NML VARIABLE ANNUITY ACCOUNT A - 10-K Annual Report

Back to GetFilings.com

================================================================================

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

----------

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

COMMISSION FILE NUMBERS 333-72913 AND 2-89905-01

----------

THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
IN RESPECT OF NML VARIABLE ANNUITY ACCOUNT A & NML VARIABLE ANNUITY ACCOUNT C
(Exact name of registrant as specified in its charter)

WISCONSIN 39-0509570
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

720 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202
(Address of principal executive offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (414) 271-1444

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
NONE NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes [ ] No [X]

State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was last sold, or the average bid and asked price of such common
equity, as of the last business day of the registrant's most recently completed
second fiscal quarter. NOT APPLICABLE

Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. NONE

DOCUMENTS INCORPORATED BY REFERENCE

NONE

================================================================================

THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
IN RESPECT OF NML VARIABLE ANNUITY
ACCOUNT A AND NML VARIABLE ANNUITY ACCOUNT C
FORM 10-K

PART I

ITEM 1. BUSINESS

ACCOUNTS A & C

NML Variable Annuity Account A ("Account A") and NML Variable Annuity
Account C ("Account C") are segregated asset accounts of The
Northwestern Mutual Life Insurance Company ("Northwestern Mutual")
formed to provide retirement annuity benefits for (i) self-employed
individuals (and their eligible employees) who adopt plans ("HR-10
Plans") meeting the requirements of Sections 401 or 403(a) of the
Internal Revenue Code of 1986, as amended (the "Code") and (ii)
employees of corporate employers who adopt pension or profit sharing
plans meeting the requirements of Section 401(a) of the Code, or
annuity purchase plans meeting the requirements of Section 403(a) of
the Code (collectively, "Corporate Plans"). Account A receives payments
under individual variable annuity contracts issued by Northwestern
Mutual in connection with HR-10 Plans and Corporate Plans. Account C
receives payments under group combination variable annuity contracts
issued by Northwestern Mutual in connection with HR-10 Plans and
Corporate Plans. The variable annuity contracts issued by Northwestern
Mutual in connection with HR-10 Plans and Corporate Plans are
hereinafter referred to as the "Contracts." Account A and Account C
were established on February 14, 1968 and July 22, 1970, respectively,
by action of the Board of Trustees of Northwestern Mutual in accordance
with the provisions of Wisconsin insurance law. Neither Account A nor
Account C is registered as an investment company under the Investment
Company Act of 1940.

The Contracts provide for the accumulation of funds and the payment of
retirement benefits to participants and their beneficiaries
("Annuitants"). Account A and Account C each have 20 divisions. Money
invested to provide variable benefits under the Contracts is placed in
one or more divisions of the applicable Account which are in turn
invested in 15 portfolios of Northwestern Mutual Series Fund, Inc.
(Small Cap Growth Stock Portfolio, T. Rowe Price Small Cap Value
Portfolio, Aggressive Growth Stock Portfolio, International Growth
Portfolio, Franklin Templeton International Equity Portfolio, Index 400
Stock Portfolio, Growth Stock Portfolio, Large Cap Core Stock Portfolio
(formerly known as the J.P. Morgan Select Growth and Income Stock
Portfolio until January 31, 2003), Capital Guardian Domestic Equity
Portfolio, Index 500 Stock Portfolio, Asset Allocation Portfolio,
Balanced Portfolio, High Yield Bond Portfolio, Select Bond Portfolio
and Money Market Portfolio) and 5 funds of Russell Insurance Funds
(Multi-Style Equity Fund, Aggressive Equity Fund, Non-U.S. Fund, Real
Estate Securities Fund and Core Bond Fund), each of which corresponds
to one of the Account divisions, all as directed by the Annuitant.
Northwestern Mutual Series Fund, Inc. and Russell Insurance Funds,
which are affiliates of Northwestern Mutual, are registered as
investment companies under the Investment Company Act of 1940. The
Contracts also permit investment on a fixed basis, at rates determined
by Northwestern Mutual. The Contracts are sold through individuals who,
in addition to being licensed insurance agents of Northwestern Mutual,
are registered representatives of Northwestern Mutual Investment
Services, LLC ("NMIS"), a wholly-owned company of Northwestern Mutual
and a registered broker-dealer under the Securities Exchange Act of
1934.

Under Wisconsin law, the investment operations of each of Account A and
Account C (other than those Contract investments on a fixed basis) are
kept separate from the operations of Northwestern Mutual. Northwestern
Mutual and its creditors cannot reach assets in Account A or Account C
to satisfy non-Contract related obligations until all obligations under
the Contracts have been satisfied.

See Item 6 herein for Account A and Account C historical financial
information regarding results of operations, changes in equity and
total assets. See Item 8 herein for the audited financial statements of
Account A and Account C.

2

NORTHWESTERN MUTUAL

Founded in 1857, Northwestern Mutual is a mutual insurance company
organized under the laws of the State of Wisconsin. Northwestern
Mutual's products consist of a complete range of permanent and term
life insurance, disability income insurance and annuities for the
personal, business, estate planning and pension markets. Mutual funds,
equity and debt securities, long-term care insurance and trust services
are offered and/or sold through subsidiaries. Northwestern Mutual
markets its insurance products and services in all 50 states of the
United States and in the District of Columbia through an exclusive
network of more than 7,900 financial representatives at December 31,
2002 located in more than 350 offices nationwide. At December 31, 2002,
Northwestern Mutual had approximately 4,300 full- and part-time
employees. Northwestern Mutual's website address is
www.northwesternmutual.com.

Northwestern Mutual's principal lines of business are: (i) life
insurance, which provides a full range of individual life insurance
products, including traditional whole life, permanent and term
combination, variable life and term policies to meet the needs of
middle to upper income individuals, small business owners and
professionals, estates and selected large corporations; (ii) disability
income insurance, which provides a complete line of individual and
group products, including individual non-cancelable, guaranteed
renewable loss of earnings, buyout, key person, and short-term and
long-term group coverages, marketed primarily to middle to upper income
individuals, professionals, and small- to medium-sized businesses and
their owners; (iii) investment products and services, which provide
individual variable, fixed and immediate annuities offered in
conjunction with qualified pension plans, retirement plans for
self-employed individuals, individual retirement and personal non-tax
qualified situations, group annuities, retail mutual funds (including
associated funds offered by Mason Street Funds, Inc. and Frank Russell
Investment Company), brokerage services (offered through its subsidiary
Northwestern Mutual Investment Services, LLC) and trust services
(offered through its subsidiary Northwestern Mutual Trust Company),
marketed primarily to middle to upper income individuals, business
owners and professionals; and (iv) long-term care insurance, offered
through its subsidiary Northwestern Long Term Care Insurance Company,
marketed primarily to middle to upper income individuals, small
business owners and professionals. For the years ended December 31,
2002, 2001, and 2000, Northwestern Mutual had (a) total premiums of
$10.1 billion, $9.4 billion and $9.0 billion, respectively, of which
$8.6 billion, $7.9 billion and $7.3 billion, respectively, was
attributable to life insurance, $0.6 billion for each year was
attributable to disability income insurance and $0.9 billion, $0.9
billion and $1.1 billion, respectively, was attributable to annuity
products in the investment products and services line of business; (b)
net income of $158 million, $650 million and $1.8 billion,
respectively, of which $(18) million, $440 million and $1.5 billion,
respectively, was attributable to life insurance, $149 million, $147
million and $0.2 billion, respectively, was attributable to disability
income insurance, $44 million, $74 million and $0.1 billion,
respectively, was attributable to annuity products in the investment
products and services line of business, and $(17) million, $(11)
million and $0.0 billion, respectively, was attributable to long term
care insurance; and (c) total assets of $102.9 billion, $98.4 billion
and $92.1 billion, respectively, of which $82.8 billion, $77.2 billion
and $70.6 billion, respectively, was attributable to life insurance,
$5.9 billion, $5.8 billion and $5.4 billion, respectively, was
attributable to disability income insurance and $14.2 billion, $15.4
billion and $16.1 billion, respectively, was attributable to annuity
products in the investment products and services line of business.

The life insurance industry is mature and highly competitive.
Competitiveness in the life insurance business is affected by various
factors including, but not limited to, product quality, financial
strength and stability, third party ratings, size and competence of
agency force, range of product lines, customer service, and reputation.
Based on total admitted statutory assets at December 31, 2001,
Northwestern Mutual was the 4th largest U.S. domiciled life insurance
company on an individual basis and the 9th largest on a corporate
family basis. During 2002, there were more than 1,000 life insurance
companies doing business in the United States and many of these
companies offer individual life insurance and annuity products similar
to those offered by Northwestern Mutual. In addition, Northwestern
Mutual competes with banks, brokerage firms, investment advisers,
mutual funds and other financial entities for investment and savings
customers. In the individual and group disability markets, Northwestern
Mutual competes with a limited number of major national and regional
companies offering these specialized products. In the long-term care
business, Northwestern Mutual competes primarily with a limited number
of national companies. National banks, with their pre-existing customer
bases for financial services products, may pose increasing competition
in the future to insurers who sell life insurance and annuity products,
including Northwestern Mutual. United States Supreme Court decisions
have expanded

3

the authority of national banks to sell life insurance products and
annuities. In addition, legislation enacted in 1999 to overturn
Depression-era restrictions on bank affiliations, the
Gramm-Leach-Bliley Act (the "Act"), implemented fundamental changes in
the regulation of the financial services industry in the U.S. The Act
eliminated certain barriers to and restrictions on affiliations between
banks, securities firms and insurance companies that were previously
contained in the Glass-Steagall Act of 1933, as amended, and the Bank
Holding Company Act of 1956, as amended. Under the Act, through the use
of two new structures, financial holding companies and financial
subsidiaries, qualifying bank holding companies and state and national
banks are allowed to provide a wide variety of financial services,
including the authority to engage in certain insurance activities
(e.g., the sale and, in the case of qualifying bank holding companies
only, the underwriting of insurance and annuities). As a result of the
Act, among other things, bank holding companies may acquire insurers
and insurance holding companies may acquire banks. Over time, the Act
may change the competitive and regulatory environment in which
Northwestern Mutual and its subsidiaries conduct their businesses and
may result in additional competition in one or more markets in which
they sell their products and services.

Northwestern Mutual, and its insurance subsidiary Northwestern Long
Term Care Insurance Company, are licensed to transact their insurance
business in, and are subject to regulation and supervision by, all 50
states of the United States and the District of Columbia. The extent of
such regulation varies, but most jurisdictions have laws and
regulations governing the financial aspects of insurance companies,
including standards of solvency, reserves, reinsurance, capital
adequacy and the business conduct of insurance companies. In addition,
statutes and regulations usually require the licensing of insurers and
their agents, the approval of policy forms and related materials and,
for certain lines of insurance, the approval of rates. Such statutes
and regulations also prescribe the permitted types and concentration of
investments. The Act reaffirms that the states remain responsible for
regulating the business of insurance. However, subject to certain
exceptions, no state authority can prevent or restrict depository
institutions and their affiliates from affiliating with insurance
companies as permitted under the Act. In addition, certain state laws
and regulations that place restrictions on a depository institution's
insurance sales activities are preempted.

Frank Russell Company ("Russell"), a subsidiary of Northwestern Mutual,
is a global investment services firm providing multi-manager investment
products and services in 35 countries. Together with its subsidiaries,
Russell managed $67.0 billion in assets at December 31, 2002 and
advises clients representing $1.6 trillion worldwide. Frank Russell is
also well known for its family of market indices, including the Russell
2000, which provide complete sets of performance benchmarks for
investors in the United States.

Robert W. Baird & Co. Incorporated ("Baird"), a subsidiary of
Northwestern Mutual, is a registered broker-dealer providing (through
it and its affiliates) asset management, investment banking, wealth
management and private equity services via offices in the United
States, United Kingdom, France, Spain and Germany. Baird serves
individuals, corporations, institutional investors and municipalities
as financial advisor, asset manager, equity research specialist,
investment banker, private equity investor and public finance
specialist. It is a member of the New York Stock Exchange and other
principal exchanges.

NMIS, a wholly-owned company of Northwestern Mutual, is a full-service
registered broker-dealer serving the investment planning and product
needs of individuals and businesses. Through its registered
representatives, NMIS offers mutual funds, variable annuities, variable
life insurance products, stocks and bonds to its customers in more than
60 cities nationwide. NMIS is a member of the National Association of
Securities Dealers, Inc.

See Item 15 herein for the audited consolidated financial statements of
Northwestern Mutual, including footnote 1 thereto which describes
changes to statutory accounting rules required to be adopted effective
January 1, 2001 that affect the comparability of certain financial
information from prior periods.

PURPOSE OF ANNUAL REPORT

This Annual Report on Form 10-K of Northwestern Mutual is filed with
respect to its Account A and Account C. While certain information in
this Form 10-K relates to Northwestern Mutual as a whole, this Form
10-K is intended to provide information with respect to such Account A
and Account C where relevant.

4

ITEM 2. PROPERTIES

Account A and Account C own no physical properties. Northwestern Mutual
owns and occupies all of the space in its home office complex in
Milwaukee, Wisconsin. Northwestern Mutual owns land in Franklin,
Wisconsin on which it has begun construction of an additional office
campus which it will occupy. Until the Franklin Campus is completed,
Northwestern Mutual, as lessee, is occupying temporary space in three
buildings adjacent to its Milwaukee complex. Northwestern Mutual is the
lessee of eight leases covering its real estate regional offices in
locations throughout the United States. Russell and Baird lease their
principal office space located in Tacoma, Washington and Milwaukee,
Wisconsin, respectively. Northwestern Mutual believes that its owned
and leased properties are suitable and adequate for its current
operations.

ITEM 3. LEGAL PROCEEDINGS

Neither Account A nor Account C are parties to any pending legal
proceedings. Northwestern Mutual is subject to various claims and
proceedings, including claims or proceedings related to its
investments, that occur in the ordinary course of its business. Based
on information currently available to Northwestern Mutual, Northwestern
Mutual believes that none of these current claims or proceedings,
either individually or in the aggregate, will have a material adverse
effect on the financial position of Northwestern Mutual.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

As segregated asset accounts, Account A and Account C do not issue
common equity securities. As a mutual life insurance company,
Northwestern Mutual does not issue common equity securities.

The Contracts issued in connection with Account A and Account C, and
interests in those Contracts, are offered on a continuous basis to
Corporate Plans and HR-10 Plans. The Contracts for Corporate Plans are
not registered under the Securities Act of 1933, in reliance on the
exemption provided by Section 3(a)(2) thereof. All of the Contracts are
offered exclusively by financial representatives of the Northwestern
Mutual who are also registered representatives of NMIS.

During 2002, the following aggregate dollar amounts of such
unregistered securities were sold to Corporate Plans, generating the
aggregate commissions stated:

- ----------
(A) Reflects premiums paid by Contract holders, dividend additions and
Northwestern Mutual plan contributions, as applicable.

(B) Reflects an estimate of amounts paid to Northwestern Mutual financial
representatives for sales to Corporate Plans based on a pro rata
allocation of Contract sales generating commissions under the Account.

Accumulation units in Account A and Account C represent the interests of
Contract owners. Purchase payments are applied to credit additional accumulation
units based on the accumulation unit value next determined after each payment is
received. Accumulation units are valued as of the close of business on the New
York Stock Exchange on each business day.

5

ITEM 6. SELECTED FINANCIAL DATA

The following tables set forth selected historical financial data for
Account A for the five years in the period ended December 31, 2002. The data
should be read in conjunction with the financial statements and notes thereto of
Account A contained in Item 8 of this Annual Report.

RESULTS OF OPERATIONS FOR ACCOUNT A:
(IN THOUSANDS)

- ----------
** Became an investment option under the Contracts effective April 30, 1999.

# Became an investment option under the Contracts effective July 31, 2001.

CHANGES IN EQUITY FOR ACCOUNT A:
(IN THOUSANDS)

7

TOTAL ASSETS OF ACCOUNT A:
(IN THOUSANDS)

- ----------
** Became an investment option under the Contracts effective April 30, 1999.

# Became an investment option under the Contracts effective July 31, 2001.

8

The following tables set forth selected historical financial data for
Account C for the five years in the period ended December 31, 2001. The data
should be read in conjunction with the financial statements and notes thereto of
Account C contained in Item 8 of this Annual Report.

RESULTS OF OPERATIONS FOR ACCOUNT C:
(IN THOUSANDS)

10

TOTAL ASSETS OF ACCOUNT C:
(IN THOUSANDS)

- ----------
** Became an investment option under the Contracts effective April 30, 1999.

# Became an investment option under the Contracts effective July 31, 2001.

11

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

LIQUIDITY

The assets of Account A and Account C are invested solely in shares of
Northwestern Mutual Series Fund, Inc. ("Series Fund") and the Russell
Insurance Funds ("Russell Funds," and collectively with the Series
Fund, the "Funds"). The Series Fund consists of the Small Cap Growth
Stock Portfolio, T. Rowe Price Small Cap Value Portfolio, Aggressive
Growth Stock Portfolio, International Growth Portfolio, Franklin
Templeton International Equity Portfolio, Index 400 Stock Portfolio,
Growth Stock Portfolio, Large Cap Core Stock Portfolio (formerly known
as the J.P. Morgan Select Growth and Income Stock Portfolio until
January 31, 2003), Capital Guardian Domestic Equity Portfolio, Index
500 Stock Portfolio, Asset Allocation Portfolio, Balanced Portfolio,
High Yield Bond Portfolio, Select Bond Portfolio and the Money Market
Portfolio. The Russell Funds consist of the Multi-Style Equity Fund,
Aggressive Equity Fund, Non-U.S. Fund, Real Estate Securities Fund and
Core Bond Fund. The Funds are open-end investment companies registered
under the Investment Company Act of 1940. In order to pay annuity
benefits and expenses, the Accounts redeem shares in the Funds.

CAPITAL RESOURCES

Separate Accounts A and C have no material commitments for capital
expenditures as of December 31, 2002, the end of the most recent fiscal
year. All payments from Contract owners of Account A and Account C,
less any sales load or installation fee, are invested in shares of the
Funds. The capital resources of Account A and Account C are the equity
in the respective Accounts. This consists of payments from the Contract
owners, plus unrealized and realized appreciation on the investment of
these payments, plus investment income received from the Funds, minus
payment of annuity benefits and expenses.

RESULTS OF OPERATIONS

Accumulation units in Account A and Account C represent the interests
of Contract owners. The value of an accumulation unit in each division
varies with the investment experience of the division, which in turn is
determined by the investment experience of the corresponding portfolio
or fund. Set forth below for each of Account A and Account C are
accumulation unit values at December 31, 2002, 2001, and 2000 for each
division, and the percentage change in such values from year to year.

12

ACCOUNT A
ACCUMULATION UNIT VALUES
CONTRACTS ISSUED PRIOR TO DECEMBER 17, 1981:

- ----------
# Became an investment option under the Contracts effective July 31, 2001.

* Includes accumulation unit values at inception date in 2001 for
portfolios becoming effective after December 31, 2000.

ACCUMULATION UNIT VALUES
CONTRACTS ISSUED AFTER DECEMBER 16, 1981 AND PRIOR TO MARCH 31, 1995:

- ----------
# Became an investment option under the Contracts effective July 31, 2001

* Includes accumulation unit values at inception date in 2001 for
portfolios becoming effective after December 31, 2000.

13

ACCUMULATION UNIT VALUES
CONTRACTS ISSUED ON OR AFTER MARCH 31, 1995 AND PRIOR TO MARCH 31, 2000 - FRONT
LOAD VERSION:

- ----------
# Became an investment option under the Contracts effective July 31, 2001.

* Includes accumulation unit values at inception date in 2001 for
portfolios becoming effective after December 31, 2000.

ACCUMULATION UNIT VALUES
CONTRACTS ISSUED ON OR AFTER MARCH 31, 1995 AND PRIOR TO MARCH 31, 2000 - BACK
LOAD VERSION:

- ----------
# Became an investment option under the Contract effective July 31, 2001.

* Includes accumulation unit values at inception date in 2001 for
portfolios becoming effective after December 31, 2000.

14

ACCUMULATION UNIT VALUES
CONTRACTS ISSUED ON OR AFTER MARCH 31, 2000 - FRONT LOAD VERSION:

The decline in 2002's Total Equity was attributable primarily to
investment activities within the Account: the net change in unrealized
depreciation of $74,854 led to a decrease in equity derived from investment
activities of $82,876 for the year ended December 31, 2002. The decline in
2001's Total Equity was also attributable primarily to investment activities
within the Account: the net change in unrealized depreciation of $124,257 led to
a decrease in equity derived from investment activities of $63,440 for the year
ended December 31, 2001.

ACCOUNT C

ACCUMULATION UNIT VALUES
CONTRACTS ISSUED PRIOR TO DECEMBER 17, 1981 OR BETWEEN APRIL 30, 1984 AND
DECEMBER 31, 1991:

- ----------
# Became an investment option under the Contracts effective July 31, 2001.

* Includes accumulation unit values at inception date in 2001 for
portfolios becoming effective after December 31, 2000.

16

ACCUMULATION UNIT VALUES
CONTRACTS ISSUED AFTER DECEMBER 16, 1981 AND PRIOR TO MAY 1, 1984:

- ----------
# Became an investment option under the Contracts effective July 31, 2001.

* Includes accumulation unit values at inception date in 2001 for
portfolios becoming effective after December 31, 2000.

17

ACCUMULATION UNIT VALUES
CONTRACTS ISSUED AFTER DECEMBER 31, 1991 - SIMPLIFIED LOAD VERSION:

The changes in 2002's Total Equity was attributable primarily to
investment activities within the Account: the net change in unrealized
depreciation of $58,211 led to a decrease in equity derived from
investment activities of $85,767 for the year ended December 31, 2002.
The change in 2001's Total Equity was also attributable primarily to
investment activities within the Account: the net change in unrealized
depreciation of $133,527 led to a decrease in equity derived from
investment activities of $72,308 for the year ended December 31, 2001.

CRITICAL ACCOUNTING POLICIES

Dividend income and distributions of net realized gains received from
the Funds are recorded on the ex-date of the dividends. Transactions in
the Funds' shares are accounted for on the trade date. Annuity reserves
are based on published annuity tables. A deduction for annuity rate and
expense guarantees is determined daily. Under current law, no federal
income taxes are payable with respect to Accounts A and C. Accordingly,
no provisions for any such liability has been made.

18

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The assets of Account A and Account C consist entirely of shares of the
15 portfolios of the Series Fund and 5 portfolios of the Russell Funds,
together with current amounts due from the sale of Series Fund and
Russell Funds shares and due from Northwestern Mutual. The liabilities
of each of Account A and Account C consist of current amounts due to
Contract owners, due to Northwestern Mutual and due on purchase of
Series Fund and Russell Funds shares. Neither of the Accounts enters
into any market risk sensitive instruments, either for trading purposes
or for purposes other than trading purposes.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NML VARIABLE ANNUITY ACCOUNT A
STATEMENTS OF ASSETS AND LIABILITIES
(IN THOUSANDS)

- ----------

# The initial investment was made July 31, 2001.

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

20

NML VARIABLE ANNUITY ACCOUNT A
STATEMENTS OF OPERATIONS
(IN THOUSANDS)

- ----------
# The initial investment in this Division was made on July 31, 2001.

21

NML VARIABLE ANNUITY ACCOUNT A
STATEMENTS OF OPERATIONS CONTINUED
(IN THOUSANDS)

- ----------
# The initial investment in this Division was made on July 31, 2001.

22

NML VARIABLE ANNUITY ACCOUNT A
STATEMENTS OF OPERATIONS CONTINUED
(IN THOUSANDS)

- ----------
# The initial investment in this Division was made on July 31, 2001.

23

NML VARIABLE ANNUITY ACCOUNT A
STATEMENTS OF OPERATIONS CONTINUED
(IN THOUSANDS)

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

24

NML VARIABLE ANNUITY ACCOUNT A
STATEMENTS OF CHANGES IN EQUITY
(IN THOUSANDS)

- ----------
# The initial investment in this Division was made on July 31, 2001.

25

NML VARIABLE ANNUITY ACCOUNT A
STATEMENTS OF CHANGES IN EQUITY CONTINUED
(IN THOUSANDS)

- ----------
# The initial investment in this Division was made on July 31, 2001.

26

NML VARIABLE ANNUITY ACCOUNT A
STATEMENTS OF CHANGES IN EQUITY CONTINUED
(IN THOUSANDS)

- ----------
# The initial investment in this Division was made on July 31, 2001.

27

NML VARIABLE ANNUITY ACCOUNT A
STATEMENTS OF CHANGES IN EQUITY CONTINUED
(IN THOUSANDS)

28

NML VARIABLE ANNUITY ACCOUNT A
STATEMENTS OF CHANGES IN EQUITY CONTINUED
(IN THOUSANDS)

29

NML VARIABLE ANNUITY ACCOUNT A
STATEMENTS OF CHANGES IN EQUITY CONTINUED
(IN THOUSANDS)

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

30

FINANCIAL HIGHLIGHTS
NML VARIABLE ANNUITY ACCOUNT A
(FOR A UNIT OUTSTANDING DURING THE PERIOD)

31

FINANCIAL HIGHLIGHTS
NML VARIABLE ANNUITY ACCOUNT A CONTINUED
(FOR A UNIT OUTSTANDING DURING THE PERIOD)

Russell Core Bond
Year Ended 12/31/02.............. $1.217720 to $ 1.256188 2.87% 0.40% to 1.25% 7.49% to 8.40%
Year Ended 12/31/01.............. $1.132872 to $ 1.158815 5.90% 0.40% to 1.25% 6.07% to 6.97%
Russell Real Estate Securities
Year Ended 12/31/02.............. $1.261665 to $ 1.375137 5.39% 0.40% to 1.25% 2.51% to 3.39%
Year Ended 12/31/01.............. $1.230726 to $ 1.331406 5.13% 0.40% to 1.25% 6.49% to 7.40%

- ------------
(1) Portfolio commenced operations on July 31, 2001.

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

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

32

NML VARIABLE ANNUITY ACCOUNT A
NOTES TO FINANCIAL STATEMENTS

NOTE 1--NML Variable Annuity Account A (the "Account") is a segregated asset
account of The Northwestern Mutual Life Insurance Company ("Northwestern
Mutual") used to fund variable annuity contracts ("contracts") for HR-10 and
corporate pension and profit-sharing plans which qualify for special tax
treatment under the Internal Revenue Code. Currently, two versions of the
contract are offered: Front Load contracts with a sales charge up to 4.5% of
purchase payments and Back Load contracts with a withdrawal charge of 0-6%.

NOTE 2--The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Principal accounting policies are summarized below.

NOTE 3--All assets of each Division of the Account are invested in shares of the
corresponding Portfolio of Northwestern Mutual Series Fund, Inc. and the Russell
Insurance Funds (collectively known as the "Funds"). The shares are valued at
the Funds' offering and redemption price per share. The Funds are diversified
open-end investment companies registered under the Investment Company Act of
1940.

NOTE 4--Annuity reserves are based on published annuity tables with age
adjustment and benefit payments which reflect actual investment experience. For
variable payment plans issued prior to January 1, 1974, annuity reserves are
based on the 1955 American Annuity Table with assumed interest rates of 3% or
5%. For variable payment plans issued on or after January 1, 1974 and before
January 1, 1985, annuity reserves are based on the 1971 Individual Annuity Table
with assumed interest rates of 3-1/2% or 5%. For variable payment plans issued
on or after January 1, 1985, annuity reserves are based on the 1983 Annuity
Table a adjusted with assumed interest rates of 3-1/2% or 5%.

NOTE 5--Dividend income from the Funds is recorded on the ex-date of the
dividends. Transactions in the Funds' shares are accounted for on the trade
date. The basis for determining cost on sale of the Funds' shares is identified
cost. Purchases and sales of the Funds' shares for the years ended December 31
by each Division are shown below:

33

NML VARIABLE ANNUITY ACCOUNT A
NOTES TO FINANCIAL STATEMENTS CONTINUED

- ---------
# Initial Investment in this division was made on July 31, 2001.

NOTE 6--A deduction for annuity rate and expense guarantees is determined daily
and paid to Northwestern Mutual as compensation for assuming the risk that
annuity payments will continue for longer periods than anticipated because the
annuitants as a group live longer than expected, and the risk that the charges
made by Northwestern Mutual may be insufficient to cover the actual costs
incurred in connection with the contracts.

For contracts issued prior to December 17, 1981, the deduction is at an annual
rate of 3/4 of 1% of the net assets of each Division attributable to these
contracts. For these contracts, the rate may be increased or decreased by the
Board of Trustees of Northwestern Mutual not to exceed a 1% annual rate.

For contracts issued after December 16, 1981 and prior to March 31, 1995, the
deduction is at an annual rate of 1-1/4% of the net assets of each Division
attributable to these contracts. For these contracts, the rate may be increased
or decreased by the Board of Trustees of Northwestern Mutual not to exceed a
1-1/2% annual rate.

For contracts issued on or after March 31, 1995 and prior to March 31, 2000, for
the Front Load version and the Back Load version, the deduction for annuity rate
and expense guarantees is determined daily at annual rates of 4/10 of 1% and
1-1/4%, respectively, of the net assets of each Division attributable to these
contracts and is paid to Northwestern Mutual. For these contracts, the rates may
be increased or decreased by the Board of Trustees of Northwestern Mutual not to
exceed 3/4 of 1% and 1-1/2%, respectively.

For contracts issued on or after March 31, 2000, for the Front Load version and
the Back Load version, the deduction for annuity rate and expense guarantees is
determined daily at annual rates of 5/10 of 1% and 1-1/4%, respectively, of the
net assets of each Division attributable to these contracts and is paid to
Northwestern Mutual. For these contracts, the rates may be increased or
decreased by the Board of Trustees of Northwestern Mutual not to exceed 3/4 of
1% and 1-1/2% annual rates, respectively. The current charges will not be
increased for five years from the date of the most recent Prospectus.

Since 1995, Northwestern Mutual has paid a dividend to certain contracts. The
dividend is reinvested in the Account and has been reflected as a Contract
Owners' Net Payment in the accompanying financial statements.

NOTE 7--Northwestern Mutual is taxed as a "life insurance company" under the
Internal Revenue Code and the operations of the Account form a part of and are
taxed with those of Northwestern Mutual. Under current law, no federal income
taxes are payable with respect to the Account. Accordingly, no provision for any
such liability has been made.

34

NML VARIABLE ANNUITY ACCOUNT A
NOTES TO FINANCIAL STATEMENTS CONTINUED

NOTE 8--Equity Values by Division for the year ended December 31, 2002 are shown
below: (in thousands, except accumulation unit values)

35

NML VARIABLE ANNUITY ACCOUNT A
NOTES TO FINANCIAL STATEMENTS CONTINUED

Equity Values by Division for the year ended December 31, 2001 are shown below:
(in thousands, except accumulation unit values)

36

NML VARIABLE ANNUITY ACCOUNT A
NOTES TO FINANCIAL STATEMENTS CONTINUED

37

REPORT OF INDEPENDENT ACCOUNTANTS

To The Northwestern Mutual Life Insurance Company and
Contract Owners of NML Variable Annuity Account A

In our opinion, the accompanying statements of assets and liabilities
and the related statements of operations and of changes in equity and the
financial highlights present fairly, in all material respects, the financial
position of NML Variable Annuity Account A and its Small Cap Growth Stock
Division, T. Rowe Price Small Cap Value Division, Aggressive Growth Stock
Division, International Growth Stock Division, Franklin Templeton International
Equity Division, Index 400 Stock Division, Growth Stock Division, J.P. Morgan
Select Growth & Income Stock Division, Capital Guardian Domestic Equity
Division, Index 500 Stock Division, Asset Allocation Division, Balanced
Division, High Yield Bond Division, Select Bond Division, Money Market Division,
Russell Multi-Style Equity Division, Russell Aggressive Equity Division, Russell
Non-U.S. Division, Russell Real Estate Securities Division and Russell Core Bond
Division at December 31, 2002 and 2001, and the results of each of their
operations, the changes in each of their equity and their financial highlights
for the periods indicated, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of The Northwestern Mutual Life Insurance Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included direct confirmation of securities owned at December 31,
2002 and 2001 with Northwestern Mutual Series Fund, Inc. and the Russell
Insurance Funds, provide a reasonable basis for our opinion.

/s/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
Milwaukee, Wisconsin
January 30, 2003

38

NML VARIABLE ANNUITY ACCOUNT C
STATEMENTS OF ASSETS AND LIABILITIES
(IN THOUSANDS)

- ----------

# The initial investment was made on July 31, 2001.

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

40

NML VARIABLE ANNUITY ACCOUNT C
STATEMENTS OF OPERATIONS
(IN THOUSANDS)

- ----------

# The initial investment in this Division was made on July 31, 2001.

41

NML VARIABLE ANNUITY ACCOUNT C
STATEMENTS OF OPERATIONS CONTINUED
(IN THOUSANDS)

- ----------
# The initial investment in this Division was made on July 31, 2001.

42

NML VARIABLE ANNUITY ACCOUNT C
STATEMENTS OF OPERATIONS CONTINUED
(IN THOUSANDS)

43

NML VARIABLE ANNUITY ACCOUNT C
STATEMENTS OF OPERATIONS CONTINUED
(IN THOUSANDS)

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

44

NML VARIABLE ANNUITY ACCOUNT C
STATEMENTS OF CHANGES IN EQUITY
(IN THOUSANDS)

- ----------
# The initial investment in this Division was made on July 31, 2001.

45

NML VARIABLE ANNUITY ACCOUNT C
STATEMENTS OF CHANGES IN EQUITY CONTINUED
(IN THOUSANDS)

- ----------
# The initial investment in this Division was made on July 31, 2001.

46

NML VARIABLE ANNUITY ACCOUNT C
STATEMENTS OF CHANGES IN EQUITY CONTINUED
(IN THOUSANDS)

- ----------
# The initial investment in this Division was made on July 31, 2001.

47

NML VARIABLE ANNUITY ACCOUNT C
STATEMENTS OF CHANGES IN EQUITY CONTINUED
(IN THOUSANDS)

48

NML VARIABLE ANNUITY ACCOUNT C
STATEMENTS OF CHANGES IN EQUITY CONTINUED
(IN THOUSANDS)

49

NML VARIABLE ANNUITY ACCOUNT C
STATEMENTS OF CHANGES IN EQUITY CONTINUED
(IN THOUSANDS)

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

50

FINANCIAL HIGHLIGHTS
NML VARIABLE ANNUITY ACCOUNT C
(FOR A UNIT OUTSTANDING DURING THE PERIOD)

51

FINANCIAL HIGHLIGHTS
NML VARIABLE ANNUITY ACCOUNT C CONTINUED
(FOR A UNIT OUTSTANDING DURING THE PERIOD)

Russell Core Bond
Year Ended 12/31/02......... $1.217720 to $ 12.748590 2.91% 0.00% to 1.25% 7.49% to 8.84%
Year Ended 12/31/01......... $1.132872 to $ 11.713217 6.24% 0.00% to 1.25% 6.07% to 7.41%
Russell Real Estate Securities
Year Ended 12/31/02......... $1.261665 to $ 13.208871 5.22% 0.00% to 1.25% 2.51% to 3.80%
Year Ended 12/31/01......... $1.230726 to $ 12.725061 5.28% 0.00% to 1.25% 6.49% to 7.84%

- -----------
(1) Portfolio commenced operations on July 31, 2001.

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

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

52

NML VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS

NOTE 1 -- NML Variable Annuity Account C (the "Account") is a segregated asset
account of The Northwestern Mutual Life Insurance Company ("Northwestern
Mutual") used to fund variable annuity contracts ("contracts") for HR-10 and
corporate pension and profit-sharing plans which qualify for special tax
treatment under the Internal Revenue Code. Currently, two versions of the
contract are offered: Front Load contracts with a sales charge up to 4.5% of
purchase payments and Simplified Load contracts with an installation fee of
$750.

NOTE 2 -- The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Principal accounting policies are summarized below.

NOTE 3 -- All assets of each Division of the Account are invested in shares of
the corresponding Portfolio of Northwestern Mutual Series Fund, Inc. and the
Russell Insurance Funds (collectively know as the "Funds"). The shares are
valued at the Funds' offering and redemption price per share. The Funds are
open-end investment companies registered under the Investment Company Act of
1940.

NOTE 4 -- Annuity reserves are based on published annuity tables with age
adjustments and benefit payments which reflect actual investment experience.
Annuity reserves are based on the 1983 Table a adjusted with assumed interest
rates of 3-1/2% or 5%.

NOTE 5 -- Dividend income from the Funds is recorded on the ex-date of the
dividends. Transactions in the Funds' shares are accounted for on the trade
date. The basis for determining cost on sale of the Funds' shares is identified
cost. Purchases and sales of the Funds' shares for the years ended December 31
by each Division are shown below:

53

NML VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS CONTINUED

- -----------
# Initial Investment in this division was made on July 31, 2001.

NOTE 6 -- A deduction for annuity rate and expense guarantees is determined
daily and paid to Northwestern Mutual as compensation for assuming the risk that
annuity payments will continue for longer periods than anticipated because the
annuitants as a group live longer than expected and the risk that the charges
made by Northwestern Mutual may be insufficient to cover the actual costs
incurred in connection with the contracts.

For contracts issued after December 16, 1981, and prior to May 1, 1984, the
deduction is determined daily at an annual rate of 1/2 of 1% of the net assets
of each Division attributable to these contracts and is paid to Northwestern
Mutual. For these contracts, the rate may be increased or decreased by the Board
of Trustees of Northwestern Mutual not to exceed a 3/4 of 1% annual rate.

Generally, for contracts issued after December 31, 1991, for the Front Load
Version and the Simplified Load Version, the deduction for annuity rate and
expense guarantees is determined daily at annual rates of 6.5/10 of 1% and
1-1/4%, respectively, of the net assets of each Division attributable to these
contracts and is paid to Northwestern Mutual. For these contracts, the rates may
be increased or decreased by the Board of Trustees of Northwestern Mutual not to
exceed 1% and 1-1/2% annual rates, respectively.

Since 1996, Northwestern Mutual has paid a dividend to certain contracts. The
dividend is re-invested in the Account and has been reflected as a Contract
Owners' Net Payment in the accompanying financial statements.

NOTE 7 -- Northwestern Mutual is taxed as a "life insurance company" under the
Internal Revenue Code and the operations of the Account form a part of and are
taxed with those of Northwestern Mutual. Under current law, no federal income
taxes are payable with respect to the Account. Accordingly, no provision for any
such liability has been made.

54

NML VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS CONTINUED

NOTE 8 -- Equity Values by Division for the year ended December 31, 2002 are
shown below: (in thousands, except accumulation unit values)

55

NML VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS CONTINUED

Equity Values by Division for the year ended December 31, 2001 are shown below:
(in thousands, except accumulation unit values)

56

REPORT OF INDEPENDENT ACCOUNTANTS

To The Northwestern Mutual Life Insurance Company and
Contract Owners of NML Variable Annuity Account C

In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in equity and the financial
highlights present fairly, in all material respects, the financial position of
NML Variable Annuity Account C and its Small Cap Growth Stock Division, T. Rowe
Price Small Cap Value Division, Aggressive Growth Stock Division, International
Growth Stock Division, Franklin Templeton International Equity Division, Index
400 Stock Division, Growth Stock Division, J.P. Morgan Select Growth & Income
Stock Division, Capital Guardian Domestic Equity Division, Index 500 Stock
Division, Asset Allocation Division, Balanced Division, High Yield Bond
Division, Select Bond Division, Money Market Division, Russell Multi-Style
Equity Division, Russell Aggressive Equity Division, Russell Non-U.S. Division,
Russell Real Estate Securities Division and Russell Core Bond Division at
December 31, 2002 and 2001, and the results of each of their operations, the
changes in each of their equity and their financial highlights for the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of The
Northwestern Mutual Life Insurance Company's management; our responsibility is
to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States of America, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included direct
confirmation of securities owned at December 31, 2002 and 2001 with Northwestern
Mutual Series Fund, Inc. and the Russell Insurance Funds, provide a reasonable
basis for our opinion.

/s/ PRICEWATERHOUSECOOPERS LLP
- ----------------------------------
Milwaukee, Wisconsin
January 30, 2003

57

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

58

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Neither Account A nor Account C have any directors or executive
officers. The following information, as of March 1, 2003, is provided with
respect to each director, including persons chosen to become directors, of
Northwestern Mutual. Northwestern Mutual uses the title of Trustee to denote the
directors.

- ----------

(1) Candidate proposed for re-election by the Board of Trustees for the
election to be held at the May 2003 Annual meeting of Policyowners. If
re-elected, these Trustees' terms will expire in May 2007.

(2) Mr. Harold B. Smith is retiring from the Board of Trustees effective May
28, 2003.

59

The business experience and directorships of Northwestern Mutual's
Trustees as of March 1, 2002 are as follows:

62

The following information as of March 1, 2003, is provided with respect
to each Executive Officer of Northwestern Mutual. The term of office for all
Executive Officers is one year expiring May 31, 2003.

All of the Executive Officers, except David B. Wescoe and Charles D.
Robinson, have been employed by Northwestern Mutual in an executive or
management position for more than five years. Mr. Wescoe joined Northwestern
Mutual in 1999. From 1994 to 1999, Mr. Wescoe was employed by Manpower, Inc. as
Vice President and General Counsel. Mr. Robinson joined Northwestern Mutual in
2001. Prior thereto he was with AIG, Global Retirement Services Division as
Chief Marketing Officer and Senior Vice President from 1999 to 2000. From 1980
to 1999, Mr. Robinson served in various positions of increasing responsibility
with VALIC/American General Group, most recently as Senior Vice President,
Institutional Marketing.

63

ITEM 11. EXECUTIVE COMPENSATION

Not applicable. Account A and Account C have no directors or executive
officers, the Executive Officers and Trustees of Northwestern Mutual spend no
substantial portion of their time on matters relating to Accounts A and C, such
persons receive no compensation tied specifically to any services provided to
Accounts A and C, and the amounts of compensation received by the Executive
Officers and Trustees of Northwestern Mutual have no bearing on the values
associated with the Contracts issued in connection with Accounts A and C.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Not applicable. As segregated asset accounts, Account A and Account C
have no shareholders. As a mutual life insurance company, Northwestern Mutual
has no shareholders. No Contract owner is the beneficial owner of more than 5%
of Account A, Account C or Northwestern Mutual's voting securities. Neither
Accounts A or C, nor Northwestern Mutual, maintain equity compensation plans
under which equity securities are authorized for issuance.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Effective January 1, 2002, Northwestern Mutual's subsidiary, Mason
Street Advisors, LLC ("MSA"), commenced serving as the investment advisor to the
Series Fund. The Board of the Series Fund approved the assignment of the
investment advisory agreement to MSA in 2001, the renewal of which was approved
in 2002. Various Trustees and Executive Officers of Northwestern Mutual serve as
directors and officers of the Series Fund and/or MSA and may be deemed to have a
direct or indirect material interest in the existence of the investment advisory
agreement.

Northwestern Mutual's subsidiary, Frank Russell Company, provides the
Russell Funds and its investment adviser, Frank Russell Investment Management
Company ("FRIMCo"), a subsidiary of Frank Russell Company, with asset management
consulting services that it provides to its other consulting clients. The
Russell Funds do not compensate Russell for these services. FRIMCo is party to
an investment advisory agreement with the Russell Funds, the renewal of which
was approved in 2002. Certain Trustees and Executive Officers of Northwestern
Mutual serve as directors of Frank Russell Company and may be deemed to have a
direct or indirect material interest in the existence of the investment
management agreement.

Various Trustees and Executive Officers of Northwestern Mutual (and
their family members and associates) may have securities accounts with Baird
and/or NMIS and may have effected transactions through such accounts during 2002
and through the date hereof, including transactions in mutual funds sponsored by
Northwestern Mutual and Russell.

Trustees and executive officers of Northwestern Mutual (and their
family members and associates) own insurance policies and/or other contracts
issued by Northwestern Mutual or an insurance affiliate in the ordinary course
of business. Loans are made to Northwestern Mutual's Trustees and Executive
Officers (and their family members and associates) in accordance with the
provisions of insurance policies or other contracts which they may own. Such
loans are made in the ordinary course of business, in accordance with applicable
law and are administered solely pursuant to the terms of such policies.

In the ordinary course of its business, Northwestern Mutual makes loans
to its field force Managing Partners in connection with their business
operations. Interest on such loans is tied to Northwestern Mutual's cost of
funds or the prime rate, depending upon the purpose of the loan. On occasion, a
Managing Partner who has received such a loan may assume an Executive Officer
position at Northwestern Mutual. In such circumstances, historically the
outstanding loans have remained in place and are satisfied in accordance with
the terms of the underlying loan documentation.

At December 31, 2002, Peter M. Sommerhauser, a Northwestern Mutual
Trustee since May 1999, was the beneficial owner of approximately 9.6% of the
outstanding common stock of Kohl's Corporation, primarily by virtue of his
serving as a trustee of several trusts for the benefit of the families of
current and former executive officers of Kohl's Corporation and as a director of
charitable foundations established by executive officers of Kohl's Corporation.
While Mr. Sommerhauser has sole or shared voting and investment power over such
shares held in the trusts and foundations, he has no pecuniary interest in those
shares. In 1994, a number of years prior to Mr. Sommerhauser becoming a
Northwestern Mutual Trustee, Northwestern Mutual lent as part of its normal
portfolio investment activities to Kohl's

64

Department Stores, Inc., a subsidiary of Kohl's Corporation, $40,000,000 and
received a 6.57% Senior Note, guaranteed by Kohl's Corporation, due March 31,
2004. The principal amount of such indebtedness was reduced to $13,333,333
during 2002, which remains outstanding at March 1, 2003.

Mr. David A. Erne, a Northwestern Mutual Trustee since July 2002, is a
shareholder of Reinhart Boerner Van Deuren s.c. Reinhart Boerner Van Deuren s.c.
provided legal services to Northwestern Mutual and certain related entities
during 2002 and year-to-date 2003. The aggregate amount of such legal services
billed to Northwestern Mutual or related entities is less than 1% of the law
firm's gross revenues for its last fiscal year.

ITEM 14. CONTROLS AND PROCEDURES

Based on their evaluation of the registrant's disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as conducted within 90
days of the filing date of this Annual Report, the registrant's Chief Executive
Officer and Chief Financial Officer have concluded that those disclosure
controls and procedures provide reasonable assurance that the information
required to be disclosed by the registrant in the reports it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Commission's rules and forms. There were no
significant changes in the registrant's internal controls or in other factors
that could significantly affect such controls subsequent to the date of
evaluation referenced above.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Financial Statements and Exhibits

PAGE
----

(1) NML Variable Annuity Account A
(in Part II, Item 8)................................................. 19
Statements of Assets and Liabilities at December 31, 2002 and 2001
Statements of Operations for years ended December 31, 2002, 2001 and 2000
Statements of Changes in Equity for years ended
December 31, 2002, 2001 and 2000
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants

(2) NML Variable Annuity Account C
(in Part II, Item 8)................................................. 39
Statements of Assets and Liabilities at December 31, 2002 and 2001
Statements of Operations for years ended December 31, 2002, 2001 and 2000
Statements of Changes in Equity for years ended
December 31, 2002, 2001 and 2000
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants

(3) The Northwestern Mutual Life
Insurance Company.................................................... 66
Immediately following this page are:
Report of Independent Accountants
Consolidated Statement of Financial Position at December 31, 2002 and 2001
Consolidated Statement of Operations for years ended
December 31, 2002, 2001 and 2000
Consolidated Statement of Changes in Surplus for years ended
December 31, 2002, 2001 and 2000
Consolidated Statement of Cash Flows for years ended
December 31, 2002, 2001 and 2000
Notes to Consolidated Statutory Financial Statements

(b) No reports on Form 8-K have been filed during the last
quarter of the year ended December 31, 2002.

(c) See Index to Exhibits which is incorporated
herein by reference ......................................... 98

65

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Trustees and Policyowners of
The Northwestern Mutual Life Insurance Company

We have audited the accompanying consolidated statement of financial position of
The Northwestern Mutual Life Insurance Company and its subsidiary ("the
Company") as of December 31, 2002 and 2001, and the related consolidated
statements of operations, of changes in surplus and of cash flows for each of
the three years in the period ended December 31, 2002. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As described in Note 1 to the financial statements, the Company prepared these
consolidated financial statements using accounting practices prescribed or
permitted by the Office of the Commissioner of Insurance of the State of
Wisconsin (statutory basis of accounting), which practices differ from
accounting principles generally accepted in the United States of America.
Accordingly, the consolidated financial statements are not intended to represent
a presentation in accordance with accounting principles generally accepted in
the United States. The effects on the consolidated financial statements of the
variances between the statutory basis of accounting and accounting principles
generally accepted in the United States, although not reasonably determinable,
are presumed to be material.

In our opinion, the consolidated financial statements audited by us (1) do not
present fairly in conformity with generally accepted accounting principles, the
financial position of The Northwestern Mutual Life Insurance Company and its
subsidiary as of December 31, 2002 and 2001, or the results of their operations
or their cash flows for each of the three years in the period ended December 31,
2002 because of the effects of the variances between the statutory basis of
accounting and accounting principles generally accepted in the United States of
America referred to in the preceding paragraph, and (2) do present fairly, in
all material respects, the financial position of The Northwestern Mutual Life
Insurance Company and its subsidiary as of December 31, 2002 and 2001 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2002, on the basis of accounting described in Note
1.

As discussed in Note 1 to the financial statements, the Company adopted the
accounting policies in the revised National Association of Insurance
Commissioners "Accounting Practices and Procedures Manual" - Effective January
1, 2001, as required by the Office of the Commissioner of Insurance of the State
of Wisconsin. The effect of adoption is recorded as an adjustment to surplus as
of January 1, 2001.

/s/ PRICEWATERHOUSECOOPERS LLP
- ---------------------------------
Milwaukee, Wisconsin
January 21, 2003

66

THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(IN MILLIONS)

The accompanying notes are an integral part of these financial statements.

67

THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS)

The accompanying notes are an integral part of these financial statements.

68

THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN SURPLUS
(IN MILLIONS)

The accompanying notes are an integral part of these financial statements.

69

THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)

The accompanying notes are an integral part of these financial statements.

70

THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000

1. BASIS OF PRESENTATION AND CHANGES IN ACCOUNTING PRINCIPLES

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

The consolidated financial statements were prepared in conformity with
accounting practices prescribed or permitted by the Office of the
Commissioner of Insurance of the State of Wisconsin ("statutory basis
of accounting"). Beginning January 1, 2001, insurance companies
domiciled in Wisconsin were required to prepare statutory basis
financial statements in accordance with the new National Association of
Insurance Commissioners ("NAIC") "Accounting Practices and Procedures
Manual", subject to any variations prescribed or permitted by the
Office of the Commissioner of Insurance of the State of Wisconsin
("OCI").

These new requirements differed from those used prior to January 1,
2001, primarily because under the new statutory accounting principles:
(1) deferred tax balances were established for temporary differences
between book and tax bases of certain assets and liabilities, (2)
investment valuation adjustments on impaired assets were measured
differently and were reported as realized losses, (3) pension and other
employee benefit obligations were accounted for based on the funded
status of the related plans, (4) recognition of earnings from
unconsolidated subsidiaries and affiliates as net investment income was
limited to dividends received, (5) certain software costs were
capitalized and amortized to expense over a maximum of five years, and
(6) premiums, benefits and reserve changes for policies without
significant mortality or morbidity risks ("deposit-type contracts")
were not included in revenue or benefits as reported in the
consolidated statement of operations.

The cumulative effect of adoption of these new accounting principles
was reported as an adjustment to surplus as of January 1, 2001, with no
restatement of prior periods permitted. This cumulative effect was the
difference in the amount of surplus that would have been reported at
that date if the new accounting principles had been retroactively
applied to all prior periods. The cumulative effect of these accounting
changes increased surplus by $749 million at that date, and included
the following (in millions):

Deferred tax accounting ................ $ 850
Pension plan liabilities ............... (74)
Investment valuation changes, net ...... (27)
--------
$ 749
========

Financial statements prepared on the statutory basis of accounting
differ from financial statements prepared in accordance with generally
accepted accounting principles ("GAAP"), primarily because on a GAAP
basis: (1) certain policy acquisition costs are deferred and amortized,
(2) investment valuations and policy benefit reserves use different
methods and assumptions, (3) deposit-type contracts, for which
premiums, benefits and reserve changes are not included in revenue or
benefits as reported in the statement of operations, are defined
differently, (4) majority-owned, non-insurance subsidiaries are
consolidated, (5) changes in deferred taxes are reported as a component
of net income, and (6) no deferral of realized gains

71

THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)

and losses is permitted. The effects on the financial statements of the
Company from the differences between the statutory basis of accounting
and GAAP are material.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The preparation of financial statements in conformity with the
statutory basis of accounting required management to use assumptions or
make estimates that affected the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
future results could differ from these assumptions and estimates.

INVESTMENTS

See Note 3 regarding the reported statement value and estimated fair
value of the Company's investments in bonds, common and preferred
stocks, mortgage loans and real estate.

POLICY LOANS

Policy loans primarily represent amounts borrowed from the Company by
life insurance policyowners, secured by the cash value of the related
policies. They are reported in the financial statements at unpaid
principal balance.

OTHER INVESTMENTS

Other investments consist primarily of real estate joint ventures,
partnership investments, including real estate, venture capital and
leveraged buyout fund limited partnerships, leveraged leases and
subsidiaries, controlled and affiliated entities. These investments are
valued based on the equity method of accounting, which approximated
fair value. Other investments also include derivative financial
instruments. See Note 4 regarding the Company's use of derivatives.

TEMPORARY INVESTMENTS

Temporary investments represent securities that have maturities of one
year or less at purchase, and are reported at amortized cost, which
approximated fair value.

NET INVESTMENT INCOME

Net investment income primarily represents interest and dividends
received or accrued on bonds, mortgage loans, policy loans and other
investments. It also includes amortization of any purchase premium or
discount using the interest method, adjusted prospectively for any
change in estimated yield-to-maturity. Accrued investment income more
than 90 days past due is nonadmitted and reported as a direct reduction
of surplus. Accrued investment income that is ultimately deemed
uncollectible is reported as a reduction of net investment income in
the period that such determination is made. Beginning January 1, 2001,
net investment income also includes dividends paid to the Company from
accumulated earnings of unconsolidated subsidiaries, affiliates,
partnerships and joint ventures. Prior to 2001, the Company's share of
undistributed earnings in these entities was recognized as net
investment income using the equity method. Net investment income is
reduced by investment management expenses, real estate depreciation,
depletion related to energy assets and interest costs associated with
securities lending.

72

THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)

INTEREST MAINTENANCE RESERVE

The Company is required to maintain an interest maintenance reserve
("IMR"). The IMR is used to defer realized gains and losses, net of
income tax, on fixed income investments that result from changes in
interest rates. Net realized gains and losses deferred to the IMR are
amortized into investment income over the estimated remaining life of
the investment sold.

INVESTMENT CAPITAL GAINS AND LOSSES

Realized capital gains and losses are recognized based upon specific
identification of securities sold. Beginning January 1, 2001, realized
capital losses also include valuation adjustments for impairment of
bonds, stocks, mortgage loans, real estate and other investments with a
decline in fair value that management considers to be
other-than-temporary. Factors considered in evaluating whether a
decline in value is other-than-temporary include: (1) whether the
decline is substantial, (2) the Company's ability and intent to retain
the investment for a period of time sufficient to allow for an
anticipated recovery in value, (3) the duration and extent to which the
market value has been less than cost, and (4) the financial condition
and near-term prospects of the issuer. Prior to 2001, these valuation
adjustments were classified as unrealized capital losses and only
reported as realized upon disposition. Realized capital gains and
losses as reported in the consolidated statement of operations are net
of any IMR deferrals and current income tax expense. See Note 3
regarding details of realized capital gains and losses.

Unrealized capital gains and losses primarily represent changes in the
reported fair value of common stocks. Beginning January 1, 2001,
changes in the Company's share of undistributed earnings in
unconsolidated subsidiaries, affiliates, partnerships and joint
ventures are classified as changes in unrealized capital gains and
losses. Prior to 2001, the Company's share of undistributed earnings in
these entities was recognized as net investment income using the equity
method. See Note 3 regarding details of changes in unrealized capital
gains and losses.

ASSET VALUATION RESERVE

The Company is required to maintain an asset valuation reserve ("AVR").
The AVR represents a general reserve for invested asset valuation using
a formula prescribed by the NAIC. The AVR is designed to protect
surplus against potential declines in the value of the Company's
investments. Increases or decreases in AVR are reported as direct
adjustments to surplus.

SEPARATE ACCOUNTS

See Note 7 regarding separate account assets and liabilities reported
by the Company.

PREMIUM REVENUE

Life insurance premiums are recognized as revenue at the beginning of
each policy year. Annuity, disability income and long-term care
insurance premiums are recognized as revenue when received by the
Company. Premium revenue is reported net of ceded reinsurance, see Note
9.

73

THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)

OTHER INCOME

Other income includes ceded reinsurance expense allowances and various
insurance policy charges. Beginning January 1, 2001, considerations
received on supplementary contracts without life contingencies are
classified as deposit-type transactions and thereby excluded from
revenue. Prior to 2001, these considerations were reported as revenue
and included in other income.

BENEFIT PAYMENTS TO POLICYOWNERS AND BENEFICIARIES

Benefit payments to policyowners and beneficiaries include death,
surrender and disability benefits, as well as matured endowments and
supplementary contract payments. Beginning January 1, 2001, benefit
payments on supplementary contracts without life contingencies are
classified as deposit-type transactions and thereby excluded from
expense. Prior to 2001, these payments were reported as benefit
expense. Benefit payments are reported net of ceded reinsurance
recoveries, see Note 9.

RESERVES FOR POLICY BENEFITS

See Note 5 regarding the methods and assumptions used to establish the
Company's reserves for future insurance policy benefits.

COMMISSIONS AND OPERATING EXPENSES

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

ELECTRONIC DATA PROCESSING EQUIPMENT AND SOFTWARE

Electronic data processing ("EDP") equipment and software used in the
Company's business are reported at cost less accumulated depreciation.
Beginning January 1, 2001, certain software costs are capitalized and
depreciated over a maximum of five years, while EDP equipment is
capitalized and depreciated over three years. Most unamortized software
costs are nonadmitted assets and thereby excluded from surplus. Prior
to 2001, the Company expensed all software costs, while EDP equipment
was capitalized and amortized over its useful life. EDP equipment and
software assets of $20 million and $18 million at December 31, 2002 and
2001, respectively, were net of accumulated depreciation of $48 million
and $44 million, respectively, and included in other assets in the
consolidated statement of financial position. Depreciation expense is
recorded using the straight-line method and totaled $27 million, $14
million and $8 million for the years ended December 31, 2002, 2001 and
2000, respectively.

POLICYOWNER DIVIDENDS

Almost all life insurance and disability income policies and certain
annuity contracts and long-term care policies issued by the Company are
participating. Annually, the Company's Board of Trustees approves
dividends payable on participating policies in the following fiscal
year, which are accrued and charged to operations when approved.
Participating policyowners generally have the option to direct their
dividends to be paid in cash, used to reduce future premiums due or
used to purchase additional insurance. A majority of dividends are used
by policyowners to purchase additional insurance and are reported as
premiums in the consolidated statement of operations, but are not
included in premiums received or policy benefits paid in the
consolidated statement of cash flows.

74

THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)

NONADMITTED ASSETS

Certain assets are designated as nonadmitted and thereby not permitted
as a component of surplus on the statutory basis of accounting. Such
assets, principally assets related to pension funding, amounts advanced
to or due from the Company's financial representatives and fixed
assets, EDP equipment and software net of accumulated depreciation, are
excluded from the consolidated statement of financial position. Changes
in nonadmitted assets are reported as a direct adjustment to surplus.

RECLASSIFICATIONS

Certain financial statement balances for 2001 and 2000 have been
reclassified to conform to the current year presentation.

3. INVESTMENTS

BONDS

Investments in bonds are reported in the financial statements at
amortized cost, less any valuation adjustment. The interest method is
used to amortize any purchase premium or discount. Use of the interest
method for loan-backed bonds and structured securities includes
anticipated prepayments obtained from independent sources. Prepayment
assumptions are updated at least annually, with the prospective
adjustment method used to recognize related changes in the
yield-to-maturity of such securities.

Estimated fair value is based upon values published by the Securities
Valuation Office ("SVO") of the NAIC. In the absence of SVO-published
values, estimated fair value is based upon quoted market prices, if
available. For bonds without quoted market prices, fair value is
estimated using independent pricing services or internally developed
pricing models.

Valuation adjustments are made for bonds in or near default, which are
reported at the lower of amortized cost or fair value, or for bonds
with a decline in fair value that management considers to be
other-than-temporary. Statement value and estimated fair value of bonds
at December 31, 2002 and 2001 were as follows:

75

THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)

Statement value and estimated fair value of bonds by contractual
maturity at December 31, 2002 are shown below. Expected maturities may
differ from contractual maturities because borrowers may have the right
to call or prepay obligations with or without call or prepayment
penalties.

COMMON AND PREFERRED STOCKS

Common stocks are reported in the financial statements at fair value,
which is based upon quoted market prices, if available. For common
stocks without quoted market prices, fair value is estimated using
independent pricing services or internally developed pricing models.
Investments in common stock of unconsolidated subsidiaries and
affiliates are included in the consolidated statement of financial
position using the equity method.

Preferred stocks rated "1" (highest quality), "2" (high quality), or
"3" (medium quality) by the SVO are reported in the financial
statements at amortized cost. All other preferred stock is reported at
the lower of cost or fair value. Estimated fair value is based upon
quoted market prices, if available. For preferred stock without quoted
market prices, fair value is estimated using independent pricing
services or internally developed pricing models.

76

THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)

MORTGAGE LOANS

Mortgage loans are reported in the financial statements at unpaid
principal balance, less any valuation allowance or unamortized
commitment or origination fee. These fees are generally deferred and
amortized into investment income using the interest method. Mortgage
loans are collateralized by properties located throughout the United
States and Canada. The Company attempts to minimize mortgage loan
investment risk by diversification of borrowers, geographic locations
and types of collateral properties.

The maximum and minimum interest rates for mortgage loans originated
during 2002 were 8.2% and 5.0%, respectively, while these rates during
2001 were 9.8% and 6.4%, respectively. The aggregate average ratio of
amounts loaned to the value of collateral for mortgage loans originated
during 2002 and 2001 were 65% and 68%, respectively, with a maximum of
100% for any single loan during each of 2002 and 2001.

Mortgage loans are considered impaired when, based on current
information, management considers it probable that the Company will be
unable to collect all principal and interest due according to the
contractual terms of the loan. If necessary, a valuation adjustment is
made to reduce the carrying value of an impaired loan to the lower of
unpaid principal balance or estimated net realizable value based on
appraisal of the collateral property. If the impairment is considered
to be temporary, the valuation adjustment is classified as an
unrealized loss. Beginning January 1, 2001 valuation adjustments for
impairments considered to be other-than-temporary were reported as
realized losses. Prior to 2001, all changes in valuation adjustments
were reported as unrealized gains or losses. At December 31, 2002 and
2001, the reported value of mortgage loans was reduced by $44 million
and $99 million, respectively, in valuation adjustments.

REAL ESTATE

Real estate investments are reported in the financial statements at
cost, less any valuation adjustment, encumbrances and accumulated
depreciation of buildings and other improvements using a straight line
method over the estimated useful life of the improvements. An
investment in real estate is considered impaired when the projected
undiscounted net cash flow from the investment is less than depreciated
cost. When the Company determines that an investment in real estate is
impaired, a valuation adjustment is made to reduce the carrying value
to estimated fair value, after encumbrances, based on appraisal of the
property. The valuation adjustment is included in realized losses. At
December 31, 2002 and 2001, the reported value of real estate
investments was reduced by $0 and $52 million, respectively, in
valuation adjustments.

LEVERAGED LEASES

Leveraged leases are reported in the financial statements at the
present value of minimum lease payments, plus the residual value of the
leased asset. At December 31, 2002 and 2001, the reported value of
leveraged leases was $532 million and $669 million, respectively. The
reported value of leveraged leases was reduced by $108 million at
December 31, 2002 to reflect a decline in value of certain aircraft
leases that management considers to be other-than-temporary. The
decline in value was charged against an existing valuation allowance
and is not included as a component of net realized capital losses for
2002. Leveraged leases are included in other investments and primarily
represent investments in commercial aircraft or real estate property
that are leased to third parties and serve as collateral for
non-recourse borrowings.

77

THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)

CAPITAL GAINS AND LOSSES

Realized investment gains and losses for the years ended December 31,
2002, 2001 and 2000 were as follows:

Proceeds on the sale of bond investments totaled $53 billion, $30
billion and $25 billion for the years ended December 31, 2002, 2001 and
2000, respectively. Realized losses included $588 million and $457
million for the years ended December 31, 2002 and 2001, respectively,
of pretax valuation adjustments for declines in fair value of
investments that were considered to be other-than-temporary.
Other-than-temporary declines in fair value of $508 million for the
year ended December 31, 2000 are included in net unrealized losses.

Changes in net unrealized investment gains and losses for the years
ended December 31, 2002, 2001 and 2000 were as follows:

See Note 10 regarding the accounting change in 2001 for deferred taxes
as regards to unrealized gains and losses.

78

THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)

SECURITIES LENDING

The Company has entered into securities lending agreements whereby
certain investment securities are loaned to third parties, primarily
major brokerage firms. The Company's policy requires a minimum of 102%
of the fair value of the loaned securities, calculated on a daily
basis, as collateral in the form of either cash or securities held by
the Company or a trustee. At December 31, 2002 and 2001, unrestricted
cash collateral held by the Company of $1.6 billion and $1.3 billion,
respectively, is included in cash and invested assets and the
offsetting collateral liability of $1.6 billion and $1.3 billion,
respectively, is included in other liabilities. Additional non-cash
collateral of $389 million and $823 million is held on the Company's
behalf by a trustee at December 31, 2002 and 2001, respectively, and is
not included in the Consolidated Statement of Financial Position.

MORTGAGE DOLLAR ROLLS

The Company has also entered into reverse repurchase agreements whereby
the Company agrees to sell and repurchase various mortgage-backed
securities. At December 31, 2002 and 2001, the book value of securities
subject to these agreements and included in bonds were $1,042 million
and $964 million, respectively, while fair values were $1,057 million
and $966 million, respectively. The repurchase obligation liability of
$1,042 million and $964 million were included in the other liabilities
at December 31, 2002 and 2001, respectively. Securities subject to
these agreements had contractual maturities of 30 years at each of
December 31, 2002 and 2001 and weighted average interest rates of 5.8%
and 6.8%, respectively.

4. DERIVATIVE FINANCIAL INSTRUMENTS

In the normal course of business, the Company enters into derivative
transactions, generally to mitigate the risk to Company assets and
liabilities of fluctuations in interest rates, foreign currency
exchange rates and other market risks. Derivative investments are
reported as other investments in the consolidated statement of
financial position. Derivatives that hedge specific assets and
liabilities are reported in a manner consistent with the hedged item
(e.g., at amortized cost or fair value), while derivative financial
instruments that hedge a portfolio of assets or liabilities are
reported at fair value. Fair value is estimated as the amount that the
Company would expect to receive or pay upon termination of the contract
at the reporting date. Changes in the carrying value of derivatives
that hedge a portfolio of assets or liabilities are reported as
realized capital gains and losses.

79

THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)

The Company held the following positions for hedging purposes at
December 31, 2002 and 2001:

The notional or contractual amounts of derivative financial instruments
are used to denominate the transactions and do not represent the
amounts exchanged between the parties.

Foreign currency swaps are used to hedge exposure to variable U.S.
dollar cash flows from certain bonds denominated in foreign currencies.
A foreign currency swap is a contractual agreement to exchange the
currencies of two different countries at a specified rate of exchange
in the future.

Forward purchase agreements are used to fix the price of a security
purchase or sale to be settled on a future date, reducing or
eliminating the risk of price fluctuation prior to settlement. Forward
purchase agreements fix the price, quantity and settlement date for a
future purchase or sale.

Interest rate swaps are used to hedge exposure to variable interest
payments on certain floating rate bonds. An interest rate swap is a
contractual agreement to pay a floating rate of interest, based upon a
reference index, in exchange for a fixed rate of interest established
at the origination of the contract.

Swaptions are used to hedge the asset/liability risks of a significant
and sustained increase or decrease in interest rates for certain of the
Company's insurance products. Swaptions are a contractual agreement
whereby one party holds an option to enter into an interest rate swap
with another party on predefined terms.

80

THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)

Interest rate floors are used to hedge the asset/liability risks of a
significant and sustained decrease in interest rates. Floors entitle
the Company to receive settlement payments from the counterparties if
interest rates decline below a specified level.

Credit default swaps are used to hedge against a drop in bond prices
due to credit concerns for certain bond issuers. A credit default swap
allows the Company to put the bond to a counterparty at par upon a
"credit event" sustained by the bond issuer. A credit event is defined
as bankruptcy, failure to pay, or obligation acceleration.

Commodity swaps are used to hedge the forward sale of crude oil and
natural gas production. Commodity swaps are agreements whereby one
party pays a floating commodity price in exchange for a specified fixed
commodity price.

Equity index futures contracts and equity total return swaps are used
to mitigate exposure to market fluctuations for the Company's portfolio
of common stocks. Futures contracts obligate the Company to buy or sell
a financial instrument at a specified future date for a specified
price. Swaps are contracts to exchange, for a period of time, the
investment performance of one underlying instrument for the investment
performance of another underlying instrument, typically without
exchanging the instruments themselves.

Fixed income futures contracts are used to hedge interest rate risks
for a portion of its fixed maturity investment portfolio. These futures
contracts obligate the Company to buy or sell a financial instrument at
a specified future date for a specified price.

Foreign currency forward contracts are used to hedge the foreign
exchange risk for portfolios of investments denominated in foreign
currencies. Foreign currency forward contracts obligate the Company to
deliver a specified amount of foreign currency at a future date at a
specified exchange rate.

In addition to derivatives used for hedging purposes, the Company
entered into replication transactions during 2002. A replication
transaction means a derivative transaction is entered into in
conjunction with other investment transactions in order to "replicate"
the investment characteristics of otherwise permissible investments.
During 2002, the Company entered into two replication transactions; a
$15 million par equivalent fixed income replication comprised of a
credit default swap, an interest rate swap and an asset-backed security
purchase; and a $25 million par equivalent fixed income replication
comprised of a credit default swap and an asset-backed security
purchase. These replication transactions, including their derivative
components, are carried at amortized cost. The Company also entered
into long equity and fixed income futures replication transactions
during 2002. The average fair value of replications during 2002 was $72
million, with an ending fair value of $8 million at December 31, 2002.

5. RESERVES FOR POLICY BENEFITS

Reserves for policy benefits represent the net present value of future
policy benefits, less future policy premiums, estimated using actuarial
methods based on mortality and morbidity experience tables and
valuation interest rates prescribed or permitted by the OCI.

81

NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)

Use of these actuarial tables and methods involved assumptions
regarding future mortality and morbidity. Actual future experience
could differ from the assumptions used to make these estimates.

Life insurance reserves on substantially all policies issued since 1978
are based on the Commissioner's Reserve Valuation Method ("CRVM") with
interest rates ranging from 3-1/2% to 5-1/2% and the 1958 or 1980 CSO
mortality tables. Other life policy reserves are primarily based on the
net level premium method, using various mortality tables at interest
rates ranging from 2% to 4-1/2%. As of December 31, 2002, the Company
has $750 billion of total life insurance in-force, including $8 billion
of life insurance in-force for which gross premiums are less than net
premiums according to the standard valuation methods and assumptions
prescribed by the OCI.

As of January 1, 2001, the Company changed the valuation basis for
reserves on certain term life insurance policies. The impact of this
change increased policy benefit reserves by $61 million, and was
reported as a direct reduction of surplus for the year ended December
31, 2001.

Tabular cost has been determined from the basic data for the
calculation of policy reserves. Tabular cost less actual reserves
released has been determined from the basic data for the calculation of
reserves and reserves released. Tabular interest has been determined
from the basic data for the calculation of policy reserves. Tabular
interest on funds not involving life contingencies is calculated as the
product of the valuation rate of interest times the mean of the amount
of funds subject to such rate held at the beginning and end of the year
of valuation.

Additional premiums are charged for substandard lives for policies
issued after January 1, 1956. Net level premium or CRVM mean reserves
are based on multiple mortality tables or one-half the net flat or
other extra mortality charge. The Company waives deduction of
fractional premiums upon death of an insured and returns any portion of
the final premium beyond the date of death. Surrender values are not
promised in excess of the legally computed reserves.

Deferred annuity reserves on contracts issued since 1985 are primarily
based on the Commissioner's Annuity Reserve Valuation Method with
interest rates ranging from 3-1/2% to 6-1/4%. Other deferred annuity
reserves are based on contract value. Immediate annuity reserves are
based on present value of expected benefit payments at interest rates
ranging from 3-1/2% to 7-1/2%. Beginning January 1, 2001 changes in
future policy benefits on supplementary contracts without life
contingencies are classified as deposit-type transactions and thereby
excluded from net additions to policy benefit reserves in the
consolidated statement of operations. Prior to 2001, these reserve
changes were reported as a component of operations.

82

NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)

At December 31, 2002 and 2001, the withdrawal characteristics of the
Company's annuity reserves and deposit liabilities were as follows:

Active life reserves for disability income ("DI") policies issued since
1987 are primarily based on the two-year preliminary term method using
a 4% interest rate and the 1985 Commissioner's Individual Disability
Table A ("CIDA") for morbidity. Active life reserves for prior DI
policies are based on the net level premium method, with interest rates
ranging from 3% to 4% and the 1964 Commissioner's Disability Table for
morbidity. Disabled life reserves for DI policies are based on the
present value of expected benefit payments, primarily using the 1985
CIDA (modified for Company experience in the first four years of
disability) and interest rates ranging from 3% to 5-1/2%.

Active life reserves for long-term care policies consist of
mid-terminal reserves and unearned premium. Mid-terminal reserves are
based on the one-year preliminary term method, industry-based
experience morbidity, total terminations based on the 1983 Individual
Annuity Mortality table with no lapse, and an interest rate of either
4% or the minimum rate allowable for tax purposes. When the tax
interest rate is used, reserves are compared in the aggregate to the
statutory minimum and the greater of the two is held. Disabled life
reserves for long-term care policies are based on the present values of
expected benefit payments using industry-based long-term care
experience with a 4.5% interest rate.

6. PREMIUM AND ANNUITY CONSIDERATIONS DEFERRED AND UNCOLLECTED

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.

83

NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)

Deferred and uncollected premiums at December 31, 2002 and 2001 were as
follows:

7. SEPARATE ACCOUNTS

Separate account assets and related policy liabilities represent the
segregation of funds deposited by variable life insurance and variable
annuity policyowners. Policyowners bear the investment performance risk
associated with variable products. Separate account assets are invested
at the direction of the policyowner in a variety of mutual fund
options. Variable annuity policyowners also have the option to invest
in a fixed interest rate annuity issued by the general account of the
Company. Separate account assets are reported at fair value based
primarily on quoted market prices.

Following is a summary of separate account liabilities by withdrawal
characteristic at December 31, 2002 and 2001:

While separate account liability values are not guaranteed by the
Company, the variable annuity and variable life insurance products
represented in the separate accounts do include guaranteed minimum
death benefits underwritten by the Company. At December 31, 2002 and
2001, general account reserves for policy benefits included $11 million
and $6 million, respectively, in reserves for these benefits.

Separate account premiums and other considerations received during the
years ended December 31, 2002 and 2001 were $1,341 million and $1,419
million, respectively. Following is a summary reconciliation of amounts
reported as transfers to and from separate accounts in the summary of
operations of the Company's NAIC Separate Account Annual Statement and
the amount reported as net transfers to separate accounts in the
accompanying consolidated statement of operations for the years ended
December 31, 2002 and 2001:

84

NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)

8. EMPLOYEE AND REPRESENTATIVE BENEFIT PLANS

The Company sponsors noncontributory defined benefit retirement plans
for all eligible employees and field representatives. These include
tax-qualified plans, as well as nonqualified plans that provide
benefits to certain participants in excess of ERISA limits for
qualified plans. The Company's policy is to fully fund the obligations
of qualified plans in accordance with ERISA requirements.

Beginning January 1, 2001 the costs associated with these retirement
benefits are expensed over the annual periods during which the
participant provides services to the Company, including recognition of
pension assets and liabilities based on the funded status of the
related plans. Prior to 2001, the Company recognized pension expense
only in the periods in which contributions were made to plan assets.

In addition to pension benefits, the Company provides certain health
care and life insurance benefits ("postretirement benefits") to retired
employees, field representatives and eligible dependents. Substantially
all employees and field representatives will become eligible for these
benefits if they reach retirement age while working for the Company.

85

NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)

Aggregated assets and projected benefit obligations of the defined
benefit plans and for postretirement benefits at December 31, 2002 and
2001, and changes in assets and obligations for the years then ended,
were as follows:

Plan assets are invested primarily in common stocks and corporate debt
securities through a separate account of the Company. Fair value of
plan assets is based primarily on quoted market values.

The projected benefit obligation represents the actuarial net present
value of future benefit obligations, which is calculated annually by
the Company. The following table summarizes assumptions used in
estimating the projected benefit obligation at December 31, 2002 and
2001:

The projected benefit obligations at December 31, 2002 and 2001 also
assumed an annual increase in future retiree medical costs of 10%,
grading down to 5% over 5 years and remaining level thereafter. A
further increase in the assumed healthcare cost trend of 1% in each
year would increase the accumulated postretirement benefit obligation
as of December 31, 2002 by $13 million and net periodic postretirement
benefit expense during 2002 by $2 million. A decrease in the assumed
healthcare cost trend of 1% in each year would decrease the accumulated
postretirement benefit obligation as of December 31, 2002 by $13
million and net periodic postretirement benefit expense during 2002 by
$2 million.

Projected benefit obligations included $12 million and $11 million for
non-vested employees at December 31, 2002 and 2001, respectively.

86

NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)

An aggregated reconciliation of the funded status of the plans to the
net liability recorded by the Company at December 31, 2002 and 2001, as
well as the components of net periodic benefit costs for the years then
ended, were as follows:

Unrecognized net experience gains or losses represent cumulative
amounts by which plan experience for return on plan assets or benefit
costs has been more or less favorable than assumed. These net
differences accumulate without recording in the Company's financial
statements unless they exceed ten percent of plan assets or projected
benefit obligation, whichever is greater. If they exceed this limit,
they are amortized into net periodic benefit costs over the remaining
average years of service until retirement of the employee base, which
is currently seventeen years.

Unrecognized initial net assets represent the amount by which the fair
value of plan assets exceeded the projected benefit obligation for
funded pension plans upon the adoption of new statutory accounting
principles at January 1, 2001. The Company has elected not to record an
initial asset for this excess, rather it will establish the asset
through amortization of this initial asset as a credit to net periodic
benefit cost.

Any net pension assets for funded plans are nonadmitted under statutory
accounting and are thereby excluded from surplus.

The Company also sponsors a contributory 401(k) plan for eligible
employees and a noncontributory defined contribution plan for full-time
representatives. For the years ended December 31, 2002, 2001 and 2000
the Company expensed total contributions to these plans of $22 million,
$20 million and $19 million, respectively.

87

NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)

9. REINSURANCE

In the normal course of business, the Company limits its exposure to
life insurance death benefits on any single insured by ceding insurance
coverage to reinsurers under excess and coinsurance contracts. The
Company retains a maximum of $25 million of coverage per individual
life and $35 million maximum of coverage per joint life. The Company
also has an excess reinsurance contract for certain disability income
policies issued prior to 1999 with retention limits varying based upon
coverage type.

Amounts shown in the consolidated financial statements are reported net
of reinsurance. Reserves for policy benefits at December 31, 2002 and
2001 were net of ceded reserves of $877 million and $757 million,
respectively. The effect of reinsurance on premium revenue and benefits
expense for the years ended December 31, 2002, 2001 and 2000 was as
follows:

In addition, the Company received $172 million, $161 million and $146
million for the years ended December 31, 2002, 2001 and 2000,
respectively, from reinsurers as allowances for reimbursement of
commissions and other expenses on ceded business. These amounts are
included in other income in the consolidated statement of operations.

Reinsurance contracts do not relieve the Company from its obligations
to policyowners. Failure of reinsurers to honor their obligations could
result in losses to the Company. The Company attempts to minimize this
risk by diversifying its reinsurance coverage among a number of
reinsurers that meet its standards for strong financial condition.
There were no reinsurance recoverables at December 31, 2002 and 2001,
which were considered by management to be uncollectible.

88

NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)

10. INCOME TAXES

The Company files a consolidated federal income tax return including
the following entities:

Northwestern Mutual Investment Services, LLC Baird Holding Company
Northwestern International Holdings, Inc. Frank Russell Company
NML Real Estate Holdings, LLC and subsidiaries Bradford, Inc.
NML Securities Holdings, LLC and subsidiaries Network Planning Advisors, LLC
Northwestern Investment Management Company, LLC Mason Street Advisors, LLC
Northwestern Securities Holdings, LLC NML - CBO, LLC
Northwestern Mutual Trust Company JYD, LLC

The Company collects from or refunds to these subsidiaries their share
of consolidated income taxes determined under written tax-sharing
agreements. Federal income tax returns for years through 1999 are
closed as to further assessment of tax. The liability for income taxes
payable in the financial statements includes a provision for any
additional taxes that may become due with respect to the open tax
years.

Beginning January 1, 2001 the Company accounts for deferred tax assets
and liabilities, which reflect the financial statement impact of
cumulative temporary differences between the tax and financial
statement bases of assets and liabilities. Prior to 2001, no deferred
tax balances were reported. The components of the net admitted deferred
tax asset at December 31, 2002 and 2001 were as follows:

89

NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)

Statutory accounting principles limit the amount of gross deferred tax
assets that can be included in Company surplus. This limit is based on
a formula that takes into consideration available loss carryback
capacity, expected timing of reversal for existing temporary
differences, gross deferred tax liabilities and the level of Company
surplus. At December 31, 2002 and 2001, the Company's gross deferred
tax assets did not exceeded this limitation.

Changes in deferred tax assets and liabilities related to unrealized
gains and losses on investments are reported as a component of changes
in unrealized capital gains and losses in the consolidated statement of
changes in surplus. Other net changes in deferred tax assets and
liabilities are direct adjustments to surplus and separately reported
in the consolidated statement of changes in surplus.

The major components of current income tax expense (benefit) were as
follows:

The Company's taxable income can vary significantly from gain from
operations before taxes due to differences in revenue recognition and
expense deduction between book and tax.

The Company is subject to an "equity tax" that is assessed only on
mutual life insurance companies. At December 31, 2001, the liability
for income taxes payable included $453 million related to the Company's
estimated liability for equity tax, primarily with respect to the 2001
tax year. In March 2002, Congress passed legislation that suspended
assessments of equity tax for tax years 2001 through 2003. As a result,
this liability was released as a credit to current tax expense during
2002.

The Company's effective tax rates were 299% and 21% for the years ended
December 31, 2002 and 2001. The effective rate is not the statutory
rate applied to the Company's taxable income or loss by the Internal
Revenue Service. It is a financial statement relationship that
represents the relationship between the sum of total taxes, including
those that affect net income and changes in deferred taxes not related
to unrealized gains and losses on investments, to the sum of gain from
operations before taxes and pretax net realized gains or losses. These
financial statement effective rates were different than the applicable
federal tax rate of 35% due primarily to differences between book and
tax recognition of net investment income and realized capital gains and
losses, prior year adjustments and the impact the of equity tax in
2002.

The effective tax rate for the year ended December 31, 2000 was 16%,
based only on tax expense attributed to net gain from operations and
its relationship to gain from operations before taxes. The effective
rate was less than the applicable federal rate of 35% due primarily to
differences between book and tax recognition of investment income and
realized capital gains and losses and prior year adjustments.

90

NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)

Income taxes incurred in the current and prior years of $1.7 billion
are available at December 31, 2002 for recoupment in the event of
future net losses.

11. FRANK RUSSELL COMPANY ACQUISITION AND GOODWILL

The Company acquired Frank Russell Company ("Russell") effective
January 1, 1999 for a purchase price of approximately $955 million plus
contingent consideration. Russell, a global leader in multi-manger
investment services, provides investment products and services in more
than 35 countries. This investment is accounted for using the equity
method, adjusted for the charge-off of acquisition goodwill, and is
included in common stocks in the consolidated statement of financial
position. Since the date of acquisition, the Company charged-off
directly from surplus approximately $882 million, representing the
goodwill associated with the acquisition. The Company has received
permission from the OCI for this statutory accounting treatment, which
is different than the NAIC "Accounting Practices and Procedures
Manual".

The Company has unconditionally guaranteed certain debt obligations of
Russell, including $350 million of senior notes and up to $150 million
of other credit facilities.

12. CONTINGENCIES

The Company has also guaranteed certain obligations of other
affiliates. These guarantees totaled approximately $112 million at
December 31, 2002 and are generally supported by the underlying net
asset values of the affiliates. In addition, the Company routinely
makes commitments to fund mortgage loans or other investments in the
normal course of business. These commitments aggregated to $2.2 billion
at December 31, 2002 and were extended at market interest rates and
terms.

The Company is engaged in various legal actions in the normal course of
its investment and insurance operations. In the opinion of management,
losses that may result from such actions would not have a material
effect on the Company's financial position at December 31, 2002.

13. RELATED PARTY TRANSACTIONS

During 2001 and 2000, the Company transferred appreciated equity
investments to wholly-owned subsidiaries as a capital contribution to
the subsidiaries. Realized capital gains of $244 million and $220
million for 2001 and 2000, respectively, were reported based on the
fair value of the assets at transfer.

91

NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS--(CONTINUED)

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of investment assets, including derivatives, and certain
policy liabilities at December 31, 2002 and 2001 were as follows:

Fair value of bonds, common and preferred stocks and derivative
financial instruments are based upon quoted market prices, when
available. For those not actively traded, fair values are estimated
using independent pricing services or internally developed pricing
models. The fair value of mortgage loans is estimated by discounting
estimated future cash flows using market interest rates for debt with
comparable credit risk and maturities. Real estate fair value is
determined by discounting estimated future cash flows using market
interest rates. Policy loan fair value is estimated based on discounted
projected cash flows using market interest rates and assumptions
regarding future loan repayments based on Company experience. Other
investments primarily represent joint ventures and partnerships, for
which the equity method approximates fair value.

The fair value of investment-type insurance reserves is estimated by
discounting estimated future cash flows at market interest rates for
similar instruments with comparable maturities.

92

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

THE NORTHWESTERN MUTUAL
LIFE INSURANCE COMPANY
In respect of NML Variable
Annuity Account A and NML
Variable Annuity Account C
(Registrant)

By /s/ EDWARD J. ZORE
-------------------------------------
Edward J. Zore
President and Chief Executive Officer

Date: March 25, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Each of the above signatures is affixed as of March 25, 2003

*By /s/ EDWARD J. ZORE
-----------------------------------------
Edward J. Zore, Attorney in Fact,
pursuant to the Power of Attorney
attached as exhibit 24.1 hereto.

94

CERTIFICATIONS

I, Edward J. Zore, certify that:

1. I have reviewed this annual report on Form 10-K of The Northwestern
Mutual Life Insurance Company in respect of NML Variable Annuity Account A and
NML Variable Annuity Account C;

2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in
this annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

By /s/ EDWARD J. ZORE
--------------------------------------
Edward J. Zore
President and Chief Executive Officer

Date: March 25, 2003

95

I, Gary A. Poliner, certify that:

1. I have reviewed this annual report on Form 10-K of The Northwestern
Mutual Life Insurance Company in respect of NML Variable Annuity Account A and
NML Variable Annuity Account C;

2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in
this annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

By /s/ GARY A. POLINER
--------------------------------------
Gary A. Poliner
Senior Vice President and
Chief Financial Officer

Date: March 25, 2003

96

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED PURSUANT TO SECTION 12
OF THE ACT

As supplemental information, the Commission is separately being
furnished with four copies of each of the following documents: (1) 2002 Annual
Report for NML Variable Annuity Account A; and (2) 2002 Annual Report for NML
Variable Annuity Account C.

No proxy material is prepared specifically for contract holders under
NML Variable Annuity Account A or NML Variable Annuity Account C. The
Northwestern Mutual Life Insurance Company, a mutual company with no
shareholders, does prepare a proxy statement and proxy for each policyholder of
a company-issued insurance policy or annuity contract.

97

INDEX TO EXHIBITS