<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 31, 1996
FILE NO. 33-35412
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/X/
POST-EFFECTIVE AMENDMENT NO. 13
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/X/
AMENDMENT NO. 14
------------------------
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
(Exact Name of Registrant)
NORTHBROOK LIFE INSURANCE COMPANY
(Name of Depositor)
MICHAEL J. VELOTTA
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
NORTHBROOK LIFE INSURANCE COMPANY
3100 SANDERS ROAD
NORTHBROOK, ILLINOIS 60062
847/402-2400
(Name and Complete Address of Agent for Service)
------------------------
COPIES TO:
GREGOR B. MCCURDY, ESQUIRE CHRISTINE A. EDWARDS, ESQUIRE
ROUTIER AND JOHNSON, P.C. DEAN WITTER REYNOLDS INC.
1700 K STREET, N.W., SUITE 1003 TWO WORLD TRADE CENTER
WASHINGTON, D.C. 20006 NEW YORK, NEW YORK 10048
------------------------
STATEMENT PURSUANT TO RULE 24F-2
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant hereby states that, pursuant to paragraph (b)(1), it filed its Rule
24f-2 Notice for the fiscal year ending December 31, 1995 on February 28, 1996.
------------------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
___ immediately upon filing pursuant to paragraph (b) of Rule 485
_X_ on December 31, 1996 pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(i) of Rule 485
___ on (date) pursuant to paragraph (a)(i) of Rule 485
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
__ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
Showing Location in Part A (Prospectus) and Part B of Registration Statement of
Information Required by Form N-4
<TABLE>
<CAPTION>
ITEM OF
FORM N-4 PROSPECTUS CAPTION
- -------------------- ----------------------------------------------
<S> <C> <C> <C> <C>
1. Cover Page.......................................................... Cover Page
2. Definitions......................................................... Glossary
3. Synopsis............................................................ Introduction: Summary of Separate Account
Expenses
4. Condensed Financials................................................ --
(a) Chart.................................................... Condensed Financial Statements
(b) MM Yield................................................. Not Applicable
(c) Location of Others....................................... Financial Statements
5. General............................................................. --
(a) Depositor................................................ Northbrook Life Insurance Company
(b) Registrant............................................... The Variable Account
(c) Portfolio Company........................................ Dean Witter Variable Investment Series
(d) Fund Prospectus.......................................... Dean Witter Variable Investment Series
(e) Voting Rights............................................ Voting Rights
(f) Administrators........................................... Charges & Other Deductions -- Contract
Maintenance Charge
6. Deductions & Expenses............................................... Charges & Other Deductions
(a) General.................................................. Charges & Other Deductions
(b) Sales Load %............................................. Surrender Charge
(c) Special Purchase Plans................................... N/A
(d) Commissions.............................................. Sales Commission
(e) Expenses -- Registrant................................... Variable Account Expenses
(f) Fund Expenses............................................ Dean Witter Variable Investment Series
Expenses
(g) Organizational Expenses.................................. N/A
7. Contracts
(a) Persons with Rights...................................... The Contracts; Benefits; Income Payments;
Voting Rights; Assignments; Beneficiaries
Contract Owners
(b) (i) Allocation of Purchase Payments............... Allocation of Purchase Payments
(ii) Transfers..................................... Transfers
(iii) Exchanges..................................... N/A
(c) Changes.................................................. Modification
(d) Inquiries................................................ Customer Inquiries
8. Annuity Period...................................................... Income Payments
(a) Material Factors......................................... Amount of Variable Annuity Income Payments
(b) Dates.................................................... Income Starting Date
(c) Frequency, duration & level.............................. Amount of Variable Annuity Income Payments
(d) AIR...................................................... Amount of Variable Annuity Income Payments
(e) Minimum.................................................. Amount of Variable Annuity Income Payments
(f) -- Change Options........................................ Transfers
-- Transfer..............................................
9. Death Benefit....................................................... Death Benefits
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM OF
FORM N-4 PROSPECTUS CAPTION
- -------------------- ----------------------------------------------
10. Purchases & Contract Value
<S> <C> <C> <C> <C>
(a) Purchases................................................ Purchase of the Contract; Crediting of
Purchase Payments
(b) Valuation................................................ Value of Variable Account Accumulation Units
(c) Daily Calculation........................................ Value of Variable Account Accumulation Units;
Allocation of Purchase Payments
(d) Underwriter.............................................. Dean Witter Reynolds Inc.
11. Redemptions
(a) -- By Owners............................................. Surrender & Withdrawals
(b) -- By Annuitant.......................................... Annuity Options
(c) Texas ORP................................................ Not Applicable
(d) Lapse.................................................... Not Applicable
(e) Free Look................................................ Introduction
12. Taxes............................................................... Federal Tax Matters
13. Legal Proceedings................................................... N/A
14. SAI Contents........................................................ SAI Table of Contents
15. Cover Page.......................................................... Cover Page
16. Table of Contents................................................... Table of Contents
17. General Information & History
(a) Depositor's Name......................................... Northbrook Life Insurance Company
(b) Assets of Sub-Account.................................... The Variable Account
(c) Control of Depositor..................................... Northbrook Life Insurance Company
18. Services
(a) Fees & Expenses of Registrant............................ Contract Maintenance Charge
(b) Management Contracts..................................... Contract Maintenance Charge; Sales Commissions
(c) Custodian SAI: Safekeeping of the Variable Account's
Assets
Independent Public Accountant............................ SAI: Experts
(d) Assets of Registrant..................................... SAI: Safekeeping of the Variable Account
Assets
(e) Affiliated Persons....................................... N/A
(f) Principal Underwriter.................................... Dean Witter Reynolds Inc.
19. Purchase of Securities Being Offered
(a) Offering................................................. SAI: Purchase of Contracts
(b) Sales load............................................... SAI: Sales Commissions
20. Underwriters
(a) Principal Underwriter.................................... SAI: Dean Witter Reynolds Inc.
(b) Continuous offering...................................... SAI: Purchase of Contracts
(c) Commissions.............................................. SAI: Sales Commissions; Dean Witter Reynolds
Inc.
(d) Unaffiliated Underwriters................................ N/A
21. Calculation of Performance Data..................................... SAI: Performance Data
22. Annuity Payments.................................................... SAI; Income Payments
23. Financial Statements
(a) Financial Statements of Registrant....................... SAI; Northbrook Variable Annuity Account
Financial Statements
(b) Financial Statements of Depositor........................ SAI; Northbrook Life Insurance Company
Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM OF
FORM N-4 PROSPECTUS CAPTION
- -------------------- ----------------------------------------------
24a. Financial Statements................................................ Part C. Financial Statements
<S> <C> <C> <C> <C>
24b. Exhibits............................................................ Part C. Exhibits
25. Directors and Officers.............................................. Part C. Directors & Officers of Depositor
26. Persons Controlled By or Under Common Control
with Depositor or Registrant........................................ Part C. Persons Controlled by or Under Common
Control with Depositor or Registrant
27. Number of Contract Owners........................................... Part C. Number of Contract Owners
28. Indemnification..................................................... Part C. Indemnification
29a. Relationship of Principal Underwriter to Other
Investment Companies................................................ Part C. Relationship of Principal Underwriter
to Other Investment Companies
29b. Principal Underwriters.............................................. Part C. Principal Underwriters
29c. Compensation of Underwriter......................................... Part C. Compensation of Dean Witter
30. Location of Accounts and Records.................................... Part C. Location of Accounts and Records
31. Management Services................................................. Part C. Management Services
32. Undertakings........................................................ Part C. Undertakings
</TABLE>
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
of
NORTHBROOK LIFE INSURANCE COMPANY
P.O. Box 94040
Palatine, Illinois 60094-4040
GROUP AND INDIVIDUAL VARIABLE ANNUITY CONTRACTS
Distributed By
Dean Witter Reynolds Inc.
Two World Trade Center
New York, New York 10048
-------------------
This Prospectus describes the group and individual Flexible Premium Deferred
Variable Annuity Contract ("Contract") offered by Northbrook Life Insurance
Company ("Company"), a wholly owned subsidiary of Allstate Life Insurance
Company. Dean Witter Reynolds Inc. ("Dean Witter") is the principal underwriter
and distributor of the Contracts. In certain states the Contract is only
available as a group Contract. In these states a Certificate (hereinafter
referred to as "Contract") is issued to customers of Dean Witter which
summarizes the provisions of the Master Group Policy issued to Dean Witter.
The Contract has the flexibility to allow you to shape an annuity to fit your
particular needs. It is primarily designed to aid you in long-term financial
planning and can be used for retirement planning regardless of whether the plan
qualifies for special federal income tax treatment.
This Prospectus is a concise statement of the relevant information about the
Northbrook Variable Annuity Account II ("Variable Account") which you should
know before making a decision to purchase the Contract. This Prospectus
generally describes only the variable portion of the Contract. For a brief
summary of the fixed portion of the Contract, see "The Fixed Account" on page
19.
The Variable Account invests exclusively in shares of the Dean Witter Variable
Investment Series (the "Fund"), a mutual fund managed by Dean Witter
InterCapital Inc., a wholly owned subsidiary of Dean Witter, Discover & Co.
The Company has prepared and filed a Statement of Additional Information dated
December 31, 1996, with the U.S. Securities and Exchange Commission. If you wish
to receive the Statement of Additional Information, you may obtain a free copy
by calling or writing the Company at the address below. For your convenience, an
order form for the Statement of Additional Information may be found on page 25
of this Prospectus. Before ordering, you may wish to review the Table of
Contents of the Statement of Additional Information on page 24 of this
Prospectus. The Statement of Additional Information has been incorporated by
reference into this Prospectus.
Northbrook Life Insurance Company
P.O. Box 94040
Palatine, Illinois 60094-4040
(800) 654-2397
This Prospectus is Valid Only When Accompanied
or Preceded By A Current Prospectus For The
Dean Witter Variable Investment Series
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE
The Date of This Prospectus is December 31, 1996.
<PAGE>
The Contracts are available in all states (except New York), Puerto Rico and the
District of Columbia.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
TABLE OF CONTENTS
Glossary.................................................... 3
Introduction................................................ 5
Summary of Separate Account Expenses........................ 7
Condensed Financial Information............................. 9
Performance Data............................................ 11
Financial Statements........................................ 11
Northbrook Life Insurance Company and the Variable
Account.................................................... 11
Northbrook Life Insurance Company......................... 11
Dean Witter Reynolds Inc.................................. 11
The Variable Account...................................... 12
Dean Witter Variable Investment Series.................... 12
The Contracts............................................... 13
Purchase of the Contracts................................. 13
Crediting of Initial Purchase Payments.................... 13
Allocation of Purchase Payments........................... 13
Value of Variable Account Accumulation Units.............. 14
Transfers................................................. 14
Surrender and Withdrawals................................. 15
Default................................................... 15
Charges and Other Deductions................................ 15
Deductions from Purchase Payments......................... 15
Early Withdrawal Charge................................... 15
Contract Maintenance Charge............................... 16
Administrative Expense Charge............................. 16
Mortality and Expense Risk Charge......................... 16
Taxes..................................................... 17
Dean Witter Variable Investment Series Expenses........... 17
Benefits Under the Contract................................. 17
Death Benefits Prior to the Payout Start Date............. 17
Death Benefits After the Payout Start Date................ 18
Income Payments............................................. 18
Payout Start Date......................................... 18
Amount of Variable Annuity Income Payments................ 18
Income Plans.............................................. 19
The Fixed Account........................................... 19
General Description....................................... 20
Transfers, Surrenders, and Withdrawals.................... 20
General Matters............................................. 20
Owner..................................................... 20
Beneficiary............................................... 20
Delay of Payments......................................... 21
Assignments............................................... 21
Modification.............................................. 21
Customer Inquiries........................................ 21
Federal Tax Matters......................................... 21
Introduction.............................................. 21
Taxation of Annuities in General.......................... 21
Tax Deferral............................................ 21
Non-Natural Owners...................................... 21
Diversification Requirements............................ 21
Investor Control........................................ 22
Taxation of Partial and Full Withdrawals................ 22
Taxation of Annuity Payments............................ 22
Taxation of Annuity Death Benefits...................... 22
Penalty Tax on Premature Distributions.................. 22
Aggregation of Annuity Contracts........................ 22
Tax Qualified Contracts................................... 22
Restrictions Under Section 403(b) Plans................. 22
Income Tax Withholding.................................... 22
Voting Rights............................................... 23
Sales Commission............................................ 23
Statement of Additional Information: Table of Contents...... 24
Order Form.................................................. 25
2
<PAGE>
GLOSSARY
- -----------------------------------------------------------
ACCUMULATION UNIT--An accounting unit used to calculate the Cash Value in
the Variable Account prior to the Payout Start Date. Each Sub-Account of the
Variable Account has its own distinct Accumulation Unit value.
AGE--Age on last birthday.
ANNUITANT--Includes Annuitant and any Joint Annuitant. A natural person(s)
whose life determines the duration of annuity payments involving life
contingencies.
ANNUITY UNIT--An accounting unit used to calculate Variable Annuity
payments. Each Sub-Account has a distinct Annuity Unit value.
AUTOMATIC ADDITIONS--Additional Purchase Payments of $25 or more which are
made automatically from the Owner's bank account or Dean Witter Active
Assets-TM- Account.
BENEFICIARY--The person(s) designated in the Contract who, after the death
of any Owner or last surviving annuitant, may elect to receive the Death Benefit
or continue the Contract as described in "Benefits Under the Contract" on page
17.
CASH VALUE--The sum of the value of all Accumulation Units for the Variable
Account plus the value in the Fixed Account.
COMPANY--The issuer of the Contract, Northbrook Life Insurance Company,
which is a wholly owned subsidiary of Allstate Life Insurance Company.
CONTRACT/CERTIFICATE--The Flexible Premium Deferred Variable Annuity
Contract known as the "Northbrook Variable Annuity II" that is described in this
prospectus.
CONTRACT ANNIVERSARY--An anniversary of the date that the Contract was
issued to the Owner.
CONTRACT YEAR--The year commencing on either the Issue Date or a Contract
Anniversary.
DATE OF DEATH--The Date that an Owner and/or Annuitant dies causing a Death
Benefit to be due.
DEATH BENEFIT--Prior to the Payout Start Date, the amount payable on the
death of the Owner or Annuitant.
DEATH BENEFIT ANNIVERSARY--Every sixth Contract Anniversary. For example,
the 6th, 12th and 18th Contract Anniversaries are the first three Death Benefit
Anniversaries.
DOLLAR COST AVERAGING--A method to transfer $100 or more of the Cash Value
in the Money Market Sub-Account automatically to the other Sub-Accounts on a
monthly basis or other frequencies that may be offered by the Company.
DUE PROOF OF DEATH--One of the following:
(a) A copy of a certified death certificate.
(b) A copy of a certified decree of a court of competent jurisdiction as
to the finding of death.
(c) Any other proof satisfactory to the Company.
EARLY WITHDRAWAL CHARGE--The charge that may be assessed by the Company on
full or partial withdrawals of the Purchase Payments in excess of the Free
Withdrawal Amount.
ENHANCED DEATH BENEFIT--An additional Death Benefit option which can be
selected at the time the Contract is Purchased.
FIXED ACCOUNT--All of the assets of the Company that are not in separate
accounts. Contributions made to the Fixed Account are invested in the general
account of the Company.
FIXED ANNUITY--An annuity with payments having a guaranteed amount.
FREE WITHDRAWAL AMOUNT--A portion of the Cash Value which may be annually
withdrawn during the course of the Contract Year without incurring an Early
Withdrawal Charge, i.e., 15% of all Purchase Payments.
FUND--The Dean Witter Variable Investment Series.
GUARANTEE PERIOD--The period of time for which a credited rate on an
allocation or transfer to the Fixed Account is guaranteed.
INCOME PAYMENTS--A series of periodic annuity payments made by the Company
to the Owner or Beneficiary.
3
<PAGE>
INVESTMENT ALTERNATIVE--The Fixed Account and the thirteen Sub-Accounts of
the Variable Account constitute the fourteen Investment Alternatives.
JOINT ANNUITANT--The person, along with the Annuitant, whose life determines
the duration of annuity payments under a joint and last survivor annuity.
NET INVESTMENT FACTOR--The factor for a particular Sub-Account used to
determine the value of an Accumulation Unit and Annuity Unit in any Valuation
Period.
NON-QUALIFIED CONTRACTS--Contracts that do not qualify for special federal
income tax treatment.
OWNER--With respect to individual Contracts, the person or person(s)
designated as the Owner(s) in the Contract. With respect to group Contracts, an
individual participant(s) under the Contract.
PAYOUT START DATE--The date Income Payments are to begin under the Contract.
PORTFOLIOS--The mutual fund portfolios of The Dean Witter Variable
Investment Series. The Dean Witter Variable Investment Series has thirteen
separate Portfolios: the Money Market Portfolio, the Quality Income Plus
Portfolio, the High Yield Portfolio, the Utilities Portfolio, the Income Builder
Portfolio, the Dividend Growth Portfolio, the Capital Growth Portfolio, the
Global Dividend Growth Portfolio, the European Growth Portfolio, the Pacific
Growth Portfolio, the Capital Appreciation Portfolio, the Equity Portfolio and
the Strategist Portfolio.
PURCHASE PAYMENTS--The premiums paid by the Owner to the Company.
QUALIFIED CONTRACTS--Contracts issued under plans that qualify for special
federal income tax treatment.
REQUIRED MINIMUM DISTRIBUTION--For Qualified Contracts, partial withdrawals
equal to the IRS Required Minimum Distribution may be taken from the Cash Value
and sent to the Owner or deposited in the Owner's bank account or Dean Witter
Active Assets-TM- Account.
SETTLEMENT VALUE--The Cash Value less any applicable Early Withdrawal
Charges and premium tax. The Settlement Value will be calculated at the end of
the valuation period coinciding with a request for payment.
SUB-ACCOUNT--A sub-division of the Variable Account. Each Sub-Account
invests exclusively in shares of a specified Portfolio.
SYSTEMATIC WITHDRAWALS--Partial withdrawals of $100 or more may be taken
from the Cash Value and deposited in the Owner's bank account or Dean Witter
Active Assets-TM- Account or sent directly to the Owner.
VALUATION DATE--Each day that the New York Stock Exchange is open for
business, except for days in which there is an insufficient degree of trading in
the Variable Account's portfolio securities that the value of Accumulation or
Annuity Units might not be materially affected by changes in the value of the
portfolio securities. The Valuation Date does not include such Federal and
non-Federal holidays as are observed by the New York Stock Exchange.
VALUATION PERIOD--The period between successive Valuation Dates, commencing
on the close of business of each Valuation Date and ending at the close of
business of the next succeeding Valuation Date.
VARIABLE ACCOUNT--Northbrook Variable Annuity Account II, a separate
investment account established by the Company to receive and invest the Purchase
Payments paid under the Contracts.
VARIABLE ANNUITY--An annuity with payments that have no predetermined or
guaranteed dollar amounts. The payments will vary in amounts depending upon the
investment experience of one or more of the Portfolios.
4
<PAGE>
INTRODUCTION
- -----------------------------------------------------------
1. What is the purpose of the Contract?
The Contracts described in this Prospectus seek to allow you to accumulate funds
and to receive annuity payments ("Income Payments"), when desired, at rates
which depend upon the return achieved from the types of investments chosen.
THERE IS NO ASSURANCE THAT THIS GOAL WILL BE ACHIEVED. In attempting to achieve
this goal, the Owner can allocate Purchase Payments to one or more of the
Variable Account Portfolios. (Certain limitations may apply during the free-look
period of your Contract. See "Allocation of Purchase Payments," page 13.)
Because Income Payments and Cash Values invested in the Variable Account depend
on the investment experience of the selected Portfolios, the Owner bears the
entire investment risk for amounts allocated to the Variable Account. See "Value
of Variable Account Accumulation Units," page 14 and "Income Payments," page 18.
2. How do I purchase a Contract?
You may purchase the Contract from Dean Witter, the Company's authorized sales
representative. The first Purchase Payment must be at least $4,000 (for
Qualified Contracts, $1,000). Presently, the Company will accept an initial
Purchase Payment of at least $1,000, but reserves the right to increase the
minimum initial Purchase Payment amount to $4,000. See "Purchase of the
Contracts," page 13.
At the time of purchase, you will allocate your Purchase Payment among the
Investment Alternatives, subject to certain limitations described in the
"Allocation of Purchase Payments" section on page 13. All allocations must be in
whole percents from 0% to 100% and must total 100%. Allocations of amounts of no
less than $100 may also be made. Allocations may be changed by notifying the
Company in writing. See "Allocation of Purchase Payments," page 13.
3. What types of investments underlie the Variable Account?
The Variable Account invests exclusively in shares of the Dean Witter Variable
Investment Series (the "Fund"), a mutual fund managed by Dean Witter
InterCapital Inc., a wholly owned subsidiary of Dean Witter, Discover & Co. The
Fund has thirteen Portfolios: the Money Market Portfolio, the Quality Income
Plus Portfolio, the High Yield Portfolio, the Utilities Portfolio, the Income
Builder Portfolio, the Dividend Growth Portfolio, the Capital Growth Portfolio,
the Global Dividend Growth Portfolio, the European Growth Portfolio, the Pacific
Growth Portfolio, the Capital Appreciation Portfolio, the Equity Portfolio and
the Strategist Portfolio. The assets of each Portfolio are held separately from
the other Portfolios and each has distinct investment objectives and policies
which are described in the accompanying Prospectus for the Fund. In addition to
the Variable Account, Owners can also allocate all or part of their Purchase
Payments to the Fixed Account. See "The Fixed Account," on page 19.
4. Can I transfer amounts among the Investment Alternatives?
Transfers must be at least $100 or the entire amount in the Investment
Alternative, whichever is less. Transfers to any Guarantee Period of the Fixed
Account must be at least $500. Dollar Cost Averaging automatically moves funds
on a monthly basis (or other frequencies that may be offered by the Company)
from the Money Market Sub-Account to other Sub-Accounts of your choice. Certain
transfers may be restricted. See "Transfers," page 14.
5. Can I get my money if I need it?
All or part of the Settlement Value can be withdrawn before the earliest of the
Payout Start Date, the death of an Owner or the death of the last surviving
Annuitant. No Early Withdrawal Charges will be deducted on amounts up to the
annual Free Withdrawal Amount, i.e., 15% of Purchase Payments made. Amounts
withdrawn in excess of the Free Withdrawal Amount may be subject to an Early
Withdrawal Charge of 0% to 6% depending on how long the withdrawn Purchase
Payments have been invested in the Contract. THE COMPANY GUARANTEES THAT THE
AGGREGATE SURRENDER CHARGES WILL NEVER EXCEED 6% OF THE PURCHASE PAYMENTS.
Withdrawals and surrenders may be subject to income tax and a 10% tax penalty.
In addition, federal and state income tax may be withheld from withdrawal and
surrender amounts. Additional restrictions may apply to Qualified Contracts. See
"Surrender and Withdrawals," page 15, and "Taxation of Annuities in General,"
page 21.
6. What are the charges and deductions under the Contract?
To meet its Death Benefit obligations and to pay expenses not covered by the
Contract Maintenance Charge, the Company deducts a Mortality and Expense Risk
Charge of 1.25% and an Administrative Expense Charge of .10%. For Contracts with
the optional Enhanced Death Benefit provision, an additional Mortality and
Expense Risk Charge of .13% is assessed bringing the total charges for Contracts
with
5
<PAGE>
the Enhanced Death Benefit provision to a Mortality and Expense Risk Charge of
1.38% and an Administrative Expense Risk Charge of .10%. See "Mortality and
Expense Risk Charge," page 16 and "Administrative Expense Charge," page 16.
Annually, the Company deducts $30 for maintaining the Contract. See "Contract
Maintenance Charge," page 16. Additional deductions may be made for certain
taxes. See "Taxes," page 17.
7. Does the Contract pay any guaranteed Death Benefits?
The Contracts provide that if any Owner or the last surviving Annuitant dies
prior to the Payout Start Date, a Death Benefit may be paid to the new Owner or
Beneficiary. If the Annuitant, not also an Owner dies, then the Death Benefit
may be paid to the Owner in a lump sum. If requested to be paid in a lump sum
within 180 days from the Date of Death, the Death Benefit will be the greatest
of (1) the sum of all Purchase Payments less any amounts deducted in connection
with partial withdrawals including any Early Withdrawal Charges and premium tax;
or (2) the Cash Value on the date we receive Due Proof of Death; or (3) the Cash
Value on the most recent Death Benefit Anniversary less any amounts deducted in
connection with partial withdrawals, including any Early Withdrawal Charges and
premium tax deducted from the Cash Value since that anniversary. For Contracts
with the optional Enhanced Death Benefit provision, the Death Benefit will be
the greatest of (1) through (3) above, or (4) the Enhanced Death Benefit. If the
Enhanced Death Benefit option is selected, it applies only at the death of the
Owner. It does not apply to the death of the Annuitant if different from the
Owner unless the Owner is a non-natural person. See "Death Benefits Prior to the
Payout Start Date," page 17, for a full description of Death Benefit options.
Prior to the Payout Start Date the Beneficiary has 180 days from the Date of
Death of the Owner(s) or Annuitant(s) to either elect an income plan or to take
a lump sum payment. Death Benefits after the Payout Start Date, if any, will
depend on the income plan chosen. See "Benefits Under the Contract," page 17.
8. Is there a free-look provision?
The Owner(s) may cancel the Contract anytime within 20 days after receipt of the
Contract, or longer if required by State law, and receive a full refund of
Purchase Payments allocated to the Fixed Account. Unless a refund of Purchase
Payments is required by State or Federal law, Purchase Payments allocated to the
Variable Account will be returned after an adjustment to reflect investment gain
or loss, less any applicable Contract expenses that occurred from the date of
allocation through the date of cancellation.
6
<PAGE>
SUMMARY OF SEPARATE ACCOUNT EXPENSES
- -----------------------------------------------------------
The following fee table illustrates all expenses and fees that the Owner will
incur. The expenses and fees set forth in the table are based on charges under
the contracts and on the expenses of the separate account and the underlying
Fund for the fiscal year ended December 31, 1995.
Owner Transaction Expenses (all Sub-Accounts)
<TABLE>
<S> <C>
Sales Load Imposed on Purchases (as a percentage of Purchase Payments).............................. None
Early withdrawal charge (as a percentage of Purchase Payments)...................................... *
</TABLE>
<TABLE>
<CAPTION>
APPLICABLE SALES
CHARGE
NUMBER OF COMPLETE CONTRACT YEARS SINCE PURCHASE PAYMENT BEING WITHDRAWN WAS MADE PERCENTAGE
- -------------------------------------------------------------------------------------------------------------- ----------------
<S> <C>
0 years....................................................................................................... 6%
1 year........................................................................................................ 5%
2 years....................................................................................................... 4%
3 years....................................................................................................... 3%
4 years....................................................................................................... 2%
5 years....................................................................................................... 1%
6 years or more............................................................................................... 0%
</TABLE>
<TABLE>
<S> <C>
Exchange Fee........................................................................................ None
Annual Contract Fee................................................................................. $ 30
</TABLE>
Separate Account Annual Expenses (as a percentage of average account value)
<TABLE>
<S> <C>
Mortality and Expense Risk Charge................................................................ 1.38%**
Administrative Expense Charge.................................................................... .10%
Total Separate Account Annual Expenses........................................................... 1.48%**
- ------------------------
*There are no Contingent Deferred Sales Charges on amounts up to the Free Withdrawal Amount.
**For Contracts without an Enhanced Death Benefit provision, the Mortality and Expense Risk
Charge is 1.25% resulting in total Separate Account Annual Expenses of 1.35%.
</TABLE>
Dean Witter Variable Investment Series ("Fund") Expenses
(as a percentage of Fund average assets)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT OTHER ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
- ---------------------------------------- ---------- -------- --------------
<S> <C> <C> <C>
Money Market............................ .50 % .03% .53%
Quality Income Plus..................... .50 %(1) .04% .54%
High Yield.............................. .50 % .04% .54%
Utilities............................... .65 %(2) .03% .68%
Income Builder(5)....................... .75 % .07% .82%
Dividend Growth......................... .59 %(3) .02% .61%
Capital Growth.......................... .65 % .09% .74%
Global Dividend Growth.................. .75 % .13% .88%
European Growth......................... 1.00 % .17% 1.17%
Pacific Growth.......................... 1.00 % .44% 1.44%
Capital Appreciation(5)................. .75 % .07% .82%
Equity.................................. .50 %(4) .04% .54%
Strategist.............................. .50 % .02% .52%
</TABLE>
- ------------------------
(1) This percentage is applicable to Portfolio net assets of up to $500
million. For net assets which exceed $500 million, the management fee will
be 0.45%.
(2) This percentage is applicable to Portfolio net assets of up to $500
million. For net assets which exceed $500 million, the management fee will
be 0.55%.
(3) The management fee will be 0.625% for net assets of up to $500 million. For
net assets which exceed $500 million, but do not exceed $1 billion, the
management fee will be 0.50% and for net assets that exceed $1 billion, the
management fee will be 0.475%.
(4) This percentage is applicable to Portfolio net assets of up to $1 billion.
For net assets which exceed $1 billion, the management fee will be 0.475%.
(5) The Income Builder Portfolio and the Capital Appreciation Portfolio are
anticipated to commence operations on January 21, 1997. Dean Witter
InterCapital Inc. has undertaken to assume all expenses for both the Income
Builder Portfolio and the Capital Appreciation Portfolio until such time as
the pertinent Portfolio has $50 million of net assets or until six months
from the date of the Portfolio's commencement of operations, whichever
occurs first.
7
<PAGE>
Example
You (the Owner) would pay the following expenses on a $1,000 investment,
assuming a 5% annual return under the following circumstances:
If you surrender your Conract at the end of the applicable time period (or if
you annuitize for a specified period of less than 120 months):
<TABLE>
<CAPTION>
(WITH ENHANCED DEATH BENEFIT PROVISION**) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Sub-Account.......................... $64 $91 $121 $241
Quality Income Plus Sub-Account................... $64 $91 $121 $242
High Yield Sub-Account............................ $64 $91 $121 $242
Utilities Sub-Account............................. $65 $96 $129 $257
Income Builder Sub-Account........................ $67 $100 $136 $271
Dividend Growth Sub-Account....................... $65 $93 $125 $250
Capital Growth Sub-Account........................ $66 $97 $132 $263
Global Dividend Growth Sub-Account................ $67 $102 $139 $278
European Growth Sub-Account....................... $70 $111 $154 $307
Pacific Growth Sub-Account........................ $73 $119 $167 $333
Capital Appreciation Sub-Account.................. $67 $100 $136 $271
Equity Sub-Account................................ $64 $91 $121 $242
Strategist Sub-Account............................ $64 $91 $120 $240
<CAPTION>
(WITHOUT ENHANCED DEATH BENEFIT PROVISION***) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Sub-Account.......................... $62 $87 $114 $227
Quality Income Plus Sub-Account................... $63 $87 $115 $228
High Yield Sub-Account............................ $63 $87 $115 $228
Utilities Sub-Account............................. $64 $92 $122 $243
Income Builder Sub-Account........................ $65 $96 $129 $258
Dividend Growth Sub-Account....................... $63 $89 $118 $236
Capital Growth Sub-Account........................ $65 $93 $125 $250
Global Dividend Growth Sub-Account................ $66 $98 $132 $264
European Growth Sub-Account....................... $69 $107 $147 $294
Pacific Growth Sub-Account........................ $72 $115 $161 $321
Capital Appreciation Sub-Account.................. $65 $96 $129 $258
Equity Sub-Account................................ $63 $87 $115 $228
Strategist Sub-Account............................ $62 $87 $113 $226
</TABLE>
If you do not surrender your contract or if you annuitize* for a specified
period of 120 months or more, at the end of the applicable time period:
<TABLE>
<CAPTION>
(WITH ENHANCED DEATH BENEFIT PROVISION**) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Sub-Account.......................... $21 $66 $112 $241
Quality income Plus Sub-Account................... $21 $66 $113 $242
High Yield Sub-Account............................ $21 $66 $113 $242
Utilities Sub-Account............................. $23 $70 $120 $257
Income Builder Sub-Account........................ $24 $74 $127 $271
Dividend Growth Sub-Account....................... $22 $72 $123 $263
Capital Growth Sub-Account........................ $23 $72 $123 $263
Global Dividend Growth Sub-Account................ $25 $76 $130 $278
European Growth Sub-Account....................... $28 $85 $145 $307
Pacific Growth Sub-Account........................ $31 $93 $159 $333
Capital Appreciation Sub-Account.................. $24 $74 $127 $271
Equity Sub-Account................................ $21 $66 $113 $242
Strategist Sub-Account............................ $21 $65 $112 $240
<CAPTION>
(WITHOUT ENHANCED DEATH BENEFIT PROVISION***) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Sub-Account.......................... $20 $61 $105 $227
Quality Income Plus Sub-Account................... $20 $62 $106 $228
High Yield Sub-Account............................ $20 $62 $106 $228
Utilities Sub-Account............................. $21 $66 $113 $243
Income Builder Sub-Account........................ $23 $70 $121 $258
Dividend Growth Sub-Account....................... $21 $64 $110 $236
Capital Growth Sub-Account........................ $22 $68 $116 $250
Global Dividend Growth Sub-Account................ $23 $72 $124 $264
European Growth Sub-Account....................... $26 $81 $139 $294
Pacific Growth Sub-Account........................ $29 $89 $152 $321
Capital Appreciation Sub-Account.................. $23 $70 $121 $258
Equity Sub-Account................................ $20 $62 $106 $228
Strategist Sub-Account............................ $20 $61 $105 $226
</TABLE>
The above example should not be considered a representation of past or future
expense. Actual expenses may be greater or lesser than those shown. The purpose
of the example is to assist you in understanding the various costs and expenses
that you will bear directly or indirectly. Premium taxes are not reflected in
the example but may be applicable.
- --------------------------
*Early Withdrawal Charges may be deducted from the Cash Value before it is
applied to an income plan with a specified period of less than 120 months.
**Total Separate Account Annual Expenses of 1.48%
***Total Separate Account Annual Expenses of 1.35%
8
<PAGE>
CONDENSED FINANCIAL INFORMATION
- -----------------------------------------------------------
Accumulation Unit Values and Number
of Accumulation Units Outstanding for
Each Sub-Account since Inception*
<TABLE>
<CAPTION>
FOR THE YEARS
BEGINNING JANUARY 1 AND
ENDING DECEMBER 31
-----------------------------------------------------------------
1990 1991 1992 1993 1994 1995
------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
MONEY MARKET SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.... $10.000 $10.111 $10.549 $10.765 $10.913 $11.178
Accumulation Unit Value, End of Period.......... $10.111 $10.549 $10.765 $10.913 $11.178 $11.653
Number of Units Outstanding, End of Period...... 345,667 1,864,548 3,481,984 7,643,579 19,047,342 17,483,665
QUALITY INCOME PLUS SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.... $10.000 $10.403 $12.163 $12.993 $14.487 $13.344
Accumulation Unit Value, End of Period.......... $10.403 $12.163 $12.993 $14.487 $13.344 $16.373
Number of Units Outstanding, End of Period...... 175,839 1,221,348 6,701,534 26,314,453 25,348,646 26,735,500
HIGH YIELD SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.... $10.000 $8.932 $13.982 $16.336 $20.022 $19.264
Accumulation Unit Value, End of Period.......... $8.932 $13.982 $16.336 $20.022 $19.264 $21.859
Number of Units Outstanding, End of Period...... 1,574 64,097 377,434 2,451,231 4,082,485 5,536,230
UTILITIES SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.... $10.000 $10.471 $12.454 $13.840 $15.798 $14.180
Accumulation Unit Value, End of Period.......... $10.471 $12.454 $13.840 $15.798 $14.180 $17.999
Number of Units Outstanding, End of Period...... 130,114 1,615,460 6,626,508 25,354,331 22,552,568 22,626,178
INCOME BUILDER SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.... -- -- -- -- -- --
Accumulation Unit Value, End of Period.......... -- -- -- -- -- --
Number of Units Outstanding, End of Period...... -- -- -- -- -- --
DIVIDEND GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.... $10.000 $11.037 $13.911 $14.844 $16.746 $15.981
Accumulation Unit Value, End of Period.......... $11.037 $13.911 $14.844 $16.746 $15.981 $21.505
Number of Units Outstanding, End of Period...... 159,555 2,004,718 7,123,073 21,941,369 28,980,558 33,515,201
CAPITAL GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.... -- $10.000 $12.697 $12.731 $11.682 $11.379
Accumulation Unit Value, End of Period.......... -- $12.697 $12.731 $11.682 $11.379 $14.923
Number of Units Outstanding, End of Period...... -- 901,617 2,655,336 3,556,779 3,411,788 3,917,752
GLOBAL DIVIDEND GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.... -- -- -- -- $10.000 $9.912
Accumulation Unit Value, End of Period.......... -- -- -- -- $9.912 $11.935
Number of Units Outstanding, End of Period...... -- -- -- -- 12,306,690 15,325,898
EUROPEAN GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.... -- $10.000 $10.020 $10.280 $14.290 $15.278
Accumulation Unit Value, End of Period.......... -- $10.020 $10.280 $14.290 $15.278 $18.976
Number of Units Outstanding, End of Period...... -- 248,922 719,495 4,448,126 8,491,681 8,587,679
PACIFIC GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.... -- -- -- -- $10.000 $9.221
Accumulation Unit Value, End of Period.......... -- -- -- -- $9.221 $9.619
Number of Units Outstanding, End of Period...... -- -- -- -- 7,080,863 8,865,898
CAPITAL APPRECIATION SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.... -- -- -- -- -- --
Accumulation Unit Value, End of Period.......... -- -- -- -- -- --
Number of Units Outstanding, End of Period...... -- -- -- -- -- --
EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.... $10.000 $10.706 $16.799 $16.599 $19.604 $18.392
Accumulation Unit Value, End of Period.......... $10.706 $16.799 $16.599 $19.604 $18.392 $25.864
Number of Units Outstanding, End of Period...... 15,701 369,133 1,417,732 5,917,819 8,914,107 10,835,413
STRATEGIST SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.... $10.000 $10.483 $13.266 $14.035 $15.286 $15.675
Accumulation Unit Value, End of Period.......... $10.483 $13.266 $14.035 $15.286 $15.675 $16.919
Number of Units Outstanding, End of Period...... 5,854 778,440 3,385,842 11,837,077 18,218,900 17,717,645
</TABLE>
- --------------------------
* The Money Market, Quality Income Plus, High Yield, Utilities, Dividend
Growth, Equity and Strategist Sub-Accounts commenced operations on October
25, 1990. The Capital Growth and European Growth Sub-Accounts commenced
operations on March 1, 1991. The Global Dividend Growth and Pacific Growth
Sub-Accounts commenced operations on February 23, 1994. The Income Builder
and the Capital Appreciation Sub-Accounts are anticipated to commence
operations on January 21, 1997 and are anticipated to have Accumulation Unit
Values initially set at $10.000. The Accumulation Unit Value for each of
these Sub-Accounts was initially set at $10.000. The Accumulation Unit Values
in this table reflect a Mortality and Expense Risk Charge of 1.25% and an
Administrative Expense charge of .10%.
9
<PAGE>
Accumulation Unit Values and Number
of Accumulation Units Outstanding for
Each Sub-Account since Inception
for Contracts with the Enhanced Death Benefit Provision*
<TABLE>
<CAPTION>
1995
-------
<S> <C>
MONEY MARKET SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period........................ $11.579
Accumulation Unit Value, End of Period.............................. $11.651
Number of Units Outstanding, End of Period.......................... 511,096
QUALITY INCOME PLUS SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period........................ $15.746
Accumulation Unit Value, End of Period.............................. $16.370
Number of Units Outstanding, End of Period.......................... 142,004
HIGH YIELD SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period........................ $21.462
Accumulation Unit Value, End of Period.............................. $21.855
Number of Units Outstanding, End of Period.......................... 66,987
UTILITIES SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period........................ $16.972
Accumulation Unit Value, End of Period.............................. $17.995
Number of Units Outstanding, End of Period.......................... 165,046
INCOME BUILDER SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period........................ --
Accumulation Unit Value, End of Period.............................. --
Number of Units Outstanding, End of Period.......................... --
DIVIDEND GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period........................ $20.068
Accumulation Unit Value, End of Period.............................. $21.500
Number of Units Outstanding, End of Period.......................... 366,928
CAPITAL GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period........................ $13.895
Accumulation Unit Value, End of Period.............................. $14.920
Number of Units Outstanding, End of Period.......................... 36,005
GLOBAL DIVIDEND SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period........................ $11.250
Accumulation Unit Value, End of Period.............................. $11.932
Number of Units Outstanding, End of Period.......................... 155,023
EUROPEAN GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period........................ $18.486
Accumulation Unit Value, End of Period.............................. $18.972
Number of Units Outstanding, End of Period.......................... 62,011
PACIFIC GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period........................ $ 9.352
Accumulation Unit Value, End of Period.............................. $ 9.617
Number of Units Outstanding, End of Period.......................... 97,952
CAPITAL APPRECIATION SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period........................ --
Accumulation Unit Value, End of Period.............................. --
Number of Units Outstanding, End of Period.......................... --
EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period........................ $24.677
Accumulation Unit Value, End of Period.............................. $25.858
Number of Units Outstanding, End of Period.......................... 215,961
STRATEGIST SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period........................ $16.490
Accumulation Unit Value, End of Period.............................. $16.915
Number of Units Outstanding, End of Period.......................... 91,983
</TABLE>
- --------------------------
* All of the above sub-accounts commenced operation on October 30, 1995, except
the Income Builder Sub-Account and the Capital Appreciation Sub-Account are
anticipated to commence operations on January 21, 1997. The accumulation unit
values in this table reflect a Mortality and Expense Risk Charge of 1.38% and
an Administrative Expense Charge of .10%. The additional .13% Mortality and
Expense Risk Charge is applicable to Contract Owners who selected the
Enhanced Death Benefit provision.
10
<PAGE>
PERFORMANCE DATA
- -----------------------------------------------------------
From time to time the Variable Account may publish advertisements containing
performance data relating to its Sub-Accounts. The performance data for the
Sub-Accounts (other than for the Money Market Sub-Account) will always be
accompanied by total return quotations for the most recent one, five and ten
year periods, or for a period from inception to date if the Sub-Account has not
been available for one of the prescribed periods. The total return quotations
for each period will be the average annual rates of return required for an
initial Purchase Payment of $1,000 to equal the amount Owners would receive on a
withdrawal of the Purchase Payment, after reflection of all recurring and
nonrecurring charges.
In addition, the Variable Account may advertise the total return over different
periods of time by means of aggregate, average, year-by-year or other types of
total return figures. Such calculations may or may not reflect the deduction of
some or all of the charges which may be imposed on the Contracts by the Variable
Account which, if reflected, would reduce the performance quoted. The Variable
Account from time to time may also advertise the performance of the Sub-Accounts
relative to certain performance rankings and indexes compiled by independent
organizations.
Performance figures used by the Variable Account are based on actual historical
performance of its Sub-Accounts for specified periods, and the figures are not
intended to indicate future performance. More detailed information on the
computation is set forth in the Statement of Additional Information.
FINANCIAL STATEMENTS
- -----------------------------------------------------------
The financial statements of the Northbrook Variable Annuity Account II and
Northbrook Life Insurance Company may be found in the Statement of Additional
Information, which is incorporated by reference into this Prospectus and which
is available upon request. (See Order Form on page 25.)
NORTHBROOK LIFE INSURANCE COMPANY AND THE VARIABLE ACCOUNT
- -----------------------------------------------------------
NORTHBROOK LIFE INSURANCE COMPANY
The Company is the issuer of the Contract. Incorporated in 1978 as a stock life
insurance company under the laws of Illinois, the Company sells annuities and
individual life insurance. The Company is currently licensed to operate in the
District of Columbia, all states (except New York) and Puerto Rico. The
Company's home office is located at 3100 Sanders Road, Northbrook, Illinois,
60062.
The Company is a wholly owned subsidiary of Allstate Life
Insurance Company ("Allstate Life"), which is a stock life insurance company
incorporated under the laws of Illinois. Allstate Life is a wholly owned
subsidiary of Allstate Insurance Company ("Allstate"), which is a stock
property-liability insurance company incorporated under the laws of Illinois.
All of the outstanding capital stock of Allstate is owned by The Allstate
Corporation ("Corporation"). In June 1995, Sears, Roebuck and Co. ("Sears")
distributed in a tax-free dividend to its stockholders its remaining 80.3%
ownership in the Corporation. As a result of the distribution, Sears no longer
has an ownership interest in the Corporation.
DEAN WITTER REYNOLDS INC.
Dean Witter Reynolds Inc. ("Dean Witter") is the principal underwriter of the
Contract. Dean Witter is a wholly owned subsidiary of Dean Witter, Discover &
Co. ("Dean Witter Discover"). Dean Witter is located at Two World Trade Center,
New York, New York, 10048. Dean Witter is a member of the New York Stock
Exchange and the National Association of Securities Dealers, Inc.
Dean Witter Discover's wholly owned subsidiary, Dean Witter InterCapital Inc.
("InterCapital"), is the investment manager of the Dean Witter Variable
Investment Series. InterCapital is registered with the Securities and Exchange
Commission as an investment adviser. As compensation for investment management,
the
11
<PAGE>
Fund pays InterCapital a monthly advisory fee. These expenses are more fully
described in the Fund's Prospectus attached to this Prospectus.
In October, 1993, Allstate, through Allstate Life and the Company, announced a
strategic alliance to develop, market and distribute proprietary annuity and
life insurance products through Dean Witter account executives.
THE VARIABLE ACCOUNT
Established on May 18, 1990, the Variable Account is a unit investment trust
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940, but such registration does not signify that the Commission
supervises the management or investment practices or policies of the Variable
Account. The investment performance of the Variable Account is entirely
independent of both the investment performance of the Company's general account
and the performance of any other separate account.
The assets of the Variable Account are held separately from the other assets of
the Company. They are not chargeable with liabilities incurred in the Company's
other business operations. Accordingly, the income, capital gains and capital
losses, realized or unrealized, incurred on the assets of the Variable Account
are credited to or charged against the assets of the Variable Account, without
regard to the income, capital gains or capital losses arising out of any other
business the Company may conduct.
The Variable Account has been divided into thirteen Sub-Accounts, each of which
invests solely in its corresponding Portfolio of the Dean Witter Variable
Investment Series. Additional Sub-Accounts may be added at the discretion of the
Company.
DEAN WITTER VARIABLE INVESTMENT SERIES
The Variable Account will invest exclusively in the Dean Witter Variable
Investment Series (the "Fund"). Shares of the Fund are also offered to separate
accounts of the Company which fund other variable annuity and variable life
contracts. Shares of the Fund are also offered to separate accounts of a life
insurance company affiliated with the Company which fund variable annuity and
variable life contracts. Shares of the Fund are also offered to separate
accounts of certain non-affiliated life insurance companies which fund variable
life insurance contracts. It is conceivable that in the future it may become
disadvantageous for both variable life and variable annuity contract separate
accounts to invest in the same underlying Fund. Although neither the Company nor
the Fund currently foresees any such disadvantage, the Fund's Board of Trustees
intends to monitor events in order to identify any material irreconcilable
conflict between the interests of variable annuity contract owners and variable
life contract owners and to determine what action, if any, should be taken in
response thereto.
Investors in the High Yield Portfolio should carefully consider the relative
risks of investing in high yield securities, which are commonly known as junk
bonds. Bonds of this type are considered to be speculative with regard to the
payment of interest and return of principal. Investors in the High Yield
Portfolio should also be cognizant of the fact that such securities are not
generally meant for short-term investing and should assess the risks associated
with an investment in the High Yield Portfolio.
Shares of the Portfolios of the Fund are not deposits, or obligations of, or
guaranteed or endorsed by any bank and the shares are not federally insured by
the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other agency.
The Fund has thirteen portfolios: the Money Market Portfolio, the Quality Income
Plus Portfolio, the High Yield Portfolio, the Utilities Portfolio, the Income
Builder Portfolio*, the Dividend Growth Portfolio, the Capital Growth Portfolio,
the Global Dividend Growth Portfolio, the European Growth Portfolio, the Pacific
Growth Portfolio, the Capital Appreciation Portfolio*, the Equity Portfolio and
the Strategist Portfolio. Each Portfolio has different investment objectives and
policies and operates as a separate investment fund.
The Money Market Portfolio seeks high current income, preservation of capital,
and liquidity by investing in certain money market instruments, principally U.S.
government securities, bank obligations, and high grade commercial paper.
The Quality Income Plus Portfolio seeks, as its primary objective, to earn a
high level of current income and, as a secondary objective, capital
appreciation, but only when consistent with its primary objective, by investing
primarily in debt securities issued by the U.S. Government, its agencies and
instrumentalities, including zero coupon securities and in fixed-income
securities rated A or higher by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("Standard & Poor's") or non-rated securities of
comparable quality, and by writing covered call and put options against such
securities.
The High Yield Portfolio seeks, as its primary objective, to earn a high level
of current income by investing in a professionally managed diversified portfolio
consisting principally of fixed-income securities rated Baa or lower by Moody's
or BBB or lower by Standard & Poor's or non-rated securities of comparable
quality, which are commonly known as junk bonds, and, as a secondary objective,
capital appreciation when consistent with its primary objective.
The Utilities Portfolio seeks to provide current income and long-term growth of
income and capital by investing primarily in equity and fixed-income securities
of companies engaged in the public utilities industry.
The Income Builder Portfolio seeks, as its primary objective, reasonable income
by investing primarily in common stock of large-cap companies which have a
record of paying dividends and the potential for maintaining dividends, in
preferred stock and in securities convertible into common stocks of small and
mid-cap companies and, as its secondary objective, growth of capital.
*These Portfolios are anticipated to commence operations on January 21, 1997.
12
<PAGE>
The Dividend Growth Portfolio seeks to provide reasonable current income and
long-term growth of income and capital by investing primarily in common stock of
companies with a record of paying dividends and the potential for increasing
dividends.
The Capital Growth Portfolio seeks to provide long-term capital growth by
investing principally in common stocks.
The Global Dividend Growth Portfolio seeks to provide reasonable current income
and long-term growth of income and capital by investing primarily in common
stock of companies, issued by issuers worldwide, with a record of paying
dividends and the potential for increasing dividends.
The European Growth Portfolio seeks to maximize the capital appreciation on its
investments by investing primarily in securities issued by issuers located in
Europe.
The Pacific Growth Portfolio seeks to maximize the capital appreciation of its
investments by investing primarily in securities issued by issuers located in
Asia, Australia and New Zealand.
The Capital Appreciation Portfolio seeks long-term capital appreciation by
investing primarily in common stocks of U.S. companies that offer the potential
for either superior earnings growth and/or appear to be undervalued.
The Equity Portfolio seeks, as its primary objective, growth of capital through
investments in common stock of companies believed by the Investment Manager to
have potential for superior growth and, as a secondary objective, income when
consistent with its primary objective.
The Strategist Portfolio seeks a high total investment return through a fully
managed investment policy utilizing equity securities, fixed-income securities
rated Baa or higher by Moody's or BBB or higher by Standard & Poor's (or
non-rated securities of comparable quality), and money market securities, and
the writing of covered options on such securities and the collateralized sale of
stock index options.
All dividends and capital gains distributions from the Portfolios are
automatically reinvested in shares of the distributing Portfolio at their net
asset value.
THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ATTAIN THEIR RESPECTIVE
STATED OBJECTIVES. Additional information concerning the investment objectives
and policies of the Portfolios can be found in the current prospectus for the
Fund accompanying this Prospectus.
THE PROSPECTUS OF THE FUND SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
CONCERNING THE ALLOCATION OF PURCHASE PAYMENTS TO A PARTICULAR PORTFOLIO.
THE CONTRACTS
- -----------------------------------------------------------
PURCHASE OF THE CONTRACTS
The Contracts may be purchased through sales representatives of Dean Witter. The
first Purchase Payment must be at least $4,000 unless the Contract is a
Qualified Contract, in which case the first Purchase Payment must be at least
$1,000. Presently, the Company will accept an initial Purchase Payment of at
least $1,000, but reserves the right to increase the minimum initial Purchase
Payment amount to $4,000. All subsequent Purchase Payments must be $25 or more
and may be made at any time prior to the Payout Start Date. Additional Purchase
Payments may also be made from your bank account or your Dean Witter Active
Assets-TM- Account through Automatic Additions. Please consult with your Dean
Witter Account Executive for detailed information about Automatic Additions.
The Company reserves the right to limit the amount of Purchase Payments it will
accept.
CREDITING OF INITIAL PURCHASE PAYMENTS
A Purchase Payment accompanied by completed information will be credited to the
Contract within two business days of receipt by the Company at its home office.
If the information is not complete, the Company will credit the Purchase
Payments to the Contract within five business days or return it at that time
unless the applicant specifically consents to the Company holding the Purchase
Payment until the information is complete. The Company reserves the right to
reject any proposed purchase of the Contract. Subsequent Purchase Payments will
be credited to the Contract at the close of the Valuation Period in which the
Purchase Payment is received.
ALLOCATION OF PURCHASE PAYMENTS
At the time of purchase the Owner instructs the Company how to allocate the
Purchase Payment among the fourteen Investment Alternatives. Purchase Payments
may be allocated in whole percents, from 0% to 100%, to any Investment
Alternative so long as the total allocation equals 100%. Purchase Payments may
be allocated in amounts of no less than $100. Unless the Owner notifies the
Company otherwise, subsequent Purchase Payments are allocated according to the
original instructions.
In those states where the Company is required to return the Purchase Payment
upon a free-look of the Contract and where it
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has been approved by the state, the Company reserves the right to allocate all
Purchase Payments made prior to the expiration of the free-look provision to the
Money Market Sub-Account of the Variable Account. Thereafter, Purchase Payments
may be made at any time during the accumulation phase into any of the Investment
Alternatives. After the expiration of the free-look provision the Owner may
instruct the Company how to allocate the Purchase Payment(s) among the fourteen
Investment Alternatives. Purchase Payments may be allocated in whole percents,
from 0% to 100%, to any Investment Alternative so long as the total allocation
equals 100%. Purchase Payments may be allocated in amounts of no less than $100.
If, after the free-look period, the Owner does not affirmatively request a
transfer to other Sub-Accounts, the Purchase Payments will remain in the Money
Market Sub-Account indefinitely. Please consult with your Account Executive for
applicability of this provision.
Each Purchase Payment will be credited to the Contract as Variable Account
Accumulation Units equal to the amount of the Purchase Payment allocated to each
Sub-Account divided by the Accumulation Unit value for that Sub-Account next
computed after the Purchase Payment is credited to the Contract. For example, if
a $10,000 Purchase Payment is credited to the Contract when the Accumulation
Unit value equals $10, then 1,000 Accumulation Units would be credited to the
Contract. The Variable Account, in turn, purchases shares of the corresponding
Portfolio (see "Value of Variable Account Accumulation Units," page 14).
For a brief summary of how Purchase Payments allocated to the Fixed Account are
credited to the Contract, see "The Fixed Account" on page 19.
VALUE OF VARIABLE ACCOUNT ACCUMULATION UNITS
The Accumulation Units in each Sub-Account of the Variable Account are valued
separately. The value of Accumulation Units may change each Valuation Period
according to the investment performance of the shares purchased by each
Sub-Account and the deduction of certain expenses and charges.
A Valuation Period is the period between successive Valuation Dates. It begins
at the close of business of each Valuation Date and ends at the close of
business of the next succeeding Valuation Date. A Valuation Date is each day
that the New York Stock Exchange is open for business except for any day in
which there is an insufficient degree of trading in the Variable Account's
portfolio securities that the value of Accumulation or Annuity Units might not
be materially affected by changes in the value of the portfolio securities.
Valuation Dates do not include such Federal and non-Federal holidays as are
observed by the New York Stock Exchange. The New York Stock Exchange currently
observes the following holidays: New Year's Day (January 1); President's Day
(the third Monday in February); Good Friday (the Friday before Easter); Memorial
Day (the last Monday in May); Independence Day (July 4); Labor Day (the first
Monday in September); Thanksgiving Day (the fourth Thursday in November); and
Christmas Day (December 25).
The value of an Accumulation Unit in a Sub-Account for any Valuation Period
equals the value of the Accumulation Unit as of the immediately preceding
Valuation Period, multiplied by the Net Investment Factor for that Sub-Account
for the current Valuation Period. The Net Investment Factor is a number
representing the change on successive Valuation Dates in value of Sub-Account
assets due to investment income, realized or unrealized capital gains or loss,
deductions for taxes, if any, and deductions for the Mortality and Expense Risk
Charge and Administrative Expense Charge.
TRANSFERS
Transfers must be at least $100 or the total amount in the Investment
Alternative whichever is less. Transfers to any Guarantee Period of the Fixed
Account must be at least $500. Currently there is no charge for transfers among
the fourteen Investment Alternatives. The Company, however, reserves the right
to assess a $25.00 charge on all transfers in excess of twelve per Contract
Year. If you are required to allocate Purchase Payments to the Money Market
Sub-Account of the Variable Account during the free-look period of your
Contract, the first transfer made following the end of the free-look period will
not be counted as a transfer for purposes of assessing this charge. The Company
will notify Owners at least 30 days prior to imposing the transfer charge.
If, under the terms of the free-look provision, your Purchase Payments have been
allocated to the Money Market Sub-Account of the Variable Account, you may not
transfer amounts out of the Money Market Sub-Account, until the free-look
provision has expired. After the free-look provision has expired and prior to
the payout start date, you may make transfers among all Investment Alternatives.
Transfers out of any Sub-Account before the Payout Start Date may be made at any
time.
After the Payout Start Date, transfers among Sub-Accounts of the Variable
Account, or from the Variable Account to the Fixed Account may be made only once
every six months and may not be made during the first six months following the
Payout Start Date.
Transfers may be made pursuant to telephone instructions if the Owner authorizes
telephone transfers at the time of purchase, or subsequently on a form provided
by the Company. Telephone transfer requests will be accepted by the Company if
received at 800/654-2397 by 3:00 p.m. Central Time. Telephone transfer requests
received at any other telephone number or after 3:00 p.m. Central Time will not
be accepted by the Company. Telephone transfer requests received before 3:00
p.m. Central Time are effected at the next computed value. Otherwise, transfer
requests must be in writing, on a form provided by the Company.
Transfers may also be made automatically through Dollar Cost Averaging prior to
the Payout Start Date. Dollar Cost Averaging permits the Owner to transfer a
specified amount every month (or other frequencies that may be offered by the
Company) from the Money Market Sub-Account to any other Sub-Account. Transfers
made through Dollar Cost Averaging must be $100 or more. Dollar
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Cost Averaging cannot be used to transfer amounts to the Fixed Account. Please
consult with your Dean Witter Account Executive for detailed information about
Dollar Cost Averaging.
Transfers from Sub-Accounts of the Variable Account will be made based on the
Accumulation Unit values next computed after the Company receives the transfer
request at its home office.
For transfers involving the Fixed Account, see page 20.
SURRENDER AND WITHDRAWALS
The Owner may withdraw all or part of the Cash Value at anytime prior to the
earlier of the death of the last surviving Annuitant, death of any Owner or the
Payout Start Date. The amount available for withdrawal is the Cash Value next
computed after the Company receives the request for a withdrawal at its home
office, less any Early Withdrawal Charges, Contract Maintenance Charges or any
remaining charge for premium taxes. Withdrawals from the Variable Account will
be paid within seven days of receipt of the request, subject to postponement in
certain circumstances. See "Delay of Payments," page 21. For withdrawals from
the Fixed Account, see page 20.
The minimum partial withdrawal is $100. If the Cash Value after a partial
withdrawal would be less than $500, then the Company will treat the request as
one for a total surrender of the Contract and the entire Cash Value, less any
charges and premium taxes, will be paid out.
Partial withdrawals may also be taken automatically through monthly Systematic
Withdrawals. Systematic Withdrawals of $100 or more may be requested at any time
prior to the Payout Start Date. Please consult with your Dean Witter Account
Executive for detailed information about Systematic Withdrawals.
For Qualified Contracts, the Company will at the request of the Owner,
automatically calculate and withdraw the IRS Required Minimum Distribution.
Withdrawals taken to satisfy IRS required minimum distribution rules will have
any applicable withdrawal charges waived. This waiver is permitted only for
withdrawals which satisfy distributions resulting from this Contract. Please
consult with your Dean Witter Account Executive for detailed information about
the Required Minimum Distribution program.
Withdrawals and surrenders may be subject to income tax and a 10% tax penalty.
This tax and penalty is explained in "Federal Tax Matters" on page 21.
The full Contract Maintenance Charge will be deducted at the time of total
surrender. The total amount paid at surrender may be more or less than the total
Purchase Payments due to prior withdrawals, any deductions, and investment
performance.
To complete the partial withdrawals, the Company will cancel Accumulation Units
in an amount equal to the withdrawal and any applicable Early Withdrawal Charge
and premium taxes. The Owner must name the Investment Alternative from which the
withdrawal is to be made. If none is named, then the withdrawal request is
incomplete and cannot be honored.
DEFAULT
So long as the Cash Value is not reduced to zero or a withdrawal does not reduce
it to less than $500, the Contract will stay in force until the Payout Start
Date even if no Purchase Payments are made after the first Purchase Payment.
CHARGES AND OTHER DEDUCTIONS
- -----------------------------------------------------------
DEDUCTIONS FROM PURCHASE PAYMENTS
No deductions are currently made from Purchase Payments. Therefore the full
amount of every Purchase Payment is invested in the Investment Alternative(s) to
increase the potential for investment gain.
EARLY WITHDRAWAL CHARGE (CONTINGENT DEFERRED SALES CHARGE)
The Owner may withdraw the Cash Value at any time before the earliest of the
Payout Start Date, the death of any Owner or the last surviving Annuitant's
death.
There are no Early Withdrawal Charges on amounts up to the Free Withdrawal
Amount. A Free Withdrawal Amount will be available in each Contract Year. The
Free Withdrawal Amount may not be available in the first Contract Year if not
approved in your state of residence. The annual Free Withdrawal Amount is 15% of
the amount of Purchase Payments. Amounts withdrawn in excess of the Free
Withdrawal Amount may be subject to an Early Withdrawal Charge. Free Withdrawal
Amounts not withdrawn in a Contract Year do not increase the Free Withdrawal
Amount in later Contract Years. Early Withdrawal Charges, if applicable, will be
deducted from the amount paid.
In certain cases, distributions required by federal tax law (see the Statement
of Additional Information for "IRS Required Distribution at Death Rules") may be
subject to an Early Withdrawal
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Charge. Early Withdrawal Charges may be deducted from the Cash Value before it
is applied to an income plan with a specified period of less than 120 months.
Free Withdrawals and other partial withdrawals will be allocated on a first in,
first out basis to Purchase Payments. For purposes of calculating the amount of
the Early Withdrawal Charge, withdrawals are assumed to come from Purchase
Payments first, beginning with the oldest payment. Unless the Company is
instructed otherwise, for partial withdrawals, the Early Withdrawal Charge will
be deducted from the amount paid, rather than from the remaining Cash Value.
Once all Purchase Payments have been withdrawn, additional withdrawals will not
be assessed an Early Withdrawal Charge.
Early Withdrawal Charges will be applied to amounts withdrawn in excess of a
Free Withdrawal Amount as set forth below:
<TABLE>
<CAPTION>
APPLICABLE
COMPLETE CONTRACT YEARS SINCE WITHDRAWAL
PURCHASE PAYMENT BEING CHARGE
WITHDRAWN WAS MADE PERCENTAGE
- -------------------------------------------------------------------- ----------
<S> <C>
0 years............................................................. 6%
1 year.............................................................. 5%
2 years............................................................. 4%
3 years............................................................. 3%
4 years............................................................. 2%
5 years............................................................. 1%
6 years or more..................................................... 0%
</TABLE>
THE CUMULATIVE TOTAL OF ALL EARLY WITHDRAWAL CHARGES IS GUARANTEED NEVER TO
EXCEED 6% OF AN OWNER'S PURCHASE PAYMENTS.
Early Withdrawal Charges will be used to pay sales commissions and other
promotional or distribution expenses associated with the marketing of the
Contracts. The Company does not anticipate that the Early Withdrawal Charges
will cover all distribution expenses in connection with the Contract.
In addition, federal and state income tax may be withheld from withdrawal and
surrender amounts. Certain surrenders may also be subject to a federal tax
penalty. See "Federal Tax Matters," page 21.
CONTRACT MAINTENANCE CHARGE
A Contract Maintenance Charge is deducted annually from the Cash Value to
reimburse the Company for its actual costs in maintaining each Contract and the
Variable Account. THE COMPANY GUARANTEES THAT THE AMOUNT OF THIS CHARGE WILL NOT
EXCEED $30 PER CONTRACT YEAR OVER THE LIFE OF THE CONTRACT. Maintenance costs
include but are not limited to expenses incurred in billing and collecting
Purchase Payments; keeping records; processing death claims and cash surrenders;
policy changes and proxy statements; calculating Accumulation Unit and Annuity
Unit values; and issuing reports to Owners and regulatory agencies. The Company
does not expect to realize a profit from this charge.
On each Contract Anniversary, the Contract Maintenance Charge will be deducted
from the Investment Alternatives in the same proportion that the Owner's
interest in each bears to the total Cash Value. After the Payout Start Date, a
pro rata share of the annual Contract Maintenance Charge will be deducted from
each Income Payment. For example, 1/12 of the $30 or $2.50 will be deducted if
there are twelve Income Payments during the Contract Year. The Contract
Maintenance Charge will be deducted from the amount paid on a total surrender.
Prior to October 4, 1993 Vantage Computer Systems, Inc. was under contract with
the Company to provide contract recordkeeping services. As of October 4, 1993,
the Company provides all contract recordkeeping services.
ADMINISTRATIVE EXPENSE CHARGE
The Company will deduct an Administrative Expense Charge which is equal, on an
annual basis to .10% of the daily net assets in the Variable Account. This
charge is designed to cover actual administrative expenses which exceed the
revenues from the Contract Maintenance Charge. The Company does not intend to
profit from this charge. The Company believes that the Administrative Expense
Charge and Contract Maintenance Charge have been set at a level that will
recover no more than the actual costs associated with administering the
Contract. There is no necessary relationship between the amount of
administrative charge imposed on a given Contract and the amount of expenses
that may be attributable to that Contract.
MORTALITY AND EXPENSE RISK CHARGE
A Mortality and Expense Risk Charge will be deducted daily at a rate equal on an
annual basis to 1.25% of the daily net assets in the Variable Account. The
Company estimates that .85% is attributed to the assumption of mortality risks
and .40% is attributed to the assumption of expense risks. For Contracts with
the Enhanced Death Benefit provision, the Mortality and Expense Risk Charge will
be deducted daily, at a rate equal on an annual basis, to 1.38% of the daily net
assets in the Variable Account. The assessment of the additional .13% for the
Enhanced Death Benefit is attributed to the assumption of additional mortality
risks. (see pages 17-18, for a full description of Death Benefit options) THE
COMPANY GUARANTEES THAT THE AMOUNT OF THIS CHARGE WILL NOT INCREASE OVER THE
LIFE OF THE CONTRACT.
If the Mortality and Expense Risk Charge is insufficient to cover the Company's
mortality costs and excess expenses, the Company will bear the loss. If the
Charge is more than sufficient, the Company will retain the balance as profit.
The Company currently expects a profit from this charge. Any such profit, as
well as any other profit realized by the Company and held in its general
account, (which supports insurance and annuity obligations), would be available
for any proper corporate purpose, including, but not limited to, payment of
distribution expenses.
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The mortality risk arises from the Company's guarantee to cover all death
benefits and to make Income Payments in accordance with the Income Payment
Tables, thus, relieving the Annuitants of the risk of outliving funds
accumulated for retirement.
The expense risk arises from the possibility that the Contract Maintenance and
Early Withdrawal Charges, both of which are guaranteed not to increase, will be
insufficient to cover actual administrative expenses.
TAXES
The Company will deduct any state premium taxes incurred or other taxes incurred
relative to the Contract (collectively referred to as "premium taxes") either at
the Payout Start Date, or when a total withdrawal occurs. Current premium tax
rates range from 0 to 3.5%. The Company reserves the right to deduct any
incurred premium taxes from the Purchase Payments.
At the Payout Start Date, any charge for premium taxes will be deducted from
each Investment Alternative in the proportion that the Owner's interest in the
Investment Alternative bears to the total Cash Value.
DEAN WITTER VARIABLE INVESTMENT SERIES ("FUND") EXPENSES
A complete description of the expenses and deductions from the Portfolios are
found in the Fund's prospectus which is attached to this prospectus.
BENEFITS UNDER THE CONTRACT
- -----------------------------------------------------------
DEATH BENEFITS PRIOR TO THE PAYOUT START DATE
If any Owner or the last surviving Annuitant dies prior to the Payout Start
Date, and a Death Benefit is elected, it will be paid to the new Owner or
Beneficiary. If requested to be paid in a lump sum within 180 days from the Date
of Death, the Death Benefit will be the greatest of: (a) the sum of all Purchase
Payments less any amounts deducted in connection with partial withdrawals
including any applicable Early Withdrawal Charges or premium taxes; or (b) the
Cash Value on the date we receive Due Proof of Death, or (c) the Cash Value on
the most recent Death Benefit Anniversary less any amounts deducted in
connection with partial withdrawals, including any applicable Early Withdrawal
Charges and premium taxes deducted from the Cash Value, since that anniversary.
The Death Benefit Anniversary is every sixth Contract Anniversary. For example,
the 6th, 12th and 18th Contract Anniversaries are the first three Death Benefit
Anniversaries.
If the Enhanced Death Benefit option is selected, it applies only at the death
of the Owner. It does not apply to the death of the Annuitant if different from
the Owner unless the Owner is a non-natural Owner. For Contracts with the
optional Enhanced Death Benefit provision, the Death Benefit will be the greater
of (a) through (c) above, or (d) the Enhanced Death Benefit. The Enhanced Death
Benefit on the date of issue is equal to the initial purchase payment. On each
Contract Anniversary, but not beyond the Contract Anniversary preceding all
owners' 75th birthdays, the Enhanced Death Benefit will be recalculated as
follows:
The Enhanced Death Benefit as of the prior Contract Anniversary multiplied
by 1.05 which results in an increase of 5% annually.
Further, for all ages, the Enhanced Death Benefit will be adjusted on each
Contract Anniversary, or upon receipt of a death claim, as follows:
The Enhanced Death Benefit will be reduced by the percentage of any Cash
Value withdrawn since the prior Contract Anniversary.
Any additional purchase payments since the prior Contract Anniversary will
be added.
The Enhanced Death Benefit will never be greater than the maximum death benefit
allowed by any non-forfeiture laws which govern the Contract.
The Company will not settle any death claim until it receives Due Proof of
Death. If an Owner dies prior to the Payout Start Date, the new Owner will be
the surviving Owner, if any, otherwise the new Owner will be the Beneficiary.
Generally, this new Owner has the following options:
1. The new Owner may elect, within 180 days of the date of receipt by the
Company of Due Proof of Death, to receive the Death Benefit in a lump sum;
2. The new Owner may elect, within 180 days of the date of receipt by the
Company of Due Proof of Death, to receive the Settlement Value (the Settlement
Value is the Cash Value less any
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applicable Early Withdrawal Charges and premium tax on the date payment is
requested) payable within five years of the date of death.
3. The new Owner may elect to apply an amount equal to the Death Benefit to
one of the income plans. Payments must begin within one year of the date of
death and must be over the life of the new Owner, or a period not to exceed the
life expectancy of the new Owner.
4. If the new Owner is the spouse of the deceased Owner, the new Owner may
elect one of the above options or may continue the Contract.
If the new Owner who is not the spouse of the deceased Owner does not make one
of these elections, the Settlement Value will be paid in a lump sum to the new
Owner five years after the date of death.
If the new Owner is a non-natural person, then the new Owner must receive the
Death Benefit in a lump sum, and the options listed above are not available.
If any Annuitant dies who is not also an Owner, the Owner must elect an
applicable option listed below. If the option selected is 1(a) or 1(b)(ii)
below, the new Annuitant will be the youngest Owner, unless the Owner names a
different Annuitant.
1. If the Owner is a natural person:
a. The Owner may choose to continue the Contract as if the death had not
occurred; or
b. If the Company receives due proof of death within 180 days of the date
of the Annuitant's death, then the Owner may alternatively choose to:
i. Receive the Death Benefit in a lump sum; or
ii. Apply the Death Benefit to an income plan which must begin within
one year of the date of death and must be for a period equal to or less
than the life expectancy of the Owner.
2. If the Owner is a non-natural person: The Owner must receive the Death
Benefit in a lump sum.
The value of the Death Benefit will be determined at the end of the Valuation
Period during which the Company receives a complete request for payment of the
Death Benefit, which includes Due Proof of Death.
DEATH BENEFITS AFTER THE PAYOUT START DATE
If the Annuitant and Joint Annuitant, if applicable, dies after the Payout Start
Date, the Company will pay the Death Benefit, if any, contained in the
particular income plan.
If the Owner, who is not the Annuitant, dies after the Payout Start Date,
payments will continue to be made under the particular income plan. The
Beneficiary will be the recipient of any such payment.
INCOME PAYMENTS
- -----------------------------------------------------------
PAYOUT START DATE
The Payout Start Date is the day that Income Payments will start under the
Contract. The Owner may change the Payout Start Date at any time by notifying
the Company in writing of the change at least 30 days before the current Payout
Start Date. The Payout Start Date must be (a) at least a month after the issue
date; (b) the first day of a calendar month; and (c) no later than the first day
of the calendar month after the Annuitant reaches age 85, or the 10th
anniversary date, if later.
Unless the Owner notifies the Company in writing otherwise, the Payout Start
Date will be the later of the first day of the calendar month after the
Annuitant reaches age 85 or the 10th anniversary date.
AMOUNT OF VARIABLE ANNUITY INCOME PAYMENTS
The amount of Variable Annuity Income Payments depends upon the investment
experience of the Portfolios selected by the Owner, any premium taxes, the age
and sex of the Annuitant(s), and the income plan chosen. The Company guarantees
that the Income Payments will not be affected by (1) actual mortality experience
and (2) the amount of the Company's administration expenses.
The Contracts offered by this Prospectus (except in states which require unisex
annuity tables) contain life annuity tables that provide for different benefit
payments to men and women of the same age. Nevertheless, in accordance with the
U.S. Supreme Court's decision in ARIZONA GOVERNING COMMITTEE V. NORRIS, in
certain employment-related situations, annuity tables that do not vary on the
basis of sex may be used. Accordingly, if the Contract is to be used in
connection with an employment-related retirement or benefit plan, consideration
should be given, in consultation with legal counsel, to
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<PAGE>
the impact of NORRIS on any such plan before making any contributions under
these Contracts. For qualified plans where it is appropriate, a unisex
endorsement is available.
The sum of Income Payments made may be more or less than the total Purchase
Payments made because (a) Variable Annuity Income Payments vary with the
investment results of the underlying Portfolios; (b) the Owner bears the
investment risk with respect to all amounts allocated to the Variable Account,
and (c) Annuitants may die before the actuarially expected Date of Death. As
such, the total amount of Income Payments cannot be predicted.
The duration of the income plan may affect the dollar amounts of each Income
Payment. For example, if an income plan guaranteed for life is chosen, the
Income Payments may be greater or lesser than Income Payments under an income
plan for a specified period depending on the life expectancy of the Annuitant.
If the actual net investment experience is less than the assumed investment
rate, then the dollar amount of the Income Payments will decrease. The dollar
amount of the Income Payments will stay level if the net investment experience
equals the assumed investment rate and the dollar amount of the Income Payments
will increase if the net investment experience exceeds the assumed investment
rate. For purposes of the Variable Annuity Income Payments, the assumed
investment rate is found in the Contract.
If the Cash Value to be applied to an income plan is less than $2,000, or if the
monthly payments determined under the Income Plan are less than $20, the Company
may pay the Cash Value in a lump sum or change the payment frequency to an
interval which results in Income Payments of at least $20.
INCOME PLANS
The Owner may elect a completely Fixed Annuity, a completely Variable Annuity or
a combination Fixed and Variable Annuity. Up to 30 days before the Payout Start
Date, the Owner may change the income plan or request any other form of Income
Plan agreeable to both the Company and the Owner. Subsequent changes will not be
permitted. If an income plan is chosen which depends on the Annuitant or Joint
Annuitant's life, proof of age will be required before Income Payments begin.
Premium taxes may be assessed. The income plans include:
INCOME PLAN 1--LIFE WITH PAYMENTS GUARANTEED FOR 120 MONTHS
Monthly payments will be made for as long as the Annuitant lives. If the
Annuitant dies before 120 monthly payments have been made, the remainder of the
120 guaranteed monthly payments will be paid to the Owner, or if deceased, to
the surviving Beneficiary.
INCOME PLAN 2--JOINT AND LAST SURVIVOR
Monthly payments beginning on the Payout Start Date will be made for as long as
either the Annuitant or Joint Annuitant is living. It is possible under this
option that only one monthly payment will be made if the Annuitant and Joint
Annuitant both die before the second payment is made, or only two monthly
payments will be made if they both die before the third payment, and so forth.
INCOME PLAN 3--PAYMENTS FOR A SPECIFIED PERIOD
Monthly payments beginning on the Payout Start Date will be made for a specified
period. An Early Withdrawal Charge may apply if the specified period is less
than 120 months. Payments under this option do not depend on the continuation of
the Annuitant's life. If the Owner dies before the end of the specified period,
the remaining payments will be paid to the surviving beneficiary. The Mortality
and Expense Risk Charge is deducted from payments even though the Company does
not bear any mortality risk. If Income Plan 3 is chosen and the proceeds are
derived from the Variable Account, the Owner or Beneficiary may surrender the
Contract at any time by notifying the Company in writing.
In the event that an income plan is not selected, the Company will make Income
Payments in accordance with Income Plan 1. At the Company's discretion, other
income plans may be available upon request. The Company currently uses
sex-distinct annuity tables. However, if legislation is passed by Congress or
the states, the Company reserves the right to use Income Payment tables which do
not distinguish on the basis of sex.
THE FIXED ACCOUNT
- -----------------------------------------------------------
CONTRIBUTIONS UNDER THE FIXED PORTION OF THE ANNUITY CONTRACT AND TRANSFERS TO
THE FIXED PORTION BECOME PART OF THE GENERAL ACCOUNT OF THE COMPANY, WHICH
SUPPORTS INSURANCE AND ANNUITY OBLIGATIONS. BECAUSE OF EXEMPTIVE AND
EXCLUSIONARY PROVISIONS, INTERESTS IN THE GENERAL ACCOUNT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 ("1933 ACT"), NOR IS THE GENERAL
ACCOUNT REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF
1940 ("1940 ACT"). ACCORDINGLY, NEITHER THE GENERAL ACCOUNT NOR ANY INTERESTS
THEREIN ARE GENERALLY SUBJECT TO THE PROVISIONS OF THE 1933 OR 1940 ACTS AND THE
COMPANY HAS BEEN ADVISED THAT THE STAFF OF THE SECURITIES AND EXCHANGE
COMMISSION HAS NOT REVIEWED THE DISCLOSURES IN THIS PROSPECTUS WHICH RELATE TO
THE FIXED PORTION. DISCLOSURES REGARDING THE FIXED PORTION OF THE ANNUITY
CONTRACT AND THE GENERAL ACCOUNT, HOWEVER, MAY BE SUBJECT TO CERTAIN GENERALLY
APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING TO THE ACCURACY
AND COMPLETENESS OF STATEMENTS MADE IN PROSPECTUSES.
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GENERAL DESCRIPTION
Contributions made to the Fixed Account are invested in the general account of
the Company. The general account is made up of all of the general assets of the
Company, other than those in the Variable Account and any other segregated asset
account. Instead of the Owner bearing the investment risk as is the case for
amounts in the Variable Account, the Company bears the full investment risk for
all amounts contributed to the general account. The Company has sole discretion
to invest the assets of the general account, subject to applicable law. The
Company guarantees that the amounts allocated to the Fixed Account will be
credited interest at a net effective interest rate of at least the minimum
guaranteed rate found in the Contract. (This interest rate is net of separate
account asset based charges of 1.35% or 1.48% if the Enhanced Death Benefit has
been selected). Currently the amount of interest credited in excess of the
guaranteed rate will vary periodically in the sole discretion of the Company.
Any interest held in the general account does not entitle an Owner to share in
the investment experience of the general account.
Money deposited in the Fixed Account earns interest at the current rate in
effect at the time of allocation or transfer for the Guarantee Period. After the
Guarantee Period, a renewal rate will be declared. Subsequent renewal dates will
be on anniversaries of the first renewal date. On or about each renewal date,
the Company will notify the Owner of the interest rate(s). The interest rate
will be guaranteed by the Company for a full year and will not be less than the
guaranteed rate found in the Contract. The Company may declare more than one
interest rate for different monies based upon the date of allocation or transfer
to the Fixed Account and based upon the Guarantee Period.
The Company will offer a one year Guarantee Period. Additional Guarantee Periods
are offered at the sole discretion of the Company. The Company currently offers
a 1 year and a 6 year Guarantee Period.
ANY INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF THE
GUARANTEED RATE FOUND IN THE CONTRACT WILL BE DETERMINED IN THE SOLE DISCRETION
OF THE COMPANY.
TRANSFERS, SURRENDERS, AND WITHDRAWALS
Amounts may be transferred from the Sub-Accounts of the Variable Account to the
Fixed Account, and prior to the Payout Start Date amounts may also be
transferred from the Fixed Account to Sub-Accounts of the Variable Account.
The maximum amount in any Contract Year which may be transferred from the Fixed
Account to the Variable Account or between Guarantee Periods of the Fixed
Account is limited to the greater of (1) 25% of the value in the Fixed Account
as of the most recent Contract Anniversary; if 25% of the value as of the most
recent Contract Anniversary is greater than zero but less than $1,000, then up
to $1,000 may be transferred; or (2) 25% of the sum of all Purchase Payments and
transfers to the Fixed Account as of the most recent Contract Anniversary.
If the first renewal interest rate is less than the current rate that was in
effect at the time money was allocated or transferred to the Fixed Account, the
transfer restriction for that money and the accumulated interest thereon will be
waived during the 60-day period following the first renewal date.
After the Payout Start Date no transfers may be made from the Fixed Account.
Transfers from the Variable Account to the Fixed Account may not be made for six
months after the Payout Start Date and may be made thereafter only once every
six months.
Surrenders and withdrawals from the Fixed Account may be delayed for up to six
months. After the Payout Start Date no surrenders or withdrawals may be made
from the Fixed Account.
GENERAL MATTERS
- -----------------------------------------------------------
OWNER
The Owner has the sole right to exercise all rights and privileges under the
Contract, except as otherwise provided in the Contract. These rights include the
right to name and change the Owner, Beneficiary and Annuitant. The Annuitant can
be changed only if the Owner is a natural person.
Generally, an Owner who is not a natural person is required to include in income
each year any increase in the Cash Value to the extent the increase is
attributable to contributions to the Contract made after February 28, 1986.
BENEFICIARY
Subject to the terms of any irrevocable Beneficiary, the Owner may change the
Beneficiary while the Annuitant is living by notifying the Company in writing.
Any change will be effective at the time it is signed by the Owner, whether or
not the Annuitant is living when the change is received by the Company. The
Company will not, however, be liable as to any payment or settlement made prior
to receiving the written notice.
Unless otherwise provided in the Beneficiary designation, the rights of any
Beneficiary predeceasing the Annuitant will revert to the Owner or the Owner's
estate. Multiple Beneficiaries may be
20
<PAGE>
named. Unless otherwise provided in the Beneficiary designation, if more than
one Beneficiary survives the Annuitant, the surviving Beneficiaries will share
equally in any amounts due.
DELAY OF PAYMENTS
Payment of any amounts due from the Variable Account under the Contract will
occur within seven days, unless:
1. The New York Stock Exchange is closed for other than usual weekends or
holidays, or trading on the Exchange is otherwise restricted;
2. An emergency exists as defined by the Securities and Exchange
Commission; or
3. The Securities and Exchange Commission permits delay for the
protection of the Owners.
For payment or transfers from the Fixed Account, see page 19.
ASSIGNMENTS
The Owner may not assign an interest in a Contract as collateral or security for
a loan. Otherwise, the Owner may assign benefits under the Contract prior to the
Payout Start Date. No Beneficiary may assign benefits under the Contract until
they are due. No assignment will bind the Company unless it is signed by the
Owner and filed with the Company. The Company is not responsible for the
validity of an assignment.
MODIFICATION
The Company may not modify the Contract without the consent of the Owner except
to make the Contract meet the requirements of the Investment Company Act of
1940, or to make the Contract comply with any changes in the Internal Revenue
Code or required by the Code or by any other applicable law.
CUSTOMER INQUIRIES
The Owners or any persons interested in the Contract may make inquiries
regarding the Contract by calling or writing their Dean Witter Account
Executive.
FEDERAL TAX MATTERS
- -----------------------------------------------------------
INTRODUCTION
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. THE
COMPANY MAKES NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR
TRANSACTION INVOLVING A CONTRACT. Federal, state, local and other tax
consequences of ownership or receipt of distributions under an annuity contract
depend on the individual circumstances of each person. If you are concerned
about any tax consequences with regard to your individual circumstances, you
should consult a competent tax adviser.
TAXATION OF ANNUITIES IN GENERAL
Tax Deferral. Generally, an annuity contract owner is not taxed on increases in
the Contract Value until a distribution occurs. This rule applies only where (1)
the Owner is a natural person, (2) the investments of the Variable Account are
"adequately diversified" in accordance with Treasury Department ("Treasury")
regulations and (3) the Company, instead of the annuity Owner, is considered the
Owner of the Variable Account assets for federal income tax purposes.
Non-Natural Owners. As a general rule, annuity contracts owned by nonnatural
persons are not treated as annuity contracts for federal income tax purposes and
the income on such Contracts is taxed as ordinary income received or accrued by
the Owner during the taxable year. There are several exceptions to the general
rule for Contracts owned by non-natural persons which are discussed in the
Statement of Additional Information.
Diversification Requirements. For a Contract to be treated as an annuity for
federal income tax purposes, the investments in the Variable Account must be
"adequately diversified" in accordance with the standards provided in the
Treasury regulations. If the investments in the Variable Account are not
adequately diversified, then the Contract will not be treated as an annuity
contract for federal income tax purposes and the Contract Owner will be taxed on
the excess of the Contract Value over the investment in the Contract. Although
the Company does not have control over the Fund or its investments, the Company
expects the Fund to meet the diversification requirements.
21
<PAGE>
Investor Control. In connection with the issuance of the regulations on the
adequate diversification standards, Treasury announced that the regulations do
not provide guidance concerning the extent to which Contract Owners may direct
their investments among Sub-Accounts of a Variable Account. The Internal Revenue
Service has previously stated in published rulings that a variable Contract
Owner will be considered the Owner of separate account assets if the Owner
possesses incidents of ownership in those assets such as the ability to exercise
investment control over the assets. At the time the diversification regulations
were issued, Treasury announced that guidance would be issued in the future
regarding the extent that Owners could direct their investments among
Sub-Accounts without being treated as Owners of the underlying assets of the
Variable Account. It is possible that Treasury's position, when announced, may
adversely affect the tax treatment of existing Contracts. The Company,
therefore, reserves the right to modify the Contract as necessary to attempt to
prevent the Contract Owner from being considered the federal tax owner of the
assets of the Variable Account.
Taxation of Partial and Full Withdrawals. In the case of a partial withdrawal
under a Non-Qualified Contract, amounts received are taxable to the extent the
Contract value before the withdrawal exceeds the investment in the Contract. In
the case of a partial withdrawal under a Qualified Contract, the portion of the
payment that bears the same ratio to the total payment that the investment in
the Contract bears to the Contract value, can be excluded from income. In the
case of a full withdrawal under a Non-Qualified Contract or a Qualified
Contract, the amount received will be taxable only to the extent it exceeds the
investment in the Contract. If an individual transfers an annuity contract
without full and adequate consideration to a person other than the individual's
spouse (or to a former spouse incident to a divorce), the Owner will be taxed on
the difference between the Contract Value and the investment in the Contract at
the time of transfer. Other than in the case of certain Qualified Contracts, any
amount received as a loan under a Contract, and any assignment or pledge (or
agreement to assign or pledge) of the Contract Value is treated as a withdrawal
of such amount or portion.
Taxation of Annuity Payments. Generally, the rule for income taxation of
payments received from an annuity contract provides for the return of the
Owner's investment in the Contract in equal tax-free amounts over the payment
period. The balance of each payment received is taxable. In the case of Variable
Annuity payments, the amount excluded from taxable income is determined by
dividing the investment in the Contract by the total number of expected
payments. In the case of fixed annuity payments, the amount excluded from income
is determined by multiplying the payment by the ratio of the investment in the
Contract (adjusted for any refund feature or period certain) to the total
expected value of annuity payments for the term of the Contract.
Taxation of Annuity Death Benefits. Amounts may be distributed from an annuity
contract because of the death of an Owner or Annuitant. Generally, such amounts
are includible in income as follows: (1) if distributed in a lump sum, the
amounts are taxed in the same manner as a full withdrawal or (2) if distributed
under an annuity option, the amounts are taxed in the same manner as an annuity
payment.
Penalty Tax on Premature Distributions. There is a 10% penalty tax on the
taxable amount of any premature distribution from a non-qualified annuity
contract. The penalty tax generally applies to any distribution made prior to
the owner attaining age 59 1/2. However, there should be no penalty tax on
distributions to Owners (1) made on or after the Owner attains age 59 1/2; (2)
made as a result of the Owner's death or disability; (3) made in substantially
equal periodic payments over life or life expectancy; or (4) made under an
immediate annuity. Similar rules apply for distributions under certain Qualified
Contracts. Please see the Statement of Additional Information for a discussion
of other situations in which the penalty tax may not apply.
Aggregation of Annuity Contracts. All Non-Qualified Contracts issued by the
Company (or its affiliates) to the same Owner during any calendar year will be
aggregated and treated as one annuity Contract for purposes of determining the
taxable amount of a distribution.
TAX QUALIFIED CONTRACTS
Annuity contracts may be used as investments with certain tax qualified plans
such as: (1) Individual Retirement Annuities under Section 408(b) of the Code;
(2) Simplified Employee Pension Plans under Section 408(k) of the Code; (3) Tax
Sheltered Annuities under Section 403(b) of the Code; (4) Corporate and Self
Employed Pension and Profit Sharing Plans; and (5) State and Local Government
and Tax-Exempt Organization Deferred Compensation Plans. In the case of certain
tax qualified plans, the terms of the plans may govern the right to benefits,
regardless of the terms of the Contract.
Restrictions Under Section 403(b) Plans. Section 403(b) of the Code provides for
tax-deferred retirement savings plans for employees of certain non-profit and
educational organizations. In accordance with the requirements of Section
403(b), any annuity contract used for a 403(b) plan must provide that
distributions attributable to salary reduction contributions made after
12/31/88, and all earnings on salary reduction contributions, may be made only
after the employee attains age 59 1/2, separates from service, dies, becomes
disabled or on the account of hardship (earnings on salary reduction
contributions may not be distributed on the account of hardship).
INCOME TAX WITHHOLDING
The Company is required to withhold federal income tax at a rate of 20% on all
"eligible rollover distributions" unless an individual elects to make a "direct
rollover" of such amounts to another
22
<PAGE>
qualified plan or Individual Retirement Account or Annuity ("IRA"). Eligible
rollover distributions generally include all distributions from Qualified
Contracts, excluding IRAs, with the exception of (1) required minimum
distributions, or (2) a series of substantially equal periodic payments made
over a period of at least 10 years, or the life (joint lives) of the participant
(and beneficiary). For any distributions from non-qualified annuity contracts,
or distributions from Qualified Contracts which are not considered eligible
rollover distributions, the Company may be required to withhold federal and
state income taxes unless the recipient elects not to have taxes withheld and
properly notifies the Company of such election.
VOTING RIGHTS
- -----------------------------------------------------------
The Owner or anyone with a voting interest in the Sub-Account of the Variable
Account may instruct the Company on how to vote at shareholder meetings of the
Fund. The Company will solicit and cast each vote according to the procedures
set up by the Fund and to the extent required by law. The Company reserves the
right to vote the eligible shares in its own right, if subsequently permitted by
the Investment Company Act of 1940, its regulations or interpretations thereof.
Before the Payout Start Date, the Owner holds the voting interest in the
Sub-Account. (The number of votes for the Owner will be determined by dividing
the Cash Value attributable to a Sub-Account by the net asset value per share of
the applicable eligible Portfolio.)
After the Payout Start Date, the person receiving Income Payments has the voting
interest. After the Payout Start Date, the votes decrease as Income Payments are
made and as the reserves for the Contract decrease. That person's number of
votes will be determined by dividing the reserve for such Contract allocated to
the applicable Sub-Account by the net asset value per share of the corresponding
eligible Portfolio.
SALES COMMISSION
- -----------------------------------------------------------
From its profits the Company may pay a maximum sales commission of 6.0% of
Purchase Payments and an annual sales administration expense allowance of up to
0.125% of the average net assets of the Fixed Account to Dean Witter Reynolds
Inc., the principal underwriter of the Contracts. Dean Witter will pay annually
to its Registered Representatives from its profits, an amount equal to .10% of
the net assets of the Variable Account attributable to Contracts.
23
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---
<S> <C>
The Contract........................................................................................ 3
Purchase of Contracts........................................................................... 3
Value of Variable Account Accumulation Units.................................................... 3
Performance Data................................................................................ 3
Standardized Total Return........................................................................... 4
Other Total Returns............................................................................. 5
Transfers....................................................................................... 6
Tax-free Exchanges (1035 Exchanges, Rollovers, Transfers)....................................... 6
General Matters..................................................................................... 7
Recordkeeping Services.......................................................................... 7
Additions, Deletions or Substitution of Investments............................................. 7
Reinvestment.................................................................................... 7
Incontestability................................................................................ 7
Settlements..................................................................................... 7
Safekeeping of the Variable Account's Assets.................................................... 8
Experts......................................................................................... 8
Legal Matters................................................................................... 8
Federal Tax Matters................................................................................. 8
Introduction.................................................................................... 8
Taxation of Northbrook Life Insurance Company................................................... 8
Exceptions to the Non-Natural Owner Rule........................................................ 9
Penalty Tax on Premature Distributions.......................................................... 9
IRS Required Distribution at Death Rules........................................................ 9
Qualified Plans................................................................................. 9
Types of Qualified Plans............................................................................ 10
Individual Retirement Annuities................................................................. 10
Simplified Employee Pension Plans............................................................... 10
Tax Sheltered Annuities......................................................................... 10
Corporate and Self-Employed Pension and Profit Sharing Plans.................................... 10
State and Local Government and Tax-Exempt Organization Deferred Compensation Plans.............. 10
Voting Rights....................................................................................... 10
Sales Commissions................................................................................... 11
Financial Statements................................................................................ F-1
</TABLE>
24
<PAGE>
ORDER FORM
- -----------------------------------------------------------
/ / Please send me a copy of the most recent Statement of Additional Information
for the Northbrook Variable Annuity II.
<TABLE>
<S> <C>
- ------------------------ ---------------------------------------------
(Date) (Name)
---------------------------------------------
(Street Address)
---------------------------------------------
(City) (State) (Zip Code)
</TABLE>
Send to: Northbrook Life Insurance Company
P.O. Box 94040
Palatine, IL 60094-4040
Attn: Annuity Services
25
<PAGE>
(This page intentionally left blank)
26
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
OF
NORTHBROOK LIFE INSURANCE COMPANY
P.O. BOX 94040
PALATINE, IL 60094-4040
GROUP AND INDIVIDUAL VARIABLE ANNUITY CONTRACTS
DISTRIBUTED BY
DEAN WITTER REYNOLDS INC.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
-------------------
This Statement of Additional Information supplements the information in the
Prospectus for the group or individual Flexible Premium Deferred Variable
Annuity Contract (as used herein "Contract" includes "Certificates" and
"Contracts") offered by Northbrook Life Insurance Company ("Company"), a wholly
owned subsidiary of Allstate Life Insurance Company. The group and individual
Contract is primarily designed to aid individuals in long-term financial
planning and it can be used for retirement planning regardless of whether the
plan qualifies for special federal income tax treatment.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE
READ ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACT.
You may obtain a copy of the Prospectus from Dean Witter Reynolds Inc.
("Dean Witter"), the principal underwriter and distributor of the Contract, by
calling or writing Dean Witter at the address listed above.
The Prospectus, dated December 31, 1996, has been filed with the United
States Securities and Exchange Commission.
DATED DECEMBER 31, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
THE CONTRACT...................................... 3
Purchase of Contracts........................... 3
Value of Variable Account Accumulation Units.... 3
Performance Data................................ 3
STANDARDIZED TOTAL RETURN......................... 4
Other Total Returns............................. 5
Transfers....................................... 6
Tax-free Exchanges (1035 Exchanges, Rollovers
and Transfers)................................. 6
GENERAL MATTERS................................... 7
Recordkeeping Services.......................... 7
Additions, Deletions or Substitutions of
Investments.................................... 7
Reinvestment.................................... 7
Incontestability................................ 7
Settlements..................................... 7
Safekeeping of the Variable Account's Assets.... 8
Experts......................................... 8
Legal Matters................................... 8
FEDERAL TAX MATTERS............................... 8
<CAPTION>
PAGE
-----
<S> <C>
Introduction.................................... 8
Taxation of Northbrook Life Insurance Company... 8
Exceptions to the Non-Natural Owner Rule........ 9
Penalty Tax on Premature Distributions.......... 9
IRS Required Distribution at Death Rules........ 9
Qualified Plans................................. 9
TYPES OF QUALIFIED PLANS.......................... 10
Individual Retirement Annuities................. 10
Simplified Employee Pension Plans............... 10
Tax Sheltered Annuities......................... 10
Corporate and Self-Employed Pension and Profit
Sharing Plans................................... 10
State and Local Government and Tax-Exempt
Organization Deferred Compensation Plans........ 10
VOTING RIGHTS..................................... 10
SALES COMMISSIONS................................. 11
FINANCIAL STATEMENTS.............................. F-1
</TABLE>
2
<PAGE>
THE CONTRACT
- --------------------------------------------------------------------------------
PURCHASE OF CONTRACTS
The Contracts are offered to the public through brokers licensed under the
federal securities laws and state insurance laws. The offering of the Contracts
is continuous and the Company does not anticipate discontinuing the offering of
the Contracts. However, the Company reserves the right to discontinue the
offering of the Contracts.
VALUE OF VARIABLE ACCOUNT ACCUMULATION UNITS
The value of Variable Account Accumulation Units will vary in accordance
with investment experience of the Portfolio in which the Sub-Account invests.
The number of such Accumulation Units credited to a Contract will not, however,
change as a result of any fluctuations in the Accumulation Unit value.
The Accumulation Units in each Sub-Account of the Variable Account are
valued separately. The value of Accumulation Units in any Valuation Period will
depend upon the investment performance of the shares purchased by each
Sub-Account in a particular Portfolio. The value of an Accumulation Unit in a
Sub-Account for any Valuation Period equals the value of such a unit as of the
immediately preceding Valuation Period, multiplied by the "Net Investment
Factor" for that Sub-Account for the current Valuation Period. The Net
Investment Factor for each Sub-Account for any Valuation Period is determined by
dividing (A) by (B) and subtracting (C), where:
(A) is the sum of:
(1) the net asset value per share of the Portfolio(s) underlying the
Sub-Account determined at the end of the current valuation period; plus,
(2) the per share amount of any dividend or capital gain distributions
made by the Portfolio(s) underlying the Sub-Account during the current
Valuation Period.
(B) is the net asset value per share of the Portfolio(s) underlying the
Sub-Account determined as of the end of the immediately preceding valuation
period.
(C) is the annualized Mortality and Expense Risk and Administrative Expense
Charges divided by 365 and then multiplied by the number of calendar days in the
current valuation period.
PERFORMANCE DATA
From time to time the Variable Account May publish advertisements containing
performance data relating to its Sub-Accounts. The performance data for the
Sub-Accounts (other than for the Money Market Sub-Account) will always be
accompanied by total return quotations.
A Sub-Account's "average annual total return" represents an annualization of
the Sub-Account's total return over a particular period and is computed by
finding the annual percentage rate which will result in the ending redeemable
value of a hypothetical $1,000 Purchase Payment made at the beginning of a one,
five or ten year period, or for a period from the date of commencement of the
Sub-Account's operations, if shorter than any of the foregoing. The formula for
computing the average annual total return involves a percentage obtained by
dividing the ending redeemable value, including deductions for any Early
Withdrawal Charges or Contract Maintenance Charges imposed on the Contracts by
the Variable Account, by the initial hypothetical $1,000 Purchase Payment,
taking the "n"th root of the quotient (where "n" is the number of years in the
period) and subtracting 1 from the result.
The Early Withdrawal Charges assessed upon redemption are computed as
follows: The Free Withdrawal Amount is not assessed an Early Withdrawal Charge.
Early Withdrawal Charges are charged on the amount of redemption equal to the
Purchase
3
<PAGE>
Payment, reduced by the Free Withdrawal Amount, if any. The remaining amount of
the redemption, if any, is not assessed an Early Withdrawal Charge. The Early
Withdrawal Charge Schedule specifies rates based on the Contract Year in which
the Purchase Payment was made. One rate is specified for Purchase Payments made
in the current Contract Year, another rate for Purchase Payments made in the
prior Contract Year, another rate for Purchase Payments made in the second prior
Contract Year, and so on until a rate for Purchase Payments made in the sixth
prior Contract Year or prior to it is reached. For a one year total return
calculation the second rate, (i.e., the rate for Purchase Payments made in the
prior Contract Year), is assessed. The Contract Maintenance Charge ($30 per
contract) used in the total return calculation is normally prorated using the
following method: The total amount of annual Contract fees collected during the
year is divided by the total average net assets of all the Sub-Accounts. The
resulting percentage is then multiplied by the ending Cash Value.
STANDARDIZED TOTAL RETURN
- --------------------------------------------------------------------------------
The standardized average annual returns for the Sub-Accounts for the
one-year, five-year and since inception periods ending December 31, 1995 are
presented below:
(WITHOUT ENHANCED DEATH BENEFIT)
<TABLE>
<CAPTION>
SUB-ACCOUNT ONE-YEAR FIVE-YEARS SINCE INCEPTION*
- ------------------------------------- --------- --------------------
<S> <C> <C> <C>
Capital Growth.............. 26.83% N/A 8.33%
Dividend Growth............. 30.25% 14.12% 15.80%
Equity...................... 36.31% 19.17% 20.02%
European Growth............. 19.89% N/A 13.91%
Global Dividend Growth...... 16.09% N/A 7.83%
High Yield.................. 9.16% 19.48% 16.17%
Money Market................ N/A N/A N/A
Pacific Growth.............. 0.01% N/A (4.52)%
Quality Income Plus......... 18.38% 9.32% 9.82%
Strategist.................. 3.62% 9.88% 10.53%
Utilities................... 22.62% 11.28% 11.86%
(WITH ENHANCED DEATH BENEFIT) (NOT ANNUALIZED)
<CAPTION>
SUB-ACCOUNT SINCE INCEPTION**
- ---------------------------- --------------------
<S> <C> <C> <C>
Capital Growth.............. 2.21%
Dividend Growth............. 1.97%
Equity...................... (0.38)%
European Growth............. (2.54)%
Global Dividend Growth...... 0.90%
High Yield.................. (3.33)%
Money Market................ N/A
Pacific Growth.............. (2.33)%
Quality Income Plus......... (1.21)%
Strategist.................. (2.58)%
Utilities................... 0.86%
</TABLE>
- --------------------------
* The Money Market, Quality Income Plus, High Yield, Utilities, Dividend
Growth, Equity and Strategist Sub-Accounts commenced operation on October 25,
1990. The Capital Growth and European Growth Sub-Accounts commenced operation
on March 1, 1991. The Global Dividend Growth and Pacific Growth Sub-Accounts
commenced operation on February 23, 1994.
** The Sub-Accounts commenced operation on October 30, 1995.
From time to time, sales literature or advertisements may also quote average
annual total returns for periods prior to the date the Variable Account
commenced operations. Such performance information for the Sub-Accounts will be
calculated based on the performance of the Portfolios and the assumption that
the Sub-accounts were in existence for the same periods as those indicated for
the Portfolios, with the level of Contract charges currently in effect.
4
<PAGE>
Such average annual total return information for the Sub-Accounts (including
deduction of the Surrender Charge) is as follows:
(WITHOUT ENHANCED DEATH BENEFIT)
<TABLE>
<CAPTION>
SUB-ACCOUNT AND DATE 10-YEARS OR
OF INCEPTION OF SINCE INCEPTION (IF
CORRESPONDING PORTFOLIO 1 YEAR 5-YEARS LESS)
- ---------------------------------- --------- --------------------
<S> <C> <C> <C>
Capital Growth****....... 26.83% N/A 8.33%
Dividend Growth***....... 30.25% 14.12% 10.22%
Equity*.................. 36.31% 19.17% 11.96%
European Growth****...... 19.89% N/A 13.91%
Global Dividend
Growth*****............. 16.09% N/A 7.83%
High Yield*.............. 9.16% 19.48% 6.35%
Money Market*............ N/A N/A N/A
Pacific Growth*****...... 0.01% N/A (4.52)%
Quality Income Plus**.... 18.38% 9.32% 8.05%
Strategist**............. 3.62% 9.88% 7.92%
Utilities***............. 22.62% 11.28% 10.22%
</TABLE>
- --------------------------
*Portfolio inception date of March 9, 1984
**Portfolio inception date of March 1, 1987
***Portfolio inception date of March 1, 1990
****Portfolio inception date of March 1, 1991
*****Portfolio inception date of February 23, 1994
(WITH ENHANCED DEATH BENEFIT)
<TABLE>
<CAPTION>
SUB-ACCOUNT AND DATE
OF INCEPTION OF 10-YEARS OR SINCE
CORRESPONDING PORTFOLIO 1 YEAR 5-YEARS INCEPTION (IF LESS)
- ---------------------------------- --------- --------------------
<S> <C> <C> <C>
Capital Growth****....... 26.66% N/A 8.18%
Dividend Growth***....... 30.07% 13.97% 10.07%
Equity*.................. 36.13% 19.01% 11.82%
European Growth****...... 19.73% N/A 13.76%
Global Dividend
Growth*****............. 15.94% N/A 7.69%
High Yield*.............. 9.01% 19.31% 6.21%
Money Market*............ N/A N/A N/A
Pacific Growth*****...... (0.13)% N/A (4.65)%
Quality Income Plus**.... 18.22% 9.18% 7.90%
Strategist**............. 3.48% 9.74% 7.77%
Utilities***............. 22.45% 11.14% 10.07%
</TABLE>
- --------------------------
*Portfolio inception date of March 9, 1984
**Portfolio inception date of March 1, 1987
***Portfolio inception date of March 1, 1990
****Portfolio inception date of March 1, 1991
*****Portfolio inception date of February 23, 1994
OTHER TOTAL RETURNS
From time to time, sales literature or advertisements may also quote average
annual total returns that do not reflect the Surrender Charge. These are
calculated in exactly the same way as the average annual total returns described
above, except that the ending redeemable value of the hypothetical account for
the period is replaced with an ending value for the period that does not take
into account any charges on amounts surrendered. Sales literature or
advertisements may also quote such average annual total returns for periods
prior to the date the Variable Account commenced operations, calculated based on
the performance of the Portfolios and the assumption that the Sub-Accounts were
in existence for the same periods as those indicated for the Portfolios, with
the level of Contract charges currently in effect except for the Surrender
Charge.
Such average annual total return information for the Sub-Accounts (not
including deduction of the Surrender Charge) is as follows:
(WITHOUT ENHANCED DEATH BENEFIT)
<TABLE>
<CAPTION>
SUB-ACCOUNT AND DATE 10-YEARS OR
OF INCEPTION OF SINCE INCEPTION
CORRESPONDING PORTFOLIO 1 YEAR 5-YEARS (IF LESS)
- -------------------------- ----------- ----------- -----------------
<S> <C> <C> <C>
Capital Growth****........ 31.14% N/A 8.64%
Dividend Growth***........ 34.56% 14.27% 10.35%
Equity*................... 40.63% 19.29% 12.01%
European Growth****....... 24.21% N/A 14.17%
Global Dividend
Growth*****.............. 20.41% N/A 10.04%
High Yield*............... 13.47% 19.60% 6.41%
Money Market*............. N/A N/A N/A
Pacific Growth*****....... 4.32 % N/A (2.08)%
Quality Income Plus**..... 22.70 % 9.49 % 8.09 %
Strategist**.............. 7.93 % 10.05 % 7.96 %
Utilities***.............. 26.93 % 11.44 % 10.35 %
</TABLE>
- --------------------------
*Portfolio inception date of March 9, 1984
**Portfolio inception date of March 1, 1987
***Portfolio inception date of March 1, 1990
****Portfolio inception date of March 1, 1991
*****Portfolio inception date of February 23, 1994
5
<PAGE>
(WITH ENHANCED DEATH BENEFIT)
<TABLE>
<CAPTION>
SUB-ACCOUNT AND DATE 10-YEARS OR
OF INCEPTION OF SINCE INCEPTION
CORRESPONDING PORTFOLIO 1-YEAR 5-YEARS (IF LESS)
- ------------------------- ----------- ----------- -----------------
<S> <C> <C> <C>
Capital Growth****....... 30.97% N/A 8.49%
Dividend Growth***....... 34.39% 14.12% 10.21%
Equity*.................. 40.45% 19.14% 11.86%
European Growth****...... 24.05% N/A 14.02%
Global Dividend
Growth*****............. 20.25% N/A 9.89%
High Yield*.............. 13.33% 19.44% 6.27%
Money Market*............ N/A N/A N/A
Pacific Growth*****...... 4.19% N/A (2.21)%
Quality Income Plus**.... 22.54% 9.35% 7.95%
Strategist**............. 7.79% 9.90% 7.82%
Utilities***............. 26.77% 11.30% 10.21%
</TABLE>
- --------------------------
*Portfolio inception date of March 9, 1984
**Portfolio inception date of March 1, 1987
***Portfolio inception date of March 1, 1990
****Portfolio inception date of March 1, 1991
*****Portfolio inception date of February 23, 1994
The Variable Account may also advertise the performance of the Sub-Accounts
relative to certain performance rankings and indexes compiled by independent
organizations, such as: (a) Lipper Analytical Services, Inc.; (b) the Standard &
Poor's 500 Composite Stock Price Index ("S & P 500"); and, (c) A.M. Best
Company.
TRANSFERS
The Owner may transfer amounts from one investment alternative to another
prior to the Payout Start Date. Transfers are subject to the following
restrictions:
1. The minimum amount that may be transferred from an investment
alternative is $100; if the total amount in an investment alternative is
less than $100, the entire amount may be transferred.
2. The minimum transfer to any Guarantee Period of the Fixed Account is
$500.
3. The maximum amount in any Contract Year which may be transferred
from the Fixed Account to the Variable Account or between Guarantee Periods
of the Fixed Account is limited to the greater of (1) 25% of the value in
the Fixed Account as of the most recent Contract Anniversary; if 25% of the
value as of the most recent Contract Anniversary is greater than zero but
less than $1,000, then up to $1,000 May be transferred; or (2) 25% of the
sum of all Purchase Payments and transfers to the Fixed Account as of the
most recent Contract Anniversary.
4. If the first renewal interest rate is less than the current rate
that was in effect at the time money was allocated or transferred to the
Fixed Account, the 25% transfer restriction for that money and the
accumulated interest thereon will be waived during the 60 day period
following the first renewal date.
The Company reserves the right to assess transfer fees.
TAX-FREE EXCHANGES (1035 EXCHANGES,
ROLLOVERS AND TRANSFERS)
The Company accepts Purchase Payments which are the proceeds of a Contract
in a transaction qualifying for a tax-free exchange under Section 1035 of the
Internal Revenue Code. Except as required by federal law in calculating the
basis of the Contract, the Company does not differentiate between Section 1035
Purchase Payments and non-Section 1035 Purchase Payments.
The Company also accepts "rollovers" and transfers from Contracts qualifying
as tax-sheltered annuities (TSAs), individual retirement annuities or accounts,
(IRAs), or any other Qualified Contract which is eligible to "rollover" into an
IRA. The Company differentiates between Non-Qualified Contracts, TSAs, IRAs and
other Qualified Contracts to the extent necessary to comply with federal tax
laws. For example, the Company restricts the assignment, transfer or pledge of
TSAs and IRAs so the
6
<PAGE>
Contracts will continue to qualify for special tax treatment. An Owner
contemplating any such exchange, rollover or transfer of a Contract should
contact a competent tax adviser with respect to the potential effects of such a
transaction.
GENERAL MATTERS
- --------------------------------------------------------------------------------
RECORDKEEPING SERVICES
In 1993, the Company paid $336,207.59 to Vantage for its services from
January 1, 1993 through October 3, 1993. The basis for the fee was an annual fee
of $16 per policy, plus out-of-pocket expenses for fees for enhancements.
As of October 4, 1993, the Company performs all Contract recordkeeping
services.
ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS
The Company retains the right, subject to any applicable law, to make
additions to, deletions from or substitutions for the Portfolio shares held by
any Sub-Account of the Variable Account. The Company reserves the right to
eliminate the shares of any of the Portfolios and to substitute shares of
another Portfolio of the Fund, or of another open-end, registered investment
company, if the shares of the Portfolio are no longer available for investment,
or if, in the Company's judgment, investment in any Portfolio would become
inappropriate in view of the purposes of the Variable Account. Substitutions of
shares attributable to an Owner's interest in a Sub-Account will not be made
until the Owner has been notified of the change, and until the Securities and
Exchange Commission has approved the change, to the extent such notification and
approval is required by the Investment Company Act of 1940. Nothing contained in
this Statement of Additional Information shall prevent the Variable Account from
purchasing other securities for other series or classes of contracts, or from
effecting a conversion between series or classes of contracts on the basis of
requests made by Owners.
The Company may also establish additional Sub-Accounts of the Variable
Account. Each additional Sub-Account would purchase shares in a new Portfolio of
the Fund or in another mutual fund. New Sub-Accounts may be established when, in
the sole discretion of the Company, marketing needs or investment conditions
warrant. Any new Sub-Accounts will be made available to existing Owners on a
basis to be determined by the Company. The Company may also eliminate one or
more Sub-Accounts if, in its sole discretion, marketing, tax or investment
conditions so warrant.
In the event of any such substitution or change, the Company may, by
appropriate endorsement, make such changes in the Contract as may be necessary
or appropriate to reflect such substitution or change. If deemed to be in the
best interests of persons having voting rights under the policies, the Variable
Account may be operated as a management company under the Investment Company Act
of 1940 or it may be deregistered under such Act in the event such registration
is no longer required.
REINVESTMENT
All dividends and capital gains distributions from the Portfolios are
automatically reinvested in shares of the distributing Portfolio at their net
asset value.
INCONTESTABILITY
The Contract will not be contested after it is issued.
SETTLEMENTS
The Contract must be returned to the Company prior to any settlement. Due
proof of the Owner(s) or the Annuitant's (and any Joint Annuitant's) death must
be received prior to settlement of a death claim.
7
<PAGE>
SAFEKEEPING OF THE VARIABLE ACCOUNT'S ASSETS
The Company holds title to the assets of the Variable Account. The assets
are kept physically segregated and held separate and apart from the Company's
general corporate assets. Records are maintained of all purchases and
redemptions of the Portfolio shares held by each of the Sub-Accounts.
The Dean Witter Variable Investment Series ("Fund") does not issue
certificates and, therefore, the Company holds the Account's assets in open
account in lieu of stock certificates. See the Fund's Prospectus for a more
complete description of the Fund's custodian.
EXPERTS
The financial statements of the Variable Account and the financial
statements and financial statement schedule of the Company appearing in this
Statement of Additional Information (which is incorporated by reference in the
prospectus of Northbrook Variable Annuity Account II of Northbrook Life
Insurance Company) have been audited by Deloitte & Touche LLP, Two Prudential
Plaza, 180 N. Stetson Avenue, Chicago, Illinois, independent auditors, as stated
in their reports appearing herein and are included in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
LEGAL MATTERS
Legal advice regarding certain matters relating to the federal securities
laws applicable to the issue and sale of the Contracts has been provided by
Routier and Johnson, P.C., of Washington, D.C.. All matters of Illinois law
pertaining to the Contracts, including the validity of the Contracts and the
Company's right to issue such Contracts under Illinois insurance law, have been
passed upon by Michael J. Velotta, General Counsel of Northbrook Life Insurance
Company.
FEDERAL TAX MATTERS
- --------------------------------------------------------------------------------
INTRODUCTION
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. THE
COMPANY MAKES NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR
TRANSACTION INVOLVING A CONTRACT. Federal, state, local and other tax
consequences of ownership or receipt of distributions under an annuity contract
depend on the individual circumstances of each person. If you are concerned
about any tax consequences with regard to your individual circumstances, you
should consult a competent tax adviser.
TAXATION OF NORTHBROOK LIFE INSURANCE
COMPANY
The Company is taxed as a life insurance company under Part I of Subchapter
L of the Internal Revenue Code. The following discussion assumes that the
Company is taxed as a life insurance company under Part I of Subchapter L. Since
the Variable Account is not an entity separate from the Company, and its
operations form a part of the Company, it will not be taxed separately as a
"regulated Investment Company" under Subchapter M of the Code. Investment income
and realized capital gains are automatically applied to increase reserves under
the contract. Under existing federal income tax law, the Company believes that
the Variable Account investment income and realized net capital gains will not
be taxed to the extent that such income and gains are applied to increase the
reserves under the contract.
Accordingly, the Company does not anticipate that it will incur any federal
income tax liability attributable to the Variable Account, and therefore the
Company does not intend to make provisions for any such taxes. However, if
changes in the federal tax laws or interpretations thereof result in the Company
being taxed on income or gains attributable to
8
<PAGE>
the Variable Account, then the Company may impose a charge against the Variable
Account (with respect to some or all contracts) in order to set aside provisions
to pay such taxes.
EXCEPTIONS TO THE NON-NATURAL OWNER RULE
There are several exceptions to the general rule that contracts held by a
non-natural owner are not treated as annuity contracts for federal income tax
purposes. Contracts will generally be treated as held by a natural person if the
nominal owner is a trust or other entity which holds the contract as agent for a
natural person. However, this special exception will not apply in the case of an
employer who is the nominal owner of an annuity contract under a non-qualified
deferred compensation arrangement for its employees. Other exceptions to the
non-natural owner rule are: (1) contracts acquired by an estate of a decedent by
reason of the death of the decedent; (2) certain qualified contracts; (3)
contracts purchased by employers upon the termination of certain qualified
plans; (4) certain contracts used in connection with structured settlement
agreements, and (5) contracts purchased with a single premium when the annuity
starting date is no later than a year from purchase of the annuity and
substantially equal periodic payments are made, not less frequently than
annually, during the annuity period.
PENALTY TAX ON PREMATURE DISTRIBUTIONS
There is a 10% penalty tax on the taxable amount of any payment received
from a non-qualified annuity contract unless: (1) made after the owner reaches
59 1/2; (2) attributable to the owner's disability; (3) attributable to
investment before August 14, 1982, including earnings on pre-August 14, 1982
investment; (4) made from certain qualified contracts; (5) made after the death
of the owner; (6) made under an immediate annuity contract; (7) made from an
annuity purchased and held by an employer upon the termination of a qualified
retirement plan; (8) made under a qualified funding asset; (9) made as part of a
series of substantially equal periodic payments (not less frequently than
annually) for the life of or life expectancy of the owner or the joint lives of
joint life expectancies of the owner and designated beneficiary. Similar rules
apply in the case of qualified contracts.
IRS REQUIRED DISTRIBUTION AT DEATH RULES
In order to be considered an annuity contract for federal income tax
purposes, an annuity contract must provide: (1) if any owner dies on or after
the annuity start date but before the entire interest in the contract has been
distributed, the remaining portion of such interest must be distributed at least
as rapidly as under the method of distribution being used as of the date of the
owner's death; (2) if any owner dies prior to the annuity start date, the entire
interest in the contract will be distributed within five years after the date of
the owner's death. These requirements are satisfied if any portion of the
owner's interest which is payable to (or for the benefit of) a designated
beneficiary is distributed over the life of such beneficiary (or over a period
not extending beyond the life expectancy of the beneficiary) and the
distributions begin within one year of the owner's death. If the owner's
designated beneficiary is the surviving spouse of the owner, the contract may be
continued with the surviving spouse as the new owner. If the owner of the
contract is a non-natural person, then the annuitant will be treated as the
owner for purposes of applying the distribution at death rules. In addition, a
change in the annuitant on a contract owned by a non-natural person will be
treated as the death of the owner.
QUALIFIED PLANS
This annuity contract may be used with several types of qualified plans. The
tax rules applicable to participants in such qualified plans vary according to
the type of plan and the terms and conditions of the plan itself. Adverse tax
consequences may result from excess contributions, premature distributions,
distributions that do not conform to specified commencement and minimum
distribution rules, excess distributions and in other circumstances. Owners and
participants under the plan and annuitants and beneficiaries under the contract
may be subject to
9
<PAGE>
the terms and conditions of the plan regardless of the terms of the contract.
TYPES OF QUALIFIED PLANS
INDIVIDUAL RETIREMENT ANNUITIES
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an Individual Retirement Annuity.
Individual Retirement Annuities are subject to limitations on the amount that
can be contributed and on the time when distributions may commence. Certain
distributions from other types of qualified plans may be "rolled over" on a
tax-deferred basis into an Individual Retirement Annuity.
SIMPLIFIED EMPLOYEE PENSION PLANS
Section 408(k) of the Code allows employers to establish simplified employee
pension plans for their employees using the employees' individual retirement
annuities if certain criteria are met. Under these plans the employer may,
within specified limits, make deductible contributions on behalf of the
employees to their individual retirement annuities.
TAX SHELTERED ANNUITIES
Section 403(b) of the Code permits public school employees and employees of
certain types of tax-exempt organizations (specified in Section 501(c)(3) of the
Code) to have their employers purchase annuity contracts for them, and subject
to certain limitations, to exclude the purchase payments from the employees'
gross income. An annuity contract used for a Section 403(b) plan must provide
that distributions attributable to salary reduction contributions made after
12/31/88, and all earnings on salary reduction contributions, may be made only
after the employee attains age 59 1/2, separates from service, dies, becomes
disabled or in the case of hardship (earnings on salary reduction contributions
may not be distributed for hardship).
CORPORATE AND SELF-EMPLOYED PENSION AND PROFIT SHARING PLANS
Sections 401(a) and 403(a) of the Code permit corporate employers to
establish various types of tax favored retirement plans for employees. The
Self-Employed Individuals Retirement Act of 1962, as amended, (commonly referred
to as "H.R. 10" or "Keogh") permits self-employed individuals to establish tax
favored retirement plans for themselves and their employees. Such retirement
plans may permit the purchase of annuity contracts in order to provide benefits
under the plans.
STATE AND LOCAL GOVERNMENT AND TAX-EXEMPT ORGANIZATION DEFERRED COMPENSATION
PLANS
Section 457 of the Code permits employees of state and local governments and
tax-exempt organizations to defer a portion of their compensation without paying
current taxes. The employees must be participants in an eligible deferred
compensation plan. Generally, under the non-natural owner rules, such contracts
are not treated as annuity contracts for federal income tax purposes.
VOTING RIGHTS
- --------------------------------------------------------------------------------
The number of votes which a person has the right to instruct will be
calculated separately for each Sub-Account. That number will be determined by
applying his/her percentage interest, if any, in a particular Sub-Account to the
total number of votes attributable to the Sub-Account.
The number of votes of the Portfolio which an Owner has a right to instruct
will be determined as of the date coincident with the date established by that
Portfolio for determining shareholders eligible to vote at the meeting of the
Fund. Voting instructions will be solicited by written communication prior to
such meeting in accordance with procedures established by the Fund.
Fund shares as to which no timely instructions are received will be voted in
proportion to the voting instructions which are received with respect to all
Contracts participating in that Sub-Account. Voting
10
<PAGE>
instructions to abstain on any item to be voted upon will be applied on a pro
rata basis to reduce the votes eligible to be cast.
Each person having a voting interest in a Sub-Account will receive proxy
material, reports and other materials relating to the appropriate Portfolio.
SALES COMMISSIONS
- --------------------------------------------------------------------------------
The Company pays Dean Witter for its underwriting and general agent's
services a sales commission of up to 6.0% of the Purchase Payments and sales
administration expense allowance of up to 0.125% of the average net assets of
the Fixed Account. These commissions are intended to cover Dean Witter's
expenses in distributing and selling the Contracts. In addition, sale of the
Contract may count toward incentive program awards for the Registered
Representative.
In accordance with the Underwriting and General Agent's Agreements between
Dean Witter and the Company, Dean Witter offers for sale and sells the
Contracts, prepares sales or promotional literature and prints and distributes
the Prospectuses to prospective purchasers. The Company paid Dean Witter sales
commission in the amount of $32,937,708 in 1995, $42,196,817 in 1994 and
$65,164,096 in 1993 for its services under these agreements. These fees are
based on sales commissions.
Under the Underwriting Agreement and Managing General Agent's Agreement
between Dean Witter and the Company, Dean Witter is responsible for paying costs
and expenses associated with licensing its agents, paying agent's commissions,
printing, mailing and distributing the Prospectus to prospective purchasers; and
preparing, printing and distributing sales literature. In the event the
commissions fail to adequately compensate Dean Witter for these expenses, Dean
Witter will pay these expenses from its own funds.
11
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
NORTHBROOK LIFE INSURANCE COMPANY:
We have audited the accompanying Statements of Financial Position of Northbrook
Life Insurance Company as of December 31, 1995 and 1994, and the related
Statements of Operations, Shareholder's Equity and Cash Flows for each of the
three years in the period ended December 31, 1995. Our audits also included
Schedule IV -- Reinsurance. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Northbrook Life Insurance Company as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles. Also, in our opinion, Schedule IV
- -- Reinsurance, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information set
forth therein.
As discussed in Note 3 to the financial statements, in 1993 the Company changed
its method of accounting for investment in fixed income securities.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
March 1, 1996
F-1
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
------------ ------------
($ IN THOUSANDS)
<S> <C> <C>
Assets
Investments
Fixed income securities
Available for sale, at fair value (amortized cost $59,142 and $61,581)............... $ 63,229 $ 59,191
Short-term............................................................................. 8,049 3,374
------------ ------------
Total investments.................................................................. 71,278 62,565
Reinsurance recoverable from Allstate Life Insurance Company............................. 2,636,981 3,085,781
Cash..................................................................................... 87 59
Deferred income taxes.................................................................... 77
Net receivable from Allstate Life Insurance Company...................................... 6,183 8,895
Other assets............................................................................. 2,164 2,233
Separate Accounts........................................................................ 3,354,910 2,604,623
------------ ------------
Total assets....................................................................... $ 6,071,603 $ 5,764,233
------------ ------------
------------ ------------
Liabilities
Reserve for life insurance policy benefits............................................... $ 139,509 $ 134,942
Contractholder funds..................................................................... 2,497,278 2,950,532
Income taxes payable..................................................................... 233 4,634
Deferred income taxes.................................................................... 2,798
Separate Accounts........................................................................ 3,354,910 2,604,623
------------ ------------
Total liabilities.................................................................. 5,994,728 5,694,731
------------ ------------
Shareholder's equity
Common stock ($100 par value, 25,000 shares authorized, issued and outstanding).......... 2,500 2,500
Additional capital paid-in............................................................... 56,600 56,600
Unrealized net capital gains (losses).................................................... 2,657 (1,553)
Retained income.......................................................................... 15,118 11,955
------------ ------------
Total shareholder's equity......................................................... 76,875 69,502
------------ ------------
Total liabilities and shareholder's equity......................................... $ 6,071,603 $ 5,764,233
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
F-2
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C>
Revenues
Net investment income................................................................... $ 4,782 $ 2,881 $ 2,934
Realized capital gains and losses....................................................... 67 (193) 323
--------- --------- ---------
Income before income taxes................................................................ 4,849 2,688 3,257
Income tax expense........................................................................ 1,686 955 750
--------- --------- ---------
Net income................................................................................ $ 3,163 $ 1,733 $ 2,507
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
UNREALIZED
ADDITIONAL NET CAPITAL
COMMON CAPITAL GAINS RETAINED
STOCK PAID-IN (LOSSES) INCOME TOTAL
----------- ----------- ----------- --------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992.................................. $ 2,500 $ 31,600 $ 7,715 $ 41,815
Net income................................................ 2,507 2,507
Change in unrealized net capital gains and losses......... $ 747 747
----------- ----------- ----------- --------- ---------
Balance, December 31, 1993.................................. 2,500 31,600 747 10,222 45,069
Net income................................................ 1,733 1,733
Change in unrealized net capital gains and losses......... (2,300) (2,300)
Capital contribution...................................... 25,000 25,000
----------- ----------- ----------- --------- ---------
Balance, December 31, 1994.................................. 2,500 56,600 (1,553) 11,955 69,502
Net income................................................ 3,163 3,163
Change in unrealized net capital gains and losses......... 4,210 4,210
----------- ----------- ----------- --------- ---------
Balance, December 31, 1995.................................. $ 2,500 $ 56,600 $ 2,657 $ 15,118 $ 76,875
----------- ----------- ----------- --------- ---------
----------- ----------- ----------- --------- ---------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
($ IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities
Net income....................................................................... $ 3,163 $ 1,733 $ 2,507
Adjustments to reconcile net income to net cash from operating activities
Realized capital (gains) losses................................................ (67) 193 (323)
Amortization and other non-cash items.......................................... 903 640 415
Net change in reserve for policy benefits and contractholder funds............. 113 (58) 18,338
Change in deferred income taxes................................................ 608 (114) 1,227
Changes in other operating assets and liabilities.............................. (2,705) (3,835) (19,325)
---------- ---------- ----------
Net cash from operating activities........................................... 2,015 (1,441) 2,839
---------- ---------- ----------
Cash flows from investing activities
Fixed income securities
Proceeds from sales............................................................ 5,423 1,256 14,279
Investment collections......................................................... 7,108 7,626 10,375
Investment purchases........................................................... (9,843) (36,071) (29,778)
Change in short-term investments, net............................................ (4,675) 3,475 2,369
---------- ---------- ----------
Net cash from investing activities........................................... (1,987) (23,714) (2,755)
---------- ---------- ----------
Cash flows from financing activities
Capital contribution............................................................. 25,000
---------- ---------- ----------
Net cash from financing activities........................................... 25,000
---------- ---------- ----------
Net increase (decrease) in cash.................................................... 28 (155) 84
Cash at beginning of year.......................................................... 59 214 130
---------- ---------- ----------
Cash at end of year................................................................ $ 87 $ 59 $ 214
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
1. ORGANIZATION AND NATURE OF OPERATIONS
Northbrook Life Insurance Company (the "Company") is wholly owned by
Allstate Life Insurance Company ("Allstate Life"), which is wholly owned by
Allstate Insurance Company ("Allstate"), a wholly-owned subsidiary of The
Allstate Corporation (the "Corporation"). On June 30, 1995, Sears, Roebuck and
Co. ("Sears") distributed its 80.3% ownership in the Corporation to Sears common
shareholders through a tax-free dividend (the "Distribution").
The Company develops and markets single and flexible premium annuities and
flexible premium deferred and variable annuity contracts to individuals in the
United States through Dean Witter Reynolds ("Dean Witter")(Note 4). Other
products include universal life and single premium life insurance.
Annuity contracts issued by the Company are subject to discretionary
withdrawal or surrender by the contractholder, subject to applicable surrender
charges. These contracts are reinsured with Allstate Life (Note 4) which selects
assets to meet the anticipated cash flow requirements of the assumed
liabilities. Allstate Life utilizes various modeling techniques in managing the
relationship between assets and liabilities and employs strategies to maintain
investments which are sufficiently liquid to meet obligations to contractholders
in various interest rate scenarios.
The Company monitors economic and regulatory developments which have the
potential to impact its business. Currently there is proposed federal
legislation which would permit banks greater participation in securities
businesses, which could eventually present an increased level of competition for
sales of the Company's annuity contracts. Furthermore, the federal government
may enact changes which could possibly eliminate the tax-advantaged nature of
annuities or eliminate consumers' need for tax deferral, thereby reducing the
incentive for customers to purchase the Company's products. While it is not
possible to predict the outcome of such issues with certainty, management
evaluates the likelihood of various outcomes and develops strategies, as
appropriate, to respond to such challenges.
Certain reclassifications have been made to the prior year financial
statements to conform to the presentation for the current year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LIFE INSURANCE ACCOUNTING
The Company writes long-duration insurance contracts with terms that are not
fixed and guaranteed and single premium life insurance contracts, which are
considered universal life-type contracts. The Company also sells long-duration
contracts that do not involve significant risk of policyholder mortality or
morbidity (principally single and flexible premium annuities, structured
settlement annuities and supplemental contracts when sold without life
contingencies) which are considered investment contracts. Limited payment
contracts (policies with premiums paid over a period shorter than the contract
period), primarily consist of structured settlement annuities and supplemental
contracts when sold with life contingencies.
F-6
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TRADITIONAL LIFE
The reserve for life insurance policy benefits, which relates to structured
settlement annuities and supplementary contracts when sold with life
contingencies, is computed on the basis of assumptions as to future investment
yields, mortality, morbidity, terminations and expenses. These assumptions,
which for traditional life are applied using the net level premium method,
include provisions for adverse deviation and generally vary by such
characteristics as plan, year of issue and policy duration. Reserve interest
rates ranged from 7.3% to 9.5% during 1995.
UNIVERSAL LIFE-TYPE CONTRACTS
Reserves for universal life-type contracts are established using the
retrospective deposit method. Under this method, liabilities are equal to the
account balance that accrues to the benefit of the policyholder.
CONTRACTHOLDER FUNDS
Contractholder funds arise from the issuance of individual contracts that
include an investment component, including universal life-type contracts.
Payments received are recorded as interest-bearing liabilities. Contractholder
funds are equal to deposits received and interest accrued to the benefit of the
contractholder less withdrawals, mortality charges and administrative expenses.
During 1995, credited interest rates on contractholder funds ranged from 3.0% to
8.0% for those contracts with fixed interest rates and from 3.0% to 8.7% for
those with flexible rates.
SEPARATE ACCOUNTS
The Company issues flexible premium deferred variable annuity contracts, the
assets and liabilities of which are legally segregated and reflected in the
accompanying statements of financial position as assets and liabilities of the
Separate Accounts. Assets and liabilities of the Separate Accounts represent
funds of Northbrook Variable Annuity Account and Northbrook Variable Annuity
Account II ("Separate Accounts"), unit investment trusts registered with the
Securities and Exchange Commission. The assets of the Separate Accounts are
carried at fair value. Investment income and realized gains and losses of the
Separate Accounts accrue directly to the contractholders and, therefore, are not
included in the accompanying statements of operations. Revenues to the Company
from the Separate Accounts consist of contract maintenance fees, administrative
fees and mortality and expense risk charges, which are entirely ceded to
Allstate Life.
REINSURANCE
Premiums, contract charges, credited interest, and policy benefits are ceded
and reflected net of such cessions in the statements of operations. Reinsurance
recoverable and the related reserves for policy benefits and contractholder
funds are reported separately in the statements of financial position.
INVESTMENTS
Fixed income securities include bonds and mortgage-backed securities. Fixed
income securities are carried at fair value. The difference between amortized
cost and fair value, net of deferred income taxes, is reflected as a
F-7
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
component of shareholder's equity. Provisions are made to write down the value
of fixed income securities for declines in value that are other than temporary.
Such writedowns are included in realized capital gains and losses.
Short-term investments are carried at cost which approximates fair value.
Investment income consists primarily of interest, which is recognized on an
accrual basis. Interest income on mortgage-backed securities is determined on
the effective yield method, based on the estimated principal repayments.
Realized capital gains and losses are determined on a specific identification
basis.
INCOME TAXES
The income tax provision is calculated under the liability method. Deferred
tax assets and liabilities are recorded based on the difference between the
financial statement and tax bases of assets and liabilities and the enacted tax
rates. Deferred income taxes also arise from unrealized capital gains or losses
on fixed income securities carried at fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. ACCOUNTING CHANGE
Effective December 31, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." SFAS No. 115 requires that investments classified
as available for sale be carried at fair value. Previously, fixed income
securities classified as available for sale were carried at the lower of
amortized cost or fair value, determined in the aggregate. Unrealized holding
gains and losses are reflected as a separate component of shareholder's equity,
net of deferred income taxes. The net effect of adoption of this statement
increased shareholder's equity at December 31, 1993 by $747, with no impact on
net income.
4. RELATED PARTY TRANSACTIONS
REINSURANCE
The Company reinsures substantially all business with Allstate Life.
Premiums and contract charges ceded to Allstate Life were $2,284 and $52,348 in
1995, $1,886 and $38,306 in 1994, and $2,688 and $22,446 in 1993. Credited
interest, policy benefits and other expenses ceded to Allstate Life amounted to
$229,525, $243,326, and $525,467 in 1995, 1994, and 1993, respectively.
Investment income earned on the assets which support contractholder funds was
excluded from the Company's financial statements as those assets were
transferred to Allstate Life under the terms of reinsurance treaties.
Reinsurance ceded arrangements do not discharge the Company as the primary
insurer.
F-8
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
BUSINESS OPERATIONS
The Company utilizes services and business facilities owned or leased, and
operated by Allstate in conducting its business activities. The Company
reimburses Allstate for the operating expenses incurred by Allstate. The cost to
the Company is determined by various allocation methods and is primarily related
to the level of services provided. Operating expenses, including compensation
and retirement and other benefit programs, allocated to the Company were $5,341,
$5,483 and $5,301 in 1995, 1994 and 1993, respectively. Investment-related
expenses are retained by the Company. All other costs are assumed by Allstate
Life under reinsurance agreements.
DEAN WITTER
The Company and Allstate Life have formed a strategic alliance with Dean
Witter to develop, market and distribute proprietary annuity and life insurance
products through Dean Witter account executives. Dean Witter provides a portion
of the funding for these products through loans to an affiliate of the Company.
Under the terms of the strategic alliance, which is cancelable by either
party, the Company has agreed to use Dean Witter as an exclusive distribution
channel for the Company's products. Dean Witter is also the investment manager
for the Dean Witter Variable Investment Series, the fund in which the assets of
the Separate Accounts are invested.
5. INCOME TAXES
Allstate Life and its life insurance subsidiaries, including the Company,
will file a consolidated federal income tax return. Tax liabilities and benefits
realized by the consolidated group are allocated as generated by the respective
subsidiaries, whether or not such benefits generated by the subsidiaries would
be available on a separate return basis. The Corporation and its domestic
subsidiaries, including the Company (the "Allstate Group"), will be eligible to
file a consolidated tax return beginning in the year 2000.
Prior to the Distribution, the Allstate Group joined with Sears and its
domestic business units (the "Sears Group") in the filing of a consolidated
federal income tax return (the "Sears Tax Group") and were parties to a federal
income tax allocation agreement (the "Tax Sharing Agreement"). As a member of
the Sears Tax Group, the Corporation was jointly and severally liable for the
consolidated income tax liability of the Sears Tax Group. Under the Tax Sharing
Agreement, the Company, through the Corporation, paid to or received from the
Sears Group the amount, if any, by which the Sears Tax Group's federal income
tax liability was affected by virtue of inclusion of the Allstate Group in the
consolidated federal income tax return. Effectively, this resulted in the
Company's annual income tax provision being computed as if the Company filed a
separate return, except that items such as net operating losses, capital losses,
foreign tax credits, or similar items which might not be immediately
recognizable in a separate return, were allocated according to the Tax Sharing
Agreement and reflected in the Company's provision to the extent that such items
reduced the Sears Tax Group's federal tax liability.
The Allstate Group and Sears Group have entered into an agreement which
governs their respective rights and obligations with respect to federal income
taxes for all periods prior to the Distribution ("Consolidated Tax Years"). The
agreement provides that all Consolidated Tax Years will continue to be governed
by the Tax Sharing
F-9
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
5. INCOME TAXES (CONTINUED)
Agreement with respect to the Company's federal income tax liability and taxes
payable to or recoverable from the Sears Group.
The components of the deferred income tax assets and liabilities at December
31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Deferred assets
Unrealized net capital losses on fixed income securities.................... $ $ 837
--------- ---------
Total deferred assets..................................................... 837
--------- ---------
Deferred liabilities
Difference in tax bases of investments...................................... (1,368) (760)
Unrealized net capital gains on fixed income securities..................... (1,430)
--------- ---------
Total deferred liabilities................................................ (2,798) (760)
--------- ---------
Net deferred (liability) asset................................................ $ (2,798) $ 77
--------- ---------
--------- ---------
</TABLE>
F-10
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
5. INCOME TAXES (CONTINUED)
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Current................................................................. $ 1,078 $ 1,069 $ 641
Deferred................................................................ 608 (114) 109
--------- --------- ---------
Income tax expense...................................................... $ 1,686 $ 955 $ 750
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company paid income taxes of $4,206, $4,219 and $1,175 in 1995, 1994 and
1993, respectively under the Tax Sharing Agreement. Included in these amounts
are $2,651, $2,826 and $1,111 reimbursed to the Company by Allstate Life under
the terms of reinsurance agreements for 1995, 1994 and 1993, respectively.
The Company had income taxes payable to Allstate Life of $233 and $4,634 at
December 31, 1995 and 1994, respectively.
A reconciliation of the statutory federal income tax rate to the effective
federal income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal income tax rate..................................... 35.0% 35.0% 35.0%
Dividends received deduction.......................................... (10.6)
Tax-exempt income..................................................... (1.7)
Other................................................................. (0.3) 0.5 0.3
--- ----- -----
Effective federal income tax rate..................................... 34.7% 35.5% 23.0%
--- ----- -----
--- ----- -----
</TABLE>
F-11
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
6. INVESTMENTS
FAIR VALUES
The amortized cost, fair value and gross unrealized gains and losses for
fixed income securities are as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED -------------------- FAIR
COST GAINS LOSSES VALUE
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1995
U.S. government and agencies...................................... $ 8,619 $ 880 $ $ 9,499
Municipal......................................................... 1,583 83 1,666
Corporate......................................................... 4,967 349 5,316
Mortgage-backed securities........................................ 43,973 3,003 228 46,748
----------- --------- --------- ---------
Totals........................................................ $ 59,142 $ 4,315 $ 228 $ 63,229
----------- --------- --------- ---------
----------- --------- --------- ---------
<CAPTION>
GROSS UNREALIZED
AMORTIZED -------------------- FAIR
COST GAINS LOSSES VALUE
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1994
U.S. government and agencies...................................... $ 9,619 $ 49 $ 825 $ 8,843
Municipal......................................................... 1,642 77 3 1,716
Corporate......................................................... 3,172 63 3,109
Mortgage-backed securities........................................ 47,148 75 1,700 45,523
----------- --------- --------- ---------
Totals........................................................ $ 61,581 $ 201 $ 2,591 $ 59,191
----------- --------- --------- ---------
----------- --------- --------- ---------
</TABLE>
SCHEDULED MATURITIES
The scheduled maturities for fixed income securities at December 31, 1995
are as follows:
<TABLE>
<CAPTION>
AMORTIZED COST FAIR VALUE
--------------- -----------
<S> <C> <C>
Due in one year or less......................................................... $ 270 $ 272
Due after one year through five years........................................... 3,021 3,182
Due after five years through ten years.......................................... 4,647 5,124
Due after ten years............................................................. 7,231 7,903
------- -----------
15,169 16,481
Mortgage-backed securities...................................................... 43,973 46,748
------- -----------
Total....................................................................... $ 59,142 $ 63,229
------- -----------
------- -----------
</TABLE>
Actual maturities may differ from those scheduled as a result of prepayments
by the issuers.
F-12
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
6. INVESTMENTS (CONTINUED)
UNREALIZED NET CAPITAL GAINS AND LOSSES
Unrealized net capital gains and losses on fixed income securities included
in shareholder's equity at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
UNREALIZED NET
AMORTIZED COST FAIR VALUE GAINS/(LOSSES)
--------------- ----------- ---------------
<S> <C> <C> <C>
Fixed income securities........................................ $ 59,142 $ 63,229 $ 4,087
------- -----------
------- -----------
Deferred income taxes.......................................... (1,430)
-------
Total...................................................... $ 2,657
-------
-------
</TABLE>
The change in unrealized net capital gains and losses for fixed income
securities is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Fixed income securities................................................................. $ 6,477 $ (3,539)
Deferred income taxes................................................................... (2,267) 1,239
--------- ---------
Change in unrealized net capital gains and losses................................... $ 4,210 $ (2,300)
--------- ---------
--------- ---------
</TABLE>
COMPONENTS OF INVESTMENT INCOME
Investment income by type of investment is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Investment income:
Fixed income securities....................................................... $ 4,633 $ 2,735 $ 2,793
Short-term.................................................................... 215 192 172
--------- --------- ---------
Investment income, before expense............................................... 4,848 2,927 2,965
Investment expense.............................................................. 66 46 31
--------- --------- ---------
Net investment income....................................................... $ 4,782 $ 2,881 $ 2,934
--------- --------- ---------
--------- --------- ---------
</TABLE>
REALIZED CAPITAL GAINS AND LOSSES
Realized capital gains and losses on investments are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Fixed income securities............................................................. $ 67 $ (193) $ 323
Income tax (expense) benefit........................................................ (23) 68 (113)
--- --------- ---------
Net realized gains (losses)......................................................... $ 44 $ (125) $ 210
--- --------- ---------
--- --------- ---------
</TABLE>
F-13
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
6. INVESTMENTS (CONTINUED)
PROCEEDS FROM SALES OF FIXED INCOME SECURITIES
The proceeds from sales of investments in fixed income securities, excluding
calls, and related gross realized gains and losses are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Proceeds...................................................................... $ 5,423 $ 1,256 $ 14,279
--------- --------- ---------
--------- --------- ---------
Gross realized gains.......................................................... $ 67 $ 318
Gross realized losses......................................................... $ (179) (34)
--------- --------- ---------
Net realized gains (losses)................................................... $ 67 $ (179) $ 284
--------- --------- ---------
--------- --------- ---------
</TABLE>
SECURITIES ON DEPOSIT
At December 31, 1995, fixed income securities with a carrying value of
$8,041 were on deposit with regulatory authorities as required by law.
7. FINANCIAL INSTRUMENTS
In the normal course of business, the Company invests in various financial
assets and incurs various financial liabilities. The assets and liabilities of
the Separate Accounts are carried at the fair value of the funds in which the
assets are invested. The fair value of all financial assets other than fixed
income securities and all liabilities other than contractholder funds
approximates their carrying value as they are short-term in nature.
Fair values for fixed income securities are based on quoted market prices.
The December 31, 1995 and 1994 fair values and carrying values of fixed income
securities are discussed in Note 6.
The fair value of contractholder funds related to investment contracts is
based on the terms of the underlying contracts. Reserves on investment contracts
with no stated maturities (single premium and flexible premium deferred
annuities) are valued at the fund balance less surrender charge. The fair value
of immediate annuities and annuities without life contingencies with fixed terms
are estimated using discounted cash flow calculations based on interest rates
currently offered for contracts with similar terms and duration. Contractholder
funds on investment contracts had a carrying value of $2,294,536 at December 31,
1995 and a fair value of $2,274,053. The carrying value and fair value at
December 31, 1994 were $2,738,823 and $2,685,448, respectively.
F-14
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
8. STATUTORY FINANCIAL INFORMATION
The following tables reconcile net income and shareholder's equity as
reported herein in conformity with generally accepted accounting principles with
statutory net income and capital and surplus, determined in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities:
<TABLE>
<CAPTION>
NET INCOME
-------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Balance per generally accepted accounting principles............................ $ 3,163 $ 1,733 $ 2,507
Income taxes.................................................................. (88) (114) 825
Non-admitted assets and statutory reserves.................................... (775) (27) (91)
--------- --------- ---------
Balance per statutory accounting principles..................................... $ 2,300 $ 1,592 $ 3,241
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDER'S EQUITY
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Balance per generally accepted accounting principles................................... $ 76,875 $ 69,502
Income taxes......................................................................... (1,614) (77)
Unrealized net capital gains (losses)................................................ (4,087) 2,390
Non-admitted assets and statutory reserves........................................... 1,891 (1,086)
--------- ---------
Balance per statutory accounting principles............................................ $ 73,065 $ 70,729
--------- ---------
--------- ---------
</TABLE>
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company prepares its statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the insurance
department of the State of Illinois. Prescribed statutory accounting practices
include a variety of publications of the National Association of Insurance
Commissioners, as well as state laws, regulations and general administrative
rules. Permitted statutory accounting practices encompass all accounting
practices not so prescribed. The Company does not follow any permitted statutory
accounting practices that have a material effect on statutory surplus or
risk-based capital.
DIVIDENDS
The ability of the Company to pay dividends is dependent on business
conditions, income, cash requirements of the Company and other relevant factors.
The payment of shareholder dividends by insurance companies without the prior
approval of the state insurance regulator is limited to formula amounts based on
net income and capital and surplus, determined in accordance with statutory
accounting practices, as well as the timing and amount of dividends paid in the
preceding twelve months. The maximum amount of dividends that the Company can
distribute during 1996 without prior approval of both the Illinois and
California Departments of Insurance is $7,057.
F-15
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
SCHEDULE IV--REINSURANCE
($ IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1995
GROSS NET
AMOUNT CEDED AMOUNT
-------- -------- ------
Life insurance in force...................... $610,478 $610,478 $
-------- -------- ------
-------- -------- ------
Premiums and contract charges:
Life and annuities......................... $ 54,632 $ 54,632 $
-------- -------- ------
-------- -------- ------
YEAR ENDED DECEMBER 31, 1994
GROSS NET
AMOUNT CEDED AMOUNT
-------- -------- ------
Life insurance in force...................... $661,356 $661,356 $
-------- -------- ------
-------- -------- ------
Premiums and contract charges:
Life and annuities......................... $ 40,192 $ 40,192 $
-------- -------- ------
-------- -------- ------
YEAR ENDED DECEMBER 31, 1993
GROSS NET
AMOUNT CEDED AMOUNT
-------- -------- ------
Life insurance in force...................... $702,975 $702,975 $
-------- -------- ------
-------- -------- ------
Premiums and contract charges:
Life and annuities......................... $ 25,134 $ 25,134 $
-------- -------- ------
-------- -------- ------
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
NORTHBROOK LIFE INSURANCE COMPANY:
We have audited the accompanying Statement of Net Assets of Northbrook
Variable Annuity Account II (the "Account") as of December 31, 1995, and the
related Statements of Operations for the year then ended and Changes in Net
Assets for each of the two years in the period ended December 31, 1995 of the
Money Market, High Yield, Equity, Quality Income Plus, Strategist, Dividend
Growth, Utilities, European Growth, Capital Growth, Global Dividend Growth and
Pacific Growth portfolios that comprise the Account. These financial statements
are the responsibility of the Account's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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. Our procedures included
confirmation of securities owned at December 31, 1995. 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.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Account as of December 31, 1995, and the
results of its operations for the year then ended and the changes in its net
assets for each of the two years in the period ended December 31, 1995 of each
of the portfolios comprising the Account, in conformity with generally accepted
accounting principles.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
March 1, 1996
F-17
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENT OF NET ASSETS
DECEMBER 31,1995
($ and shares in thousands)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments in the Dean Witter Variable Investment Series:
Money Market Portfolio
209,700 shares (cost $209,700)................................................. $ 209,700
High Yield Portfolio
19,555 shares (cost $130,706).................................................. 122,505
Equity Portfolio
10,535 shares (cost $228,556).................................................. 285,869
Quality Income Plus Portfolio
40,167 shares (cost $428,048).................................................. 440,092
Strategist Portfolio
24,214 shares (cost $300,626).................................................. 301,342
Dividend Growth Portfolio
46,736 shares (cost $579,345).................................................. 728,687
Utilities Portfolio
27,937 shares (cost $362,476).................................................. 410,249
European Growth Portfolio
9,364 shares (cost $129,564)................................................... 164,151
Capital Growth Portfolio
3,876 shares (cost $46,593).................................................... 59,013
Global Dividend Growth Portfolio
15,811 shares (cost $161,238).................................................. 184,781
Pacific Growth Portfolio
8,890 shares (cost $85,307).................................................... 86,235
----------
Total assets................................................................. 2,992,624
LIABILITIES
Payable to Northbrook Life Insurance Company --
accrued contract maintenance charges............................................. 932
----------
Net assets................................................................... $2,991,692
----------
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-18
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
QUALITY
MONEY HIGH INCOME DIVIDEND
MARKET YIELD EQUITY PLUS STRATEGIST GROWTH
($ in thousands) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends...................................... $ 11,158 $ 12,774 $ 2,326 $ 27,080 $ 26,439 $ 27,541
Less charges from Northbrook Life:
Mortality and expense risk................... (2,528) (1,266) (2,649) (4,813) (3,669) (7,298)
Administrative expense....................... (202) (101) (212) (385) (294) (584)
--------- --------- --------- --------- ----------- ----------
Net investment income (loss)................... 8,428 11,407 (535) 21,882 22,476 19,659
--------- --------- --------- --------- ----------- ----------
REALIZED AND UNREALIZED GAINS AND LOSSES ON
INVESTMENTS:
Realized gains and losses from sales of
investments:
Proceeds from sales.......................... 75,444 3,552 8,558 13,626 30,784 10,369
Cost of investments sold..................... (75,444) (3,831) (8,272) (14,382) (31,294) (9,437)
--------- --------- --------- --------- ----------- ----------
Net realized gains and losses.................... -- (279) 286 (756) (510) 932
--------- --------- --------- --------- ----------- ----------
Change in unrealized gains and losses............ -- 1,677 71,559 57,216 467 149,094
--------- --------- --------- --------- ----------- ----------
Net gains and losses on investments.............. -- 1,398 71,845 56,460 (43) 150,026
--------- --------- --------- --------- ----------- ----------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS... $ 8,428 $ 12,805 $ 71,310 $ 78,342 $ 22,433 $ 169,685
--------- --------- --------- --------- ----------- ----------
--------- --------- --------- --------- ----------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-19
<PAGE>
<TABLE>
<CAPTION>
GLOBAL
EUROPEAN CAPITAL DIVIDEND PACIFIC
UTILITIES GROWTH GROWTH GROWTH GROWTH
($ in thousands) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO TOTAL
--------- ---------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.................................. $ 15,698 $ 6,356 $ 267 $ 3,802 $ 644 $ 134,085
Less charges from Northbrook Life:
Mortality and expense risk............... (4,461) (1,812) (597) (1,858) (900) (31,851)
Administrative expense................... (357) (145) (48) (149) (72) (2,549)
--------- ---------- --------- ---------- ---------- ------------
Net investment income (loss)............... 10,880 4,399 (378) 1,795 (328) 99,685
--------- ---------- --------- ---------- ---------- ------------
REALIZED AND UNREALIZED GAINS AND LOSSES ON
INVESTMENTS:
Realized gains and losses from sales of
investments:
Proceeds from sales...................... 18,110 12,465 5,003 2,508 10,733 191,152
Cost of investments sold................. (18,108) (10,836) (4,406) (2,422) (11,117) (189,549)
--------- ---------- --------- ---------- ---------- ------------
Net realized gains and losses................ 2 1,629 597 86 (384) 1,603
--------- ---------- --------- ---------- ---------- ------------
Change in unrealized gains and losses........ 75,255 24,572 12,700 25,883 3,987 422,410
--------- ---------- --------- ---------- ---------- ------------
Net gains and losses on investments.......... 75,257 26,201 13,297 25,969 3,603 424,013
--------- ---------- --------- ---------- ---------- ------------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS.................................. $ 86,137 $ 30,600 $ 12,919 $ 27,764 $ 3,275 $ 523,698
--------- ---------- --------- ---------- ---------- ------------
--------- ---------- --------- ---------- ---------- ------------
</TABLE>
F-20
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
QUALITY
MONEY INCOME DIVIDEND
($ and units in thousands, MARKET HIGH YIELD EQUITY PLUS STRATEGIST GROWTH
except value per unit) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss)............. $ 8,428 $ 11,407 $ (535) $ 21,882 $ 22,476 $ 19,659
Net realized gains and losses............ (279) 286 (756) (510) 932
Net change in unrealized gains and
losses.................................. 1,677 71,559 57,216 467 149,094
---------- ---------- ---------- ---------- ---------- ----------
8,428 12,805 71,310 78,342 22,433 169,685
---------- ---------- ---------- ---------- ---------- ----------
FROM CAPITAL TRANSACTIONS:
Deposits................................. 90,983 30,088 48,365 42,505 31,559 106,405
Benefit payments......................... (3,903) (1,357) (1,786) (5,370) (4,215) (6,901)
Payments on termination.................. (25,297) (6,748) (13,887) (20,886) (16,319) (34,408)
Contract maintenance charges............. (83) (67) (161) (241) (170) (449)
Transfers among the portfolios and with
the Fixed Account, net.................. (73,404) 9,102 17,994 7,342 (17,627) 30,986
---------- ---------- ---------- ---------- ---------- ----------
(11,704) 31,018 50,525 23,350 (6,772) 95,633
---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net assets.......... (3,276) 43,823 121,835 101,692 15,661 265,318
Net assets, beginning of period............ 212,911 78,644 163,945 338,263 285,587 463,142
---------- ---------- ---------- ---------- ---------- ----------
Net assets, end of period.................. $ 209,635 $ 122,467 $ 285,780 $ 439,955 $ 301,248 $ 728,460
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE PER UNIT, END OF PERIOD.... $ 11.65 $ 21.86 $ 25.86 $ 16.37 $ 16.92 $ 21.51
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
ENHANCED DEATH BENEFIT:
NET ASSET VALUE PER UNIT, END OF
PERIOD.................................. $ 11.54 $ 21.66 $ 25.62 $ 15.60 $ 16.13 $ 21.03
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
UNITS OUTSTANDING, END OF PERIOD........... 17,484 5,536 10,835 26,736 17,718 33,515
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
ENHANCED DEATH BENEFIT:
UNITS OUTSTANDING, END OF PERIOD........... 511 67 216 142 92 367
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-21
<PAGE>
<TABLE>
<CAPTION>
GLOBAL
EUROPEAN CAPITAL DIVIDEND PACIFIC
($ and units in thousands, UTILITIES GROWTH GROWTH GROWTH GROWTH
except value per unit) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO TOTAL
---------- ---------- --------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss)............. $ 10,880 $ 4,399 $ (378) $ 1,795 $ (328) $ 99,685
Net realized gains and losses............ 2 1,629 597 86 (384) 1,603
Net change in unrealized gains and
losses.................................. 75,255 24,572 12,700 25,883 3,987 422,410
---------- ---------- --------- ---------- --------- ------------
86,137 30,600 12,919 27,764 3,275 523,698
---------- ---------- --------- ---------- --------- ------------
FROM CAPITAL TRANSACTIONS:
Deposits................................. 31,144 18,112 7,568 34,383 16,415 457,527
Benefit payments......................... (5,388) (1,480) (443) (1,695) (682) (33,220)
Payments on termination.................. (19,877) (9,858) (3,391) (8,436) (3,661) (162,768)
Contract maintenance charges............. (264) (98) (36) (108) (50) (1,727)
Transfers among the portfolios and with
the Fixed Account, net.................. (1,427) (2,908) 3,555 10,831 5,621 (9,935)
---------- ---------- --------- ---------- --------- ------------
4,188 3,768 7,253 34,975 17,643 249,877
---------- ---------- --------- ---------- --------- ------------
Increase (decrease) in net assets.......... 90,325 34,368 20,172 62,739 20,918 773,575
Net assets, beginning of period............ 319,796 129,732 38,823 121,984 65,290 2,218,117
---------- ---------- --------- ---------- --------- ------------
Net assets, end of period.................. $ 410,121 $ 164,100 $ 58,995 $ 184,723 $ 86,208 $ 2,991,692
---------- ---------- --------- ---------- --------- ------------
---------- ---------- --------- ---------- --------- ------------
NET ASSET VALUE PER UNIT, END OF PERIOD.... $ 18.00 $ 18.98 $ 14.92 $ 11.93 $ 9.62
---------- ---------- --------- ---------- ---------
---------- ---------- --------- ---------- ---------
ENHANCED DEATH BENEFIT:
NET ASSET VALUE PER UNIT, END OF
PERIOD.................................. $ 17.40 $ 18.38 $ 14.72 $ 11.67 $ 9.46
---------- ---------- --------- ---------- ---------
---------- ---------- --------- ---------- ---------
UNITS OUTSTANDING, END OF PERIOD........... 22,626 8,588 3,918 15,326 8,866
---------- ---------- --------- ---------- ---------
---------- ---------- --------- ---------- ---------
ENHANCED DEATH BENEFIT:
UNITS OUTSTANDING, END OF PERIOD........... 165 62 36 155 98
---------- ---------- --------- ---------- ---------
---------- ---------- --------- ---------- ---------
</TABLE>
F-22
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
QUALITY
MONEY INCOME DIVIDEND
($ and units in thousands, MARKET HIGH YIELD EQUITY PLUS STRATEGIST GROWTH
except value per unit) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss)............. $ 3,937 $ 7,907 $ 11,131 $ 27,457 $ 10,297 $ 7,411
Net realized gains and losses............ (708) (601) (6,255) 36 196
Net change in unrealized gains and
losses.................................. (11,093) (20,729) (53,902) (4,450) (27,664)
---------- ---------- ---------- ---------- ---------- ----------
3,937 (3,894) (10,199) (32,700) 5,883 (20,057)
---------- ---------- ---------- ---------- ---------- ----------
FROM CAPITAL TRANSACTIONS:
Deposits................................. 175,691 36,052 63,695 81,803 77,194 134,871
Benefit payments......................... (3,032) (1,268) (1,658) (5,881) (2,785) (5,288)
Payments on termination.................. (12,993) (3,479) (4,745) (16,192) (7,609) (15,924)
Deduction for contract maintenance
charges................................. (104) (50) (106) (218) (182) (332)
Transfers among the portfolios and with
the Fixed Account, net.................. (34,004) 2,209 982 (69,831) 32,119 2,297
---------- ---------- ---------- ---------- ---------- ----------
125,558 33,464 58,168 (10,319) 98,737 115,624
---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net assets.......... 129,495 29,570 47,969 (43,019) 104,620 95,567
---------- ---------- ---------- ---------- ---------- ----------
Net assets, beginning of period............ 83,416 49,074 115,976 381,282 180,967 367,575
---------- ---------- ---------- ---------- ---------- ----------
Net assets, end of period.................. $ 212,911 $ 78,644 $ 163,945 $ 338,263 $ 285,587 $ 463,142
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE PER UNIT, END OF PERIOD.... $ 11.18 $ 19.26 $ 18.39 $ 13.34 $ 15.68 $ 15.98
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-23
<PAGE>
<TABLE>
<CAPTION>
GLOBAL
EUROPEAN CAPITAL DIVIDEND PACIFIC
($ and units in thousands, UTILITIES GROWTH GROWTH GROWTH GROWTH
except value per unit) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO TOTAL
---------- ---------- --------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss)............. $ 12,221 $ 2,951 $ (59) $ 484 $ (278) $ 83,459
Net realized gains and losses............ (3,189) 465 (41) 15 (23) (10,105)
Net change in unrealized gains and
losses.................................. (49,925) 2,060 (987) (2,340) (3,059) (172,089)
---------- ---------- --------- ---------- --------- ------------
(40,893) 5,476 (1,087) (1,841) (3,360) (98,735)
---------- ---------- --------- ---------- --------- ------------
FROM CAPITAL TRANSACTIONS:
Deposits................................. 65,745 45,006 7,644 61,362 35,008 784,071
Benefit payments......................... (5,377) (1,406) (302) (608) (476) (28,081)
Payments on termination.................. (14,947) (2,758) (1,657) (1,421) (960) (82,685)
Deduction for contract maintenance
charges................................. (243) (85) (30) (67) (36) (1,453)
Transfers among the portfolios and with
the Fixed Account, net.................. (85,168) 19,937 (7,285) 64,559 35,114 (39,071)
---------- ---------- --------- ---------- --------- ------------
(39,990) 60,694 (1,630) 123,825 68,650 632,781
---------- ---------- --------- ---------- --------- ------------
Increase (decrease) in net assets.......... (80,883) 66,170 (2,717) 121,984 65,290 534,046
Net assets, beginning of period............ 400,679 63,562 41,540 1,684,071
---------- ---------- --------- ---------- --------- ------------
Net assets, end of period.................. 319,796 129,732 38,823 121,984 65,290 2,218,117
---------- ---------- --------- ---------- --------- ------------
---------- ---------- --------- ---------- --------- ------------
NET ASSET VALUE PER UNIT, END OF PERIOD.... $ 14.18 $ 15.28 $ 11.38 $ 9.91 $ 9.22
---------- ---------- --------- ---------- ---------
---------- ---------- --------- ---------- ---------
</TABLE>
F-24
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
NOTES TO FINANCIAL STATEMENTS
TWO YEARS ENDED DECEMBER 31, 1995
1. ORGANIZATION
Northbrook Variable Annuity Account II (the "Account"), a unit investment
trust registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, is a separate account of Northbrook Life
Insurance Company ("Northbrook Life"), which is wholly owned by Allstate Life
Insurance Company ("Allstate Life"), a wholly-owned subsidiary of Allstate
Insurance Company ("Allstate"), which is wholly owned by The Allstate
Corporation (the "Corporation').
Northbrook Life writes certain annuity contracts, the proceeds of which are
invested at the discretion of the contractholder. Contractholders primarily
invest in units of the portfolios comprising the Account but may also invest in
the general account of Northbrook Life ("Fixed Account"). The Account, in turn,
invests solely in shares of the portfolios of the Dean Witter Variable
Investment Series ("Fund"). Northbrook Life provides administrative and
insurance services to the Account for a fee.
Dean Witter Reynolds, Inc. ("Dean Witter") is the sole distributor of
Northbrook Life's flexible premium deferred variable annuity contracts and
certain single and flexible premium annuities and is the investment manager for
the Fund. In October, 1993, Allstate Life and Northbrook Life announced a
strategic alliance to develop, market and distribute proprietary annuity and
life insurance products through Dean Witter account executives. Dean Witter
receives investment management fees from the Fund.
Effective September 1, 1995, the name of the Managed Assets Portfolio of the
Fund changed to the Strategist Portfolio. While certain of the investment
policies of the portfolio have changed, the overall investment strategy has
remained the same.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS
Investments consist of shares in the portfolios of the Fund, and are stated
at fair value based on quoted market prices.
INVESTMENT INCOME
Investment income consists of dividends declared by the portfolios of the
Fund, and is recognized on the date of record.
REALIZED GAINS AND LOSSES
Realized gains and losses on the sale of shares by the Account are computed
on a weighted average ("cost") basis.
FEDERAL INCOME TAXES
Net investment income and realized gains and losses on investments of the
Account are reported to contractholders generally upon distribution.
Accordingly, no provision for income taxes has been recorded.
F-25
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TWO YEARS ENDED DECEMBER 31, 1995
3. MORTALITY AND EXPENSE CHARGES
Northbrook Life assumes mortality and expense risks related to the
operations of the Account and deducts charges daily at a rate , on an annual
basis, equal to 1.25% of the daily net assets of the Account. Northbrook Life
guarantees that the amount of this charge will not increase over the life of the
contract.
Beginning in October 1995, Northbrook Life offers contractholders an
enhanced death benefit, which guarantees that the death benefit will provide a
cumulative return greater than or equal to a specified level ("Enhanced Death
Benefit"). Northbrook Life deducts daily an additional charge equal to .13%, on
an annual basis, of the daily net assets of the Account which are attributable
to contractholders who have elected the enhanced death benefit.
4. ADMINISTRATIVE EXPENSE CHARGE AND CONTRACT MAINTENANCE CHARGES
Northbrook Life deducts administrative expense charges daily at a rate, on
an annual basis, equal to .10% of the daily net assets of the Account. This
charge is designed to cover additional administrative expense.
For each year or portion of a year a contract is in effect, Northbrook Life
deducts a fixed annual contract maintenance charge of $30 as reimbursement for
expenses related to the maintenance of each contract and the Account. The amount
of this charge is guaranteed not to increase over the life of the contract.
F-26
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TWO YEARS ENDED DECEMBER 31, 1995
5. UNITS ISSUED AND REDEEMED
Units issued and redeemed by the Account during 1995 for contracts with and
without the Enhanced Death Benefit were as follows:
CONTRACTS WITHOUT THE ENHANCED DEATH BENEFIT:
<TABLE>
<CAPTION>
QUALITY
MONEY HIGH INCOME
MARKET YIELD EQUITY PLUS STRATEGIST
(units in thousands) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
UNITS OUTSTANDING, DECEMBER
31, 1994..................... 19,047 4,083 8,914 25,350 18,219
Unit activity during 1995:
Issued...................... 9,777 2,082 3,103 3,809 2,549
Redeemed.................... (11,340) (629) (1,182) (2,423) (3,050)
--------- --------- --------- --------- ----------
UNITS OUTSTANDING, DECEMBER
31, 1995..................... 17,484 5,536 10,835 26,736 17,718
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
</TABLE>
CONTRACTS WITH THE ENHANCED DEATH BENEFIT:
<TABLE>
<CAPTION>
QUALITY
MONEY HIGH INCOME
MARKET YIELD EQUITY PLUS STRATEGIST
(units in thousands) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
UNITS OUTSTANDING, DECEMBER
31, 1994..................... -- -- -- -- --
Unit activity during 1995:
Issued...................... 719 78 227 146 94
Redeemed.................... (208) (11) (11) (4) (2)
--- --- --- --- ---
UNITS OUTSTANDING, DECEMBER
31, 1995..................... 511 67 216 142 92
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
UNITS REDEEMED INCLUDES UNITS DEDUCTED FOR ACCRUED CONTRACT MAINTENANCE CHARGES.
F-27
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TWO YEARS ENDED DECEMBER 31, 1995
5. UNITS ISSUED AND REDEEMED (CONTINUED)
CONTRACTS WITHOUT THE ENHANCED DEATH BENEFIT:
<TABLE>
<CAPTION>
GLOBAL
DIVIDEND EUROPEAN CAPITAL DIVIDEND PACIFIC
GROWTH UTILITIES GROWTH GROWTH GROWTH GROWTH
(units in thousands) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
UNITS OUTSTANDING, DECEMBER 31, 1994......................... 28,981 22,553 8,490 3,411 12,307 7,080
Unit activity during 1995:
Issued..................................................... 7,341 2,498 1,397 1,117 4,309 3,564
Redeemed................................................... (2,807) (2,425) (1,299) (610) (1,290) (1,778)
-------- --------- -------- --------- -------- ---------
UNITS OUTSTANDING, DECEMBER 31, 1995......................... 33,515 22,626 8,588 3,918 15,326 8,866
-------- --------- -------- --------- -------- ---------
-------- --------- -------- --------- -------- ---------
</TABLE>
CONTRACTS WITH THE ENHANCED DEATH BENEFIT:
<TABLE>
<CAPTION>
GLOBAL
DIVIDEND EUROPEAN CAPITAL DIVIDEND PACIFIC
GROWTH UTILITIES GROWTH GROWTH GROWTH GROWTH
(units in thousands) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
UNITS OUTSTANDING, DECEMBER 31, 1994......................... -- -- -- -- -- --
Unit activity during 1995:
Issued..................................................... 383 171 75 48 170 116
Redeemed................................................... (16) (6) (13) (12) (15) (18)
--- --- --- --- --- ---
UNITS OUTSTANDING, DECEMBER 31, 1995......................... 367 165 62 36 155 98
--- --- --- --- --- ---
--- --- --- --- --- ---
</TABLE>
UNITS REDEEMED INCLUDES UNITS DEDUCTED FOR ACCRUED CONTRACT MAINTENANCE CHARGES.
F-28
<PAGE>
PART C
OTHER INFORMATION
24A. FINANCIAL STATEMENTS
PART B: Northbrook Life Insurance Company Financial Schedules
Northbrook Variable Annuity Account II Financial Schedules
24B. EXHIBITS
The following exhibits, correspond to those required by paragraph (b) of
item 24 as to exhibits in Form N-4:
<TABLE>
<S> <C>
(1) Resolution of the Board of Directors of Northbrook Life Insurance Company authorizing
establishment of the Variable Annuity Account II
(2) Not Applicable
(3)(a) Underwriting Agreement
(b) Form of General Agency Agreement
(4) Form of Contract and Certificate Amendments
(5) Form of application for a Contract
(6)(a) Articles of Incorporation of Northbrook Life Insurance Company
(b) By-laws of Northbrook Life Insurance Company
(7) Not applicable
(8) Participation Agreement*
(9) Opinion of Robert S. Seiler, Senior Vice President, Secretary and General Counsel of
Northbrook Life Insurance Company
(10)(a) Consent of Accountants
(b) Consent of Attorneys
(11) Not applicable
(12) Form of Agreement to Purchase Shares
(13) Performance Data Calculations*
(99) Powers of Attorney
</TABLE>
- ------------------------
* Previously filed in Form N-4 Registration Statement No. 33-35412 dated
April 30, 1996 and incorporated by reference.
<PAGE>
25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS
ADDRESS POSITION AND OFFICE WITH DEPOSITOR OF THE TRUST
- ------------------------------- ------------------------------------------------------------------
<S> <C>
Louis G. Lower, II Chairman of the Board of Directors and Chief Executive Officer
Michael J. Velotta Director, Vice President, Secretary and General Counsel
Peter H. Heckman Director, President and Chief Operating Officer
Marla G. Friedman Vice President
John R. Hunter Director and Assistant Vice President
Kevin R. Slawin Director and Vice President
Casey J. Sylla Director and Chief Investment Officer
Karen C. Gardner Vice President
James P. Zils Treasurer
Keith Hauschildt Assistant Vice President and Controller
Sarah R. Donahue Assistant Vice President
Ronald Johnson Assistant Vice President
Barry S. Paul Assistant Vice President
Emma M. Kalaidjian Assistant Secretary
Paul N. Kierig Assistant Secretary
Mary J. McGinn Assistant Secretary
Robert N. Roeters Assistant Vice President
Theodore A. Schnell Assistant Vice President, Assistant Secretary and Assistant
Treasurer
Brenda D. Sneed Assistant Secretary and Assistant General Counsel
C. Nelson Strom Assistant Vice President and Corporate Actuary
Charles F. Thalheimer Assistant Vice President
Steven E. Shebik Assistant Treasurer
</TABLE>
The principal business address of the foregoing officers and directors is
3100 Sanders Road, Northbrook, Illinois 60062.
26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH DEPOSITOR OR REGISTRANT
See 10-K Commission File #1-11840, The Allstate Corporation.
27. NUMBER OF CONTRACT OWNERS
As of November 30, 1996 there were in force 10,153 qualified and 63,274
non-qualified contracts. The Registrant began operations on October 25, 1990.
28. INDEMNIFICATION
The Managing General Agent's Agreement (Exhibit 3(b)) has a provision in
which Northbrook Life agrees to indemnify Dean Witter Reynolds as Underwriter
for certain damages and expenses that may be caused by actions, statements or
omissions by Northbrook Life. The Agreement to Purchase Shares contains a
similar provision in paragraph 16 of Exhibit 12.
Insofar as indemnification for liability arising out of the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
<PAGE>
against such liabilities (other than payment by the registrant of expenses
incurred by a director, officer or controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
29A. RELATIONSHIP OF PRINCIPAL UNDERWRITER TO OTHER INVESTMENT COMPANIES
Dean Witter Distributors Inc. is the principal underwriter for the following
investment companies:
Dean Witter Liquid Asset Fund Inc.
Dean Witter Tax-Free Daily Income Trust
Dean Witter California Tax-Free Daily Income Trust
Dean Witter Retirement Series
Dean Witter Dividend Growth Securities Inc.
Dean Witter Natural Resource Development
Securities Inc.
Dean Witter World Wide Investment Trust
Dean Witter Capital Growth Securities
Dean Witter Convertible Securities Trust
Active Assets Tax-Free Trust
Active Assets Money Trust
Active Assets California Tax-Free Trust
Active Assets Government Securities Trust
Dean Witter Short-Term Bond Fund
Dean Witter Mid-Cap Growth Fund
Dean Witter U.S. Government Securities Trust
Dean Witter High Yield Securities Inc.
Dean Witter New York Tax-Free Income Fund
Dean Witter Tax-Exempt Securities Trust
Dean Witter California Tax-Free Income Fund
Dean Witter Limited Term Municipal Trust
Dean Witter World Wide Income Trust
Dean Witter Utilities Fund
Dean Witter Strategist Fund
Dean Witter New York Municipal Money
Market Trust
Dean Witter Intermediate Income Securities
Prime Income Trust
Dean Witter European Growth Fund Inc.
Dean Witter Developing Growth Securities Trust
Dean Witter Precious Metals and Minerals Trust
Dean Witter Pacific Growth Fund Inc.
Dean Witter Multi-State Municipal Series Trust
Dean Witter Federal Securities Trust
Dean Witter Short-Term U.S. Treasury Trust
Dean Witter Diversified Income Trust
Dean Witter Health Sciences Trust
Dean Witter Global Dividend Growth Securities
Dean Witter American Value Fund
Dean Witter U.S. Government Money Market Trust
Dean Witter Global Short-Term Income Fund Inc.
Dean Witter Premier Income Trust
Dean Witter Value-Added Market Series
Dean Witter Global Utilities Fund
Dean Witter High Income Securities
Dean Witter National Municipal Trust
Dean Witter International SmallCap Fund
Dean Witter Global Asset Allocation
Dean Witter Balanced Income Fund
Dean Witter Balanced Growth Fund
Dean Witter Hawaii Municipal Trust
Dean Witter Capital Appreciation Fund
Dean Witter Intermediate Term U.S. Treasury Trust
Dean Witter Information Fund
Dean Witter Japan Fund
Dean Witter Income Builder Fund
Dean Witter Special Value Fund
TCW/DW Core Equity Trust
TCW/DW North American Government
Income Trust
TCW/DW Latin American Growth Fund
TCW/DW Income and Growth Fund
TCW/DW Small Cap Growth Fund
TCW/DW Balanced Fund
TCW/DW Mid-Cap Equity Trust
TCW/DW Total Return Trust
TCW/DW Global Telecom Trust
TCW/DW Strategic Income Trust
<PAGE>
29B. PRINCIPAL UNDERWRITER
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS
ADDRESS OF EACH SUCH PERSON POSITIONS AND OFFICES WITH UNDERWRITER
- ------------------------------- ------------------------------------------------------------------
<S> <C>
Dean Witter Reynolds Inc. Underwriter
("Dean Witter")
Philip J. Purcell Chairman, Chief Executive Officer and Director
Richard M. Demartini President, Chief Operating Officer and Director, Dean Witter
Capital
James F. Higgins President and Chief Operating Officer and Director, Dean Witter
Financial
Stephen R. Miller Senior Executive Vice President and Director
Raymond J. Drop Executive Vice President
Robert J. Dwyer Executive Vice President, National Sales Director and Director
Christine A. Edwards Executive Vice President, Secretary, General Counsel and Director
Charles A. Fiumefreddo Executive Vice President and Director
Frederick J. Frohne Executive Vice President
Alfred J. Golden Executive Vice President
E. Davisson Hardman Executive Vice President
Mitchell M. Merin Executive Vice President, Chief Administrative Officer and
Director
Laurence E. Mollner Executive Vice President
Jeremiah A. Mullins Executive Vice President
Richard F. Powers Executive Vice President and Director
John H. Schaefer Executive Vice President
Thomas C. Schneider Executive Vice President, Chief Financial Officer and Director
Robert B. Sculthorpe Executive Vice President
William B. Smith Executive Vice President and Director
Samule H. Wolcott, III Executive Vice President
Anthony Basile Senior Vice President
Ronald T. Carman Senior Vice President, Associate General Counsel and Assistant
Secretary
Michael T. Cunningham Senior Vice President
Mary E. Curran Senior Vice President
Raymond F. Douglas Senior Vice President
Paul J. Dubow Senior Vice President and Deputy General Counsel
Michael T. Gregg Senior Vice President and Deputy General Counsel
Erick R. Holt Senior Vice President and Assistant Secretary
Birendra Kumar Senior Vice President and Treasurer
George R. Ross Senior Vice President
Robert P. Seass Senior Vice President
Joseph G. Siniscalchi Senior Vice President and Controller, Dean Witter Financial
Michael H. Stone Senior Vice President
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS
ADDRESS OF EACH SUCH PERSON POSITIONS AND OFFICES WITH UNDERWRITER
- ------------------------------- ------------------------------------------------------------------
Lawrence Volpe Senior Vice President and Controller, Dean Witter Reynolds Inc.
and Dean Witter Capital
<S> <C>
Lorena J. Kern Senior Vice President
Kathryn M. McNamara Senior Vice President and Director of Governmental Affairs
Michael D. Browne Assistant Secretary
Marilyn Cranney Assistant Secretary
Sheldon Curtis Assistant Secretary
Sabrina Hurley Assistant Secretary
Linda M. Butler Assistant Secretary
</TABLE>
The principal address of Dean Witter is Two World Trade Center, New York,
New York 10048.
29C. COMPENSATION OF DEAN WITTER
The following commissions and other compensation were received by each
principal underwriter, directly or indirectly, from the Registrant during the
Registrant's last fiscal year:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
NET COMPENSATION
UNDERWRITING OR REDEMPTION
NAME OF DISCOUNTS AND OR BROKERAGE
PRINCIPAL COMMISSIONS ANNUITIZATION COMMISSIONS COMPENSATION
- --------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Dean Witter
Reynolds Inc. $ 32,937,708
</TABLE>
30. LOCATION OF ACCOUNTS AND RECORDS
Michael J. Velotta
Northbrook Life Insurance Company
3100 Sanders Road
Northbrook, Illinois 60062
31. MANAGEMENT SERVICES
None
<PAGE>
32. UNDERTAKINGS
The Registrant promises to file a post-effective amendment to this
Registration Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16 months
old for so long as payments under the variable annuity contracts may be
accepted. Registrant furthermore agrees to include either as part of any
application to purchase a contract offered by the prospectus, a space that an
applicant can check to request a Statement of Additional Information or a post
card or similar written communication affixed to or included in the Prospectus
that the applicant can remove to send for a Statement of Additional Information.
Finally, the Registrant agrees to deliver any Statement of Additional
Information and any Financial Statements required to be made available under
this Form N-4 promptly upon written or oral request.
33. REPRESENTATIONS PURSUANT TO SECTION 403(B) OF THE INTERNAL REVENUE CODE
The Company represents that it is relying upon a November 28, 1988
Securities and Exchange Commission no-action letter issued to the American
Council of Life Insurance ("ACLI") and that the provisions of paragraphs 1-4 of
the no-action letter have been complied with.
34. REPRESENTATION REGARDING CONTRACT EXPENSES
Northbrook Life Insurance Company ("Northbrook Life") represents that the
fees and charges deducted under the Group and Individual Variable Annuity
Contracts hereby registered by this Registration Statement, in aggregate, are
reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by Northbrook Life.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 (the "Act") and
the Investment Company Act of 1940, the registrant, Northbrook Variable
Annuity Account II, certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this Registration Statement and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, and its seal to be hereunto affixed
and attested, all in the Township of Northfield, State of Illinois, on the
23rd day of December, 1996.
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
(REGISTRANT)
BY: NORTHBROOK LIFE INSURANCE COMPANY
(DEPOSITOR)
(SEAL)
Attest: /s/BRENDA D. SNEED By: /s/MICHAEL J. VELOTTA
------------------ ---------------------
Brenda D. Sneed Michael J. Velotta
Assistant Secretary Vice President, Secretary and
And Assistant General Counsel General Counsel
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, this Registration Statement has been duly signed below by
the following Directors and Officers of Northbrook Life Insurance Company on the
23rd day of December, 1996.
*/LOUIS G. LOWER, II Chairman of the Board of Directors and
- ---------------------- Chief Executive Officer
Louis G. Lower, II (Principal Executive Officer)
/s/MICHAEL J. VELOTTA Vice President, Secretary, General
- ---------------------- Counsel and Director
Michael J. Velotta
**/PETER H. HECKMAN President, Chief Operating Officer
- ---------------------- and Director
Peter H. Heckman
*/JOHN R. HUNTER Assistant Vice President
- ---------------------- and Director
John R. Hunter
**/KEVIN R. SLAWIN Vice President and Director
- ----------------------
Kevin R. Slawin
*/CASEY J. SYLLA Chief Investment Officer and Director
- ----------------------
Casey J. Sylla
**/MARLA G. FRIEDMAN Vice President
- ----------------------
Marla G. Friedman
**/KAREN C. GARDNER Vice President
- ----------------------
Karen C. Gardner
*/JAMES P. ZILS Treasurer
- ----------------------
James P. Zils
**/KEITH HAUSCHILDT Assistant Vice President and Controller
- ---------------------- (Principal Accounting Officer)
Keith Hauschildt
*/ By Michael J. Velotta, pursuant to Power of Attorney, previously filed.
**/ By Michael J. Velotta, pursuant to Power of Attorney, filed herewith.
<PAGE>
Exhibit 1
Resolution Establishing Northbrook Variable Annuity Account II
By
The Board Of Directors Of Northbrook Life Insurance Company
Dated May 18, 1990
<PAGE>
BE IT RESOLVED, That the Company, pursuant to the provisions of Section
245.21 of the Illinois Insurance Code, hereby establishes a separate account
designated Northbrook Variable Annuity Account II (hereinafter Variable
Account II) for the following use and purposes, and subject to such
conditions as hereinafter set forth.
BE IT FURTHER RESOLVED, That Variable Account II shall be established
for the purpose of providing for the issuance by the Company of such variable
annuity or such other contracts (Contracts) as the President may designate
for such purpose and shall constitute a separate account into which are
allocated amounts paid to or held by the Company under such Contracts; and
BE IT FURTHER RESOLVED, That the income, gains and loses, whether or not
realized, from assets allocated to Variable Account II shall, in accordance
with the contracts, be credited to or charged against such account without
regard to other income, gains, or losses of the Company; and
BE IT FURTHER RESOLVED, That the fundamental investment policy of
Variable Account II shall be to invest or reinvest the assets of Variable
Account II in securities issued by investment companies registered under the
Investment company Act of 1940, as amended, as the Finance Committee may
designate pursuant to the provisions of the contracts; and
BE IT FURTHER RESOLVED, That seven investment divisions be, and hereby
are, established within Variable Account II to which net payments under the
Contracts will be allocated in accordance with instructions received from
contractholders, and that the President be, and hereby is, authorized to
increase or decrease the number of investment divisions in Variable Account
II as deemed necessary or appropriate; and
BE IT FURTHER RESOLVED, That each such investment division shall invest
only in the shares of a single mutual fund or a single mutual fund portfolio of
an investment company organized as a series fund pursuant to the Investment
Company Act of 1940; and
BE IT FURTHER RESOLVED, That the President and Treasurer be and they
hereby are, authorized to deposit such amount in Variable Account II or in
each investment division thereof as may be necessary to appropriate to
facilitate the commencement of the Account's operations; and
BE IT FURTHER RESOLVED, That the President of the Company be, and is
hereby, authorized to change the designation of Variable Account II to such
other designation as it may deem necessary or appropriate; and
-2-
<PAGE>
BE IT FURTHER RESOLVED, That the appropriate officers of the Company, with
such assistance from the Company's auditors, legal counsel and independent
consultants or others as they may require, be, and they hereby are, authorized
and directed to take all action necessary to: (a) register Variable Account II
as a unit investment trust under the Investment Company Act of 1940, as amended;
(b) register the Contracts in such amounts, which may be an indefinite amount,
as the officers of the Company shall from time to time deem appropriate under
the Securities Act of 1933; and (c) take all other actions which are necessary
in connection with the offering of said contracts for sale and operation of
Variable Account II in order to comply with the Investment Company Act of 1940,
the Securities Exchange Act of 1934, the Securities Act of 1933, and other
applicable federal laws, including the filing of any amendments to registration
statements, any undertakings, and any applications for exemptions from the
Investment Company Act of 1940 or other applicable federal laws as the officers
of the Company shall deem necessary or appropriate; and
BE IT FURTHER RESOLVED, That the President and the General Counsel, and
either of them with full power to act without the other, hereby are severally
authorized and empowered to prepare, execute and cause to be filed with the
Securities and Exchange Commission on behalf of Variable Account II and by the
Company as sponsor and depositor, a Form of Notification of Registration on Form
N-8A, a Registration Statement registering Variable Account II as an investment
company under the Investment Company Act of 1940, and a Registration Statement
under the Securities Act of 1933; and
BE IT FURTHER RESOLVED, That the appropriate officers of the Company be,
and they hereby are, authorized on behalf of Variable Account II and on behalf
of the Company to take any and all action that they may deem necessary or
advisable in order to sell the Contracts, including any registrations, filings
and qualifications of the Company, its officers, agents and employees, and the
Contracts under the insurance and securities laws of any of the states of the
United States of America or other jurisdictions, and in connection therewith, to
prepare, execute, deliver and file all such applications, reports, covenants,
resolutions, applications for exemptions, consents to service of process and
other papers and instruments as may be required under such laws, and to take any
and all further action which said officers or counsel of the Company may deem
necessary or desirable (including entering into whatever agreements and
contracts may be necessary) in order to maintain such registrations or
qualifications for as long as said officers or counsel deem them to be in the
best interests of Variable Account II and the Company; and
BE IT FURTHER RESOLVED, That the General Counsel of the Company be, and
hereby is, authorized in the names and on behalf of Variable Account II and
-3-
<PAGE>
the Company to execute and file irrevocable written consents on the part of
Variable Account II and of the Company to be used in such states wherein such
consents to service of process may be requisite under the insurance or
securities laws therein in connection with said registration or qualification
of Contracts and to appoint the appropriate state official, or such other
person as may be allowed by said insurance or securities laws, agent of
Variable Account II and of the Company for the purpose of receiving and
accepting process; and
BE IT FURTHER RESOLVED, That the President of the Company be, and hereby
is, authorized to establish criteria by which the Company shall institute
procedures to provide for a pass-through of voting rights to the owners of
such Contracts as required by the applicable laws with respect to securities
owned by Variable Account II; and
BE IT FURTHER RESOLVED, That the President of the Company is hereby
authorized to execute such agreement or agreements on such terms and subject to
such modifications as deemed necessary or appropriate (i) with a qualified
entity that will be appointed principal underwriter and distributor for the
Contracts and (ii) with one or more qualified banks or other qualified entities
to provide administrative and/or custodial services in connection with the
establishment and maintenance of Variable Account II and the design, issuance,
and administration of the Contracts; and
BE IT FURTHER RESOLVED, That since it is expected that Variable Account II
will invest in the securities issued by one or more investment companies, the
appropriate officers of the Company are hereby authorized to execute whatever
agreement or agreements as may be necessary or appropriate to enable such
investments to be made; and
BE IT FURTHER RESOLVED, That the appropriate officers of the Company, and
each of them, are hereby authorized to execute and deliver all such documents
and papers and to do or cause to be done all such acts and things as they may
deem necessary or desirable to carry out the foregoing resolutions and the
intent and purposes thereof.
-4-
<PAGE>
UNDERWRITING AGREEMENT
THIS UNDERWRITING AGREEMENT, made and entered into this the 9th day of
February, 1984 (by and between NORTHBROOK LIFE INSURANCE COMPANY (hereinafter
the "Company") on its own behalf and on behalf of the NORTHBROOK VARIABLE
ANNUITY ACCOUNT (hereinafter the "Account"), a separate account of the Company,
and DEAN WITTER REYNOLDS INC., (hereinafter the "Underwriter").
WHEREAS, by resolution of its Board of Directors on February 14, 1983, the
Company established the Account to set aside and invest assets attributable to
certain variable annuity contracts (hereinafter the "Contracts") issued by the
Company;
WHEREAS, the Company has registered the Account as a unit investment trust
under the Investment Company Act of 1940 (hereinafter the ("1940 Act");
WHEREAS, the Company has filed the initial registration statement of the
Contracts under the Securities Act of 1933 (hereinafter the "1933 Act") and will
complete said registration under the 1933 Act;
WHEREAS, the Underwriter is registered as a broker-dealer with the
Securities and Exchange Commission (hereinafter the "SEC") under the Securities
Exchange Act of 1934, as amended, (hereinafter the ("1934 Act"), and is a member
in good standing of the National Association of Securities Dealers, Inc.
(hereinafter "NASD"); and
WHEREAS, the Company and the Account desire to have Contracts sold and
distributed through the Underwriter and the Underwriter is willing to sell and
distribute such Contracts under the terms of this Agreement;
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
1. Registration Statement -- At any time that this Agreement is in effect, the
currently effective registration statement, or currently effective post-
effective amendment thereto, relating to the Contracts and the Account,
including financial statements included in, and all exhibits to, such
registration statement or post-effective amendment.
1
<PAGE>
2. Prospectus -- Any Prospectus required to be filed on behalf of the Account.
Prospectus includes those Account Prospectuses within the registration
statement, except that, if the most recently filed Account Prospectus filed
pursuant to Rule 424(b) or Rule 424(c) of the 1933 Act subsequent to the date on
which the Registration Statement became effective differs from the Account
Prospectus on file at the time the Registration Statement became effective, the
term "Prospectus" shall refer to the most recently filed Account Prospectus
filed under Rule 424(b) or (c) from and after the date on which it shall have
been filed. (For purposes of Article VIl and VIll of this Agreement, the terms
"any Registration Statement" and "any Prospectus" mean, respectively, any
document which is or at any time was a Registration Statement or a Prospectus
within the meanings of paragraphs (1) or (2) of this Article 1.)
ARTICLE II
GENERAL PROVISIONS
3. The Company grants to the Underwriter the right to be, and the Underwriter
agrees to serve as, exclusive distributor and underwriter during the first year
of the term of this Agreement and as distributor and principal underwriter of
the Contracts during the remaining term of this Agreement. The Underwriter
agrees to sell Contracts under the terms set by the Company, to use its best
efforts in soliciting applications and in selling the Contracts, and to perform
all duties necessary and proper in distributing the Prospectus and all sales and
promotional materials. The Company reserves the right to refuse to issue any
Contract.
4. a.) The Underwriter shall act as a fiduciary on behalf of theCompany in its
handling of any premiums received for deposits into the Account.
b.) The Underwriter shall remit all premiums, send all applications, forms
and any other necessary documents promptly to the Company or its designated
representative.
c.) If any Purchase Payment is paid directly to the Company, the Company
agrees to remit all commissions according to Article IV of this Agreement.
5. The Company agrees to obtain and maintain approval of the Contracts in
those states or other jurisdictions where the Company determines it is desirable
to sell and offer the Contract.
6. The Underwriter shall not give any information or make any representations
concerning the Contract or Account or the Company to any person or entity unless
the information or representations are contained in the Registration Statement
in the Account's Prospectus filed with the SEC or are contained in the sales or
promotional
2
<PAGE>
literature approved by the Company. The Company must approve, in writing, all
sales or promotional literature to be used in selling or soliciting the
Contracts.
7. The Underwriter shall be responsible for carrying out the sales and
underwriting obligations of this Agreement in compliance with the NASD Rules of
Fair Practice and federal securities and state securities and insurance laws and
regulations. To the extent necessary to offer the Contracts, the Underwriter
shall be duly registered or licensed or otherwise qualified under the insurance
and securities laws of the states, including the District of Columbia but
excluding the State of New York.
8. The Company agrees to file sales or promotional literature if so required
by any state or other jurisdiction.
ARTICLE III
COSTS AND EXPENSES
9. Except as provided elsewhere in this Agreement, the Underwriter agrees to
perform, at its own expense, all duties and functions which are necessary and
proper for the sale of and distribution of the Contracts.
10. The Company shall bear:
a.) all costs and expenses, including the fees and disbursements of its
attorneys and independent accountants, which are incurred in connection
with preparing and filing those registration statements and prospectuses
concerning the Account and required to be filed by the Company;
b.) all expenses incurred in preparing, printing, mailing and otherwise
distributing the Account's annual or interim reports or prospectuses to
owners of the Contracts;
c.) all costs and expenses of preparing and providing camera-ready copy of
the Account's Prospectuses to the Underwriter;
d.) all costs and expenses incurred in obtaining approval of the Contracts
by the appropriate regulatory agencies in such states or other
jurisdictions where so determined by the Company;
e.) all costs and expenses incurred in maintaining state or other
regulatory agency approval of the Contracts until the Company determines
that it is no longer desirable to continue to offer the Contracts for sale
in that state or other jurisdiction; and,
3
<PAGE>
f.) all costs and expenses incurred in obtaining any necessary state, NASD
or other regulatory agency approval of sales or promotional literature
which is used by the Underwriter.
11. The Underwriter shall bear:
a.) all costs and expenses incurred in printing, mailing and distributing
the Account's Prospectus to any prospective purchaser of the Contract or,
at or near the time of the initial Purchase Payment, to contractholders.
The Underwriter is not responsible for printing, mailing and distributing
those Account prospectuses which, by law, must be sent at least annually to
owners of the Contract;
b.) all costs and expenses incurred in preparing, printing and
distributing any sales or promotional literature used by the Underwriter in
offering the Contracts for sale; and,
c.) all costs and expenses incurred in advertising the offering of the
Contracts.
ARTICLE IV
COMMISSIONS AND ALLOWANCES
12. The Company shall pay any commissions or other compensation payable on the
sale of the Contract to the Underwriter so long as the payment of commissions or
other compensation complies with insurance laws and regulations of the
jurisdictions, state or otherwise, where the Company decides to offer the
Contracts.
13. In any jurisdiction requiring payment of insurance commissions or other
compensation to persons other than the Underwriter, the Company shall pay the
commission in accordance with the laws or regulations of that jurisdiction and
in a manner determined by the Company.
14. In the event the Company improperly pays a commission, insurance or
otherwise, in reliance on information furnished by the Underwriter, the
Underwriter must reimburse or indemnify the Company for any losses or penalties
incurred as a result of such reliance as provided in Article VIII of this
Agreement.
15. The Company shall compensate the Underwriter for performing its duties and
functions under this Agreement as follows:
4
<PAGE>
a.) DIRECT COMMISSIONS -- For the sale of the Contract, theUnderwriter
shall receive a direct commission equal to ____ percent (__%) of all
Purchase Payments which are accepted by the Company. This __% commission
shall include the appropriate insurance commission which the Underwriter
shall pay to its associated persons or other employees unless otherwise
provided in paragraphs 12 and 13 of this Article. In the event any
Contract is fully or partially surrendered during the first six (6) months
after its date of issue, the Underwriter shall refund to the Company all of
the direct commission earned on the amount surrendered.
b.) DIRECT SALES EXPENSE ALLOWANCE. -- As additional compensation to defer
the Underwriter's expense incurred in producing sales materials, printing
prospectuses, licensing associated persons or other employees to sell or
offer to sell the Contracts, and advertising the Contract or Account, the
Underwriter shall receive an amount equal to _______ percent (___%) of all
Purchase Payments on Contracts which are accepted by the Company.
c.) SALES ADMINISTRATION EXPENSE ALLOWANCE As additional compensation to
defer the Underwriter's expenses incurred with respect to sales
administration, including general overhead, travel, sales personnel
training, production of management reports, compliance and personnel
expenses, the Underwriter shall receive an amount equal to ___% of the
Average Net Assets of the Account attributable to Contracts sold under this
Agreement.
The Company shall compute Average Net Assets by multiplying (A) times (B)
where: (A) is the mortality and expense guarantee charge earned by the Company
in the Account on Contracts sold by the Underwriter under this Agreement; and
(B) is 100.
The Company shall pay sales administration expense allowance to the
Underwriter annually and no later than sixty days after the close of the
calendar year.
ARTICLE V
ASSOCIATED PERSONS AND OTHER EMPLOYEES
16. The Underwriter will obtain and maintain all licenses, including any broker
or insurance agent or general agency licenses, necessary for its associated
persons or other employees to sell and service the Contracts and to fulfill
their responsibilities under this Agreement.
17. The Company requires that the Contracts shall be sold and offered only by
those registered and licensed associated persons or other employees of the
Underwriter who are licensed by the Underwriter and appointed by the Company.
5
<PAGE>
The Underwriter shall ensure that any associated person or other employee who
offers to sell or sells the Contracts is licensed under the appropriate federal
securities laws and any applicable state securities or insurance laws, including
those of the District of Columbia.
18. The Underwriter agrees to train its associated persons or other employees,
including those who are not involved in the sale or offering for sale of the
Contracts, and to use its best efforts to comply with the NASD Rules of Fair
Practice and with federal and state securities, insurance or other laws.
19. On or before January 1, 1984, the Underwriter shall establish and implement
reasonable written procedures for supervising the sales practices of associated
persons or other employees selling the Contracts. The Company reserves the
right to veto any unreasonable sales practice.
20. The Underwriter shall ensure that its associated persons or other employees
shall not recommend the purchase of a Contract nor sell a Contract to an
applicant in the absence of reasonable grounds to believe that the purchase of
the Contract is suitable for such applicant on the basis of information
furnished after reasonable inquiry of such applicant concerning the applicant's
insurance and investment objectives, financial situation and needs, and any
other information known to the insurer or to the agent making the
recommendation.
21. The Underwriter shall not withhold from its associated persons or employees
any monies lawfully payable as commission or compensation for sale of the
Contracts pursuant to this Agreement.
22. The Underwriter shall apply for the proper insurance licenses in the
appropriate states or jurisdictions for its associated persons or other
employees. The Company shall reimburse the Underwriter for any fees paid by the
Underwriter for insurance agent licenses.
23. The Company shall appoint those associated persons and other employees of
the Underwriter who are found eligible by state insurance departments and NASD
to act as variable annuity agents. The Company reserves the right to reasonably
refuse to appoint any proposed associated person or other employee as an agent
and the right to terminate an agent once appointed.
6
<PAGE>
ARTICLE VI
RECORDS
24. All records concerning the Account or Contract shall be the exclusive
property of the Company, free from any claim or retention of rights by the
Underwriter. "Records" means all cumulative data, including but not limited to
books, files, reports, data bases, facsimile signature devices or other
materials concerning the Account or Contracts, which are intended to perpetuate
a knowledge of the activities of the Account or Contracts. "Records" does not
include reports or other data which are not produced at the request of or on
behalf of the Company and which do not contain identifiable information about
the contractholder.
25. Neither party shall disclose voluntarily any tape, books, reference
manuals, instructions or data which concern either party's business and which
are exchanged during the negotiation and performance of this Agreement. When
this Agreement terminates or expires, the parties shall return all such tapes,
books, reference manuals, instructions, information or data in their possession.
This paragraph shall not apply to those "Records" in Paragraph 24 of this
Article.
26. The Company shall have full and free access during normal business hours to
any Records which concern the Account or Contracts and which are maintained by
the Underwriter.
27. The Underwriter shall keep confidential any Records concerning the contract
owners, annuitants or beneficiaries or any persons who have rights arising out
of the Contract. The Underwriter may disclose such Records only If the Company
has authorized a disclosure and if the disclosure is permitted by the applicable
federal or state law governing privacy of records held by or within control of
insurance companies. In the event the Underwriter is served with a subpoena or
any other Court Order which mandates disclosure, the Underwriter must notify the
Company and allow the Company sufficient time to authorize disclosure or to
intervene in the judicial proceeding so as to protect its interest.
28. Both the Company and the Underwriter agree to keep all records required by
federal and state laws, to maintain the books, accounts and records as to
clearly and accurately disclose the precise nature and details of the
transaction, and to assist one another in the timely preparation of records.
29. The Company shall furnish the Underwriter with copies of all documents
which must be filed with the SEC by the Company concurrently with the Company's
SEC filing. Concurrent with any other filing, whether state or federal, the
Company shall furnish the Underwriter with copies of the filing if it affects
the Account.
7
<PAGE>
30. The Underwriter shall submit to all regulatory and administrative bodies
which have jurisdiction over the Account any information, reports or other
material requested pursuant to applicable laws or regulations.
31. The Underwriter shall furnish to the Company any reports and information
which the Company may request for the purpose of meeting its reporting and
recordkeeping requirements under the insurance laws of the State of Illinois and
any other state or jurisdiction.
ARTICLE VII
COMPANY'S INDEMNITY AGREEMENT
32. The Company shall indemnify and hold harmless the Underwriter and each
person who controls or is associated with the Underwriter within the meaning of
the 1933 Act or 1934 Act for losses, claims, damages, or liabilities, joint or
several, arising out of or based on any untrue statement or an alleged untrue
statement of material fact, any omission or alleged omission of a material fact
required by the 1933, 1934 or 1940 Acts, or any misleading statement resulting
from an omitted or misstated material fact, contained in any Registration
Statement or in any Prospectus provided that the Company will not be liable in
any such case to the extent that such loss, claim, damage or liability arises
out of, or is based upon, an untrue or alleged untrue statement, omission or
alleged omission, or misleading statement made in reliance upon written
information furnished to the Company by or on behalf of the Underwriter
specifically for use in the preparation of any such Registration Statement or
Prospectus.
33. The Company will reimburse the Underwriter for any legal or other expenses
reasonably incurred by the Underwriter in investigating or defending any action
or claim arising out of any action under paragraph 32 of this Article.
34. At its own expense, the Company may participate in or may assume the
defense of any suit brought to enforce any such liability described in paragraph
32 of this Article. If the Company assumes its own defense, such defense shall
be conducted by counsel chosen by the Company. If the Company assumes the
defense of any suit and retains counsel, the Underwriter shall bear the fees and
expenses of any additional counsel retained by them. If the Company does not
assume the defense of any such suit, it will reimburse the Underwriter for the
reasonable fees and expenses of any counsel retained by them.
35. The Company shall not indemnify the Underwriter for any action where an
owner of the Contract or other person seeking legal recourse was not furnished
or sent or given, at or prior to written confirmation of the sale of the
Contract, a copy
8
<PAGE>
of the most recent Prospectus (excluding documents incorporated by reference) as
amended, if the Company has previously furnished copies of the most recent
Prospectus in accordance with the terms of this Agreement.
36. The Company shall not indemnify the Underwriter against any liability to
which the Underwriter would otherwise be liable by reason of its negligence in
the performance of its duties or by reason of disregard of its obligations and
duties under this Agreement.
37. The Company shall not indemnify the Underwriter against any liability if
the Underwriter does not notify the Company, in writing, within a reasonable
time after the Underwriter or its designated service of process agent is served
with the summons or other legal process which initially notifies the Underwriter
of the nature of this claim.
ARTICLE VIII
UNDERWRITERIS INDEMNITY AGREEMENT
38. The Underwriter shall indemnify and hold harmless the Company and each
person who controls or is associated with the Company within the meaning of the
1933 Act or 1934 Act for losses, claims, damages, or liabilities, joint or
several, arising out of or based on any untrue statement or an alleged untrue
statement of material fact, any omission or alleged omission of a material fact
required by the 1933, 1934 or 1940 Acts, or any misleading statement resulting
from an omitted or misstated material fact, contained in any Registration
Statement or in any Prospectus provided that the Underwriter will not be liable
in any such case to the extent that such loss, claim, damage or liability arises
out of, or is based upon, an untrue or alleged untrue statement, omission or
alleged omission, or misleading statement made in reliance upon written
information furnished to the Underwriter by or on behalf of the Company
specifically for use in the preparation of any such Registration Statement.
Further, the Underwriter shall indemnify and hold harmless the Company for any
losses, claims, damages or liabilities to which the Company or any director or
officer thereof may become subject, insofar as the liabilities arise out of or
are based upon any unauthorized use of sales materials or any verbal or written
misrepresentations or any unlawful sales practices concerning the Contracts by
the Underwriter.
39. The Underwriter shall indemnify and hold harmless the Company for any
penalties or liabilities which the Company incurs by paying commissions as a
result of relying on information furnished by the Under-writer. Paragraph 14 of
Article IV of this Agreement is incorporated by reference. 40. The Underwriter
will reimburse
9
<PAGE>
the Company for any legal or other expenses reasonably incurred by the Company
in investigating or defending any action or claim arising out of any action
under paragraphs 38 and 39 of this Article.
41. At its own expense, the Underwriter may participate In or may assume the
defense of any suit brought to enforce any such liability described in
paragraphs 38 and 39 of this Article. If the Underwriter assumes their own
defense, such defense shall be conducted by counsel chosen by the Underwriter.
If the Underwriter assumes the defense of any suit and retains counsel, the
Company shall bear the fees and expenses of any additional counsel retained by
it. If the Underwriter does not assume the defense of any such suit, it will
reimburse the Company for the reasonable fees and expenses of any counsel
retained by it.
42. The Underwriter shall not indemnify the Company against any
liability to which the Company would otherwise be liable by reason of its
negligence in the performance of its duties or by reason of disregard of its
obligations and duties under this Agreement.
43. The Underwriter shall not indemnify the Company against any liability if
the Company does not notify the Underwriter, in writing, within a reasonable
time after the Company or its designated service of process agent is served with
a summons or other legal process which initially notifies the Company of the
nature of this claim.
ARTICLE IX
COMPLAINTS AND INVESTIGATIONS
44. The Underwriter and the Company agree to cooperate fully in any insurance
regulatory investigation or proceeding or judicial proceeding arising in
connection with the Contracts marketed under this Agreement. The Underwriter
and the Company further agree to cooperate fully in any securities regulatory
investigation or proceeding with respect to the Underwriter, the Company, their
affiliates and their registered representatives to the extent that such
investigation or proceeding is in connection with Contracts marketed under this
Agreement. Without limiting the foregoing:
(1) The Underwriter will be notified promptly of any customer complaint or
notice of any regulatory investigation or proceeding or judicial proceeding
received by the Company with respect to the Underwriter or any registered
representative of the Underwriter or which may affect Company's issuance of
any Contract marketed under this Agreement.
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<PAGE>
(2) The Underwriter will promptly notify the Company of any customer
complaint or notice of any regulatory investigation or proceeding received
by the Underwriter or its affiliates with respect to the Underwriter, its
affiliates, or any of its registered representative in connection with any
Contract marketed under this Agreement or any activity in connection with
any such Contract.
45. In the case of a customer complaint, the Company and the Underwriter will
cooperate with each other in investigating such complaint and any response to
such complaint will be sent to the other party of this Agreement for approval
not less than five (5) business days of receipt prior to its being sent to the
customer or regulatory authority, except that if a more prompt response is
required, the proposed response shall be communicated by telephone or telegraph
and confirmed in writing.
ARTICLE X
EFFECTIVE DATE
46. This Agreement shall be effective upon execution by both parties and will
remain in effect unless terminated as provided in Article XI of this Agreement.
ARTICLE XI
TERMINATION
47. This Agreement shall be automatically terminated if it is assigned by the
Underwriter. The term "assigned" shall not include any transaction exempted
from Section 15(b)(2) of the 1940 Act.
48. This Agreement may be terminated by either the Company or the Underwriter
at any time effective upon the mailing of written notice by registered mail by
the terminating party to the other party not less than sixty (60) days prior to
the termination date.
49. This Agreement may be terminated at any time upon the mutual written
consent of the parties.
50. In the event either the Company or the Underwriter cannot or will not
fulfill its responsibilities under this Agreement, the other party shall have
the right to demand, in writing, that the noncompliance be corrected within
thirty (30) days of the day on which the notice is received. In the event the
noncompliance is not corrected within thirty (30) days, this Agreement will
terminate on the 31st day after the complying party mails a termination notice
by registered mail to the noncomplying party.
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51. Upon the termination of this Agreement, the parties shall have no duties or
functions under this Agreement except (a) to settle their accounts including
payments of premiums or commissions subsequently received on Contracts in effect
on the date of termination or issued pursuant to applications received by the
Company prior to termination, and (b) to indemnify as set forth in Articles Vil
and VIII of this Agreement. On any contract, partially or fully surrendered
within the first six (6) months after Its date of issue, the Underwriter shall
refund any commission in accordance with Article IV of this Agreement.
ARTICLE XII
MODIFICATION
52. Both parties declare that there are no oral or other agreements or
understandings between them affecting this Agreement or relating to the selling
or servicing of the Account and the Contracts. This Agreement supersedes all
prior agreements between the parties and constitutes the entire Agreement
between the parties.
53. The parties agree that in the event any provision of this Agreement
conflicts with any provision of the Managing General Agent's Contract entered
into between the Company and the Underwriter, this Agreement shall supersede and
take precedence over the Managing General Agent's Agreement.
54. This Agreement may be modified only if in writing and if attested to by
those persons authorized to enter into Agreements on behalf of the Company and
Underwriter.
55. If either party fails to require performance by the other party of any
provision of this Agreement, that party does not waive its right to require such
performance at a later time. If either party waives the breach of any provision
of this Agreement by the other party, the waiving party still has the right to
require performance of the provision and its conduct shall not be construed to
waive succeeding breaches.
ARTICLE XIII
NOTICE
56. Unless otherwise provided in this Agreement, all notices, requests, demands
and other communications which must be provided under this Agreement shall be in
writing and shall be deemed to have been given on the date of service if served
personally on the party to whom notice is to be given, or on the date of mailing
if sent by first class mail or registered or certified, postage prepaid.
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57. All notices, requests, demands and other communications which are sent to
the Company shall be sent to:
Robert S. Seiler
Senior Vice President, Secretary
and General Counsel
Northbrook Life Insurance Co.
Allstate Plaza
Northbrook, IL 60062
58. All notices, requests, demands and other communications which are sent to
the Underwriter shall be sent to-
Thomas Peck
lst Vice-President
Dean Witter Reynolds Inc.
Insurance Services
110 Church Street
New York, NY
ARTICLE XIV
APPLICABLE LAWS
59. This Agreement shall be subject to the 1933, 1934 and 1940 Acts, and the
rules, regulations, and rulings issued thereunder, including such exemptions as
the Securities and Exchange Commission may grant.
60. Except as provided in paragraph 59 of this Article XIV, this Agreement
shall be construed in accordance with the laws of the State of Illinois.
61. If any provision of this Agreement shall be held OR made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized officers
as of the day and year first above written.
NORTHBROOK LIFE INSURANCE COMPANY
Attest /s/ Robert S. Seiler By:/s/Robert L. Roberts
--------------------- -----------------------
Secretary ROBERT L. ROBERTS
President
UNDERWRITER DEAN WITTER REYNOLDS INC.
Attest /s/Barbara Coffey By:/s/Charles Fiumerfreddo
------------------- -----------------------
Assistant Secretary CHARLES FIUMEFREDDO
Executive Vice President
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EXHIBIT 3(b)
FORM OF GENERAL AGENCY AGREEMENT
THIS 1993 GENERAL AGENCY AGREEMENT (hereinafter "Agreement") is made and
entered into as of October 1, 1993 by and between NORTHBROOK LIFE INSURANCE
COMPANY (hereinafter "Northbrook") and DEAN WITTER REYNOLDS INC. (hereinafter
"DWR").
IN CONSIDERATION OF the mutual promises exchanged by the parties in this
Agreement, Northbrook grants to DWR the right to be and DWR agrees to serve as
General Agent for the sale of the Policies during the term of this Agreement and
the parties agree as follows:
ARTICLE I.
DEFINITIONS
1.01. "Agents" shall mean any DWR account executive, subproducer,
employee or other person acting in a similar capacity who is appropriately
licensed as an insurance agent.
1.02. "DWR shall mean Dean Witter Reynolds Inc., its duly licensed
insurance agency subsidiaries, and their successors.
1.03. "Fund" shall mean the Dean Witter Variable Investment Series.
1.04. "Laws" shall mean all state (including the District of Columbia)
and federal statutes and regulations, and any orders, rules or opinions of any
judicial or administrative body authorized to interpret such statutes or
regulations.
1.05. "Loss" shall mean any expense, cost, loss, claim, damage or
liability.
1.06. "NASD" shall mean the National Association of Securities Dealers,
Inc.
1.07. "Northbrook" shall mean Northbrook Life Insurance Company and its
successors. "Northbrook" shall include Northbrook's separate accounts
(hereinafter the "Accounts").
1.08. "Officer" shall mean an officer of DWR from DWR's headquarters in
New York, or any officer of Northbrook.
1.09. "Policies" shall be those insurance policies and contracts of the
types described in Addendum 1.09, attached to and made a part of this Agreement.
1.10. "Premiums" shall mean purchase payments or premiums paid on the
Policies.
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1.11. "Prospectus" shall mean any Prospectus or amendment thereto, if
any, filed with the Securities and Exchange Commission with respect to the
Policies.
1.12. "Records" shall mean all data concerning the Policies, except
data which is not produced at the request of or on behalf of Northbrook and
which does not contain identifiable information about the Policy owner.
"Records" does not include those customer lists in subparagraphs 3.03(a) and (b)
of Article III of this Agreement.
1.13. "Registration Statement" shall mean any Registration Statement
and all post-effective amendments thereto, if any, filed with the Securities and
Exchange Commission with respect to the Policies.
1.14. "Sales or promotional material" shall mean sales or promotional
pieces as defined by state insurance and federal securities laws, and by the
NASD.
1.15. "Sell" or "selling" or "sales" or "sale" shall mean soliciting,
negotiating or effectuating the Policies or any other activity which by law
requires a person to be licensed as an agent or which under the rules of the
NASD requires a person to be registered to sell SEC registered variable
insurance products.
1.16. "Variable Product" shall mean the variable annuity products
listed in Addendum 1.09.
ARTICLE II.
DWR'S DUTIES AND OBLIGATIONS
2.01. Subject to Northbrook's right to refuse to issue any Policies,
DWR shall use reasonable efforts to sell the Policies and shall perform all
duties necessary and proper in distributing the Prospectus and all sales and
promotional material.
2.02. Further, DWR shall:
(a) promptly remit premiums net of Fixed Commissions (as defined in
paragraph 6.01) by bank wire transfer or check to Northbrook, send all
applications, forms and any other necessary documents to Northbrook or its
designated representative, and deliver the Policies to purchasers, as
mutually agreed upon by the parties to this Agreement;
(b) develop and publish all sales or promotional material to be used in
selling the Policies. All such material shall be for the sole and
exclusive use of DWR and its agents and shall be solely and exclusively
DWR's property. Such material will not be used by DWR unless, prior to its
use, Northbrook has approved it and has not, at the time of any subsequent
use, withdrawn approval. Withdrawal of approval by
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Northbrook of such material shall be upon thirty (30) days prior written
notice to DWR, unless a more immediate withdrawal is required by legal or
regulatory considerations, in which case Northbrook will consult with DWR
before making withdrawal effective. The approval of Northbrook shall not
be required with respect to materials developed by DWR for internal use
only;
(c) file with NASD all sales or promotional material where necessary to
comply with federal laws and send Northbrook a copy of such filing and any
comments received thereon;
(d) give only that information or make only those representations
concerning the Policies or Accounts of Northbrook to prospective purchasers
and Policy owners which are contained in the Registration Statements or in
the Accounts' Prospectuses filed with the SEC or are contained in the sales
or promotional literature expressly approved by Northbrook; and
(e) carry out the sales and distribution obligations of this Agreement and
train its agents to use sales practices in compliance with the NASD Rules
of Fair Practice and applicable laws. To the extent necessary to sell the
Policies and to receive commissions, DWR shall be duly registered or
licensed or otherwise qualified under the insurance and securities laws of
the states in which the Policies are authorized for sale.
2.03. DWR shall not:
(a) alter or discharge any Policies on behalf of Northbrook;
(b) incur any indebtedness or liability on behalf of Northbrook;
(c) expend or contract for the expenditure of Northbrook's funds;
(d) extend the time for payment of any premiums;
(e) bind Northbrook by promising to reinstate any terminated Policies;
(f) accept notes for payment of premiums;
(g) fail to maintain Northbrook funds in a separate account designated
solely for Northbrook;
(h) adjust or settle any claim or commit Northbrook to adjust or settle
any claims on any Policies;
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(i) use Northbrook's name in any advertising or sales promotion unless
approved by Northbrook in writing, such approval by Northbrook to be
limited to the particular situation and not deemed to be express approval
for use in other advertising or sales promotions; nor
(j) use the registered marks of Northbrook without receiving prior written
approval of an officer of Northbrook.
ARTICLE III.
NORTHBROOK'S DUTIES AND OBLIGATIONS
3.01. Northbrook represents and warrants that it has the authority to
issue the Policies in the District of Columbia, Puerto Rico and all states of
the United States except New York. Northbrook shall notify DWR promptly if its
authority to issue the Policies is suspended, revoked or not renewed in any
state or jurisdiction.
3.02. Northbrook shall:
(a) pay all Commissions to DWR in accordance with Article VI and Addenda
to Paragraph 6.01 of this Agreement;
(b) obtain and maintain authority to sell the Policies in those states or
jurisdictions where DWR and Northbrook determine it is desirable to sell
the Policies; and
(c) file sales or promotional material if so required by any federal,
state, other local jurisdiction or regulatory organization, except as
provided in Paragraph 2.02(c).
3.03. Northbrook shall not:
(a) sell, assign, transfer or use, other than as contemplated by this
Agreement, or, unless required by law, disclose in any manner, with or
without consideration, a list, partial or complete, of the names of DWR's
clients, agents or account executives, or a list, partial or complete, of
the names of applicants for Policies provided to Northbrook by DWR, or a
list, partial or complete, of the names of its own policyholders, unless an
officer of DWR at DWR's corporate headquarters in New York consents to such
action; provided, however, that this restriction shall not apply to any
contacts effected through the use of a list of persons independently
obtained by Northbrook and with respect to which the inclusion of the names
of any such persons arises out of a relationship with an entity other than
DWR or an affiliate of DWR;
(b) interfere in any way with the relationship developed between DWR and
its agents, account executives, employees or clients, or induce or attempt
to induce or encourage DWR's agents or customers to terminate their
relationship with DWR;
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provided, however, that this subparagraph shall not apply to anything done
or required to be done by law or as may be necessary under the rules and
regulations of any regulatory authority having jurisdiction or as otherwise
required by the terms of this Agreement;
(c) contact or solicit, by mail or otherwise, any of DWR's clients,
agents, account executives or employees unless Northbrook is required to do
so by law, or to administer the Policies in the normal course of
policyholder service, or in accordance with guidelines and procedures
addressed in subparagraph (i) below. Any other contact must be authorized
in advance in writing by an officer of DWR at DWR's corporate headquarters
in New York in advance of such contact;
(d) use DWR's name in any advertising or promotion unless expressly
approved in writing by an officer of DWR at DWR's corporate headquarters in
New York. Express approval by DWR shall be limited to the particular
situation and shall not be deemed to be express approval for use in other
advertising or sales promotions;
(e) use advertising and sales promotional material developed by DWR
without the express approval of an officer of DWR at DWR's headquarters in
New York, or use, offer or present any of its own sales or advertising
material to DWR's agents unless expressly approved in writing by an officer
of DWR at DWR's headquarters in New York. Express approval by DWR shall be
limited to the particular situation and shall not be deemed to be express
approval for use in other advertising or sales promotions;
(f) incur any indebtedness or liability on behalf of DWR;
(g) expend or contract for the expenditure of DWR's funds;
(h) use the registered marks of DWR without receiving prior written
approval of an officer of DWR at DWR's headquarters in New York; nor
(i) conduct any branch office, account executive or client meetings,
visits, seminars or mailings either in person, or by any other means,
except in accordance with the guidelines and control procedures established
by DWR and approved by an officer of DWR at its headquarters in New York.
ARTICLE IV.
AGENTS
4.01. (a)DWR shall exercise its own judgment in contracting with
agents. Northbrook reserves the right of final approval before appointing or,
where appropriate,
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licensing such agents to Northbrook, and reserves the right to terminate such
appointment at any time.
(b) DWR shall promptly notify Northbrook when DWR gives or receives notice
of the termination of any such agent. Unless Northbrook directs otherwise, all
such notices shall be sent to:
Ronald Johnson, Assistant Vice President
Northbrook Life Insurance Company
3100 Sanders Road
Northbrook, Illinois 60062
Phone: 708-402-4101
Facsimile: 708-402-3673
4.02. DWR agrees that the Policies shall be sold only by licensed and
appointed Agents.
4.03. DWR and Northbrook shall jointly assure that payment of agent
compensation, including special awards or prizes for sales contests or
promotions, complies with all applicable laws.
4.04. DWR shall ensure that its agents shall not recommend the purchase
of Policies or sell Policies under the jurisdiction of the SEC or the NASD to an
applicant in the absence of reasonable grounds to believe that the purchase of
the Policies is suitable for such applicant on the basis of information
furnished after reasonable inquiry of such applicant concerning the applicant's
insurance and investment objectives, financial situation and needs, and any
other information known to DWR or to the agent making the recommendation.
4.05. DWR shall assure that all agency contracts substantially comply
with applicable laws and regulations.
ARTICLE V.
COSTS AND EXPENSES
5.01. Except as provided elsewhere in this Agreement, DWR shall
perform, at its own expense, all duties which are necessary and proper for the
sale of the Policies. DWR's expenses include but are not limited to:
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(a) all costs and expenses incurred in printing, mailing and distributing
the Accounts and Fund Prospectuses for the Variable Product to any
prospective purchaser of the Variable Product in connection with the
payment of the initial Premiums. DWR is not responsible for printing,
mailing and distributing Accounts and Fund Prospectuses for the Variable
Product for any other purpose;
(b) all costs and expenses incurred in text composition, printing, mailing
and distributing the Statement of Additional Information, the semi-annual
reports and supplements in respect of the Fund;
(c) all costs and expenses incurred in preparing, printing and
distributing any sales or promotional literature used by DWR and its agents
in offering the Policies for sale;
(d) all costs and expenses incurred in advertising the offering of the
Policies for sale;
(e) all state insurance license fees and any fees directly associated with
obtaining, maintaining or terminating insurance licenses for those persons
employed by DWR and authorized to sell the Policies. Such fees do not
include those fees for appointment as defined in sub-paragraph 5.02(j) of
this Article;
(f) 50% of the costs and expenses incurred for original text composition
for new Variable Product Prospectuses. If the lengths of the Accounts and
Fund Prospectuses are significantly different, the cost split may be
adjusted by mutual agreement;
(g) all costs and expenses incurred for text alterations within the DWR
portions of the existing Variable Product Prospectuses and semi-annual
reports; and
(h) all costs and expenses, including the fees and disbursements of its
attorneys and independent accountants, which are incurred in connection
with preparing and filing the Fund's Registration Statement, pre and post-
effective amendments thereto, and semiannual reports.
DWR's expenses under this Paragraph 5.01 are for its own account and are not to
be reflected as expenses in determining Contingent Commissions pursuant to
Article VI hereof. The parties intend and agree that the Schedule of Fixed
Commissions set out in the Addenda to Paragraph 6.01, plus a Quarterly Marketing
Allowance of $125,000, shall be
deemed to be appropriate recompense to DWR in respect of such expenses.
5.02. Northbrook's expenses shall include but are not limited to:
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(a) all costs and expenses, including the fees and disbursements of its
attorneys and independent accountants, which are incurred in connection
with preparing and filing the Accounts' Registration Statements and the pre
and post-effective amendments thereto;
(b) all costs and expenses incurred in printing, mailing and distributing
the Modified Custom Product Prospectus and related statements, reports and
supplements, for any purpose whatsoever;
(c) all costs and expenses incurred in preparing, printing, mailing and
otherwise distributing the Accounts and Fund Prospectuses to owners of the
Policies;
(d) 50% of the costs and expenses incurred for original text composition
for new Variable Product Prospectuses. If the lengths of the Accounts and
Funds Prospectuses are significantly different, the cost split may be
adjusted accordingly by mutual agreement;
(e) all costs and expenses incurred for text alterations within the
Northbrook portions of the existing Variable Product Prospectuses and semi-
annual reports;
(f) all costs and expenses incurred in obtaining authorization to sell the
Policies by the appropriate regulatory agencies in such states or other
jurisdictions as determined by Northbrook;
(g) all costs and expenses incurred in obtaining and maintaining state or
other regulatory agency authorization of the Policies until Northbrook and
DWR determine that it is no longer desirable to continue to offer the
Policies for sale in that state or other jurisdiction;
(h) all costs and expenses incurred in obtaining any necessary state
authorization of sales or promotional material which is used by DWR;
(i) all costs and expenses incurred in developing, maintaining in force,
and administering the Policies;
(j) all state insurance fees necessary to obtain and maintain the
appointment of DWR and agents as Northbrook's agent; and
(k) all of the costs and expenses incurred in text composition, printing,
mailing and distributing the Statement of Additional Information in respect
of the Accounts.
Northbrook's expenses under this Paragraph 5.02 are for its own account and are
not to be reflected as expenses in determining Contingent Commissions pursuant
to Article VI hereof.
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The parties intend and agree that the 30 basis point Expense Allowance, plus a
Quarterly Special Marketing Allowance of $12,500, shall be deemed to be
appropriate recompense to Northbrook in respect of such expenses.
5.03. Entitlement to the Quarterly Special Marketing Allowances set out
in Sub-Paragraph 5.01(h) and Paragraph 5.02 shall commence with a proportionate
Allowance payable on June 1, 1993, full Allowances thereafter being payable on
the first day of each calendar quarter. Entitlement to such Allowances shall
terminate on the date this Agreement terminates, with a proportionate refund of
any such Allowance being effected accordingly.
ARTICLE VI.
COMMISSIONS
6.01. Northbrook shall pay to DWR any commissions payable by reason of
sale of the Policies as long as the payment of Commissions complies with
applicable law. "Commissions" shall mean those fixed commissions described in
Addenda 6.01(a), 6.01(b) and 6.01(d) ("Fixed Commissions") and those contingent
commissions described in Addendum 6.01(c) ("Contingent Commissions"), in each
case attached hereto and made a part hereof.
6.02. DWR shall be entitled,to receive Fixed Commissions and will
promptly on demand refund all Fixed Commissions in accordance with the
provisions of the Fixed Commissions Addenda to Section 6.01, attached to and
made a part of this Agreement.
6.03. In compensating DWR, Northbrook reserves the right to withhold
Fixed Commissions from DWR if it determines DWR is not paying commissions to its
agents in accordance with applicable laws.
6.04. Subject to paragraph 6.01, DWR shall direct how Commissions are
paid, provided such direction is in accordance with applicable law.
6.05. If changes in insurance laws or regulations could reasonably be
expected to affect the sales and administration of Policies under this
Agreement, Northbrook shall notify DWR within a reasonable time after Northbrook
receives notice of those changes. Such notice shall be in writing except, if
circumstances so require, the notice may be communicated by telephone or
facsimile and confirmed in writing.
ARTICLE VII.
RECORDS
7.01. The Records shall be the exclusive property of Northbrook,
subject to rights of inspection and review by DWR.
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7.02. Unless otherwise agreed to, no party to this Agreement shall
voluntarily disclose to any third party any books, reference manuals,
instructions, information or data which concern the other party's business and
which are exchanged during the negotiation and performance of this Agreement.
When this Agreement terminates or expires, the parties shall return all such
books, reference manuals, instructions, information or data in their possession.
7.03. For the purpose of determining the other party's compliance with
this Agreement, each party to this Agreement shall have reasonable access during
normal business hours to any Records which concern the Policies and which are
maintained by the other party.
7.04. DWR and Northbrook shall keep confidential the Records and any
other information concerning the Policy owners, annuitants, insureds,
beneficiaries or any persons who have rights arising out of the Policies. DWR
or Northbrook may disclose the Records and such information only if the other
has authorized disclosure and if the disclosure is required by applicable law.
In the event DWR or Northbrook is served with a subpoena, court order or demand
from a regulatory organization which mandates disclosure of the Records or such
information, such party must notify the other and allow such other party
sufficient time to authorize disclosure or to intervene in the judicial
proceeding or matter so as to protect its interest.
7.05. Both Northbrook and DWR agree to keep all information required by
applicable laws, to maintain the books, accounts and records as to clearly and
accurately disclose the precise nature and details of the transaction, and to
assist one another in the timely preparation of any reports required by law.
7.06. DWR and Northbrook shall furnish to the other any reports and
information which the other may request for the purpose of meeting reporting and
record keeping requirements under the laws of Illinois or any other state or
jurisdiction.
ARTICLE VIII.
COMPLAINTS AND INVESTIGATIONS
8.01. DWR and Northbrook agree to cooperate fully in any regulatory
investigation or proceeding or any judicial proceeding, or any internal
investigation of a customer complaint, arising in connection with the Policies.
DWR and Northbrook further agree to cooperate fully in any securities regulatory
investigation or proceeding with respect to the Policies and related matters.
Without limiting the foregoing:
(a) Northbrook will promptly notify DWR of any customer complaint or
notice of any regulatory examination, investigation or proceeding or any
judicial proceeding
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received by Northbrook with respect to DWR which may affect the selling of
any Policies.
(b) DWR will promptly notify Northbrook of any customer complaint or
notice of any regulatory examination, investigation or proceeding or any
judicial proceeding received by DWR in connection with selling any
Policies.
8.02. Northbrook and DWR will cooperate with each other in investigating
customer and regulatory complaints and in responding to such complaints. DWR
shall send copies of any complaints and responses to Northbrook at the address
in paragraph 4.01 (b) of this Agreement.
ARTICLE IX,
DWR'S INDEMNITY AGREEMENT
9.01. DWR shall, for it own account, indemnify and hold harmless
Northbrook:
(a) and each person who controls or is associated with Northbrook within
the meaning of the Securities Acts of 1933 and 1934 for any and all Losses,
joint or several, arising out of or based on DWR providing Northbrook any
untrue statement or an alleged untrue statement of material fact, DWR
making any omission or alleged omission of a material fact required by the
Securities Act of 1933 or 1934, the Investment Company Act of 1940 or
applicable insurance laws or regulation, or DWR making any misleading
statement resulting from an omitted or misstated material fact, contained
or which should have been contained in any Registration Statement or in any
Prospectus used in connection with the Policies or any investment series
managed by DWR and used by the Policies; PROVIDED, that DWR will not be
liable in any such case to the extent that such Loss arises out of, or is
based upon, an untrue or alleged untrue statement, omission, or misleading
statement made in reliance upon written information furnished to DWR by or
on behalf of Northbrook specifically for use in such Registration Statement
or Prospectus. For purposes of the indemnity provisions of this Article,
the terms "Prospectus" or "Registration Statement" shall mean any document
which is or at any time was a Prospectus or Registration Statement,
respectively, within the meaning of Prospectus or Registration Statement;
(b) from any and all Losses, joint or several, to which Northbrook or any
of its directors, officers, or employees thereof may become subject,
insofar as the Losses arise out of or are based upon any unauthorized use
of sales materials or any verbal or written misrepresentation or any
unlawful sales practices concerning the Policies by DWR or its agents; and
(c) from any and all Losses, joint or several, to which Northbrook or any
of its directors, officers, or employees thereof may become subject and
which result from
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DWR's acts or omissions which are negligent, fraudulent or unauthorized,
including but not limited to the sale of Policies by, or payment of
commission by DWR to, unlicensed agents or agents who have not been
appointed by Northbrook; PROVIDED. however, that this indemnity shall not
extend to any Loss resulting from the failure of the Policies to conform
with any description developed or approved by Northbrook for use by DWR or
its agents.
9.02. DWR will reimburse Northbrook, in a reasonable amount, for any
legal or other expenses incurred by Northbrook in investigating or defending any
action or claim arising out of any matter for which DWR is obligated to
indemnify Northbrook under paragraph 9.01 of this Article.
9.03. DWR shall not indemnify Northbrook against any liability if
Northbrook does not notify DWR of the proceedings and furnish to, DWR a copy of
the legal documents (E.G., complaint, notice of hearing, etc.), if available,
within a reasonable time after Northbrook or its designated service of process
agent is served with the summons or other legal process which initially notifies
Northbrook of the nature of the proceeding.
ARTICLE X.
NORTHBROOK'S INDEMNITY AGREEMENT
10.01. Northbrook shall, for its own account, indemnify and hold
harmless DWR:
(a) and each person who controls or is associated with DWR within the
meaning of the Securities Acts of 1933 or 1934 for any and all Losses,
joint or several, arising out of or based on Northbrook providing DWR any
untrue statement or an alleged untrue statement of material fact,
Northbrook making any omission or alleged omission of a material fact
required by the Securities Acts of 1933 or 1934, the Investment Company Act
of 1940, or applicable Insurance Laws or Regulations, or Northbrook making
any misleading statement resulting from an omitted or misstated material
fact, contained or which should have been contained in any Registration
Statement or in any Prospectus used in connection with the Policies or any
investment series managed by DWR and used by the Policies; provided, that
Northbrook will not be liable in any such case to the extent that such Loss
arises out of, or is based upon, an untrue or alleged untrue statement,
omission, or alleged omission, or misleading statement made in reliance
upon written information furnished to Northbrook by or on behalf of DWR
specifically for use in any such Registration Statement or Prospectus. For
purposes of the indemnity provisions of this Article, the terms
"Prospectus" or "Registration Statement" shall mean any document which is
or at any time was a Prospectus or Registration Statement, respectively,
within the meaning of Prospectus or Registration Statement;
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(b) from any and all Losses, joint or several, to which DWR or any of its
directors, officers or employees thereof may become subject and which
result from Northbrook's acts or omissions which are negligent, fraudulent
or unauthorized, including but not limited to the failure of the Policies
to conform with any written description developed or approved by Northbrook
for the use of DWR or its agents; provided, the indemnity of DWR by
Northbrook under this subparagraph 10.01(b) shall not extend to any Loss
resulting from the failure of DWR to notify its agents of any changes in
applicable law which affect the Policies in the event that Northbrook has
fully discharged its responsibilities under Paragraph 6.05; and
(c) from any and all Losses, joint or several, to which DWR or any of its
directors, officers or employees thereof may become subject, insofar as
such Losses arise out of or are based upon any unauthorized use of sales
materials or any verbal or written misrepresentation or any unlawful sales
practices concerning the Policies by Northbrook or its employees, or
insofar as such Losses arise from the sale by DWR and its agents of
Policies using procedures which do not require the prospective purchaser of
a Policy to complete and submit a Policy application, it being acknowledged
by Northbrook that DWR has relied upon Northbrook as to the compliance of
such procedures with applicable law and regulation.
10.02. Northbrook will reimburse DWR, in a reasonable amount, for any
legal or other expenses incurred by DWR in investigating or defending any action
or claim arising out of any matter for which Northbrook is obligated to
indemnify DWR under paragraph 10.01 of this Article.
10.03. Northbrook shall not indemnify DWR for any Losses arising out of
an action where (a) an owner of the Policies or other person seeking legal
recourse was not furnished or sent or given at or prior to written confirmation
of the sale of the Policies, a copy of the most recent Prospectus if Northbrook
has previously furnished copies of the most recent Prospectus to DWR in
accordance with the terms of this Agreement, and (b) such losses would not have
occurred if such owner or other person had been furnished with the most recent
prospectus.
10.04. Northbrook shall not indemnify DWR against any Loss if DWR does
not notify Northbrook of the proceedings and furnish to Northbrook the legal
documents (e.g., complaint, notice of hearing, etc.), if available, within a
reasonable time after DWR or its designated service or process agent is served
with the summons or other legal process which initially notifies DWR of the
nature of the proceeding.
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ARTICLE XI.
MODIFICATION
11.01. This Agreement may be modified only if in writing and if executed
by those persons authorized to enter into Agreements on behalf of Northbrook and
DWR.
11.02. If either party fails to require performance by the other party
of any provision of this Agreement, that party does not waive its right to
require such performance at a later time. If either party waives the breach of
any provision of this Agreement by the other party, the waiving party still has
the right to require future performance of the provision and its conduct shall
not be construed to waive succeeding breaches.
ARTICLE XII.
TERMINATION
12.01. This Agreement will terminate concurrently with termination of
the Business Agreement between DWR, Allstate Life Insurance Company and
Northbrook dated as of October 1, 1993, or as otherwise agreed by the parties.
In the event of any termination of this Agreement, unless the parties otherwise
agree in writing and except as specifically provided herein, this Agreement
shall continue to apply to the inforce business as of the date of termination
hereof.
12.02. In the event either Northbrook or DWR does not fulfill its
responsibilities under this Agreement, the other party shall have the right to
demand, in writing, that the noncompliance be corrected within thirty (30) days
of the day on which the notice is received. In the event the noncompliance is
not corrected within thirty (30) days, this Agreement will terminate with
respect to further sales of the Policies on the 30th day after the complying
party mails a termination notice by registered mail to the non-complying party;
such termination shall not affect the rights and obligations of the parties with
respect to Policies sold prior to the time of such termination.
12.03. Notwithstanding the provisions of Paragraph 3.03 and the last
sentence of Paragraph 12.01, upon the giving of notice of termination by either
party to this Agreement, Northbrook shall have the right to contact its
policyholders and take reasonable commercial steps to preserve its insurance
business, which steps shall not in any way interfere with the relationship
between DWR and its agents, account executives and employees, on the one hand,
and Northbrook policyholders, on the other.
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ARTICLE XIII.
GENERAL PROVISIONS
13.01. The relationship of DWR to Northbrook under this Agreement shall
be that of an independent contractor. Nothing in this Agreement shall be
construed to create the relationship of employer and employee between DWR and
its agents, and Northbrook.
13.02. Northbrook shall have the right to refuse to issue any Policies.
13.03. Northbrook and DWR each represent to the other that the entering
into and performing of this Agreement does not and will not conflict with or
cause a breach of any other agreement to which either is a party.
13.04. Unless otherwise expressly provided herein, an notice, consent,
offer, demand, request or other instrument required or authorized hereunder to
be given to or served on any party to this Agreement may be given by facsimile,
prepaid overnight courier, or mailed by registered or certified mail, and shall
be deemed sufficiently given if addressed to the party intended as the recipient
thereof as follows:
(i) To Northbrook:
Marla G. Friedman, Vice President
Northbrook Life Insurance Company
3100 Sanders Road
Northbrook, Illinois 60062
Phone: 708-402-6622
Facsimile: 708-402-3673
(ii) To DWR:
Milton A. Fuller, Senior Vice President
Dean Witter Reynolds Inc.
Two World Trade Center, 74th Floor
New York, New York 10048
Phone: 212-392-4224
Facsimile: 212-392-5543 or,
in any case, to such other address as any such party may specify as its address
for this purpose by notice in writing to the other parties. Any instrument so
sent shall be deemed to have been received:
(i) if by facsimile, on the date of transmission;
(ii) if by overnight courier, one day after deposit; or
15
<PAGE>
(iii) if by mail, on the fifth day following the day of posting.
13.05. This Agreement shall be binding upon the parties and their
respective successors.
13.06. This Agreement shall be governed and construed in accordance with
the laws of the State of Illinois, except as to any matters which are to be
governed by the Securities Acts of 1933 and 1934 and the Investment Company Act
of 1940.
13.07. In case any provision in this Agreement shall be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
13.08. The article headings contained herein are for reference purposes
only and shall not be deemed to be a part of this Agreement or to affect the
meaning or interpretation hereof.
13.09. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original instrument and all of which
together shall be deemed to be one and the same instrument.
13.10. This Agreement shall be effective upon execution by both parties
and will remain in effect unless terminated as provided in Article XII of this
Agreement.
13.11. This Agreement shall not be assignable by either party, and shall
automatically terminate in the event of an attempted assignment.
13.12. This Agreement shall be effective as of the date first written
above.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
NORTHBROOK LIFE INSURANCE COMPANY
By:
Title: Executive Vice President
DEAN WITTER REYNOLDS INC.
By:
Title: Executive Vice President
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<PAGE>
EXHIBIT 4
NORTHBROOK LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM DEFERRED
VARIABLE ANNUITY CERTIFICATE
NORTHBROOK LIFE INSURANCE COMPANY, A Stock Company, Home Office: Allstate Plaza,
Northbrook, Illinois 60062
This Certificate is issued pursuant to the terms of Master Policy Number
64890006 issued by Northbrook Life Insurance Company to Dean Witter Reynolds
Inc., called the Master Policyholder. This Certificate is subject to the terms
of the Master Policy. This Certificate is issued in the state of Delaware and
is governed by Delaware law.
Throughout this Certificate, "you" and "your" refer to the Certificate's owner.
"We", "us" and "our" refer to Northbrook Life Insurance Company.
This flexible premium deferred variable annuity provides a cash withdrawal
benefit and a death benefit during the accumulation phase and periodic income
payments beginning on the payout start date.
This Certificate and the Master Policy do not pay dividends.
THE DOLLAR AMOUNT OF INCOME PAYMENTS OR OTHER VALUES PROVIDED BY THIS
CERTIFICATE, WHEN BASED ON THE INVESTMENT EXPERIENCE OF THE VARIABLE ACCOUNT,
VARY TO REFLECT THE PERFORMANCE OF THE VARIABLE ACCOUNT.
PLEASE READ YOUR CERTIFICATE CAREFULLY
RETURN PRIVILEGE
If you are not satisfied with this Certificate for any reason, you may return it
to us within 20 days after you receive it. We will refund any purchase payments
allocated to the variable account, adjusted to reflect investment gain or loss
from the date of allocation to the date of cancellation; plus any purchase
payments allocated to the fixed account.
/s/ Michael J. Velotta /s/ Louis G. Lower, II
Secretary President
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- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
ANNUITY DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
THE PERSONS INVOLVED . . . . . . . . . . . . . . . . . . . . . . . . . . .4
ACCUMULATION PHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
PAYOUT PHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
INCOME PAYMENT TABLES. . . . . . . . . . . . . . . . . . . . . . . . . . 11
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- --------------------------------------------------------------------------------
ANNUITY DATA
- --------------------------------------------------------------------------------
CERTIFICATE NUMBER:. . . . . . . . . . . . . . . . . . . . . . . . . . 44444444
ISSUE DATE:. . . . . . . . . . . . . . . . . . . . . . . . . . . . .May 7, 1996
INITIAL PURCHASE PAYMENT:. . . . . . . . . . . . . . . . . . . . . . $10,000.00
Non-Qualified
OWNER: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . John Doe
ANNUITANT: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . John Doe
AGE AT ISSUE: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SEX:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Male
PAYOUT START DATE: . . . . . . . . . . . . . . . . . . . . . . . . July 1, 2046
(May be changed by notifying us no
later than 30 days prior to this date)
INCOME PLAN: . . . . . . . . . . . . . . . . . . . . . . . Life with 10 years -
Unless Changed by Owner
ADMINISTRATOR: . . . . . . . . . . . . . . . .Northbrook Life Insurance Company
Annuity Services Division
P.O. Box 94040
Palatine, IL 60094-4040
INITIAL ALLOCATION OF PURCHASE PAYMENTS:
QUALITY INCOME PLUS:. . . . . . . . . . . . . . . . . . . . . . . . . .50%
DIVIDEND GROWTH:. . . . . . . . . . . . . . . . . . . . . . . . . . . .50%
OWNER'S RELATIONSHIP
BENEFICIARY TO OWNER PERCENTAGE
- ----------- ------------ ----------
Jeff Doe Son 100%
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THE PERSONS INVOLVED
OWNER. Unless changed, the person(s) named at the time of application is (are)
the owner(s) of this Certificate. The owner has all rights, title and interest
in this Certificate. As owner, you will receive any income payments made under
an income plan.
You may exercise all rights and options stated in this Certificate, subject to
the rights of any irrevocable beneficiary.
You may change the owner or beneficiary at any time while the annuitant is
alive. You may not change the annuitant under this Certificate.
Once we have received a satisfactory written request for a change of owner or
beneficiary, the change will take effect as of the date you signed it. We are
not liable for any payment we make or other action we take before receiving any
such written request from you.
You may not assign an interest in this Certificate as collateral or security for
a loan. Otherwise, you may assign benefits under this Certificate prior to the
payout start date. No beneficiary may assign benefits under the Certificate
until they are due. No assignment will bind us unless it is signed by you and
filed with us. We are not responsible for the validity of an assignment.
If the owner is more than one person:
"owner" as used in this Certificate means any and all persons named as
the owner, unless otherwise indicated;
any assignment or request for a change must be signed by all the
persons named as the owner; and
on the death of any one person named as owner, ownership rights, title and
interest shall be retained by the surviving person(s) named as the owners.
See the section titled Accumulation Phase for the details concerning the
death of an owner.
ANNUITANT. The annuitant is the person whose life may affect the timing or
amount of the payout under this Certificate. The owner is the annuitant unless
a different annuitant has been designated.
BENEFICIARY. The death benefit is payable to the beneficiary if the sole
surviving owner dies during the accumulation phase, subject to any prior claims.
Details, including the special treatment of a beneficiary who is the owner's
spouse,are stated in the section titled Accumulation Phase.
If the owner dies during the payout phase the surviving owner(s) will become the
payee of any income payments scheduled to continue after the owner's death. If
there are no surviving owners the beneficiary will become the payee of any such
payments.
The beneficiary is as named in the most recent written request we have received
from you. If you do not name a beneficiary or if the beneficiary named by you
is no longer living when the death benefit becomes payable, the beneficiary will
be:
your spouse if living; otherwise
your children equally if living; otherwise
your estate.
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ACCUMULATION PHASE
ACCUMULATION PHASE DEFINED. The accumulation phase is the first of two phases
in the life of your Certificate. During this period your cash value results
from purchase payments made, investment experience of the variable account,
interest credited to the fixed account, and charges deducted. Any withdrawals
you make and associated charges, if any, will reduce your cash value.
The accumulation phase begins on the issue date stated on the Annuity Data page.
This phase will continue until the payout start date unless the Certificate is
terminated before that date. Time during the accumulation phase is measured in
certificate years. Certificate years are those years that begin with the issue
date or an anniversary of the issue date.
Your certificate will stay in force until the payout start date, unless your
cash value is reduced to zero.
PURCHASE PAYMENTS. Purchase payments may be made at any time during the
accumulation phase. While this certificate allows purchase payments after the
initial purchase payment, they are not required. We may limit the amount of
purchase payments we will accept. We will invest the purchase payments in the
investment alternatives you select. You may allocate any portion of your
purchase payment in whole percents from 0% to 100% to any of the investment
alternatives. The total allocation must equal 100%. For each purchase payment,
the minimum amount that may be allocated to the fixed account is $500.
Allocation of your purchase payments will be made as you requested at the time
of application. You may change the allocation of subsequent purchase payments
at any time, without charge, simply by giving us written notice. Any change
will be effective at the time we receive this notification.
INVESTMENT ALTERNATIVES. Investment alternatives are the sub-accounts of the
variable account and the fixed account.
VARIABLE ACCOUNT. The variable account for this Certificate is the Northbrook
Variable Annuity Account II. This variable account is our separate investment
account to which we allocate certain assets contributed under this and other
certificates. These assets remain our property but will not be charged with
liabilities arising from any other business we may have.
SUB-ACCOUNTS. The variable account is divided into sub-accounts. Each
sub-account invests solely in the shares of the mutual fund(s) underlying that
sub-account.
FIXED ACCOUNT. Money in the fixed account will earn interest at the current
rate in effect at the time of allocation or transfer to the fixed account for a
period of one year. After the first year, a renewal rate will be declared.
Subsequent renewal dates will be on anniversaries of the first renewal date.
The current rate and the renewal rate(s) will never be less than 4.5%.
Interest is credited to the fixed account daily during the accumulation phase.
The rates we quote when referring to interest credits are effective annual
interest rates. "Effective annual rate" means the yield earned when interest
credits at the underlying daily rate have compounded for a full year.
CASH VALUE. Your cash value is equal to the sum of:
the number of accumulation units you hold in each sub-account of the
variable account multiplied by the accumulation unit value for that
sub-account on the most recent valuation date; plus
the total value you have in the fixed account.
ACCUMULATION UNITS. Amounts which you allocate to a sub-account of the variable
account are used to purchase accumulation units in that sub-account. The
accumulation unit value for each sub-account at the end of any valuation period
is calculated by multiplying the prior value by the sub-account's net investment
factor for the valuation period. The accumulation unit values may go up or
down. Additions or transfers to sub-accounts of the variable account will
increase the number of accumulation units for that sub-account. Withdrawals or
transfers from sub-accounts of the variable account will result in cancellation
of accumulation units from that sub-account.
VALUATION PERIOD. A valuation period is the time interval between the closing
of the New York Stock Exchange on consecutive valuation dates. A valuation date
is any date the New York Stock Exchange is open for trading except for days in
which there is insufficient trading in the variable account's portfolio
securities such that the value of accumulation or annuity units might not be
materially affected by changes in the value of the portfolio securities.
NET INVESTMENT FACTOR. For each sub-account of the variable account, the net
investment factor for a valuation period is (A) divided by (B), minus (C) where:
(A)is the sum of:
(1) the net asset value per share of the mutual fund(s) underlying the
sub-account determined at the end of the current valuation period,
plus
(2) the per share amount of any dividend or capital gain distributions
made by the mutual fund(s) underlying the sub-account during the
current valuation period.
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(B) is the net asset value per share of the mutual fund(s) underlying the
sub-account determined as of the end of the immediately preceding valuation
period.
(C) is the sum of the annualized administrative expense and the annualized
mortality and expense risk charges divided by 365 and then multiplied by
the number of calendar days in the current valuation period.
TRANSFERS. Prior to the payout start date, you may transfer amounts between
investment alternatives. You may make 12 transfers per certificate year without
charge. Each transfer after the 12th transfer in any certificate year will be
assessed a $25 transfer fee. Transfers are subject to the following
restrictions:
the minimum amount that may be transferred from an investment alternative
is $100; if the total amount in an investment alternative is less than
$100, the entire amount may be transferred;
the minimum transfer to the fixed account is $500;
the maximum amount which may be transferred from the fixed account to
the variable account in any certificate year is limited to 25% of the value
in the fixed account on the most recent certificate anniversary. If 25% of
the most recent value is greater than zero but less than $1,000, then up to
$1,000 may be transferred;
if the first renewal interest rate is less than the current rate that was
in effect at the time money was allocated or transferred to the fixed
account, the 25% transfer restriction for that money and the accumulated
interest thereon will be waived during the 60 day period following the
first renewal date.
We reserve the right to waive the transfer fees and/or restrictions contained in
this Certificate.
CHARGES. The charges for this Certificate include taxes as defined below,
certificate maintenance charges, administrative expense charges, and mortality
and expense risk charges. If withdrawals are made, the Certificate may be
subject to early withdrawal charges.
TAXES. Any premium taxes or other taxes imposed on amounts relating to this
Certificate may be deducted from purchase payments or cash values when the tax
is incurred or at a later time.
CERTIFICATE MAINTENANCE CHARGE. The certificate maintenance charge will be
deducted each year from your cash value to reimburse us for the expenses of
maintaining this Certificate. This charge will never be greater than $30 per
certificate year. Prior to the payout start date, the certificate maintenance
charge will be deducted from your cash value on each certificate anniversary.
The charge will be deducted on a pro-rata basis from each investment alternative
in the proportion that your investment in each bears to your cash value. The
certificate maintenance charge will also be deducted in full if the Certificate
is surrendered on any date other than a certificate anniversary.
ADMINISTRATIVE EXPENSE CHARGE. Both before and after the payout start date, we
will deduct an administrative expense charge from the assets in the variable
account on a daily basis. The administrative expense charge is to reimburse us
for administrative expenses incurred in maintaining this Certificate that are
not covered by the certificate maintenance charge. The annualized
administrative expense charge will never be greater than 0.10%. (See the
calculation under Net Investment Factor). This charge will also be reflected in
the net interest rate credited to assets in the fixed account.
MORTALITY AND EXPENSE RISK CHARGE. Both before and after the payout start date,
we will deduct a mortality and expense risk charge from the assets in the
variable account on a daily basis. The annualized mortality and expense risk
charge will never be greater than 1.25%. (See the calculation under Net
Investment Factor). This charge will also be reflected in the net interest rate
credited to assets in the fixed account.
Our expense and mortality experience will not adversely affect the dollar amount
of variable benefits or other contractual payments or values under this
Certificate.
WITHDRAWAL AND SURRENDER. You have the right to make a partial withdrawal or
full surrender at any time during the accumulation phase. You must specify the
investment alternative(s) from which you wish to make a withdrawal. The amount
of any withdrawal you request, plus an early withdrawal charge and premium taxes
when applicable, will reduce your cash value.
Any withdrawal must be at least $500. If a withdrawal would leave a cash value
of less than $500, we will treat the request as a full surrender.
If you surrender your Certificate, we will pay you its cash value, less any
applicable early withdrawal charges and premium taxes, and the Certificate will
terminate.
EARLY WITHDRAWAL CHARGE. An early withdrawal charge may be applied to a full
surrender or partial withdrawal of cash value in excess of the free withdrawal
amount. For the purpose of assessing an early withdrawal charge, withdrawals
are assumed to come from purchase payments first, beginning with the oldest
payment.
Early withdrawal charges will be based on the age(s) of the purchase payment(s)
associated with the withdrawal according to the following schedule:
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Maximum
Complete Certificate Withdrawal
Years since Purchase Charge
Payment was made Percent
------------------------------------------------
0 6%
1 5%
2 4%
3 3%
4 2%
5 1%
6 or more 0%
Once all purchase payments have been withdrawn, additional withdrawals will not
be assessed an early withdrawal charge. The maximum aggregate early withdrawal
charge is 6% of your purchase payments.
FREE WITHDRAWAL AMOUNT. A free withdrawal amount will be available in each
certificate year. This free withdrawal amount may be withdrawn over the course
of the certificate year without incurring early withdrawal charges. The free
withdrawal amount is 15% of the amount of purchase payments as of the issue date
or the most recent certificate anniversary, whichever is later.
As with all withdrawals, the free withdrawal amount will be assumed to come
from the oldest remaining purchase payments first. Free withdrawal amounts not
withdrawn in a certificate year are not carried over to increase the free
withdrawal amount in a subsequent certificate year.
DEATH OF OWNER OR ANNUITANT. If you die prior to the payout start date, the new
owner will be the surviving owner(s). If there is (are) no surviving owner(s),
the new owner will be the beneficiary(ies). The new owner will have the
options described in the Options of New Owner subsection below.
If you are owner and annuitant and you die, then the new annuitant will be the
oldest new owner. However, if the new owner is a corporation, trust, or other
non-natural person, the Certificate will terminate, the death benefit as
described below will be paid to the new owner, and the new owner will not have
the options described below.
If the annuitant, not also an owner, dies prior to the payout start date, we
will pay you the death benefit described below, the Certificate will terminate,
and you will not have the options described below.
OPTIONS OF NEW OWNER. If the sole new owner is your spouse:
Your spouse may elect, within 60 days of the date of your death, to receive
the death benefit described below.
If your spouse does not make this election, then the accumulation
phase continues as if the death had not occurred. All ownership rights
under the Certificate are then available to your spouse as the new owner.
If the new owner is not your spouse, then this new owner has the following
options:
The new owner may elect, within 60 days of the date of your death, to
receive the death benefit described below.
The new owner may elect, within 60 days of the date of your death, to
receive the settlement value payable in a lump sum within 5 years of your
date of death.
The new owner may elect, within one year of the date of your death, to
receive the settlement value paid out under one of the income plans
described in the Payout Phase section. The payout start date must be
within one year of your date of death. Income payments must be over the
life of the new owner or over a period not to exceed the life expectancy of
the new owner.
If the new owner does not make one of the above described elections, the
settlement value will be paid to the new owner on the mandatory
distribution date 5 years after your date of death.
Under any of these options, all ownership rights are available to the new owner
from the date of your death to the date on which the death benefit or settlement
value is paid.
DEATH BENEFIT. The death benefit is the greater of:
the sum of all purchase payments, less any withdrawals, applicable early
withdrawal charges and premium tax; or
the cash value on the date we receive due proof of death; or
the cash value on the most recent death benefit anniversary, less any
withdrawals, applicable early withdrawal charges and premium tax deducted
from the cash value since that anniversary.
The death benefit anniversaries are those certificate anniversaries that are
multiples of 6 certificate years, beginning with the 6th certificate
anniversary. For example, the 6th, 12th and 18th certificate anniversaries are
the first three death benefit anniversaries.
We will calculate the value of the death benefit at the end of the valuation
period coinciding with our receipt of a complete request for payment of the
death benefit. A complete request includes due proof of death.
SETTLEMENT VALUE. The settlement value is the cash value less any applicable
early withdrawal charges and premium tax. We will calculate the settlement
value at the end of the valuation period coinciding with the receipt of a
request for payment or on the mandatory distribution date of 5 years after the
date of death.
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PAYOUT PHASE
PAYOUT PHASE DEFINED. The payout phase is the second of the two phases in the
life of your Certificate. During this period the cash value is applied to the
income plan you choose and is paid out as provided under that plan.
The payout phase begins on the payout start date. It continues until we make
the last payment as provided by the income plan chosen.
PAYOUT START DATE. The anticipated payout start date is shown on the Annuity
Data page. You may change the payout start date by writing to us at least 30
days prior to the payout start date.
The latest payout start date is the later of:
the annuitant's 85th birthday; or
the 10th anniversary of this Certificate's issue date.
Unless changed as described above, we will use the payout start date shown on
the Annuity Data page.
INCOME PLANS. An income plan is an arrangement for disbursing the cash value in
installments. The cash value on the payout start date, less any applicable
premium tax, will be applied to your choice of income plan from the following
list:
1. LIFE INCOME WITH 120 MONTHS GUARANTEED. We will make monthly payments for
as long as the annuitant lives. If the annuitant dies before 120 monthly
payments have been made, we will pay the remainder of the 120 guaranteed
monthly payments to the owner.
2. JOINT AND SURVIVOR LIFE INCOME. We will make monthly payments for as long
as either the annuitant or any joint annuitant named by you lives. No
income payments will be made after the deaths of both the annuitant and the
joint annuitant.
3. PAYMENTS FOR A SPECIFIED PERIOD. We will make monthly payments beginning
on the payout start date for a specified period. These payments do not
depend on the annuitant's life. Income payments for less than 120
months may be subject to early withdrawal charges.
We reserve the right to accept other income plans.
INCOME PAYMENTS. Income payments may be based on the variable account, the
fixed account or both. Your initial income payment will be based on the
division of your cash value between the investment alternatives on the payout
start date. Each income payment represents a sum of payments derived from
each investment alternative in which you have an interest.
A portion of the certificate maintenance charge will be deducted from each
income payment.
VARIABLE ACCOUNT. Income payments attributable to sub-accounts of the variable
account will vary in accordance with the investment results of the mutual funds
underlying the sub-accounts.
The amount of the first income payment from a sub-account of the variable
account is calculated by applying the portion of cash value allocated to the
sub-account, less any applicable premium tax, to the Income Payment Tables.
Subsequent income payments are based on the number of annuity units derived from
dividing the first income payment by the sub-account's annuity unit value on the
payout start date. The number of annuity units will remain the same unless a
transfer is made between sub-accounts or the fixed account.
Variable account income payments after the first will be equal to the number of
annuity units for each sub-account multiplied by the corresponding annuity unit
value on the date of payment.
ANNUITY UNIT VALUE. The annuity unit value for each sub-account of the variable
account at the end of any valuation period is calculated by:
multiplying the prior value by the sub-account's net investment factor
during the period; and then
dividing the product by 1.000 plus the assumed investment rate for the
period. The assumed investment rate is an effective annual rate of 3%.
FIXED ACCOUNT. Income payment amounts derived from the fixed account are
guaranteed for the duration of the income plan. Cash value from the fixed
account, less any applicable premium tax, will be used to purchase a Single
Premium Immediate Annuity from us. Income payments from the fixed account will
at least be equal to an amount determined from the Income Payment Tables.
TRANSFERS. After the payout start date, no transfers may be made from the fixed
account. Transfers between sub-accounts of the variable account, or from the
variable account to the fixed account may not be made for six months subsequent
to the payout start date. Transfers may be made once every six months
thereafter. Transfers out of a sub-account of the variable account after the
payout start date will cancel annuity units from that sub-account.
Page 8
<PAGE>
PAYOUT TERMS AND CONDITIONS. The income payments are subject to the following
terms and conditions:
Income payments will start on the first day of the calendar month that
coincides with or next follows the payout start date.
If we do not receive a written choice of income plan from you at least 30
days before the payout start date, we will use the income plan listed on
the Annuity Data page.
If you choose an income plan which depends on any person's life, we
may require proof of age and sex before income payments begin.
We may require proof that the annuitant or joint annuitant is still alive
before we make any payment that depends on their continued life.
After the cash value has been applied to an income plan on the payout start
date, the income plan cannot be changed and no withdrawals can be made.
Should the cash value be less than $2,000, or not be enough to provide an
initial payment of at least $20, we reserve the right to:
change the payment frequency to make the payment at least $20, or
terminate the Certificate and pay you the cash value in a lump sum.
Page 9
<PAGE>
GENERAL PROVISIONS
THE ENTIRE CERTIFICATE. The entire Certificate consists of the Master Policy,
the Master Policy application, written enrollments, and any attached
endorsements.
All statements made in written enrollments are representations and not
warranties. No statement will be used by us in defense of a claim or to void a
Certificate unless it is included in a written enrollment.
Only our officers may change the Master Policy or Certificate or waive a right
or requirement. No other individual may do this.
The Master Policy may be amended by us, terminated by us, or terminated by the
Master Policyholder without the consent of any other person. No termination
completed after the issue date of this Certificate will adversely affect your
rights under this Certificate.
We may not modify this Certificate without your consent, except to make it
comply with any changes in the Internal Revenue Code or as required by any other
applicable law.
INCONTESTABLE. We will not contest the validity of this Certificate after the
issue date.
MISSTATEMENT OF AGE OR SEX. If any age or sex has been misstated, we will pay
the amounts which would have been provided at the correct age or sex.
If we find the misstatement of age or sex after the income payments begin, we
will:
pay promptly the sum of all amounts that we underpaid plus due interest; or
stop payments until the total of the omitted payments at the corrected
amount plus due interest is equal to the total of the overpayments plus due
interest.
For purposes of the Misstatement of Age or Sex provision, due interest will be
calculated at an effective annual rate of 6%.
ANNUAL STATEMENT. At least once a year, prior to the payout start date, we will
send you a statement containing information required by any applicable law.
SETTLEMENTS. We may require that this Certificate be returned to us prior to
any settlement. We must receive due proof of death of the owner or
annuitant prior to settlement of a death claim. Due proof of death is one of
the following:
a copy of a certified death certificate; or
a copy of a certified decree of a court of competent jurisdiction as to a
finding of death; or
any other proof acceptable to us.
Any cash surrender or death benefit under this Certificate will not be less than
the minimum benefits required by any statute of the state in which the Master
Policy is issued.
DEFERMENT OF PAYMENTS. We will pay any amounts due from the variable account
under this Certificate within seven days, unless:
the New York Stock Exchange is closed for other than usual weekends or
holidays, or trading on such Exchange is restricted;
an emergency exists as defined by the Securities and Exchange Commission;
or
the Securities and Exchange Commission permits delay for the protection of
Certificate holders.
We reserve the right to postpone payments or transfers from the fixed account
for up to six months.
VARIABLE ACCOUNT MODIFICATIONS. We reserve the right, subject to applicable
law, to make additions to, deletions from, or substitutions for the mutual fund
shares underlying the sub-accounts of the variable account. We will not
substitute any shares attributable to your interest in a sub-account of the
variable account without notice to you and prior approval of the Securities and
Exchange Commission, to the extent required by the Investment Company Act of
1940.
We reserve the right to establish additional sub-accounts of the variable
account, each of which would invest in shares of another mutual fund. You may
then instruct us to allocate purchase payments to such sub-accounts, subject to
any terms set by us or the mutual fund.
In the event of any such substitution or change, we may by endorsement, make
such changes as may be necessary or appropriate to reflect such substitution or
change.
If we deem it to be in the best interests of persons having voting rights under
the certificates, the variable account may be operated as a management company
under the Investment Company Act of 1940 or it may be deregistered under such
Act in the event such registration is no longer required.
Page 10
<PAGE>
INCOME PAYMENT TABLES
The Income Payment Tables show the initial monthly income payment per $1,000 of
cash value applied for each of the income plans listed in the Payout section.
The Income Payment Tables are based on 3% interest and the 1983 Table a Annuity
Mortality Tables with the following age adjustment. The age(s) of the annuitant
and any joint annuitant at his or her last birthday on or prior to the payout
start date will be set back one year for each six full years between January 1,
1983 and the payout start date. Income payments for ages not shown in this
section will be determined on a basis consistent with that used to determine
those that are shown.
<TABLE>
<CAPTION>
INCOME PLAN 1 - LIFE WITH 120 MONTHS GUARANTEED
First Income Payment for Each $1,000 of Cash Value
- --------------------------------------------------------------------------------------------------------------------------------
Annuitant's Annuitant's Annuitant's
Age Male Female Age Male Female Age Male Female
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
35 $ 3.43 $ 3.25 49 $ 4.15 $ 3.82 63 $5.52 $4.97
36 3.47 3.28 50 4.22 3.88 64 5.66 5.09
37 3.51 3.31 51 4.29 3.94 65 5.80 5.22
38 3.55 3.34 52 4.37 4.01 66 5.95 5.35
39 3.60 3.38 53 4.45 4.07 67 6.11 5.49
40 3.64 3.41 54 4.53 4.14 68 6.27 5.64
41 3.69 3.45 55 4.62 4.22 69 6.44 5.80
42 3.74 3.49 56 4.71 4.29 70 6.61 5.96
43 3.79 3.53 57 4.81 4.38 71 6.78 6.13
44 3.84 3.58 58 4.92 4.46 72 6.96 6.31
45 3.90 3.62 59 5.02 4.55 73 7.13 6.50
46 3.96 3.67 60 5.14 4.65 74 7.31 6.69
47 4.02 3.72 61 5.26 4.75 75 7.49 6.88
48 4.08 3.77 62 5.39 4.86
</TABLE>
<TABLE>
<CAPTION>
INCOME PLAN 2 - JOINT AND SURVIVOR
First Income Payment for Each $1,000 of Cash Value
- -------------------------------------------------------------------------------------------------------------------------------
Male Female Annuitant's Age
Annuitant's -----------------------------------------------------------------------------------------------------------
Age 35 40 45 50 55 60 65 70 75
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
35 $3.09 3.16 3.23 3.28 3.32 3.36 3.39 3.41 3.42
40 3.13 3.22 3.31 3.39 3.46 3.52 3.56 3.59 3.62
45 3.17 3.28 3.39 3.50 3.60 3.69 3.76 3.82 3.86
50 3.19 3.32 3.45 3.60 3.74 3.87 3.99 4.08 4.14
55 3.21 3.35 3.51 3.68 3.87 4.06 4.23 4.38 4.49
60 3.23 3.37 3.55 3.75 3.98 4.23 4.48 4.71 4.91
65 3.24 3.39 3.58 3.80 4.07 4.38 4.72 5.06 5.38
70 3.24 3.40 3.60 3.84 4.13 4.50 4.92 5.40 5.89
75 3.25 3.41 3.61 3.86 4.18 4.58 5.08 5.68 6.37
</TABLE>
INCOME PLAN 3 - PAYMENTS FOR A SPECIFIED PERIOD
First Income Payment for Each
Specified Period $1,000 of Cash Value
- ------------------------------------------------------------------------------
10 Years $9.61
11 Years 8.86
12 Years 8.24
13 Years 7.71
14 Years 7.26
15 Years 6.87
16 Years 6.53
17 Years 6.23
18 Years 5.96
19 Years 5.73
20 Years 5.51
Page 11
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
(HEREIN CALLED "WE" OR "US")
FIXED ACCOUNT CERTIFICATE AMENDMENT
THE FOLLOWING REPLACES THE FIXED ACCOUNT SUBSECTION IN THE ACCUMULATION PHASE
SECTION OF YOUR CERTIFICATE:
FIXED ACCOUNT. Money in the fixed account will earn interest at the current
rate in effect at the time of allocation or transfer to the fixed account for
the guarantee period. We will offer a one year guarantee period. Other
guarantee periods will be offered at our discretion. After the guarantee
period, a renewal rate will be declared. Subsequent renewal dates will be on
anniversaries of the first renewal date. The current rate and the renewal
rate(s) will never be less than 3%.
Interest is credited to the fixed account daily during the accumulation phase.
The rates we quote when referring to interest credits are effective annual
interest rates. "Effective annual rate" means the yield earned when interest
credits at the underlying daily rate have compounded for a full year.
THE FOLLOWING REPLACES THE TRANSFERS SUBSECTION IN THE ACCUMULATION PHASE
SECTION OF YOUR CERTIFICATE:
TRANSFERS. Prior to the payout start date, you may transfer amounts between
investment alternatives. You may make 12 transfers per certificate year without
charge. Each transfer after the 12th transfer in any certificate year will be
assessed a $25 transfer fee. Transfers are subject to the following
restrictions:
the minimum amount that may be transferred from an investment alternative
is $100; if the total amount in an investment alternative is less than
$100, the entire amount may be transferred;
the minimum transfer to any one guarantee period of the fixed account is
$500;
the maximum amount which may be transferred from the fixed account to the
variable account or between guarantee periods of the fixed account in any
certificate year is limited to the greater of:
25% of the value in the fixed account on the most recent certificate
anniversary. If 25% of the most recent value is greater than zero but
less than $1,000, then up to $1,000 may be transferred; or
25% of the sum of purchase payments allocated to the fixed account and
transfers to the fixed account, all as of the most recent certificate
anniversary.
<PAGE>
if the first renewal interest rate is less than the current rate that was
in effect at the time money was allocated or transferred to the fixed
account, the 25% transfer restriction for that money and the accumulated
interest thereon will be waived during the 60 day period following the
first renewal date.
We reserve the right to waive the transfer restrictions contained in this
Certificate.
/s/ Michael J. Velotta /s/ Louis G. Lower, II
Secretary President
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
HEREIN CALLED ("WE OR US")
GROUP INSURANCE CERTIFICATE AMENDMENT
I. The third and fourth paragraphs in the Owner provision on page 4 of your
Certificate are deleted and replaced by the following:
You may change the owner or beneficiary at any time. If you are a natural
person, you may change the annuitant prior to the Payout Start Date. Once
we have received a satisfactory written request for an owner, beneficiary
or annuitant change, the change will take effect as of the date you signed
it. We are not liable for any payment we make or other action we take
before receiving any written request from you. We are not responsible for
the tax consequences of an owner, beneficiary or annuitant change.
II. The third paragraph in the Death of Owner or Annuitant provision on page 7
of your Certificate is deleted and replaced by the following:
If any annuitant dies who is not also an owner, the owner must elect an
applicable option listed below. If the option selected is 1(a) or 1(b)(ii)
below, the new annuitant will be the youngest owner, unless the owner names
a different annuitant.
1. IF THE OWNER IS A NATURAL PERSON:
a. The owner may choose to continue this Certificate as if the death
had not occurred; or
b. If we receive due proof of death within 180 days of the date of
the annuitant's death, then the owner may alternatively choose to:
i. Receive the Death Benefit in a lump sum; or
ii. Apply the Death Benefit to an Income Plan which must begin within
one year of the date of death and must be for a period equal to or
less than the life expectancy of the owner.
2. IF THE OWNER IS A NON-NATURAL PERSON:
The owner must receive the Death Benefit in a lump sum.
<PAGE>
III. The following provision is added to the Free Withdrawal Amount provision on
page 7 of your Certificate:
Withdrawal charges will be waived on partial withdrawals taken to satisfy
qualified plan required minimum distribution rules as described in the
Internal Revenue Code. This waiver is permitted only for withdrawals which
satisfy distributions resulting from this Certificate.
Except as amended, the Certificate remains unchanged.
/s/ Michael J. Velotta /s/ Louis G. Lower, II
Michael J. Velotta Louis G. Lower, II
Secretary President
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
ENHANCED DEATH BENEFIT RIDER
This rider was issued because you selected the Enhanced Death Benefit for the
death of any owner at the time you applied for this annuity. Unlike your
current DEATH BENEFIT GUARANTEE, the Enhanced Death Benefit does not apply to
the death of the annuitant if the annuitant is different than the owner (unless
the owner is a non-natural person). The Death Benefit and Mortality and Expense
Risk Charge provisions of your Certificate are modified as follows:
I. The Death Benefit will be the greatest of the values stated in the Death
Benefit provision on page 7 of your Certificate, or the value of the
Enhanced Death Benefit.
The Enhanced Death Benefit is:
A. On the date of issue, the Enhanced Death Benefit is equal to the
initial purchase payment.
B. On each certificate anniversary, but not beyond the certificate
anniversary preceding all owner(s)' 75th birthday(s), the Enhanced
Death Benefit will be recalculated as follows:
_ The Enhanced Death Benefit as of the PRIOR certificate
anniversary multiplied by 1.05 which results in an increase of 5%
annually.
C. Further, FOR ALL AGES, the Enhanced Death Benefit will be adjusted on
each certificate anniversary, or upon receipt of a death claim, as
follows:
_ The Enhanced Death Benefit will be reduced by the percentage of
any Account Value withdrawn since the prior certificate
anniversary.
_ Any additional purchase payments since the prior certificate
anniversary will be added.
The Enhanced Death Benefit will never be greater than the maximum death
benefit allowed by any non-forfeiture laws which govern this Certificate.
II. The annualized mortality and expense risk charge of 1.25% stated on page 6
of your Certificate is changed. The annualized mortality and expense risk
charge will never be greater than 1.38%.
Except as amended, the Certificate remains unchanged.
/s/ Michael J. Velotta /s/ Louis G. Lower, II
Michael J. Velotta Louis G. Lower, II
Secretary President
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
(HEREIN CALLED "WE" OR "US")
CERTIFICATE AMENDMENT FOR IRA PLANS
The following provisions are added to your Certificate:
1. The owner of this Certificate must be the annuitant.
2. You may not:
a. transfer;
b. sell;
c. assign;
d. discount; or
e. pledge
this Certificate for any purpose.
3. Your rights in this Certificate are nonforfeitable. This Certificate is
for the exclusive benefit of you and your beneficiaries.
4. Except as described below, the annual premium under the Certificate shall
not exceed the lesser of $2,000 or 100% of compensation. In the case of a
spousal IRA, the maximum contribution shall not exceed the lesser of $2,250
or 100% of compensation, but no more than $2,000 can be paid to either
spouse's IRA. The exceptions are:
a. The above limits shall not apply to "rollover contributions" as that
term is described in Sections 402(a)(5), 402(a)(7), 403(a)(4),
403(b)(8) and 408(d)(3) of the Internal Revenue Code.
b. In addition to any amounts you contribute, your employer can
contribute annually up to the lesser of 15% of your compensation or
$30,000 under 408(k) of the Internal Revenue Code.
c. Any or all of the above contribution limits shall change in step with
changes to such limits in the Internal Revenue Code.
5. Your entire interest must be or begin to be distributed by April 1
following the calendar year in which you reach age 70 1/2. The
distribution may be made in a single sum or in periodic payments over:
a. your life; or
b. the lives of you and your "designated beneficiary"; or
c. a period certain not extending beyond your life expectancy; or
d. a period certain not extending beyond the life expectancy of you and
your "designated beneficiary".
For purposes of this amendment "designated beneficiary" is the joint
annuitant that you may name prior to the payout start date.
6. The minimum amount you are required to receive for any tax year is at least
equal to:
a. the value of the Certificate at the end of the prior year; divided by
b. your life expectancy (or the joint life and last survivor expectancy
of you and your "designated beneficiary") using the age(s) as of your
birthday(s) in that year.
7. If your spouse is not the "designated beneficiary":
a. the minimum amount you are required to receive beginning with the
first calendar year for which distributions are required is:
1) the value of the Certificate at the end of the prior year;
divided by
2) the lesser of:
a) the applicable life expectancy; or
b) the applicable divisor contained in 1.401(a)(9)-2 of the
Proposed Income Tax Regulations.
<PAGE>
b. if payments are made in the form of a period certain annuity, the maximum
period certain at the required beginning date is defined in 1.401(a)(9)-2.
c. if the payments are made in the form of joint and survivor annuity,
the payment to the survivor must not exceed the applicable percentage
as defined in 1.401(a)(9)-2.
8. For purposes of calculating the minimum annual distribution from this
Certificate, life expectancies are determined by the return multiples
contained in 1.72-9 of the Income Tax Regulations. Life expectancies of
you and your spouse (if your spouse is the "designated beneficiary") may be
recalculated annually. The life expectancy of a non-spousal "designated
beneficiary" may not be recalculated.
Your life expectancy and any spousal "designated beneficiary's" life
expectancy will be redetermined annually using 1.72-9 unless you elect
otherwise prior to the start of the required distributions.
If you elect not to have life expectancies redetermined annually, then life
expectancies will be calculated only once, at the time of the first
payment, and will thereafter decrease at the rate of 1 year per year
elapsed. If made, this election is irrevocable and will apply to all
subsequent years.
9. If you die before distribution has begun and your beneficiary is your
surviving spouse, your spouse must elect one of the following forms of
distribution:
a. a life annuity; or
b. one or more certain payments over a period no longer than his/her own
life expectancy; or
c. treat the account as his/her own IRA.
If the form of distribution elected is a. or b. above, equal or
substantially equal payments will be made over your spouse's life or life
expectancy. The form of distribution must be elected within five years
after your death or the calendar year in which you would have attained age
70 1/2, whichever is earlier. If the form of distribution is a. or b.
above, payments must commence within one year of your death or the year in
which you would have attained age 70 1/2, whichever is later. If your
surviving spouse makes a regular IRA contribution to the account, makes a
rollover to or from the account, or fails to elect any of the three forms
of distribution listed above, c. is automatically assumed. Any amount paid
to a child of the owner will be treated as if it were paid to the surviving
spouse if the remainder of the interest becomes payable to the surviving
spouse when the child reaches age of majority.
10. If you die before distribution has begun and your beneficiary is not your
surviving spouse, the beneficiary must either:
a. start receiving payments within one year of your death as a life
annuity or one or more certain payments over a period not longer than
his/her life expectancy; or
b. have the proceeds totally distributed within five years of your death.
Distribution will be made in equal or substantially equal payments over the
life or life expectancy of your beneficiary.
11. For the purpose of the distribution rules described in the two preceding
sections, the payments to be received by your beneficiary will be computed
using the return multiples specified in section 1.72-9 of the Income Tax
Regulations. Life expectancies of a surviving spousal beneficiary may be
recalculated annually. The life expectancy of a non-spousal beneficiary may
not be recalculated.
If the beneficiary is your spouse, his/her life expectancy will be
redetermined annually using 1.72-9 unless he/she elects otherwise prior to
the start of the required distributions.
If your spouse is the beneficiary and does not elect to have life
expectancies redetermined annually, or if your beneficiary is not your
spouse, then life expectancies will be calculated only once, at the time of
the first payment, and will thereafter decrease at the rate of 1 year per
year elapsed. If made, this election is irrevocable and will apply to all
subsequent years.
12. If you die after distribution has begun, any remaining payments shall
continue to be paid to your beneficiaries at least as rapidly as under the
method of distribution in effect.
/s/ Michael J. Velotta /s/ Louis G. Lower, II
Secretary President
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
(HEREIN CALLED "WE" OR "US")
CERTIFICATE AMENDMENT FOR UNISEX PLANS
All references to sex are deleted from your certificate.
The Income Payment Tables show the initial monthly income payment per $1,000 of
cash value applied for each of the income plans listed in the Payout section.
The tables below are to be used in place of "Income Plan 1 - Life with 120
Months Guaranteed" and "Income Plan 2 - Joint and Survivor" tables in the Income
Payment Tables section. The Unisex Income Payment Tables below are based on 3%
interest and an 80% female, 20% male blend of the sex distinct 1983 Table a
Annuity Mortality Tables with the following age adjustment. The age(s) of the
annuitant and any joint annuitant at his or her last birthday on or prior to the
payout start date will be set back one year for each six full years between
January 1, 1983 and the payout start date. Income payments for ages not shown
in this section will be determined on a basis consistent with that used to
determine those that are shown.
<TABLE>
<CAPTION>
INCOME PLAN 1 - LIFE WITH 120 MONTHS GUARANTEED
First Income Payment for Each $1,000 of Cash Value
- -----------------------------------------------------------------------------------------------------------------------------
Annuitant's Annuitant's Annuitant's
Age Amount Age Amount Age Amount
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
35 $3.29 49 $3.89 63 $5.08
36 3.32 50 3.95 64 5.20
37 3.35 51 4.01 65 5.34
38 3.38 52 4.08 66 5.47
39 3.42 53 4.15 67 5.61
40 3.46 54 4.22 68 5.77
41 3.50 55 4.30 69 5.93
42 3.54 56 4.37 70 6.09
43 3.58 57 4.47 71 6.26
44 3.63 58 4.55 72 6.44
45 3.68 59 4.64 73 6.63
46 3.73 60 4.75 74 6.81
47 3.78 61 4.85 75 7.00
48 3.83 62 4.97
</TABLE>
<TABLE>
<CAPTION>
INCOME PLAN 2 - JOINT AND SURVIVOR
First Income Payment for Each $1,000 of Cash Value
- --------------------------------------------------------------------------------------------------------------------------------
Annuitant's Joint Annuitant's Age
Age ----------------------------------------------------------------------------------------------------------------
35 40 45 50 55 60 65 70 75
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
35 $3.07 3.12 3.17 3.20 3.23 3.25 3.26 3.27 3.28
40 3.12 3.20 3.26 3.32 3.36 3.39 3.42 3.44 3.45
45 3.17 3.26 3.35 3.44 3.51 3.56 3.61 3.64 3.66
50 3.20 3.32 3.44 3.55 3.66 3.75 3.82 3.88 3.91
55 3.23 3.36 3.51 3.66 3.81 3.95 4.07 4.17 4.23
60 3.25 3.39 3.56 3.75 3.95 4.16 4.34 4.50 4.62
65 3.26 3.42 3.61 3.82 4.07 4.34 4.62 4.88 5.09
70 3.27 3.44 3.64 3.88 4.17 4.50 4.88 5.27 5.63
75 3.28 3.45 3.66 3.91 4.23 4.62 5.09 5.63 6.20
</TABLE>
/s/ Michael J. Velotta /s/ Louis G. Lower, II
Secretary President
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
(HEREIN CALLED "WE" OR "US")
AMENDATORY ENDORSEMENT FOR 403(B) ANNUITIES
The following provisions are added to your Certificate:
1. The owner of this Certificate must be the annuitant.
2. You may not:
a. transfer;
b. sell;
c. assign;
d. discount; or
e. pledge
this Certificate for any purpose, to any person but us.
3. Account balances accruing after December 31, 1986 must begin to be paid out
by the April 1 after the calendar year in which you reach age 70 1/2. The
distribution may be made in a single sum or in periodic payments.
a. The payments must be over:
1) your life; or
2) the lives of you and your "designated beneficiary"; or
3) a period certain not extending beyond your life expectancy; or
4) a period certain not extending beyond the life expectancy of you
and your "designated beneficiary".
For the purpose of this amendment, the "designated beneficiary" is the
natural person that you name prior to the payout start date.
b. The minimum amount you are required to receive for any tax year is:
1) the account balance of the Certificate at the end of the prior
year, divided by;
2) your life expectancy (or the joint and last survivor expectancy
of you and your "designated beneficiary") using the age(s) as of
your birthday(s) in that year.
4. For account balances accruing after December 31, 1988 distributions of
contributions made under a salary reduction agreement may only occur upon:
a. or after attainment of age 59 1/2; or
b. separation from service; or
c. death; or
d. disability (as defined in Internal Revenue Code Section 72(m)(7)); or
e. hardship.
In the case of hardship distributions, earnings due to these purchase
payments cannot be withdrawn. The plan administrator will be responsible
for determining whether an individual's circumstances meet the definition
of hardship as set forth in the Internal Revenue Code and Regulations.
<PAGE>
5. For the purpose of this amendment, "account balances" includes:
a. any contributions made after the specified date:
1) December 31, 1986; or
2) December 31, 1988
whichever is applicable; and
b. all earnings credited after the specified date.
You are permitted to directly rollover all or a portion of any eligible rollover
distribution which you receive, to an eligible retirement plan (i.e., IRA,
401(a), or 403(b) ). In the case of an eligible rollover distribution to your
surviving spouse, an eligible retirement plan is limited to an IRA.
An eligible rollover distribution is any distribution from your account except:
1. one of a series of payments pursuant to a life or a joint life income
option, or
2. one of a series of payments pursuant to a period certain income option
based on your life expectancy (or joint life expectancy of you and your
designated beneficiary), or
3. one of a series of substantially equal periodic payments for a specified
period of ten years or more, or
4. one that qualifies as a required minimum distribution as defined by section
401(a)(9) of the Internal Revenue Code.
/s/ Michael J. Velotta /s/ Louis G. Lower, II
Secretary Chief Executive Officer
<PAGE>
DEAN WITTER VARIABLE ANNUITY II
ISSUED BY: Northbrook Life Insurance Company, Northbrook, Illinois
PO Box 94040, Palatine, IL 60094-4040
<TABLE>
<S><C>
- -------------------------------------------------------------------------------------------
OWNER(S)
Name / / M / / F Birthdate / /
-------------------------------------------- --- --- ---
Address
----------------------------------------
City State Zip Soc. Sec. No. - -
--- -- ----
Name / / M / / F Birthdate / /
-------------------------------------------- --- --- ---
Address
----------------------------------------
City State Zip Soc. Sec. No. - -
--- -- ----
- -------------------------------------------------------------------------------------------
ANNUITANT
Leave blank if Annuitant is the same as
sole Owner; otherwise complete.
Name / / M / / F Birthdate / /
-------------------------------------------- --- --- ---
Address
----------------------------------------
City State Zip Soc. Sec. No. - -
--- -- ----
Relationship to Owner
-------------------------
- -------------------------------------------------------------------------------------------
BENEFICIARY(IES)
Leave blank if Spouse of sole Owner;
otherwise complete.
Name Relationship to Owner
---------------------------------- ------------------------------
Name Relationship to Owner
---------------------------------- ------------------------------
Name Relationship to Owner
---------------------------------- ------------------------------
- -------------------------------------------------------------------------------------------
PURCHASE PAYMENT/
PLAN OPTIONS
TOTAL PURCHASE PAYMENT $_____________________ ENHANCED DEATH BENEFIT OPTION / / Yes / / No
PORTFOLIO SELECTION
/ / Money Market Portfolio ____% / / Income Builder Portfolio ____%
/ / Quality Income Plus Portfolio ____% / / Capital Growth Portfolio ____%
/ / High Yield Portfolio ____% / / European Growth Portfolio ____%
/ / Equity Portfolio ____% / / Global Div. Growth Portfolio ____%
/ / Strategist Portfolio ____% / / Pacific Growth Portfolio ____%
/ / Dividend Growth Portfolio ____% / / Fixed Account Portfolio ____%
/ / Utilities Portfolio ____% / / Fixed Account Portfolio (6 yr.) ____%
/ / Capital Appreciation Portfolio ____% Total 100 %
----
- -------------------------------------------------------------------------------------------
REPLACEMENT
INFORMATION
Will this annuity replace or change any existing annuity or life insurance? / / Yes / / No (If Yes, complete the following.)
Company Policy No.
---------------------------------------------- ---------------------------------
Cost basis amount Policy Date
------------------------------------- ---------------------------------
- -------------------------------------------------------------------------------------------
TAX QUALIFIED
PLAN
/ / Yes / / No (If Yes, complete the following.)
/ / IRA Rollover / / IRA/Year of Contribution / / 401 (a) (pension) / / Other
------- -------------------
/ / IRA Transfer / / SEP/Year of Contribution / / 403 (b) (TSA)
(attach Form 5305) ------- -----------------------------
- -------------------------------------------------------------------------------------------
SPECIAL INSTRUCTIONS
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
SIGNATURE(S)
A copy of this enrollment signed by the Account Executive will be the receipt for the first purchase payment. If Northbrook Life
Insurance Company ("Northbrook") declines this enrollment, Northbrook will have no liability except to return the first purchase
payment.
I have read the above statements and represent that they are complete and true to the best of my knowledge and belief. I agree that
this enrollment shall be a part of the Certificate issued by Northbrook. Northbrook may add to or correct the enrollment in the
space provided above. By accepting the Certificate issued, I agree to any additions or corrections to this enrollment. Northbrook
will obtain written agreement from me for any change in the investment allocation, benefits, type of plan, or birthdates.
I UNDERSTAND THAT CERTIFICATE VALUES AND INCOME PAYMENTS BASED ON THE INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT ARE VARIABLE AND
NOT GUARANTEED AS TO DOLLAR AMOUNT. I ACKNOWLEDGE RECEIPT OF THE CURRENT PROSPECTUS FOR THE DEAN WITTER VARIABLE ANNUITY II.
Signed at Date / /
---------------------------------------------------- ----- ----- -----
City State
Owner(s)
----------------------------------------------------------------------------------
Annuitant
---------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
ACCOUNT EXECUTIVE
USE ONLY
Will the Certificate applied for replace or change any existing annuity or life insurance? / / Yes / / No
AE Name (Please print) Phone No. ( )
----------------------------------------------------- --------------------
AE Signature Branch/AE No.
-------------------------------------------------------------- ----------------------
NLR433 (11/96) 40125
</TABLE>
<PAGE>
Exhibit 6(a)
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION OF
NORTHBROOK LIFE INSURANCE COMPANY
AS AMENDED SEPTEMBER 12, 1984
FIRST: (a) The name of the company shall be NORTHBROOK LIFE INSURANCE
COMPANY.
(b) The principal office of the company shall be located in the
township of Northfield, County of Cook, in the State of Illinois.
(c) The period of duration of the company shall be perpetual.
SECOND: The objects and purposes of this corporation shall be to
make, write and issue the following classes and kinds of insurance:
(a) LIFE: Insurance on the lives of persons and every insurance
appertaining thereto or connected therewith and granting, purchasing or
disposing of annuities. Policies of life or endowment insurance or annuity
contracts or contracts supplemental thereto which contain provisions for
additional benefits in case of death by accidental means and provisions
operating to safeguard such policies or contracts against lapse or to give a
special surrender value, or special benefit, or an annuity, in the event, that
the insured or annuitant shall become totally and permanently disabled as
defined by the policy or contract, shall be deemed to be policies of life or
endowment insurance or annuity contracts within the intent of this clause.
(b) ACCIDENT AND HEALTH: Insurance against bodily injury,
disablement or death by accident and against disablement resulting from sickness
or old age and every insurance appertaining thereto.
(c) LEGAL EXPENSE: Insurance which involves the assumption of a
contractual obligation to reimburse the beneficiary against or pay on behalf of
the beneficiary, all or a portion of his fees, costs or expenses related to or
arising out of services performed by or under the supervision of an attorney
licensed to practice in the jurisdiction wherein the services are performed,
regardless of whether the payment is made by the beneficiaries individually or
by a third person for them, but does not include the provision of or
reimbursement for legal services incidental to other insurance coverages.
THIRD: (a) The number of Directors shall be as provided in the By-Laws,
but shall not be less than three, or more than twenty-one. The Directors shall
be
<PAGE>
elected at each annual meeting of the shareholders for a term of one year.
Vacancies in the Board of Directors shall be filled by vote of the shareholders.
(b) The corporate powers of the corporation shall be vested in the
Board of Directors who shall have power to do any and all acts the corporation
may do under the law and not otherwise to be performed by the shareholders, and
shall have power to adopt By-Laws not inconsistent with law for the government
and regulation of business.
FOURTH: The amount of authorized capital of the corporation shall be Two
Million Five Hundred Thousand ($2,500,000.) Dollars; the aggregate number of
common shares which the corporation shall have authority to issue shall be
Twenty-Five Thousand (25,000) shares of the par value of One Hundred ($100)
Dollars per share.
FIFTH: The designation of the general officers shall be Chairman of the
Board, President, two or more Vice-Presidents, Treasurer, Secretary and
Controller.
SIXTH: The fiscal year shall commence on the first day of January and
terminate on the 31st day of December of each year.
SEVENTH: The corporation is a survivor of a merger in accordance with he
Illinois Insurance Code, and the age of the corporation shall be calculated from
December 16, 1959.
NORTHBROOK LIFE INSURANCE COMPANY
By: s/s Robert S. Seiler
--------------------------------
Senior Vice President, Secretary
and General Counsel
(SEAL)
Attest:
s/s Kieran T. Ridge
- ----------------------
Assistant Secretary
Approved this 12th day of October, 1984.
s/s John E. Washburn
----------------------------------------
John E. Washburn, Director of Insurance
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
BY-LAWS
AMENDED JUNE 8, 1995
<PAGE>
AMENDED BY-LAWS OF
NORTHBROOK LIFE INSURANCE COMPANY
ARTICLE I
DIRECTORS
SECTION 1. The property, business and affairs of the Company shall be
managed and controlled by a Board of Directors composed of seven members. The
Directors shall be elected at each annual meeting of the shareholders of the
Company for a term of one year. Each Director shall hold office for the term
for which elected, and until the election and qualification of a successor.
SECTION 2. In the event of a vacancy occurring in the Board of
Directors, the shareholders of the Company shall, by a majority vote at a
special meeting called for that purpose or at the next annual meeting of
shareholders, elect a Director to fill such vacancy, who shall hold office
during the unexpired portion of the term of the Director whose place he was
elected to fill.
SECTION 3. The Board of Directors may declare dividends payable out of
the surplus funds of the Company when warranted by law.
SECTION 4. The Board of Directors shall elect all the general officers
of the Company hereafter provided and may prescribe additional descriptive
titles for any such officers.
The Board of Directors may from time to time appoint an Actuary, Assistant
Vice Presidents, Assistant Secretaries, Assistant Treasurers, Assistant
Actuaries and other officers of the Company. The Board of Directors may
prescribe the duties and fix the compensation of any elected or appointed
officer and may require from any officer security for his faithful service and
for his proper accounting for monies and property from time to time in his
possession.
All officers of the Company shall hold office at the will of the Board of
Directors.
SECTION 5. The Board of Directors shall designate in what bank or banks
the funds of the Company shall be deposited and the person or persons who may
sign, on behalf of the Company, checks or drafts against such deposits. Such
designations may also be made by such person or persons as shall be appointed
for that purpose by the Board of Directors.
SECTION 6. The Board of Directors shall have the power to make rules
and regulations not inconsistent with the laws of this State, the Articles of
Incorporation of the Company,
2
<PAGE>
or these By-Laws, for the conduct of its own meetings and the management of the
affairs of the Company.
SECTION 7. The Board of Directors may authorize payment of compensation
to Directors for their services as Directors, and fix the amount thereof.
SECTION 8. The Board of Directors shall have the power to appoint
committees and to grant them powers not inconsistent with the laws of this
State, the Articles of Incorporation of the Company, or these By-Laws.
SECTION 9. An annual meeting of the Board of Directors shall be held
each year immediately after the adjournment of the annual meeting of the
shareholders. Other meetings of the Board of Directors may be held at such
time, as the Board of Directors may determine or when called by the Chairman of
the Board or by a majority of the Board of Directors.
Notice of every meeting of the Directors other than the stated annual
meeting shall be given by letter or telegraph sent to each Director at his
business address, not less than three days prior to the meeting. Any Director
may, in writing, waive notice of any meeting, and the presence of a Director at
any meeting shall be considered a waiver by him of notice of such meeting,
except as otherwise provided by law.
Any action required or permitted to be taken at any meeting of the Board of
Directors, or of any Committee thereof, may be taken without a meeting if all
members of the Board or such Committee, as the case may be, consent thereto in
writing. Such writing or writings shall be filed with the minutes of
proceedings of the Board or such Committee.
SECTION 10. A majority of the whole Board of Directors shall constitute
a quorum for the transaction of business, but if at any meeting of the Board of
Directors there shall be less than a quorum present, a majority of those present
may adjourn the meeting, from time to time, until a quorum shall have been
obtained.
ARTICLE II
OFFICERS
SECTION 1. The general officers of the Company shall consist of a
Chairman of the Board, President, two or more Vice Presidents, a Secretary, a
Treasurer, and a Controller, who shall be elected annually by the Board of
Directors at the stated annual meeting held upon adjournment of the annual
shareholders' meeting, and if not elected at such meeting, such officers may be
elected at any meeting of the Board of Directors held thereafter. Such officers
shall be elected by a majority of the Directors, and shall hold office for one
year and until their respective successors are elected
3
<PAGE>
and qualified, subject to removal at will by the Board of Directors. In case of
a vacancy in any of the general offices of the Company, such vacancy may be
filled by the vote of a majority of the Board of Directors. Any two of the
aforesaid offices may be filled by the same person, with the exception of the
offices of President and Vice President, or President and Secretary.
SECTION 2. The Chairman of the Board shall preside at all meetings of
the shareholders and of the Board of Directors. He shall be the Chief Executive
Officer of the Company, shall have general and active management of the business
of the Company subject to the supervision of the Board of Directors, and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. He shall also perform such other duties as shall be prescribed from
time to time by the Board of Directors.
SECTION 3. The President shall have general administrative control and
supervision over the operations of the company subject to the supervision of the
Chairman Board. He shall, in the absence or inability of the Chairman of the
Board, perform the duties and exercise the powers of the Chairman of the Board.
He shall execute bonds, mortgages and other contracts requiring a seal, under
the seal of the corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be expressly delegated by the Board of Directors to some other officer or
agent of the corporation. He shall also perform such other duties as may
properly belong to his office or as shall be prescribed from time to time by the
Chairman of the Board or by the Board of Directors.
SECTION 4. Each Vice President shall have such powers and shall
perform such duties as may be assigned to him by the Chairman of the Board, or
by the President or by the Board of Directors. In the absence or in the case of
the inability of the Chairman of the Board and the President to act, the Board
of Directors may designate which one of the Vice Presidents shall be the acting
Chief Executive Officer of the Company during such absence or inability,
whereupon such acting Chief Executive Officer shall have all the powers and
perform all of the duties incident to the office of the Chairman during the
absence or inability of the Chairman and President to act.
SECTION 5. The Secretary shall keep the minutes of all meetings of the
Board of Directors, and of all meetings of the shareholders, in books provided
by the Company for such purpose. He shall attend to the giving of all notices
of meetings of the Board of Directors or shareholders. He may sign with the
Chairman of the Board, the President or a Vice President in the name of the
Company when authorized by the Board of Directors so to do, all contracts and
other instruments requiring the seal of the Company and may affix the seal
thereto. He shall, in general, perform all of the duties which are incident to
the office of Secretary and such other duties as the Board of Directors or
Chairman of the Board may from time to time prescribe.
SECTION 6. The Treasurer shall deposit the monies of the Company in the
Company's name in depositories designated by the Board of Directors, or by such
person or persons as shall be appointed for that purpose by the Board of
Directors. He shall, in general, perform all of the duties which are incident
to the office of Treasurer and such other duties as the Board of
4
<PAGE>
Directors or Chairman of the Board may from time to time prescribe. The Board
of Directors may, in its discretion, require him to give bond for the faithful
discharge of his duties.
SECTION 7. The Controller shall have such powers and perform such
duties as the Board of Directors or the Chairman of the Board may from time to
time prescribe.
ARTICLE III
SHAREHOLDERS' MEETING
SECTION 1. The annual meeting of the shareholders shall be held at the
principal office of the Company in Northfield Township, Cook County, Illinois,
or at such other location within or without the State of Illinois as may be set
forth in the notice of call, on the third Tuesday in February of each year,
except when such day shall be a legal holiday, in which case the meeting shall
be held on the next succeeding business day. The Chairman of the Board or the
Board of Directors may at any time call a special meeting of the shareholders,
and the Chairman of the Board shall call such special meeting when requested, in
writing, so to do by the owners of not less than one-fifth of the outstanding
share of the Company.
SECTION 2. Notice of every meeting of the shareholders shall be given
by mailing notice thereof at least ten days before such meeting to all the
shareholders at their respective post office addresses last furnished by them,
respectively, to the Company. The shareholders may waive notice of any such
meeting, in writing, and the presence of a shareholder, either in person or by
proxy, shall be considered a waiver of notice, except as otherwise provided by
law.
SECTION 3. The presence at such meeting in person or by proxy of
shareholders of the Company representing at least fifty-one percent of the then
outstanding shares of the Company shall be necessary to constitute a quorum for
the purpose of transacting business, except as otherwise provided by law, but a
smaller number may adjourn the meeting from time to time until a quorum shall be
obtained. Each shareholder shall be entitled to cast one vote in person or by
proxy for each share of stock of the Company held and of record in his or her
name on the books of the Company.
SECTION 4. A shareholder may vote at any meeting of the shareholders
either in person or by proxy duly constituted in writing. No special form of
proxy shall be necessary.
5
<PAGE>
ARTICLE IV
SHARES
SECTION 1. Share certificates shall be signed by the President or a
Vice President and countersigned by the Secretary, shall be sealed with the
corporate seal of the Company, and shall be registered upon the Share Register
of the Company. Each certificate shall express on its face the name of the
Company, the number of the certificate, the number of shares for which it is
issued, the name of the person to whom it is issued, the par value of each of
the said shares, and the amount actually received by the Company for each share
represented by said certificate.
SECTION 2. Transfer of shares of the Company shall be made only on the
books of the Company by the holder thereof in person or by his attorney duly
authorized, in writing, and upon the surrender of the certificates or
certificate for the share transfer, upon which surrender and transfer new
certificates will be issued. The Board of Directors may, by resolution, close
the share transfer books of the Company for a period not exceeding ten days
before the holding of any annual or special meeting of the shareholders. The
Board of Directors may, by resolution, also close the transfer books of the
Company for a period not exceeding ten days before the payment of any dividends
which may be declared upon the shares of the Company.
ARTICLE V
INSURANCE POLICIES
SECTION 1. All policies of insurance issued by this Company shall
comply with the laws of the respective states or territories in which the
policies are issued. All policies of insurance issued by this Company shall be
signed, either manually or by facsimile, by the President and the Secretary or
by such other officer or officers as the President may designate, and shall be
countersigned by a duly licensed resident agent where so required by law or
regulation.
6
<PAGE>
ARTICLE VI
MISCELLANEOUS
SECTION 1.
(a) As used in this Article:
(i) "acted properly" as to any person shall mean that such person
(A) acted in good faith;
(B) acted in a manner not clearly opposed to any written policy
of the corporation or which he reasonably believed to be in
the best interests of the corporation; and
(C) with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful.
The termination of any proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act properly.
(ii) "agent" shall mean any person who is or was
(A) a Director, officer or employee of the corporation and/or
any subsidiary;
(B) a trustee or a fiduciary under any employee pension, profit
sharing, welfare or similar plan or trust of the corporation
and/or any subsidiary;
(C) serving at the request of the corporation as a Director,
officer and/or employee of or in a similar capacity in
another corporation, partnership, joint venture, trust or
other enterprise, (which shall, for the purpose of this
Article be deemed to include not-for-profit or for-profit
entities of any type), whether acting in such capacity or in
any other capacity including, without limitation, as a
trustee or fiduciary under any employee pension, profit
sharing, welfare or similar plan of trust.
7
<PAGE>
(iii) "expenses" shall include attorneys' fees and any expenses of
establishing a right to indemnification under this Article.
(iv) "proceeding" shall mean any threatened, pending or completed
action or completed action or proceeding, whether civil or
criminal, and whether judicial, legislative or administrative and
shall include investigative action by any person or body.
(v) "subsidiary" shall mean a corporation, 50% or more of the shares
of which at the time outstanding having voting power for the
election of Directors, is owned directly or indirectly by the
corporation or by one or more subsidiaries or by the corporation
and one or more subsidiaries.
(b) The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any proceeding (other than an action
by or in the right of the corporation) by reason of the fact that such
person is or was an agent against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such proceeding if such person acted properly.
(c) The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any proceeding by or in the right of
the corporation to procure a judgment in its favor by reason of the
fact that such person is or was an agent against amounts paid in
settlement and against expenses actually and reasonably incurred by
him in connection with the defense or settlement of such proceeding if
he acted properly, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation unless and only to the
extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which
such court shall deem proper.
(d) Expenses incurred in defending a proceeding shall be paid by the
corporation to or on behalf of an agent in advance of the final
disposition of such proceeding if:
(i) there is a reasonable basis to believe that such agent may be
entitled to indemnification under this Article;
(ii) such advance payments would not result in undue financial
hardship to the corporation; and
8
<PAGE>
(iii) the corporation shall have received an undertaking by or on
behalf of such agent to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by
the corporation as authorized in this Article.
(e) Any indemnification or advance under paragraphs (b), (c) or (d) of
this Article (unless ordered by a court) shall be made by the
corporation only as authorized in the specific proceeding upon a
determination that indemnification or advancement to such person is
proper in the circumstances. Such determination shall be made:
(i) by the Chairman of the Board and General Counsel so long as
neither was made a party to such proceeding, or
(ii) if the Chairman of the Board or General Counsel was made a party,
by the Board of Directors, by a majority vote of a quorum
consisting of Directors who were not made parties to such
proceedings, or
(iii) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested Directors so directs, by independent
legal counsel in a written opinion, or
(iv) if a quorum of disinterested Directors is not obtainable or if a
majority of the disinterested Directors so directs by the
shareholders.
(f) The corporation shall indemnify or advance funds to any person
described in Section (a)(ii)(c) only after such person shall have
sought indemnification or an advance from the corporation,
partnership, joint venture, trust or other enterprise in which he was
serving at the corporation's request, shall have failed to receive
such indemnification or advance and shall have assigned irrevocably to
the corporation any right to receive indemnification which he might be
entitled to assert against such other corporation, partnership, joint
venture, trust or other enterprise.
(g) The indemnification provided to an agent by this Article:
(i) shall not be deemed exclusive of any other rights to which such
agent may be entitled by law or under any articles of
incorporation, by-law, agreement, vote of shareholders or
disinterested Directors or otherwise; and
(ii) shall inure to the benefit of the legal representatives of such
agent or his estate, whether such representatives are court-
appointed or otherwise designated, and to the benefit of the
heirs of such agent.
(h) The indemnification and advances provided to an agent by this Article
shall extend to and include claims for such payments arising out of
any proceeding commenced or
9
<PAGE>
based on actions of an agent taken prior to the effective date of this
Article; provided that payment of such claims had not been agreed to
or denied by the corporation at the effective date.
(i) The corporation shall have power to purchase and maintain insurance on
behalf of any agent against any liability asserted against him and
incurred by him as agent or arising out of his status of such, whether
or not the corporation would have the power to indemnify him against
such liability under the provisions of this Article. The corporation
shall also have power to purchase and maintain insurance to indemnify
the corporation for any obligation which it may incur as a result of
the indemnification of agents under provisions of this Article.
(j) The invalidity or unenforceability of any provision in this Article
shall not affect the validity or enforceability of the remaining
provisions of this Article.
SECTION 2. The fiscal year of the Company shall begin in each year on
the first day of January, and end on the thirty-first day of the December
following.
SECTION 3. The common seal of the Company shall be circular in form and
shall contain the name of the Company and the words: "CORPORATE SEAL" and
"ILLINOIS".
SECTION 4. These By-Laws may be amended or repealed by the vote of a
majority of the Directors present at any meeting at which a quorum is present.
10
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
3100 SANDERS ROAD
NORTHBROOK, IL 60062
Home Office
Life Law & Regulation
June 8, 1990
To: Northbrook Life Insurance Company
3100 Sanders Road
Northbrook, Illinois 60062
From: Robert S. Seiler, Senior Vice President,
Secretary and General Counsel
Re: Form N-4 Registration Statement Under
the Investment Company Act of 1940
I have examined the above-mentioned document and the laws that I consider
necessary and appropriate. On the basis of such examination, it is my opinion
that:
1. The Northbrook Life Insurance Company is duly organized and validly
existing under the laws of the State of Illinois and has been duly
authorized to issue variable annuity contracts by the Illinois
Department of Insurance;
2. The Northbrook Variable Annuity Separate Account II is a duly
authorized and separately existing account established pursuant to
Section 245.21 of the Illinois Insurance Code by Board Resolution
dated May 18, 1990, and;
3. The flexible premium variable annuity contracts when issued as
contemplated by the Form N-4 Registration Statement will constitute
legally and validly issued and binding obligations of Northbrook Life
Insurance Company.
s/s Robert S. Seiler
---------------------------------
Robert S. Seiler, Senior Vice
President, Secretary and
General Counsel
<PAGE>
EXHIBIT 10(a)
CONSENT OF ACCOUNTANTS
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 13 to
Registration Statement No. 33-35412 on Form N-4 of our report dated March 1,
1996 related to the financial statements of Northbrook Variable Annuity
Account II and our report dated March 1, 1996 related to the financial
statements and financial statement schedule of Northbrook Life Insurance Company
contained in the Statement of Additional Information (which is incorporated by
reference in the Prospectus of Northbrook Variable Annuity Account II of
Northbrook Life Insurance Company) which is part of such Registration Statement,
and to the reference to us under the heading "Experts" in such Statement of
Additional Information.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
December 27, 1996
<PAGE>
CONSENT OF COUNSEL
We hereby consent to the reference to this firm under the caption "Legal
Matters" in the Statement of Additional Information forming part of Post-
Effective Amendment No. 13 to the Registration Statement on Form N-4 for
Northbrook Variable Annuity Account II (File No. 33-35412).
Routier and Johnson, P.C.
By: /s/ Gregor B. McCurdy
--------------------------
Gregor B. McCurdy
<PAGE>
FORM OF AGREEMENT TO PURCHASE SHARES
THIS AGREEMENT, made and entered into this the 30th day of June, 1993, and
amended as of the 15th day of March, 1995, by and between NORTHBROOK LIFE
INSURANCE COMPANY (hereinafter the "Company"), on its own behalf and on behalf
of the Northbrook Variable Annuity Account II (hereinafter the "Account"), a
separate account of the Company, and DEAN WITTER VARIABLE INVESTMENT SERIES, an
unincorporated business trust organized under the laws of the Commonwealth of
Massachusetts (hereinafter the "Trust") and DEAN WITTER DISTRIBUTORS INC.
(hereinafter the "Distributor").
WHEREAS, by resolution of its Board of Directors on May 18, 1990, the
Company established the Account to set aside and invest assets attributable to
certain variable annuity contracts (hereinafter the "Contracts") issued by the
Company;
WHEREAS, the Company has registered the Account as a unit investment trust
under the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act");
WHEREAS, the Securities and Exchange Commission (hereinafter "S.E.C.")
declared the Account's registration statement of the Contract filed under the
Securities Act of 1933, as amended, (hereinafter the "1933 Act") effective on
September 25, 1990;
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered as such under the 1940 Act and has filed
its registration statement with the S.E.C. which declared such registration
statement effective on October 5, 1983;
WHEREAS, the Distributor is registered as a broker-dealer with the S.E.C.
under the Securities Exchange Act of 1934, as amended, (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD");
WHEREAS, the Trust is available to act as the investment vehicle for
separate accounts established for variable annuity contracts and variable life
insurance contracts offered or to be offered by insurance companies which have
entered into agreements to purchase shares or participation agreements with the
Trust and the Distributor (hereinafter "Participating Insurance Companies");
WHEREAS, the Trust has obtained an order from the S.E.C., dated November
23, 1994 (File No. 812-9128), granting Participating Insurance Companies and
variable annuity and variable life insurance separate accounts exemptions from
the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Trust to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies (hereinafter the "Shared Funding Exemptive Order");
WHEREAS, the Trust is presently comprised of eleven Portfolios designated
as the Money Market Portfolio, the Quality Income Plus Portfolio, the High Yield
Portfolio, the Utilities Portfolio, the Dividend Growth Portfolio, the Capital
Growth Portfolio, the Global Dividend Growth Portfolio, the European Growth
Portfolio, the Pacific Growth Portfolio, the Equity Portfolio and the Managed
Assets Portfolio, and other Portfolios may be subsequently established by the
Trust (hereinafter the "Portfolios");
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends by purchasing shares of the Portfolios on
behalf of the Account to fund the Contracts and the Distributor is authorized to
sell such shares to the Company for the benefit of the Account at net asset
value without the imposition of any charges;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Trust and the Distributor agree as follows:
1. PURCHASE OF SHARES. In accordance with the Trust's and the
Distributor's Distribution Agreement dated June 30, 1993, as amended as of March
15, 1995, (the "Distribution Agreement"), the Company agrees to purchase and
redeem the Trust shares of each Portfolio offered by the then current prospectus
1
<PAGE>
of the Trust (hereinafter the "Prospectus") included in the Trust's registration
statement (hereinafter "the Registration Statement") most recently filed from
time to time with the S.E.C. and effective under the 1933 and 1940 Acts or as
the Prospectus may be amended or supplemented and filed with the S.E.C. pursuant
to the 1933 Act.
2. SALE OF SHARES. The Distributor agrees to sell shares of the Trust to
the Company for allocation to the Account as orders from the Company are
received at the next determined net asset value per share after receipt by the
Trust or its designee of the order for shares of the Trust, of the applicable
Portfolio determined as set forth in the Prospectus.
3. REDEMPTION OF SHARES. At the Company's request, the Trust agrees to
redeem for cash without charge, any full or fractional shares of the Trust held
by the Company, executing such requests on a daily basis at the net asset value
of applicable Portfolio computed after receipt of the redemption request
provided, however, that the Trust reserves the right to suspend the right of
redemption or to postpone the date of payment upon redemption of the shares of
any Portfolio under the circumstances and for the period of time specified in
the Prospectus.
4. AVAILABILITY OF SHARES. Subject to Sections 3(c) and 4(b) of the
Distribution Agreement, the terms of which are incorporated herein by reference,
the Trust agrees to make its shares available indefinitely for purchase by the
Company.
5. PAYMENT OF SHARES. The Company shall pay for Trust shares within five
days after it places the order for Trust shares. The Trust reserves the right
to delay issuing or transferring Trust shares and/or to delay accruing or
declaring dividends in accordance with any policy set forth in its then current
prospectus with respect to such shares until any payment check has cleared. If
the Trust or the Distributor does not receive payment within the five days
period, the Trust may, without notice, cancel the order and require the Company
to reimburse the Trust promptly for any loss the Trust suffered by reason of the
Company failing to timely pay for its shares.
6. FEE FOR SHARES. The Company shall purchase and redeem shares in the
Trust at net asset value and the Company shall not pay any commission, dealers
fee or other fee to the Distributor or any other broker dealer.
7. TRUST'S REGISTRATION STATEMENT AND PROSPECTUS. The Trust shall amend
the Registration Statement for its shares under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of its
shares and, at its own expense, shall provide the Company with as many copies of
its current prospectus as the Company may reasonably request.
8. INVESTMENT OF ASSETS. The Trust agrees to invest its assets in
accordance with the representations made to the Internal Revenue Service in
connection with the Company's request for a private letter ruling regarding the
ownership of the Trust's shares attached as Exhibit "A" and in accordance with
Section 817(h) of the Internal Revenue Code and Treasury Regulation 1.817-5, as
amended from time to time, and any Treasury interpretations thereof, relating
to the diversification requirements for variable annuity contracts and any
amendments or other modifications to such Section or Regulations.
9. ADMINISTRATION OF CONTRACTS. The Company shall be responsible for
administering the Contracts and keeping records on the Contracts.
10. STOCKHOLDER INFORMATION. The Trust shall furnish the Company copies of
its proxy material, reports to stockholders and other communication to
stockholders in such quantity as the Company shall reasonably require for
distributing to owners or participants under the Contracts. The Company will
distribute these materials to such owners or participants as required.
11. VOTING. (a) To the extent required by law, the Company shall vote
Trust shares in accordance with instructions received from contract owners. If,
however, the 1940 Act or any regulation thereunder should be amended or if the
present interpretation thereof should change, and as a result the Company
determines that it is permitted to vote the Trust's shares in its own right, it
may elect to do so. The Company shall vote shares of a Portfolio for which no
instructions have been received in the same proportion as the vote of
shareholders of such Portfolio from which instructions have been received.
2
<PAGE>
Neither the Company nor persons under its control shall recommend action in
connection with solicitation of proxies for Trust shares allocated to the
Account. The Company shall also vote shares it owns that are not attributable to
contract owners in the same proportion. Participating Insurance Companies shall
be responsible for assuring that each of their separate accounts participating
in the Trust calculates voting privileges in a manner consistent with other
Participating Insurance Companies.
(b) The Trust will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Trust will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Trust
is not one of the trusts described in Section 16(c) of that Act) as well as with
Section 16(a) and, if and when applicable, 16(b). Further, the Trust will act in
accordance with the S.E.C.'s interpretation of the requirements of Section 16(a)
with respect to periodic elections of trustees and with whatever rules the
S.E.C. may promulgate with respect thereto.
12. COMPANY APPROVAL. The Trust and the Distributor agree that the
approval of the Company will be required prior to the Trust and the Distributor
entering into any new agreements to sell shares of the Trust to other
Participating Companies.
13. TRUST'S WARRANTY. The Trust represents and warrants that Trust
shares sold pursuant to this Agreement shall be registered under the 1933 Act
and duly authorized for issuance in accordance with all applicable federal and
state laws.
14. COMPANY'S WARRANTY. The Company represents and warrants that it is an
insurance company duly organized and in good standing under Illinois law and
that it has legally and validly established the Account under Section 245.21 of
the Illinois Insurance Code and has registered the Account as a unit investment
trust in accordance with the provisions of the 1940 Act to serve as a segregated
investment account for certain Contracts. The Company further represents and
warrants that the Contracts will be registered under the 1933 Act and the
Contracts will be issued and sold in compliance with all applicable Federal and
State laws.
15. DISTRIBUTOR'S WARRANTY. The Distributor represents and warrants that
it is a member in good standing of the NASD and is registered as a broker-dealer
with the S.E.C. under the 1934 Act. The Distributor further represents that it
will sell and distribute the shares in accordance with the 1933, 1934 and 1940
Acts and will not make any representations concerning the Account except those
contained in the then current registration statement or related prospectus and
any sales literature approved by the Trust. For purposes of this paragraph,
Section 6 of the Distribution Agreement is incorporated in this Agreement.
16. TERMINATION OF AGREEMENT. The parties may terminate this Agreement
as follows:
(1)(a) at the option of the Company or the Trust or the Distributor
upon 90 days' written notice to the other party;
(b) at the option of the Company if, for any reason, except for those
specified in Sections 3(c) and 4(b) of the Distribution Agreement, Trust shares
are not available to meet the requirements of the Contracts as determined by the
Company; or
(c) at the option of the Trust upon the NASD, the S.E.C., the Illinois
Insurance Commissioner or any other regulatory body instituting legal
proceedings against the Company regarding its duties under this Agreement.
(2) This Agreement shall automatically terminate in the event of its
assignment.
17. COMPANY'S INDEMNIFICATION AGREEMENT. (a) The Company agrees to
indemnify and hold harmless the Trust or Distributor and each of their Directors
or Trustees who is not an "interested person" of the Trust, as defined in the
1940 Act (collectively, the "Indemnified Parties" for purposes of this paragraph
17) against any losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Company) or expenses or actions to
which such Indemnified Parties may become subject, under the Federal securities
laws or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements arise as a result of any
failure by the
3
<PAGE>
Company to provide the services and furnish the materials under terms of this
Agreement or which arise from erroneous instructions by the Company to the
Distributor concerning the particular Portfolio or Portfolios whose shares are
to be allocated to the Account. This indemnity agreement is in addition to any
liability which the Company may otherwise have. Provided, however, that in no
case is the indemnity of the Company in favor of the Distributor deemed to
protect the Distributor against any liability to the Trust or its shareholders
to which the Distributor would otherwise be subject by reason of its bad faith,
wilful misfeasance or negligence in the performance of its duties or by reason
of reckless disregard of its obligations and duties under this Agreement.
(b) The Company will reimburse the Indemnified Parties for any legal or
other expenses reasonably incurred by the Indemnified Parties in connection with
investigating or defending of any such loss, claim, damage, liability or action.
(c) Promptly after receipt by any of the Indemnified Parties of notice of
the commencement of any action, or the making of any claim for which indemnity
may apply under this paragraph, the Indemnified Parties will, if a claim thereof
is to be made against the Trust, notify the Company of the commencement thereof;
but the omission so to notify the Company will not relieve the Company from any
liability which it may have to the Indemnified Parties otherwise than under this
Agreement. In case any such action is brought against the Indemnified Parties,
and the Company is notified of the commencement thereof, the Company will be
entitled to participate therein and to assume the defense thereof, with counsel
satisfactory to the party named in the action, and after notice from the Company
to such party of the Company's election to assume the defense thereof, the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
18. TRUST AND DISTRIBUTOR INDEMNIFICATION AGREEMENTS. (a) The Trust and
Distributor each agree to indemnify and hold harmless the Company and each of
its Directors who is not an "interested person" of the Company, as defined in
the 1940 Act (collectively the "Company's Indemnified Parties" for purposes of
this paragraph 18) against any losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Trust) or expenses or
actions to which such Indemnified Parties may become subject, under the Federal
securities laws or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements:
(i) arise as a result of any failure by the Trust or Distributor to
provide the services and furnish the materials under the terms of this
Agreement; or
(ii) arise out of the Trust's or Distributor's failure, whether
unintentional or in good faith or otherwise, to comply with the
representations made to the Internal Revenue Service attached as Exhibit
"A" in connection with the request for a private letter ruling regarding
the ownership of Trust shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in registration statement
or prospectus or sales literature of the Trust (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, provided that this Agreement to indemnify shall not apply as to
the Company's Indemnified Parties if such statement or omission was made in
reliance upon and in conformity with information furnished to the Trust or
Distributor by or on behalf of the Company for use in the registration
statement or prospectus for the Trust or in sales literature (or any
amendment or supplement) or otherwise for use in connection with the sale
of the Contracts or Trust shares; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Trust or the Distributor in this
Agreement or arise out of or result from any other material breach of this
Agreement by the Trust or the Distributor, including a failure, whether
unintentional or in good faith or otherwise, to comply with the
requirements specified in paragraph 8 of this Agreement.
4
<PAGE>
(b) The Trust represents and warrants that the Trust will at all times
invest its assets in such a manner as to ensure that the Contracts will be
treated as an annuity under the Internal Revenue Code and the regulations
thereunder. Without limiting the scope of the foregoing, the Trust will at all
times comply with Section 817(h) of the Code and Treas. Reg. Sec. 1.817-5, as
amended from time to time, and any Treasury interpretations thereof, relating to
the diversification requirements for variable annuity contracts and any
amendments or other modifications to such section or Regulations.
(c) Trust shares will not be sold to any person or entity that would
result in the Contracts not being treated as annuity contracts in accordance
with the statutes and regulations referred to in the preceding paragraph.
(d) The Trust and the Distributor will reimburse the Company for any legal
or other expenses reasonably incurred by the Company's Indemnified Parties in
connection with investigating or defending of any such loss, claim, damage,
liability or action.
(e) Promptly after receipt by any of the Company's Indemnified Parties of
notice of the commencement of any action, or the making of any claim for which
indemnity may apply under this paragraph, the Company's Indemnified Parties
will, if a claim in respect thereof is to be made against the Company, notify
the Trust or the Distributor of commencement thereof; but the omission so to
notify the Trust or the Distributor will not relieve the Trust or the
Distributor from any liability which it may have to the Company's Indemnified
Parties otherwise than under this Agreement. In case any such action is brought
against the Company's Indemnified Parties, and the Trust or the Distributor is
notified of the commencement thereof, the Trust or the Distributor will be
entitled to participate therein and to assume the defense thereof, with counsel
satisfactory to the party named in the action, and after notice from the Trust
or the Distributor to such party of the Trust's or the Distributor's election to
assume the defense thereof, the Trust or the Distributor will not be liable to
such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
19. INDEMNIFICATION OF TRUST BY OR OF DISTRIBUTOR. For purposes of this
Agreement, the Trust and the Distributor shall indemnify each other according to
the terms of the Distribution Agreement the terms of which are incorporated by
reference.
20. POTENTIAL CONFLICTS. (a) The Trustees of the Trust will monitor the
operations of the Trust for the existence of any material irreconcilable
conflict between the interests of the contract owners of all separate accounts
investing in the Trust. An irreconcilable material conflict may arise for a
variety of reasons, including: (i) an action by any state insurance regulatory
authority; (ii) a change in applicable Federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling, no-
action or interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (iii) an administrative or judicial decision
in any relevant proceeding; (iv) the manner in which the investments of any
Portfolio are being managed; (v) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or
(vi) a decision by an insurer to disregard the voting instructions of contract
owners. The Trustees shall promptly inform the Company if they determine that
an irreconcilable material conflict exists and the implications thereof.
(b) The Company will report any potential or existing conflicts of which
it is aware to the Trustees of the Trust. The Company will assist the Trustees
in carrying out their responsibilities under the Shared Funding Exemptive Order,
by providing the Trustees with all information reasonably necessary for the
Trustees to consider any issues raised. This includes, but is not limited to,
an obligation by the Company to inform the Trustees whenever contract owner
voting instructions are disregarded.
(c) If it is determined by a majority of the Trustees, or a majority of
the Trustees who are not parties to this Agreement or interested persons of any
such party and who have no direct or indirect financial interest in this
Agreement or any agreement related thereto (the "Independent Trustees"), that a
material irreconcilable conflict exists, the Company shall, at its expense and
to the extent reasonably practicable (as determined by a majority of the
Independent Trustees), take whatever steps are necessary to remedy or eliminate
the irreconcilable material conflict, up to and including: (i) withdrawing the
assets allocable
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to the Account from the Trust or any Portfolio and reinvesting such assets in a
different investment medium, including (but not limited to) another Portfolio
of the Trust, or submitting the question whether such segregation should be
implemented to a vote of all affected contract owners and, as appropriate,
segregating the assets of variable annuity contract owners invested in the
Account from those of any other appropriate group (i.e., annuity contract
owners, life insurance contract owners, or variable contract owners of one or
more Participating Insurance Companies) that votes in favor of such segregation,
or offering to the contract owners the option of making such a change; and (ii)
establishing a new registered management investment company or managed separate
account.
(d) If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the Account's investment
in the Trust and terminate this Agreement; provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
Independent Trustees. Any such withdrawal and termination must take place
within six (6) months after the Trust gives written notice that this provision
is being implemented, and until the end of that six month period the Distributor
and Trust shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Trust.
(e) If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
Account's investment in the Trust and terminate this Agreement within six months
after the Trustees inform the Company in writing that they have determined that
such decision has created an irreconcilable material conflict; provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the Independent Trustees. Until the end of the foregoing six
month period, the Distributor and Trust shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares
of the Trust.
(f) For purposes of sections (c) through (f) of this paragraph, a majority
of the Independent Trustees shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event
will the Trust be required to establish a new funding medium for the
Contracts. The Company shall not be required by section (c) to establish a
new funding medium for the Contracts if an offer to do so has been declined
by vote of a majority of contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Trustees determine
that any proposed action does not adequately remedy any irreconcilable
material conflict, then the Company will withdraw the Account's investment in
the Trust and terminate this Agreement within six (6) months after the
Trustees inform the Company in writing of the foregoing determination,
provided, however, that such withdrawal and termination shall be limited to
the extent required by any such material irreconcilable conflict as
determined by a majority of the Independent Trustees.
(g) If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Trust and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such Rules are applicable;
and (b) paragraphs 11(a), 11(b), 20(a), 20(b), 20(c), 20(d), 20(e) and 20(f) of
this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such paragraphs are contained in such
Rule(s) as so amended or adopted.
21. DURATION OF THIS AGREEMENT. This Agreement, as amended, shall remain
in force until April 30, 1995 and from year to year thereafter, but only so long
as such continuance is specifically approved at least annually by the Trustees
of the Trust, or by the vote of a majority of the outstanding voting securities
of the Trust, cast in person or by proxy. This Agreement also may be terminated
in accordance with paragraph 16 hereof.
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The terms "vote of a majority of the outstanding voting
securities","assignment" and "interested person", when used in this Agreement,
shall have the respective meanings specified in the 1940 Act.
22. AMENDMENTS OF THIS AGREEMENT. This Agreement may be amended by the
parties only if such amendment is specifically approved by (i) the Trustees of
the Trust, or by the vote of a majority of outstanding voting securities of the
Trust, and (ii) a majority of those Trustees of the Trust who are not parties to
this Agreement or interested persons of any such party and who have no direct or
indirect financial interest in this Agreement or in any agreement related
thereto, cast in person at a meeting called for the purpose of voting on such
approval.
23. GOVERNING LAW. This Agreement shall be construed in accordance with
the law of the State of Illinois and the applicable provisions of the 1933,
1934 and 1940 Acts and the rules and regulations and rulings thereunder
including such exemptions from those statutes, rules and regulations as the
S.E.C. may grant and the terms hereof shall be interpreted and construed in
accordance therewith. To the extent the applicable law of the State of
Illinois, or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control. If any provision of
this Agreement shall be held or made invalid by a court decision, statute,
rule or otherwise the remainder of the Agreement shall not be affected
thereby.
24. PERSONAL LIABILITY. The Declaration of Trust establishing Dean Witter
Variable Investment Series, dated February 24, 1983, a copy of which, together
with all amendments thereto (the "Declaration"), is on file in the office of the
Secretary of the Commonwealth of Massachusetts, provides that the name Dean
Witter Variable Investment Series refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no Trustee,
shareholder, officer, employee or agent of Dean Witter Variable Investment
Series shall be held to any personal liability, nor shall resort be had to
their private property for the satisfaction of any obligation or claim or
otherwise, in connection with the affairs of said Dean Witter Variable
Investment Series, but the Trust Estate only shall be liable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement, as
amended, to be duly executed as of March 15, 1995.
COMPANY:
ATTEST: NORTHBROOK LIFE INSURANCE COMPANY
/s/ By: /s/
- ----------------------------------- -------------------------------
TRUST:
ATTEST: DEAN WITTER VARIABLE INVESTMENT SERIES
/s/ By: /s/
- ----------------------------------- -------------------------------
DISTRIBUTOR:
ATTEST: DEAN WITTER DISTRIBUTORS INC.
/s/ By: /s/
- ----------------------------------- -------------------------------
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EXHIBIT A
INDEX NUMBER: 0061.19-00
"This document may not be used or cited as precedent. Section 6110(j)(3) of the
Internal Revenue Code."
Mr. Paul J. Overberg Mr. J.C. Strickland
Senior Vice President and
Chief Actuary (202) 566-4495
Northbrook Life Insurance Co.
Allstate Plaza CC:C:C:3:3--3G6488
Northbrook, Illinois 60062 Dec. 01, 1983
Company = Northbrook Life Insurance Company
EIN: 36-3001527
Corp. P = Allstate Insurance Company
Corp. GP = Sears, Roebuck and Co.
Corp. S-1 = Dean Witter Reynolds Inc.
Account S = Northbrook Variable Annuity Account
Fund F = Dean Witter Variable
Annuity Investment Series
Portfolio 1 = Money Market Portfolio of Fund F
Portfolio 2 = High Yield Portfolio of Fund F
Portfolio 3 = Equity Portfolio of Fund F
State X = Illinois
State Y = Massachusetts
the Contract = flexible premium, deferred, variable annuity contract,
number NLU2, to be issued by the Company
Dear Mr. Overberg:
This is in reply to a letter dated July 25, 1983, requesting rulings
concerning the federal income tax consequences of the sale and administration of
certain annuity contracts. Additional information was submitted in letters dated
September 1 and September 9, 1983. The information submitted for our
consideration is substantially summarized below.
The Company is a stock life insurance company organized and operated
under the laws of State X. It is a life insurance company as defined by
section 801(a) of the Internal Revenue Code. It is a wholly-owned subsidiary
of Corp. P. which, in turn, is a wholly-owned subsidiary of Corp. GP.
The Company has developed a flexible premium, deferred, "variable" annuity
contract ("the Contract") with reserves based on a separate account (Account S)
established and regulated in accordance with the insurance laws of State X.
Account S is a unit investment trust and is registered with
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the Securities and Exchange Commission (SEC) under the Investment Company Act of
1940 (the 1940 Act). The Contracts provide for the allocation of all amounts
received under the Contracts to the general account of the Company, one or more
of the sub-accounts of Account S or any combination of the foregoing, in
accordance with the Contract owner's allocation specified in the contract
application or in a subsequent written notice to the Company. Account S has
been divided into three subaccounts, each of which invests solely in the shares
of a specific Portfolio of Fund F.
Fund F is a diversified, open-end management investment company organized
under the laws of State Y as a business trust and is registered with the SEC
under the 1940 Act. Fund F has three Portfolios (Portfolios 1-3) which have
different investment strategies. The investment performance of a Portfolio has
no effect on the investment performance of any other Portfolio. The manager and
investment adviser of Fund F is Corp. S-1 which is a second tier wholly-owned
subsidiary of Corp. GP. Corp. S-1 is also the distributor of the Contracts.
Corp. S-1 is registered with the SEC as an investment adviser under the
Investment Advisers Act of 1940 and is paid a management fee by Fund F.
The Contract will be issued by Company to a contract owner who may or may
not be the annuitant. The Contract will be available for purchase by
individuals covered under certain tax qualified annuity or retirement plans
(e.g. plans adopted pursuant to section 403(b) and individual retirement
annuities under section 408 of the Code), for individuals covered under
retirement plans which do not qualify for special tax treatment, and for
individuals not covered under any retirement plan.
The Contract provides for a minimum first purchase payment of at least
$5,000 unless the Contract is issued under a tax qualified annuity or retirement
plan, in which case the minimum first purchase payment must be at least $50.
Future purchase payments must be at least $50 or more. The amount of subsequent
payments are determined by the contract owner. However, the Company has the
right to limit annual payments after the first contract year to three times the
total payments made in the first contract year.
The amount of each payment, net of any taxes, will be allocated to the
general account of the Company, one or more sub-accounts of Account S, or any
combination of the above, in accordance with the contract owner's allocation (as
specified in the Contract application or subsequent written notice to the
Company).
Payments allocated to the Company's general account are applied to purchase
accumulation units in the general account (fixed accumulation units). Interest
is credited to the fixed accumulation units at a rate which may differ depending
on the date of the underlying payments. Interest will be guaranteed for at
least one year and will not be less than a minimum annual effective rate of 4
percent.
Payments allocated to a sub-account of Account S are applied to purchase
accumulation units in the sub-account (variable accumulation units). The
variable accumulation units in each sub-account of Account S represent a
proportionate interest in the net value of the assets (i.e., shares of one
series of Fund F) of the sub-account. The value of the variable accumulation
units will vary depending on the value of the Fund F stock held by the sub-
account. The value of the Fund F stock will vary depending on the investment
experience of Fund F.
Payments allocated to the Company's general account become a part of the
assets held by the general account. The general account maintains a diversified
portfolio of investments. Payments allocated to each sub-account of Account S
under the Contracts are used to purchase, at their net asset value, shares of a
Portfolio of Fund F (Portfolio 1 through Portfolio 3), each of which has its own
investment strategy. All dividends and capital gain distributions from a
Portfolio of Fund F are reinvested in shares of the distributing Portfolio at
their net asset value and such shares are credited to the appropriate sub-
account of Account S.
The Company may substitute shares of other registered open-end management
investment companies upon notice to the contract owners and, to the extent
required by the 1940 Act, upon approval by the SEC. The Company may establish
additional sub-accounts of Account S to invest in shares of other Portfolios of
Fund F that could be established in the future.
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The Company imposes certain charges with respect to the Contracts. An
annual contract maintenance charge is deducted from the value of the
accumulation units. The Company also deducts a daily mortality and expense risk
charge.
Annuity benefits begin on the "income starting date" selected by the
contract owner, which must be the first day of a calendar month and at least one
month after the issue date of the Contract. The income starting date cannot be
later than the first day of the calendar month following the annuitant's 75th
birthday. The owner may elect one of several annuity options.
A contract owner may surrender the Contract (in whole or in part) for the
value of the accumulation units held under the Contract at any time before the
earlier of the income starting date or the death of the annuitant. Such
withdrawals may be subject to surrender charges depending upon how long the
original payments were held by the Company.
In connection with the issuance and administration of the Contracts, the
following representations have been made:
(a) No variable annuity contract owner will have a legally binding
right to require the Company, Account S or Fund F to acquire any particular
investment item with purchase payments or other amounts paid to, or earned
by, the Company, Account S, or Fund F. Furthermore, there will be no
prearranged plan between any contract owner and the Company for the
Company, Account S, or Fund F to invest any purchase payments or other
amounts they receive in any particular investment item. However, contract
owners may be informed of the general investment strategy to be followed.
Contract owners will be permitted to choose among broad investment
strategies which initially will include stocks, bonds, and money market
instruments such as instruments of financial institutions, instruments of
government bodies, and U.S. Government securities.
(b) No contract owner will have any legal, equitable, direct,
indirect, or other interest in any specific investment item held by the
Company, Account S, or Fund F. A contract owner will have only a
contractual claim against the Company for cash as a result of purchasing an
annuity.
(c) The Company, in its general account, will maintain a diversified
portfolio of investments. Within 365 calendar days of the later of the
formation of Account S or the date of receipt of the first purchase payment
income (directly, indirectly, constructively or otherwise) by the Company
or Account S from the sale of the Contract, each Portfolio of Fund F
will diversify its respective portfolio of investments. Thereafter, each
Portfolio of Fund F will maintain a diversified portfolio of investments.
For purposes of this representation, a portfolio is diversified if:
(1) No more than 10 percent of the fair market value of the total
assets of the portfolio is invested in securities of any one issuer,
in any one real property project, or in any one commodity;
(2) investments in financial institutions are restricted, so that
no single type of portfolio investment (for example, certificates of
deposit, mortgages originating in and serviced by the financial
institution, and demand deposits) in financial institutions accounts
for more than 55 percent of the fair market value of the total assets
of the portfolio;
(3) Notwithstanding the 10 percent limitation in (1) above, the
direct and indirect investment in U.S. Treasury securities may total
but not exceed 55 percent of the fair market value of the total assets
of the portfolio;
(4) the total, direct and indirect, investment in U.S. Treasury
securities and certificates of deposit in financial institutions (that
is, savings and loan associations, banks, and savings banks) does not
exceed 65 percent of the total fair market value of the total assets
of the portfolio;
(5) the portfolio meets the requirements of (1) and through (4)
above on the last day of each calendar month.
Active business checking accounts are excluded in determining
whether there is diversification. For the first 10 working days after
receipt (including the day of receipt), newly acquired annuity
purchase payments are excluded in determining whether there is
diversification.
A-3
<PAGE>
For purposes of this representation, the term "security" is
defined as any certificate of deposit, mortgage, money market account,
time deposit, repurchase agreement, mortgage participation
certificate, and any item defined as a security in section 2(a)(36) of
the 1940 Act, 15 U.S.C.A. section 80a-2(a)(36).
For purposes of this representation the term "issuer" is defined
as the U.S. Treasury, an agency or instrumentality of the U.S.
Government, a State, an agency, instrumentality or political
subdivision of a State (whether incorporated or not), a foreign
government or instrumentality thereof, and any person as defined in
section 2(a)(28) of the 1940 Act.
For purposes of this representation the term "real property
project" is defined as a single, identifiable tract, group of tracts,
building, group of buildings, or combination of tracts and buildings.
For purposes of this representation the term "commodity" is
defined as any grouping of tangible personal property whose individual
elements are usually considered to be fungible. A commodity can be a
raw material, a refined material, or a manufactured product. The term
commodity includes, for example, but is not limited to, agricultural
products (including livestock), timber and timber products, gold,
silver, copper, diamonds, any foreign currency, oil, natural gas, and
all contracts involving the current or future purchase or sale of a
commodity. If an investment item is defined in this paragraph and is
also defined as a security, it will be considered to be defined only
in this paragraph.
Each Portfolio of Fund F intends to operate on a continuing
basis. There is no plan or intention for any Portfolio of Fund F to
liquidate, to transfer its assets to any individual or entity, to
merge with any entity or to otherwise cease operations.
There is no plan or intention for the Company to form any
separate account, subsidiary, or other entity; to cause any exchange,
cancellation, or modification of any annuity or insurance policy; or
to otherwise use any device to extend beyond 365 days the time in
which diversification will be obtained.
(d) If FSLIC, FDIC or other governmental insurance is available in
connection with any investment item, it inures only to the benefit of the
Company, Account S, or Fund F and not directly to the benefit of any
individual annuity policyholder.
(e) For purposes of determining the treatment of the interest to be
credited to the fixed accumulation units under the Contract, the Contract
will be either (1) a "qualified contract" within the meaning of section
805(f) of the Code to which "qualified guaranteed interest" under section
805(e)(5) is credited or (2) a contract described in section 805(d) to
which the alternative limitation allowed by section 809(f)(2)(A) is
applicable.
Rev. Rul. 77-85, 1977-1 C.B. 12, holds that the purchaser of an
"investment" annuity contract, by means of which the purchaser selected and
controlled one or more investments in a portfolio which comprised a separate
account of the life insurance company issuing the contract, was considered the
owner of those investments for federal income tax purposes.
Rev. Rul. 80-274, 1980-2 C.B. 27, holds that the purchaser of an annuity
contract, who was able to direct the funding of his annuity by specifying the
savings and loan association and the certificates of deposit in which his
purchase payments would be invested, was considered the owner of those
certificates for federal income tax purposes.
Rev. Rul. 81-225, 1981-2 C.B. 12, clarified the applicability of the
previously cited revenue rulings to mutual fund investments by holding that the
policyholders of certain variable annuity contracts, whose purchase payments
were invested solely in publicly available mutual fund shares, would be
considered the owners of those shares for federal income tax purposes.
Situation 5 of that ruling holds that under certain circumstances the
policyholders will not be considered to be the owners of the mutual fund shares.
Rev. Rul. 82-54, 1982-1 C.B. 11, concerns an insurance company which had
funded its deferred annuity contracts through a separate account whose assets
were invested in three mutual funds, the shares
A-4
<PAGE>
of which were not sold to the general public. The policyholders could direct
that their annuity purchase payments be invested in shares of any or all of the
three mutual funds. Rev. Rul. 82-54 holds that the insurance company, and not
the policyholder, is the owner of the mutual fund shares for federal income tax
purposes.
Based solely on the information submitted and the representations set forth
above, and provided the conditions listed below are met, it is held as follows:
(1) For federal income tax purposes, the assets held by the Company in
its general account and/or by the Portfolios of Fund F, pursuant to the
provisions of the Contracts described above, are owned by the Company
and/or by Fund F (or the Portfolios if appropriate) and not by the contract
owners, or by any annuitant or beneficiary under the Contracts.
(2) For federal income tax purposes, any income, gain, or loss
recognized with respect to the assets held by the Company in its general
account and by Fund F (or the Portfolios if appropriate), pursuant to the
provisions of the Contracts, is includible in the computation of income of
the Company or Fund F (or the Portfolios if appropriate) respectively, and
is not the income, gain or loss of the contract owners, or of any annuitant
or beneficiary under the Contracts.
(3) For federal income tax purposes, the stock of Fund F held by the
Company (through Account S), pursuant to the provisions of the Contracts
described above, is owned by the Company and not by the contract owners, or
by any annuitant or beneficiary under the Contracts.
(4) For federal income tax purposes, any income, gain, or loss
recognized with respect to the stock of Fund F held by the Company
(through Account S), pursuant to the provisions of the Contracts, is
includible in the computation of income of the Company and is not the
income, gain, or loss of the contract owners, or of any annuitant or
beneficiary under the Contracts.
With respect to the general account of the Company the rulings above are
subject to the condition that the general account not only meets the
representations indicated but also meets the following condition:
(A) The general account must meet the diversification tests of
representation (c) above.
The diversification tests of representation (c) above apply only to
investment assets. Assets held by the general account and Fund F that are not
investment assets are excluded in making the percentage calculations.
No opinion is expressed about the tax treatment of any conditions existing
at the time of, or effects resulting from, the sale and/or administration of the
Contracts that are not specifically covered by the rulings in this letter.
This ruling letter is directed only to the taxpayer who requested it.
Section 6110(j)(3) of the Internal Revenue Code provides that it may not be used
or cited as precedent.
A copy of this letter should be attached to the federal income tax
return(s) of the taxpayer involved for the taxable year(s) in which the
Contracts are sold and/or administered.
Pursuant to the power attorney on file in this office a copy of this letter
is being sent to your authorized representative.
Sincerely yours,
Anthony Manzanares, Jr.
Chief, Corporation Tax Branch
A-5
<PAGE>
EXHIBIT 99
POWER OF ATTORNEY
WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT II CONTRACT
Know all men by these presents that Peter H. Heckman whose signature
appears below, constitutes and appoints Louis G. Lower, II, and Michael J.
Velotta, and each of them, his attorneys-in-fact, with power of substitution,
and him in any and all capacities, to sign any registration statements and
amendments thereto for the Northbrook Life Insurance Company Variable Annuity
Account II Contract and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
December 6, 1996
----------------------------------
Date
/s/Peter H. Heckman
----------------------------------
Peter H. Heckman
President, Chief Operating Officer
and Director
Northbrook Life Insurance Company
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT II CONTRACT
Know all men by these presents that Kevin R. Slawin whose signature appears
below, constitutes and appoints Louis G. Lower, II, and Michael J. Velotta, and
each of them, his attorneys-in-fact, with power of substitution, and him in any
and all capacities, to sign any registration statements and amendments thereto
for the Northbrook Life Insurance Company Variable Annuity Account II Contract
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
December 6, 1996
--------------------------------------
Date
/s/Kevin R. Slawin
--------------------------------------
Kevin R. Slawin
Vice President and Director
Northbrook Life Insurance Company
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT II CONTRACT
Know all men by these presents that Marla G. Friedman whose signature
appears below, constitutes and appoints Louis G. Lower, II, and Michael J.
Velotta, and each of them, her attorneys-in-fact, with power of substitution,
and her in any and all capacities, to sign any registration statements and
amendments thereto for the Northbrook Life Insurance Company Variable Annuity
Account II Contract and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
December 6, 1996
--------------------------------------
Date
/s/Marla G. Friedman
--------------------------------------
Marla G. Friedman
Vice President
Northbrook Life Insurance Company
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT II CONTRACT
Know all men by these presents that Karen C. Gardner whose signature
appears below, constitutes and appoints Louis G. Lower, II, and Michael J.
Velotta, and each of them, her attorneys-in-fact, with power of substitution,
and her in any and all capacities, to sign any registration statements and
amendments thereto for the Northbrook Life Insurance Company Variable Annuity
Account II Contract and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
December 6, 1996
--------------------------------------
Date
/s/ Karen C. Gardner
--------------------------------------
Karen C. Gardner
Vice President
Northbrook Life Insurance Company
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT II CONTRACT
Know all men by these presents that Keith Hauschildt whose signature
appears below, constitutes and appoints Louis G. Lower, II, and Michael J.
Velotta, and each of them, his attorneys-in-fact, with power of substitution,
and his in any and all capacities, to sign any registration statements and
amendments thereto for the Northbrook Life Insurance Company Variable Annuity
Account II Contract and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
December 17, 1996
--------------------------------------
Date
/s/ Keith Hauschildt
--------------------------------------
Keith Hauschildt
Assistant Vice President and Controller
Northbrook Life Insurance Company
