the consolidated financial statements are reported net of the impact of reinsurance. Reserves for policy benefits at each of December 31, 2012 and 2011 was reported net of ceded reserves of $1.6 billion.

The effects of reinsurance on premium revenue and benefit expense for the years ended December 31, 2012, 2011 and 2010 were as follows:


	For the year ended December 31,
	2012			2011			2010
	(in millions)
Direct premium revenue	$	16,258		$	15,457		$	14,984
Premiums ceded		(864	)		(839	)		(732	)

Net premium revenue	$	15,394		$	14,618		$	14,252

Direct benefit expense	$	16,958		$	15,999		$	15,583
Benefits ceded		(603	)		(495	)		(375	)

Net benefit expense	$	16,355		$	15,504		$	15,208

In addition, the Company received $166 million, $169 million and $146 million in allowances from reinsurers for reimbursement of commissions and other expenses on ceded business for the years ended December 31, 2012, 2011 and 2010, respectively. These amounts are reported in other income in the consolidated statements 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 mitigates this counterparty risk by dealing only with reinsurers that meet its financial strength standards while adhering to concentration limits for counterparty exposure to any single reinsurer. Most significant reinsurance treaties contain financial protection provisions that take effect if a reinsurer’s credit rating falls below a prescribed level. There were no reinsurance recoverables at December 31, 2012 and 2011 that were considered by management to be uncollectible.

During 2010, the Company exercised its option to recapture previously ceded long-term care insurance business from two unaffiliated reinsurers. The effect on the Company’s financial statements from these recapture transactions was to increase investments by $67 million and policy benefit reserves by $100 million at December 31, 2010, with a related decrease in net income and surplus of $33 million for the year then ended.

F-69

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

10.

Income Taxes

The Company files a consolidated federal income tax return including the following subsidiaries:


Northwestern Mutual Investment Services, LLC		Frank Russell Company and subsidiaries

NML Real Estate Holdings, LLC and subsidiaries		Bradford, Inc.

NML Securities Holdings, LLC and subsidiaries		Mason Street Advisors, LLC

Northwestern Mutual Capital, LLC		NML – CBO, LLC

Northwestern Mutual Wealth Management Company		NM GP Holdings, LLC

NM Pebble Valley, LLC		NM Investment Holdings, Inc.

Northwestern Mutual Real Estate Investments, LLC		Northwestern Mutual Registry, LLC

Northwestern Mutual MU TLD Registry, LLC

The Company collects from or refunds to these subsidiaries their share of consolidated federal income taxes determined pursuant to written tax-sharing agreements, which generally require that these subsidiaries determine their share of consolidated tax payments or refunds as if each subsidiary filed a separate federal income tax return on a stand-alone basis.

The components of current income tax expense (benefit) in the consolidated statements of operations for the years ended December 31, 2012, 2011 and 2010 related to “ordinary” taxable income or loss were as follows:


	For the year ended December 31,
	2012			2011			2010
	(in millions)
Tax payable on ordinary income	$	162		$	99		$	(33	)
Tax credits		(116	)		(116	)		(185	)
Increase (decrease) in contingent tax liabilities		(9	)		23			(6	)

Total current tax expense (benefit)	$	37		$	6		$	(224	)

In addition to current income tax expense (benefit) related to ordinary taxable income or loss as summarized above, the Company is subject to federal income tax on “capital” gains and losses that generally result from investment transactions. Investment capital gains and losses resulting from changes in market interest rates or credit spreads are deferred to the IMR net of any related tax expense or benefit. Current tax expense of $171 million, $226 million and $139 million was included in net IMR deferrals for the years ended December 31, 2012, 2011 and 2010, respectively. In addition, net realized capital gains and losses as reported in the consolidated statements of operations included current tax expense of $332 million, $252 million and $34 million for the years ended December 31, 2012, 2011 and 2010, respectively.

The Company’s taxable income can vary significantly from pretax income as reported in the consolidated statements of operations due to temporary and permanent differences in revenue recognition and expense deduction between the tax and statutory financial statement bases of reporting. The Company’s financial statement effective tax rates were 14%, 15% and 8% for the years ended December 31, 2012, 2011 and 2010, respectively.

The effective tax rate above is not the rate of tax applied to the Company’s federal taxable income or loss by the Internal Revenue Service (“IRS”). It is a financial statement relationship that represents the ratio between the sum of total tax expense or benefit incurred, including

F-70

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

current tax expense or benefit on realized capital gains and losses and changes in deferred taxes not related to unrealized capital gains and losses on investments, to the sum of gain from operations before taxes and pretax net realized capital gains or losses. These financial statement effective rates were different than the applicable federal income tax rate of 35% due primarily to net investment income eligible for dividends received deduction, changes in deferred tax assets related to nonadmitted assets, certain investment transactions, amortization of the IMR, leveraged leases, tax credits, pension contributions, tax losses of subsidiaries not eligible for refunds for prior year losses under intercompany tax-sharing agreements, interest accrued or released on contingent tax liabilities and changes in contingent tax liabilities for permanent items upon subsequent filing of tax returns.

The Company made payments to the IRS for federal income taxes of $840 million, $460 million and $253 million during the years ended December 31, 2012, 2011 and 2010, respectively. Total federal income taxes paid (including refunds or overpayments applied) for tax years 2012, 2011 and 2010 of $993 million, $615 million and $298 million, respectively, are available as of December 31, 2012 for refund claims in the event of future tax losses.

Federal income tax returns for 2007 and prior years are closed as to further assessment of tax. Income taxes payable in the consolidated statements of financial position represents an estimate of taxes recoverable or payable, including additional taxes that may become due with respect to tax years that remained open to examination by the IRS (“contingent tax liabilities”), at the respective reporting date.

Changes in contingent tax liabilities for the years ended December 31, 2012 and 2011 were as follows:


	2012			2011
	(in millions)
Balance at beginning of year	$	436		$	412
Change in accounting principle		7			-
Additions for tax positions of prior years		7			24
Reductions for tax positions of prior years		(16	)		-

Balance at end of year	$	434		$	436

Included in contingent tax liabilities at December 31, 2012 and 2011 were $392 million and $394 million, respectively, of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of the deductions. Because of the impact of deferred tax accounting for amounts other than interest, the timing of the ultimate deduction would not affect the effective tax rate in future periods. Also included in the December 31, 2012 balance are $12 million of tax positions for which the ultimate deductibility is not certain. The ultimate resolution of these tax positions could have an impact on the effective tax rate in future periods.

A “more likely than not” standard is applied for financial statement recognition of contingent tax liabilities, whereby a liability is only recorded if the Company believes that there is a greater than 50 percent likelihood that the related tax position will not be sustained upon examination. In cases where liability recognition is appropriate, a best estimate of the ultimate tax liability is made. If this estimate represents 50 percent or less of the total amount of the tax contingency, the best estimate is established as a liability. If this best estimate represents more than 50 percent of the total tax contingency, the total amount is established as a liability. Except for changes in

F-71

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

accounting principle, changes in contingent tax liabilities are included in tax expense (benefit) in the year that such determination is made by management.

The Company reports interest accrued or released related to contingent tax liabilities in current income tax expense (benefit). During the years ended December 31, 2012, 2011 and 2010, the Company recognized $(16) million, $16 million and $(28) million, respectively, in such interest-related tax expense (benefit). Contingent tax liabilities included $29 million and $43 million for the payment of interest at December 31, 2012 and 2011, respectively.

Deferred tax assets and liabilities represent the future tax recoveries or obligations associated with the accumulation of temporary differences between the tax and financial statement bases of the Company’s assets and liabilities. The statutory basis of accounting limits the amount of gross deferred tax assets that can be admitted to surplus to those for which ultimate recoverability can be demonstrated. This limit is based on a calculation that considers available tax loss carryback and carryforward capacity, the expected timing of reversal for accumulated temporary differences, gross deferred tax liabilities and the level of Company surplus. The components of net deferred tax assets reported in the consolidated statements of financial position at December 31, 2012 and 2011 were as follows:


	December 31,
	2012			2011			Change
	(in millions)
Deferred tax assets:
Policy acquisition costs	$	1,094		$	1,050		$	44
Investments		404			371			33
Policy benefit liabilities		1,947			1,867			80
Benefit plan obligations		598			547			51
Guaranty fund assessments		11			11			-
Other		95			93			2
Valuation adjustment		-			-			-


Gross deferred tax assets		4,149			3,939			210

Nonadmitted deferred tax assets		(78	)		(38	)		(40	)



Gross admitted deferred tax assets		4,071			3,901			170


Deferred tax liabilities:
Investments		780			824			(44	)
Other		735			721			14

Gross deferred tax liabilities		1,515			1,545			(30	)


Net deferred tax assets	$	2,556		$	2,356		$	200

F-72

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

Changes in deferred tax assets and liabilities related to unrealized capital gains and losses on investments are included in changes in unrealized capital gains and losses in the consolidated statements of changes in surplus. Other net changes in deferred tax assets and liabilities are reported as direct adjustments to surplus in the consolidated statements of changes in surplus.

Gross deferred tax assets at December 31, 2012 and 2011 included $3.7 billion and $3.8 billion, respectively, related to temporary differences that were ordinary in nature and $0.4 billion and $0.2 billion, respectively, related to temporary differences that were capital in nature. Gross deferred tax liabilities at December 31, 2012 and 2011 included $0.7 billion and $0.9 billion, respectively, related to temporary differences that were ordinary in nature and $0.8 billion and $0.6 billion, respectively, related to temporary differences that were capital in nature. All gross deferred tax liabilities have been recognized at December 31, 2012 and 2011. The Company did not assume any benefit from future tax planning strategies in its valuation of gross deferred tax assets at either December 31, 2012 or 2011.

During 2009, the NAIC adopted Statement of Statutory Accounting Principles No. 10R, Income Taxes- Revised, A Temporary Replacement of SSAP No. 10 (“SSAP 10R”), initially effective for the years ended December 31, 2009 and 2010. During 2010, the NAIC extended the required use of SSAP 10R through December 31, 2011. SSAP 10R changed the calculation of the limit for gross deferred tax assets that can be admitted to surplus compared to previous guidance. SSAP 10R extended the reversal period for temporary differences from one year to three years and increased the level-of-surplus limitation from 10% to 15%, provided the insurer meets a minimum risk-based capital (“RBC”) level of 250%. At December 31, 2011, the Company exceeded the minimum RBC level required to use the new calculation under SSAP 10R.

If the Company had not qualified to use the new calculation, its gross deferred tax assets would have exceeded the previous limitation by $457 million at December 31, 2011, which would have reduced surplus in the consolidated statements of financial position at that date. Of this amount, $457 million was ordinary in nature.

Effective January 1, 2012, the Company adopted Statement of Statutory Accounting Principles No. 101 – Income Taxes, A Replacement of SSAP No. 10R and SSAP No. 10 (“SSAP 101”). SSAP 101 included a similar calculation for limitation of gross deferred tax assets as SSAP 10R for insurers that maintain a minimum of 300% of their authorized control level RBC computed without net deferred tax assets. The Company exceeded the 300% minimum RBC requirement at December 31, 2012 and expects to exceed this minimum during 2013. SSAP 101 also changed the recognition and measurement criteria for contingent tax liabilities. The adoption of SSAP 101 was reported as a change in accounting principle that resulted in a direct reduction in surplus of $15 million in the consolidated statements of changes in surplus for the year ended December 31, 2012. The adoption of SSAP 101 did not have a material impact on results of operations for the year ended December 31, 2012 compared to the years ended December 31, 2011 and 2010.

F-73

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

Significant components of the calculation of net deferred tax assets at December 31, 2012 and 2011 were as follows (in millions):


	December 31, 2012								December 31, 2011								Change
	Ordinary		Capital			Total			Ordinary		Capital			Total			Ordinary			Capital			Total
Gross deferred tax assets	$	3,745	$	404		$	4,149		$	3,765	$	174		$	,939		$	(20	)	$	230		$	210
Statutory valuation allowance adjustment		-		-			-			-		-			-			-			-			-

Adjusted gross deferred tax assets		3,745		404			4,149			3,765		174			3,939			(20	)		230			210
Deferred tax assets nonadmitted		78		-			78			11		27			38			67			(27	)		40

Subtotal net admitted deferred tax asset		3,667		404			4,071			3,754		147			3,901			(87	)		257			170
Deferred tax liabilities		735		780			1,515			925		620			1,545			(190	)		160			(30	)

Net admitted deferred tax asset/liability	$	2,932	$	(376	)	$	2,556		$	2,829	$	(473	)	$	2,356		$	103		$	97		$	200


	December 31, 2012								December 31, 2011								Change
	Ordinary		Capital			Total			Ordinary		Capital			Total			Ordinary			Capital			Total
Federal income taxes paid in prior years recoverable through loss carrybacks	$	1,933	$	235		$	2,168		$	1,062	$	60		$	1,122		$	871		$	175		$	1,046
Adjusted gross deferred tax assets expected to be realized (excluding the amount of deferred tax assets above) after application of the threshold limitation (lesser of a. or b. below)		737		-			737			1,539		-			1,539			(802	)		-			(802	)
Adjusted gross deferred tax assets (excluding the amount of deferred tax assets offset by gross deferred tax liabilities		997		169			1,166			1,154		86			1,240			(157	)		83			(74	)

Total deferred tax assets admitted as the result of application of SSAP No. 101	$	3,667	$	404		$	4,071		$	3,755	$	146		$	3,901		$	(88	)	$	258		$	170

a. Adjusted gross deferred tax assets expected to be realized following the balance sheet date						$	737							$	1,539								$	(802	)

b. Adjusted gross deferred tax assets allowed per limitation threshold						$	2,032							$	1,846								$	186

Ratio percentage used to determine recovery period and threshold limitation amount							1022	%							874	%

Amount of adjusted capital and surplus used to determine recovery period and threshold limitation						$	13,546							$	12,309

11.

Frank Russell Company

The Company is the majority shareholder in Frank Russell Company (“Russell”), which provides investment products and services through 24 offices worldwide. At December 31, 2012 and 2011, the Company owned 92.6% and 93.4%, respectively, of the outstanding common stock of

F-74

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

Russell, which was reported at$402 million and $418 million, respectively, in the consolidated statements of financial position.

The Company’s investment in Russell common stock is valued using a practice permitted by the OCI, based on the Company’s share of Russell’s audited GAAP-basis equity exclusive of any adjustment for unamortized acquisition goodwill in Russell’s GAAP-basis financial statements. Under Statement of Statutory Accounting Principle No. 97, Investments in Subsidiary, Controlled and Affiliated Entities, A Replacement of SSAP No. 88 (“SSAP 97”), the Company’s statutory equity method valuation of its investment in Russell would be required to be reduced by its share of Russell’s GAAP goodwill. If the Company had not received permission for this alternative accounting treatment, surplus as reported in the consolidated statements of financial position would have been lower by $785 million and $772 million at December 31, 2012 and 2011, respectively, and net income as reported in the consolidated statements of operations would have been lower by $12 million, $13 million and $14 million for the years ended December 31, 2012, 2011 and 2010, respectively. The Company estimates the fair value of its Russell common stock ownership to be $1.5 billion and $1.4 billion at December 31, 2012 and 2011, respectively.

The Company’s share of Russell’s operating results are accounted for under the statutory equity method, whereby the Company’s share of Russell’s GAAP net income and other changes in Russell’s GAAP common equity are reported as a change in net unrealized capital gains and losses. If accumulated earnings are distributed to the Company in the form of dividends, net investment income is recognized in the amount of the distribution and the previously unrealized capital gains are reversed. The Company received common stock dividends from Russell in the amount of $23 million during each of the years ended December 31, 2012, 2011 and 2010, of which $2 million, $8 million and $23 million, respectively, was reported as net investment income in the consolidated statements of operations.

During 2008, the Company purchased, at par, $350 million of perpetual senior preferred stock issued by Russell. The senior preferred stock is callable under certain conditions and pays preferred dividends at a rate of 8.00%. The Company earned $28 million in dividends on Russell senior preferred stock for each of the years ended December 31, 2012, 2011 and 2010.

During 2009 and 2010, the Company purchased, at par, a total of $621 million of junior preferred stock issued by Russell. The junior preferred stock, including detachable warrants, is callable under certain conditions and pays preferred dividends at a rate of 10.00%, payable semi-annually. Of this amount, $44 million of junior preferred stock remained outstanding at each of December 31, 2012 and 2011. The Company earned $4 million, $4 million and $32 million in dividends on Russell junior preferred stock for the years ended December 31, 2012, 2011 and 2010, respectively.

During 2010, Russell sold its private equity business to an unaffiliated third party, resulting in an after-tax gain to Russell of $382 million, which was reported as an unrealized capital gain in the consolidated statements of changes in surplus for the year ended December 31, 2010. The after-tax proceeds of the sale were used by Russell to retire fixed-income notes, junior preferred stock and warrants issued to the Company by Russell.

During 2011, the Company entered into an agreement to purchase up to $50 million of fixed-income notes issued by Russell. At December 31, 2012 and 2011, $0 and $25 million, respectively, of fixed-income notes were outstanding and included in bonds in the consolidated statements of financial position. The notes bear interest at 4.79% and were fully repaid during

F-75

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

2012. The remaining unfunded commitment of $25 million was extended during 2012 and will expire on December 15, 2013.

During 2011, Russell entered into a revolving line of credit for up to $250 million with an unaffiliated lender that was guaranteed by the Company. This line of credit replaced a similar agreement that had expired on April 30, 2011. During 2012, this revolving line of credit was extended to December 1, 2013. The Company recorded revenue of $2.4 million and $1.7 million from Russell related to the guarantee of this credit facility during the years ended December 31, 2012 and 2011, respectively, which was included in net investment income in the consolidated statements of operations. Russell’s borrowings under these facilities were $170 million and $163 million at December 31, 2012 and 2011, respectively. See Note 12 for more information regarding the financial statement impact of guarantees and other commitments made by the Company.

The statement value of the Company’s various investments in securities issued by Russell at December 31, 2012 and 2011 were as follows:


	December 31,
	2012		2011
	(in millions)
Common stock	$	402	$	418
Fixed income notes		-		25
Senior preferred stock		350		350
Junior preferred stock		42		42
Warrants		2		2

Total	$	796	$	837

12.

Contingencies and Guarantees

In the normal course of business, the Company makes guarantees to third parties on behalf of affiliates (e.g., the guarantee of Russell’s line of credit) and financial representatives (e.g., the guarantee of office lease payments), or directly to financial representatives (e.g., future minimum compensation payments). If these affiliates or financial representatives are not able to meet their obligations or these minimum compensation thresholds are not otherwise met, the Company would be required to make payments to fulfill its guarantees. For certain of these guarantees, the Company has the right to pursue recovery of payments made under the agreements. The terms of these guarantees range from less than one year to twenty-three years at December 31, 2012.

Effective December 31, 2011, the Company adopted Statement of Statutory Accounting Principles No. 5 – Revised, Liabilities, Contingencies and Impairments of Assets (“SSAP 5R”). SSAP 5R requires the Company to recognize a financial statement liability for the estimated fair value of these guarantees. The adoption of SSAP 5R was reported as a change in accounting principle and resulted in a $5 million direct reduction of surplus in the consolidated statements of changes in surplus for the year ended December 31, 2011. Prior to the adoption of SSAP 5R, the recognition of a financial statement liability was only required in circumstances where it was considered likely that performance under the guarantee would be required.

F-76

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

Following is a summary of the guarantees provided by the Company that were outstanding at December 31, 2012 and 2011, including both the maximum potential exposure under the guarantees and the financial statement liability reported based on estimated fair value of the guarantees:


	December 31, 2012				December 31, 2011
Nature of guarantee	Maximum potential amount of future payments		Financial statement liability		Maximum potential amount of future payments		Financial statement liability
	(in millions)				(in millions)
Guarantees of future minimum compensation - financial representatives	$	206	$	3	$	133	$	2
Guarantees of operating leases - financial representatives		381		4		305		3
Guarantees of obligations of affiliates		175		-		168		1
Guarantees issued on behalf of wholly-owned subsidiaries		8		-		8		-

Total contingencies and guarantees	$	770	$	7	$	614	$	6

No payments have been required under these guarantees to date, and the Company believes the probability that it will be required to perform under these guarantees in the future is remote. Performance under these guarantees would require the Company to recognize additional operating expense (in the case of guarantees to or on behalf of financial representatives) or increase the amount of its equity investment in the affiliate or subsidiary on behalf of which the guarantee was made.

In the normal course of its investment activities, the Company makes commitments to fund private equity investments, real estate, mortgage loans or other investments. These commitments aggregated to $3.5 billion at December 31, 2012 and were extended at market rates and terms.

The Company is engaged in various legal actions in the normal course of its investment and insurance operations. The status of these legal actions is actively monitored by management. If management believed, based on available information, that an adverse outcome upon resolution of a given legal action was probable and the amount of that adverse outcome was reasonably estimable, a loss would be recognized and a related liability recorded. No such liabilities were recorded by the Company at December 31, 2012 and 2011. Legal actions are subject to inherent uncertainties, and future events could change management’s assessment of the probability or estimated amount of potential losses from pending or threatened legal actions. Based on available information, it is the opinion of management that the ultimate resolution of pending or threatened legal actions, both individually and in the aggregate, will not result in losses that would have a material effect on the Company’s financial position at December 31, 2012.

F-77

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

13.

Related Party Transactions

During 2011, the Company made capital contributions to unconsolidated subsidiaries through the transfer of certain investments from its general account. The aggregate statement value and fair value of investments transferred was$161 million and $205 million, respectively. These transactions were accounted for at the lower of statement value or fair value at the time of the transfer and did not have a material impact on the Company’s financial statements for the year ended December 31, 2011. No such transfers were made to unconsolidated subsidiaries during 2012.

14.

Surplus Notes

On March 26, 2010, the Company issued surplus notes (“notes”) with a principal balance of $1.75 billion, bearing interest at 6.063% and having a maturity date of March 30, 2040. The notes were issued at par and distributed pursuant to Rule 144A under the Securities Act of 1933, as amended. Interest on the notes is payable semi-annually on March 30 and September 30, subject to approval by the OCI. The statutory basis of accounting requires that the Company only recognize interest expense on the notes when and to the extent that the OCI has approved the semi-annual interest payment. The Company recognized $106 million in interest expense on the notes for each of the years ended December 31, 2012 and 2011, which is reported as a reduction of net investment income in the consolidated statements of operations. Cumulative interest of $266 million has been paid on the notes through December 31, 2012.

The notes are unsecured and subordinated to all present and future indebtedness, policy claims and other creditor claims of the Company. The notes do not repay principal prior to maturity and principal payment at maturity is subject to the prior approval of the OCI. The notes are not redeemable at the option of any note holder. The notes are redeemable, in whole or in part, at the option of the Company at any time, subject to the prior approval of the OCI, at a “make whole” redemption price equal to the greater of the principal amount of the notes to be redeemed or the sum of the present value of the remaining scheduled payments of principal and interest on the notes to be redeemed, excluding accrued interest as of the date on which the notes are to be redeemed, discounted on a semi-annual basis at a defined U.S. Treasury rate plus 0.25%.

No affiliates of the Company hold any portion of the notes. The notes are generally held of record at the Depositary Trust Company by bank custodians on behalf of investors. The largest holder of the notes was Nippon Life Insurance Company of Japan, which held $250 million in face amount of notes at each of December 31, 2012 and 2011.

F-78

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

15.

Fair Value of Financial Instruments

Certain of the Company’s assets and liabilities are considered “financial instruments” as defined by Statement of Statutory Principles No. 100, Fair Value Measurements (“SSAP 100”). For financial instruments included in the scope of SSAP 100, the statement value and fair value at December 31, 2012 and 2011 were as follows:


	December 31, 2012
	Statement Value		Fair Value		Quoted prices in active markets for identical assets (level 1)		Significant observable inputs (level 2)		Significant unobservable inputs (level 3)
	(in millions)
General account investment assets:
Bonds	$	114,524	$	126,278	$	5,624	$	118,636	$	2,018
Mortgage loans		24,346		26,589		-		-		26,589
Policy loans		15,789		15,789		-		-		15,789
Common and preferred stocks		3,431		3,464		2,175		229		1,060
Derivative assets		106		249		5		244		-
Surplus note investments		127		175		-		175		-
Collateral loans		42		42		-		-		42
Cash and temporary investments		2,393		2,393		274		2,119		-
Separate account assets		21,376		21,376		19,731		1,352		293

General account liabilities:
Investment-type insurance reserves	$	5,481	$	5,256	$	-	$	-	$	5,256
Liabilities for securities lending		816		816		-		816		-
Derivative liabilities		123		84		-		84		-
Separate account liabilities		21,376		21,376		19,731		1,352		293

F-79

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010


	December 31, 2011
	Statement Value			Fair Value			Quoted prices in active markets for identical assets (level 1)			Significant observable inputs (level 2)			Significant unobservable inputs (level 3)
	(in millions)
General account investment assets:
Bonds		$	103,753		$	112,259		$	5,598		$	104,552		$	2,109
Mortgage loans			22,804			24,463			-			-			24,463
Policy loans			15,147			15,147			-			-			15,147
Common and preferred stocks			6,429			6,460			5,107			274			1,079
Derivative assets			156			327			-			327			-
Surplus note investments			127			157			-			157			-
Collateral loans			43			43			-			-			43
Cash and temporary investments			2,421			2,421			1,994			1,227			-
Separate account assets			18,697			18,697			17,449			1,018			230

General account liabilities:
Investment-type insurance reserves		$	5,321		$	5,039		$	-		$	-		$	5,039
Liabilities for securities lending			1,331			1,331			-			1,331			-
Derivative liabilities			89			51			-			51			-
Separate account liabilities			18,697			18,697			17,449			1,018			230

The Company’s estimation of fair value for financial instruments uses a hierarchy that, where possible, makes use of quoted market prices from active and transparent markets for assets that are identical to those being valued, typically obtained from independent pricing services (“level 1”). In absence of quoted market prices for identical assets, fair value is estimated by these pricing services using relevant and observable market-based inputs for substantially similar securities (“level 2”). Financial instruments for which no quoted market prices or observable inputs are available are generally valued by Company personnel based on internally-developed pricing models or indicative (i.e., non-binding) quotes from independent securities brokers (“level 3”).

The Company performs active quality control over fair value estimates received from independent pricing services at each financial reporting date, including analysis of valuation changes for individual securities compared to overall market trends and validation on an exception basis with internally-developed pricing models. The Company also performs periodic reviews of the information sources, inputs and methods used by its independent pricing services, including an evaluation of their control processes. Where necessary, the Company will challenge these third-party valuations or methods and require more observable inputs or different methodologies.

Bonds

Bonds classified as level 1 financial instruments are generally limited to U.S. Treasury securities. Most bonds, including U.S. and foreign public and private corporate bonds, municipal bonds and

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The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

structured securities, are classified as level 2 financial instruments and are valued based on prices obtained from independent pricing services or internally-developed pricing models using observable inputs. Typical market-observable inputs include benchmark yields, reported trades, issuer spreads, bids, offers, benchmark securities, estimated cash flows and prepayment speeds. Level 3 bonds are typically privately-placed and relatively illiquid, with fair value based on non-binding broker quotes or internally-developed pricing models utilizing unobservable inputs. See Note 3 for more information regarding the Company’s investments in bonds.

Mortgage Loans

Mortgage loans consist solely of commercial mortgage loans underwritten and originated by the Company. Fair value of these loans is estimated by Company personnel using a discounted cash flow approach based on market interest rates for commercial mortgage debt with comparable credit risk and maturity. See Note 3 more information regarding the Company’s investments in mortgage loans.

Policy Loans

See Note 2 for information regarding policy loans, for which the Company considers the unpaid principal balance to approximate fair value.

Common and Preferred Stock

Common and preferred stocks classified as level 1 financial instruments are limited to those actively traded on a U.S. or foreign stock exchange. Level 2 securities are stocks for which market quotes are available but which are not considered to be actively traded. Common and preferred stocks classified as level 3 are generally privately-placed with fair value based on internally-developed pricing models utilizing unobservable inputs. See Note 3 for more information regarding the Company’s investments in common and preferred stocks.

Derivative Instruments

Except for exchange-traded futures contracts classified as level 1 financial instruments, the Company’s derivative assets and liabilities generally represent those traded in over-the-counter (“OTC”) markets for which fair value is estimated by Company personnel using industry-standard models with market-observable inputs such as swap yield curves, London Interbank Offered Rate (“LIBOR”) basis curves, foreign currency spot rates, foreign currency basis curves, option volatilities and credit spreads.

Cash and Temporary Investments

Cash and temporary investments include cash deposit balances, money market funds, short-term commercial paper and other highly-liquid debt instruments, for which the Company considers amortized cost to approximate fair value.

Separate Account Assets and Liabilities

See Note 2 and Note 7 for information regarding the Company’s separate accounts, for which fair value is based primarily on quoted market prices for the related common stocks, preferred stocks, bonds, derivative instruments and other investments. Separate account assets classified as level 3 financial instruments are primarily securities partnership investments that are valued based on the Company’s underlying equity in the partnerships which the Company considers to approximate fair value.

General Account Insurance Reserves

The Company’s general account insurance liabilities defined as financial instruments under SSAP 100 are limited to “investment-type” products such as fixed-rate annuity policies, supplementary

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The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

contracts without life contingencies and amounts left on deposit. The fair value of investment-type insurance reserves is estimated by Company personnel based on future cash flows discounted at market interest rates for similar instruments with comparable maturities.

Securities Lending Liabilities

See Note 3 for information regarding securities lending activity, for which the Company considers the amortized cost basis of the liability to return collateral to approximate fair value.

Assets and liabilities that are reported at fair value at the end of one reporting period and are also reported at fair value at the end of the subsequent reporting period are considered to be measured at fair value on a recurring basis under SSAP 100. The following tables summarize assets and liabilities measured at fair value on a recurring basis in the consolidated statements of financial position at December 31, 2012 and 2011.


	December 31, 2012
	Quoted prices in active markets for identical assets (level 1)			Significant observable inputs (level 2)			Significant unobservable inputs (level 3)		Total
General account common and preferred stocks	$	2,175		$	53		$	609	$	2,837
General account bonds		-			141			67		208
Derivative assets at fair value:
Equity total return swaps (investment replication)		-			3			-		3
Fixed income futures		5			-			-		5
Foreign currency forwards		-			1			-		1
Swaptions		-			67			-		67

Total derivative assets at fair value		5			71			-		76


Derivative liabilities at fair value:
Purchased credit default swaps		-			(2	)		-		(2	)
Foreign currency forwards		-			(20	)		-		(20	)
Equity total return swaps		-			(1	)		-		(1	)

Total derivative liabilities at fair value		-			(23	)		-		(23	)

Net derivatives at fair value		5			48			-		53


Separate accounts:
Mutual fund investments		17,727			-			-		17,727
Other benefit plan assets/liabilities		21			10			3		34
Pension and postretirement assets:
Bonds		100			1,049			28		1,177
Common and preferred stock		1,873			12			16		1,901
Cash and short term securities		15			271			-		286
Other assets/liabilities		(5	)		10			246		251

Subtotal pension and postretirement assets		1,983			1,342			290		3,615

Total separate accounts	$	19,731		$	1,352		$	293	$	21,376

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The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010


	December 31, 2011
	Quoted prices in active markets for identical assets (level 1)			Significant observable inputs (level 2)			Significant unobservable inputs (level 3)		Total
	(in millions)
General account common and preferred stocks	$	5,107		$	49		$	602	$	5,758
General account bonds		-			260			71		331
Derivative assets at fair value:
Purchased credit default swaps		-			1			-		1
Swaptions		-			81			-		81
Foreign currency forwards		-			38			-		38
Equity total return swaps		-			2			-		2

Total derivative assets at fair value		-			122			-		122


Derivative liabilities at fair value:
Purchased credit default swaps		-			(3	)		-		(3	)
Foreign currency forwards		-			(7	)		-		(7	)

Total derivative liabilities at fair value		-			(10	)		-		(10	)

Net derivatives at fair value		-			112			-		112


Separate accounts:
Mutual fund investments		15,510			-			-		15,510
Other benefit plan assets		26			8			2		36
Pension and postretirement assets:
Bonds		122			927			-		1,049
Common and preferred stock		1,796			14			15		1,825
Cash and short term securities		1			64			-		65
Other assets/liabilities		(6	)		5			213		212

Subtotal pension and postretirement assets		1,913			1,010			228		3,151

Total separate accounts	$	17,449		$	1,018		$	230	$	18,697

The Company may reclassify assets reported at fair value on a recurring basis between levels of the SSAP 100 fair value hierarchy if appropriate based on changes in the quality of valuation inputs available during a reporting period. There were no material asset transfers between Level 1 and Level 2 or between Level 2 and Level 3 during the years ended December 31, 2012 or 2011.

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The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

The following tables summarize the changes in fair value of level 3 financial instruments for the years ended December 31, 2012 and 2011.


									Separate account pension and postretirement
For the year ended December 31, 2012	General account common and preferred stock			General account bonds			Separate account other benefit plan assets		Bonds		Common and preferred stock			Other assets/liabilities			Total
	(in millions)
Fair value, beginning of period	$	602		$	71		$	2	$	-	$	15		$	213		$	903
Realized gains/(losses)		16			(48	)		-		-		-			18			(14	)
Unrealized gains/(losses)		46			54			1		4		2			15			122
Issuances		-			-			-		-		-			-			-
Purchases		33			-			-		8		2			53			96
Sales		(53	)		-			-		-		(1	)		(53	)		(107	)
Settlements		(7	)		(2	)		-		-		(1	)		-			(10	)
Net discount/premium		-			-			-		-		-			-			-
Transfers into Level 3		4			1			-		16		-			-			21
Transfers out of Level 3		(32	)		(9	)		-		-		(1	)		-			(42	)

Fair value, end of period	$	609		$	67		$	3	$	28	$	16		$	246		$	969

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The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010


												Separate account pension and postretirement
For the year ended December 31, 2011	General account common and preferred stock				General account bonds				Separate account other benefit plan assets			Bonds				Common and preferred stock				Other assets/liabilities				Total
	(in millions)
Fair value, beginning of period		$	635			$	189			$	1		$	7			$	20			$	194			$	1,046
Realized gains/(losses)			(5	)			(2	)			-			1				2				17				13
Unrealized gains/(losses)			(14	)			(9	)			-			(5	)			(1	)			5				(24	)
Issuances			-				-				-			-				-				10				10
Purchases			102				33				1			4				7				27				174
Sales			(118	)			(184	)			-			(6	)			(6	)			(1	)			(315	)
Settlements			-				-				-			(1	)			(3	)			(39	)			(43	)
Net discount/premium			-				-				-			-				-				-				-
Transfers into Level 3			6				66				-			-				-				-				72
Transfers out of Level 3			(4	)			(22	)			-			-				(4	)			-				(30	)

Fair value, end of period		$	602			$	71			$	2		$	-			$	15			$	213			$	903

The following table presents certain quantitative information about the unobservable inputs used to estimate fair value measurement for general account bonds, privately-placed equity and convertible securities classified as level 3 financial instruments at December 31, 2012.


	Fair Value (in millions)			Valuation Techniques	Significant Unobservable Inputs	Range	Weighted Average
General account bonds		$	67	Broker quotes	Quoted prices	6.75 - 70.00	62.43
General account common and preferred stocks		$	609	Sponsor valuations	EBITDA multiples	5.60 - 11.50	8.21
				Market comparables	EBITDA multiples	5.20 - 12.20	8.77
				Market comparables	Book Value multiples	1.20 - 1.31	1.26

F-85

Independent Auditor’s Report

To the Board of Trustees and Policyowners of

The Northwestern Mutual Life Insurance Company

We have audited the accompanying consolidated statutory financial statements of The Northwestern Mutual Life Insurance Company and its subsidiary (the “Company”), which are comprised of the consolidated statutory statements of financial position as of December 31, 2012 and 2011, and the related consolidated statutory statements of operations, and of changes in surplus, and of cash flows for each of the three years ended December 31, 2012.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the accounting practices prescribed or permitted by the Office of the Commissioner of Insurance of the State of Wisconsin. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on the 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 consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Basis for Adverse Opinion on U.S.Generally Accepted Accounting Principles

As described in Note 1 to the consolidated financial statements, the consolidated financial statements are prepared by the Company on the basis of the accounting practices prescribed or permitted by the Office of the Commissioner of Insurance of the State of Wisconsin, which is a basis of accounting other than accounting principles generally accepted in the United States of America.

The effects on the consolidated financial statements of the variances between the statutory basis of accounting described in Note 1 and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material.

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Adverse Opinion on U.S. Generally Accepted Accounting Principles

In our opinion, because of the significance of the matter discussed in the “Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles” paragraph, the consolidated financial statements referred to above do not present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position of the Company as of December 31, 2012 and 2011, or the results of their operations or their cash flows for each of the three years ended December 31, 2012.

Opinion on Statutory Basis of Accounting

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years ended December 31, 2012, in accordance with the accounting practices prescribed or permitted by the Office of the Insurance Commissioner of the State of Wisconsin described in Note 1.

February 27, 2013

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