<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1997
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. 15
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/X/
AMENDMENT NO. 16
------------------------
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, 1996 on February 28, 1997.
------------------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
_X_ immediately upon filing pursuant to paragraph (b) of Rule 485
___ on (date) 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) Performance Data......................................... Performance Data
(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) Fund Expenses............................................ Summary of Expenses; Dean Witter Variable
Investment Series Expenses
(f) 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........................................ Income Plans
-- Transfer.............................................. --
9. Death Benefit....................................................... Benefits Under the Contract
</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................................................ N/A
(d) Lapse.................................................... Default
(e) Free Look................................................ Introduction
12. Taxes............................................................... Federal Tax Matters
13. Legal Proceedings................................................... N/A
14. SAI Contents........................................................ SAI Table of Contents
15. Cover Page.......................................................... SAI: Cover Page
16. Table of Contents................................................... SAI: 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.................................... N/A
(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
May 1, 1997, 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 May 1, 1997.
<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....................................... 19
Dollar Cost Averaging Fixed Account....................... 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
Ownership Treatment..................................... 21
Delayed Maturity Date................................... 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 (may also be known as Accumulation
Value).
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 and/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 FIXED ACCOUNT--A one year Guarantee Period Fixed
Account that may be used for the Dollar Cost Averaging Program.
DOLLAR COST AVERAGING PROGRAM--A method to transfer $100 or more of the Cash
Value in the Money Market Sub-Account or the Dollar Cost Averaging Fixed Account
automatically to any 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--One of two Death Benefit options 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.
3
<PAGE>
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.
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.
PERFORMANCE DEATH BENEFIT--One of two Death Benefit options which can be
selected at the time the Contract is purchased.
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," 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. The Dollar Cost Averaging Program automatically
moves funds on a monthly basis (or other frequencies that may be offered by the
Company) from the Money Market Sub-Account or from the Dollar Cost Averaging
Fixed Account, but not from both, to any Sub-Accounts of your choice. Transfers
into the Dollar Cost Averaging Fixed Account are not permitted. 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
either one of the optional
5
<PAGE>
Death Benefit provisions, an additional Mortality and Expense Risk Charge of
.13% is assessed bringing the total charges for Contracts with an optional 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 either optional Death Benefit provision, the Death Benefit will be the
greatest of (1) through (3) above, or (4) the optional Death Benefit selected.
If an optional Death Benefit 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, 1996.
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>
<CAPTION>
WITHOUT AN OPTIONAL WITH AN OPTIONAL DEATH
DEATH BENEFIT PROVISION BENEFIT PROVISION
----------------------- -----------------------
<S> <C> <C>
Mortality and Expense Risk Charge......... 1.25% 1.38%
Administrative Expense Charge............. .10% .10%
Total Separate Account Annual Expenses.... 1.35% 1.48%
</TABLE>
- ------------------------
* There are no Contingent Deferred Sales Charges on amounts up to the Free
Withdrawal Amount.
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 % .02% .52%
Quality Income Plus..................... .50 %(1) .03% .53%
High Yield.............................. .50 % .01% .51%
Utilities............................... .65 %(2) .02% .67%
Income Builder.......................... .75 %(3) .07% .82%
Dividend Growth......................... .56 %(4) .01% .57%
Capital Growth.......................... .65 % .08% .73%
Global Dividend Growth.................. .75 % .10% .85%
European Growth......................... 1.00 % .11% 1.11%
Pacific Growth.......................... 1.00 % .37% 1.37%
Capital Appreciation.................... .75 %(3) .07% .82%
Equity.................................. .50 %(5) .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) 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.
(4) 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%.
(5) 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%.
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 Contract at the end of the applicable time period (or if
you annuitize for a specified period of less than 120 months):
<TABLE>
<CAPTION>
(WITH AN OPTIONAL DEATH BENEFIT PROVISION**) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Sub-Account.......................... $63 $90 $120 $239
Quality Income Plus Sub-Account................... $64 $91 $120 $240
High Yield Sub-Account............................ $63 $90 $119 $238
Utilities Sub-Account............................. $65 $95 $127 $255
Income Builder Sub-Account........................ $67 $100 $136 $271
Dividend Growth Sub-Account....................... $64 $92 $122 $244
Capital Growth Sub-Account........................ $66 $97 $130 $261
Global Dividend Growth Sub-Account................ $67 $100 $137 $273
European Growth Sub-Account....................... $70 $108 $150 $300
Pacific Growth Sub-Account........................ $72 $116 $163 $325
Capital Appreciation Sub-Account.................. $67 $100 $136 $271
Equity Sub-Account................................ $64 $91 $121 $242
Strategist Sub-Account............................ $64 $91 $120 $240
<CAPTION>
(WITHOUT AN OPTIONAL DEATH BENEFIT PROVISION***) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Sub-Account.......................... $62 $86 $113 $225
Quality Income Plus Sub-Account................... $62 $87 $114 $227
High Yield Sub-Account............................ $62 $86 $113 $224
Utilities Sub-Account............................. $64 $91 $121 $241
Income Builder Sub-Account........................ $65 $96 $129 $258
Dividend Growth Sub-Account....................... $63 $88 $116 $231
Capital Growth Sub-Account........................ $64 $93 $124 $248
Global Dividend Growth Sub-Account................ $66 $97 $130 $260
European Growth Sub-Account....................... $68 $105 $144 $287
Pacific Growth Sub-Account........................ $71 $113 $157 $313
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 AN OPTIONAL DEATH BENEFIT PROVISION**) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Sub-Account.......................... $21 $65 $111 $239
Quality income Plus Sub-Account................... $21 $65 $112 $240
High Yield Sub-Account............................ $21 $64 $111 $238
Utilities Sub-Account............................. $23 $69 $119 $255
Income Builder Sub-Account........................ $24 $74 $127 $271
Dividend Growth Sub-Account....................... $21 $66 $114 $244
Capital Growth Sub-Account........................ $23 $71 $122 $261
Global Dividend Growth Sub-Account................ $24 $75 $128 $273
European Growth Sub-Account....................... $27 $83 $141 $300
Pacific Growth Sub-Account........................ $30 $91 $155 $325
Capital Appreciation Sub-Account.................. $24 $74 $127 $271
Equity Sub-Account................................ $21 $66 $113 $242
Strategist Sub-Account............................ $21 $65 $112 $240
<CAPTION>
(WITHOUT AN OPTIONAL DEATH BENEFIT PROVISION***) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Sub-Account.......................... $20 $61 $105 $225
Quality Income Plus Sub-Account................... $20 $61 $105 $227
High Yield Sub-Account............................ $20 $61 $104 $224
Utilities Sub-Account............................. $21 $66 $112 $241
Income Builder Sub-Account........................ $23 $70 $121 $258
Dividend Growth Sub-Account....................... $20 $62 $107 $231
Capital Growth Sub-Account........................ $22 $67 $115 $248
Global Dividend Growth Sub-Account................ $23 $71 $122 $260
European Growth Sub-Account....................... $26 $79 $135 $287
Pacific Growth Sub-Account........................ $28 $87 $148 $313
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 or performance. Actual expenses of a Sub Account may be greater or
lesser than those shown. The purpose of this summary is to assist the Owner in
understanding the various costs and expenses that Owners 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 1996
------- --------- --------- ---------- ---------- ---------- ----------
<S> <C> <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 $11.653
Accumulation Unit Value, End of Period.......... $10.111 $10.549 $10.765 $10.913 $11.178 $11.653 $12.084
Number of Units Outstanding, End of Period...... 345,667 1,864,548 3,481,984 7,643,579 19,047,342 17,483,665 21,476,904
QUALITY INCOME PLUS SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.... $10.000 $10.403 $12.163 $12.993 $14.487 $13.344 $16.373
Accumulation Unit Value, End of Period.......... $10.403 $12.163 $12.993 $14.487 $13.344 $16.373 $16.404
Number of Units Outstanding, End of Period...... 175,839 1,221,348 6,701,534 26,314,453 25,348,646 26,735,500 24,233,104
HIGH YIELD SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.... $10.000 $8.932 $13.982 $16.336 $20.022 $19.264 $21.859
Accumulation Unit Value, End of Period.......... $8.932 $13.982 $16.336 $20.022 $19.264 $21.859 $24.148
Number of Units Outstanding, End of Period...... 1,574 64,097 377,434 2,451,231 4,082,485 5,536,230 7,988,916
UTILITIES SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.... $10.000 $10.471 $12.454 $13.840 $15.798 $14.180 $17.999
Accumulation Unit Value, End of Period.......... $10.471 $12.454 $13.840 $15.798 $14.180 $17.999 $19.298
Number of Units Outstanding, End of Period...... 130,114 1,615,460 6,626,508 25,354,331 22,552,568 22,626,178 19,259,329
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 $21.505
Accumulation Unit Value, End of Period.......... $11.037 $13.911 $14.844 $16.746 $15.981 $21.505 $26.298
Number of Units Outstanding, End of Period...... 159,555 2,004,718 7,123,073 21,941,369 28,980,558 33,515,201 38,902,776
CAPITAL GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.... -- $10.000 $12.697 $12.731 $11.682 $11.379 $14.923
Accumulation Unit Value, End of Period.......... -- $12.697 $12.731 $11.682 $11.379 $14.923 $16.421
Number of Units Outstanding, End of Period...... -- 901,617 2,655,336 3,556,779 3,411,788 3,917,752 4,277,823
GLOBAL DIVIDEND GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.... -- -- -- -- $10.000 $9.912 $11.935
Accumulation Unit Value, End of Period.......... -- -- -- -- $9.912 $11.935 $13.845
Number of Units Outstanding, End of Period...... -- -- -- -- 12,306,690 15,325,898 19,847,332
EUROPEAN GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.... -- $10.000 $10.020 $10.280 $14.290 $15.278 $18.976
Accumulation Unit Value, End of Period.......... -- $10.020 $10.280 $14.290 $15.278 $18.976 $24.335
Number of Units Outstanding, End of Period...... -- 248,922 719,495 4,448,126 8,491,681 8,587,679 10,006,937
PACIFIC GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.... -- -- -- -- $10.000 $9.221 $9.619
Accumulation Unit Value, End of Period.......... -- -- -- -- $9.221 $9.619 $9.858
Number of Units Outstanding, End of Period...... -- -- -- -- 7,080,863 8,865,898 11,810,540
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 $25.864
Accumulation Unit Value, End of Period.......... $10.706 $16.799 $16.599 $19.604 $18.392 $25.864 $28.669
Number of Units Outstanding, End of Period...... 15,701 369,133 1,417,732 5,917,819 8,914,107 10,835,413 13,438,192
STRATEGIST SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.... $10.000 $10.483 $13.266 $14.035 $15.286 $15.675 $16.919
Accumulation Unit Value, End of Period.......... $10.483 $13.266 $14.035 $15.286 $15.675 $16.919 $19.199
Number of Units Outstanding, End of Period...... 5,854 778,440 3,385,842 11,837,077 18,218,900 17,717,645 17,132,441
</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 commenced operations on January 21,
1997. 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 an Optional Death Benefit Provision*
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
MONEY MARKET SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period........................ $11.579 $11.651
Accumulation Unit Value, End of Period.............................. $11.651 $12.065
Number of Units Outstanding, End of Period.......................... 511,096 3,424,292
QUALITY INCOME PLUS SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period........................ $15.746 $16.370
Accumulation Unit Value, End of Period.............................. $16.370 $16.379
Number of Units Outstanding, End of Period.......................... 142,004 1,095,796
HIGH YIELD SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period........................ $21.462 $21.855
Accumulation Unit Value, End of Period.............................. $21.855 $24.112
Number of Units Outstanding, End of Period.......................... 66,987 1,462,866
UTILITIES SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period........................ $16.972 $17.995
Accumulation Unit Value, End of Period.............................. $17.995 $19.268
Number of Units Outstanding, End of Period.......................... 165,046 822,723
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 $21.500
Accumulation Unit Value, End of Period.............................. $21.500 $26.259
Number of Units Outstanding, End of Period.......................... 366,928 4,586,699
CAPITAL GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period........................ $13.895 $14.920
Accumulation Unit Value, End of Period.............................. $14.920 $16.397
Number of Units Outstanding, End of Period.......................... 36,005 509,094
GLOBAL DIVIDEND SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period........................ $11.250 $11.932
Accumulation Unit Value, End of Period.............................. $11.932 $13.824
Number of Units Outstanding, End of Period.......................... 155,023 2,364,163
EUROPEAN GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period........................ $18.486 $18.972
Accumulation Unit Value, End of Period.............................. $18.972 $24.298
Number of Units Outstanding, End of Period.......................... 62,011 1,143,635
PACIFIC GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period........................ $ 9.352 $9.617
Accumulation Unit Value, End of Period.............................. $ 9.617 $9.843
Number of Units Outstanding, End of Period.......................... 97,952 1,411,508
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 $25.858
Accumulation Unit Value, End of Period.............................. $25.858 $28.626
Number of Units Outstanding, End of Period.......................... 215,961 2,302,720
STRATEGIST SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period........................ $16.490 $16.915
Accumulation Unit Value, End of Period.............................. $16.915 $19.170
Number of Units Outstanding, End of Period.......................... 91,983 903,817
</TABLE>
- --------------------------
* All of the above Sub-Accounts commenced operations on October 30, 1995,
except the Income Builder Sub-Account and the Capital Appreciation
Sub-Account commenced operations on January 21, 1997. 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 1.38% and an Administrative Expense Charge of .10%. The additional
.13% Mortality and Expense Risk Charge is applicable to Contract Owners who
selected an optional 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"). 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.
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 Fund pays InterCapital a monthly advisory fee. These expenses are more fully
described in the Fund's Prospectus attached to this Prospectus.
On February 5, 1997, Dean Witter Discover and Morgan Stanley Group Inc.
announced that they had entered into an Agreement and Plan of Merger, with the
combined company to be named Morgan Stanley, Dean Witter, Discover & Co. The
business of
11
<PAGE>
Morgan Stanley Group Inc. and its affiliated companies is providing a wide range
of financial services for sovereign governments, corporations, institutions and
individuals throughout the world. Dean Witter Discover is the direct parent of
InterCapital and Dean Witter Distributors Inc., the Fund's distributor. It is
currently anticipated that the transaction will close in mid-1997. Thereafter,
InterCapital and Dean Witter Distributors Inc. will be direct subsidiaries of
Morgan Stanley, Dean Witter, Discover & Co.
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.
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 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
13
<PAGE>
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. Transfers into the Dollar Cost Averaging Fixed
Account are not permitted. Currently there is no charge for transfers among the
fourteen Investment Alternatives. The Company, however, reserves the right to
assess a $25 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 the Dollar Cost Averaging
Program prior to the Payout Start Date. The Dollar Cost Averaging Program
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 or from the Dollar Cost Averaging Fixed Account, but not from both,
to any Sub-Account. Transfers made through Dollar Cost Averaging must be $100 or
more. The Dollar Cost Averaging Program cannot be used to transfer amounts to
the Fixed Account. Please consult with your Dean Witter Account Executive for
detailed information about the Dollar Cost Averaging Program.
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.
14
<PAGE>
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 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.
15
<PAGE>
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 an
optional 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 either
of the two optional Death Benefits 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.
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.
16
<PAGE>
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 or the Performance 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 either optional Death Benefit provision,
the Death Benefit will be the greater of (a) through (c) above, or (d) the
optional Death Benefit selected.
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 Performance Death Benefit option is equal to the greatest of the anniversary
values as of the date the Company calculates the death benefit. The anniversary
value is equal to the Cash Value on a Contract Anniversary:
1. Increased by any purchase payments made since the anniversary; and
2. Reduced by an adjustment for any partial withdrawals made since the
anniversary.
This adjustment is equal to the Cash Value on a Contract Anniversary
multiplied by the ratio of the withdrawal amount to the Cash Value just
before the withdrawal.
On each Contract Anniversary, the Performance Death Benefit will be recalculated
until the oldest Owner or the Annuitant, if the Owner is a non-natural Owner,
attains age 85. The Performance Death Benefit on the date of issue is equal to
the initial purchase payment. In the absence of any withdrawals or purchase
payments, the Performance Death Benefit will be the greatest of all Contract
Anniversary Cash Values on or before the date the Company calculates the death
benefit.
Neither the Enhanced Death Benefit nor the Performance Death Benefit will ever
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
17
<PAGE>
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 contract is
continued prior to the Payout Start Date, the surviving spouse may make a single
withdrawal of any amount within one year of the date of death without incurring
an Early Withdrawal Charge.
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, die 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 90, 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 90 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 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.
18
<PAGE>
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.
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 an optional Death Benefit has
been selected). Currently the amount of interest credited in excess of the
guaranteed rate
19
<PAGE>
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. The Company is also currently offering a
Dollar Cost Averaging Fixed Account.
THE DOLLAR COST AVERAGING FIXED ACCOUNT
Purchase Payments may also be allocated to the Dollar Cost Averaging Fixed
Account. Transfers are not allowed into the Dollar Cost Averaging Fixed Account.
Once Purchase Payments have been allocated to the Dollar Cost Averaging Fixed
Account, interest is earned for a one year period at a current rate in effect at
the time of allocation. This rate may be different from the rate of the 1 year
Fixed Account Guarantee Period discussed above. After the one year period, a
renewal rate will be declared. Subsequent renewal dates will be every twelve
months for each Purchase Payment. The renewal rate will be guaranteed by the
Company for a full year and will not be less than the minimum guaranteed rate
found in the Contract.
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 (but not the Dollar Cost Averaging 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. These
restrictions do not apply to transfers pursuant to the Dollar Cost Averaging
Program. Also, the Company reserves the right to waive these restrictions.
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 20.
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 non-natural
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.
Ownership Treatment. In connection with the issuance of the regulations on the
adequate diversification standards, the Department of the 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, the Treasury Department 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. As of the date of this
prospectus, no such guidance has been issued.
21
<PAGE>
The ownership rights under this contract are similar to, but different in
certain respects from, those described by the Service in rulings in which it was
determined that contract owners were not owners of separate account assets. For
example, the owner of this contract has the choice of more investment options to
which to allocate premiums and contract values, and may be able to transfer
among investment options more frequently than in such rulings. These differences
could result in the contract owner being treated as the owner of the Variable
Account. In those circumstances, income and gain from the Variable Account
assets would be includible in the Contract Owner's gross income. In addition,
the Company does not know what standards will be set forth in the regulations or
rulings which the Treasury Department has stated it expects to issue. It is
possible that Treasury Department'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. However, the Company makes no guarantee that such modification to the
contract will be successful.
Delayed Maturity Date. If the contract's scheduled maturity date is at a time
when the annuitant has reached an advanced age, e.g., past age 85, it is
possible that the contract would not be treated as an annuity. In that event,
the income and gains under the contract would be currently includible in the
owner's income.
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, without regard to surrender charges, 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 from 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 deferred annuity 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)
Savings Incentive Match Plans for Employees (SIMPLE) Plans under Section 408(p)
of the Code; (4) Tax Sheltered Annuities under Section 403(b) of the Code; (5)
Corporate and Self Employed Pension and Profit Sharing Plans; and (6) 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 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
22
<PAGE>
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 May 1, 1997, has been filed with the United
States Securities and Exchange Commission.
DATED MAY 1, 1997
<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, 1996 are
presented below:
(WITHOUT AN OPTIONAL DEATH BENEFIT PROVISION)
<TABLE>
<CAPTION>
SUB-ACCOUNT ONE-YEAR FIVE-YEARS SINCE INCEPTION*
- ------------------------------------- --------- --------------------
<S> <C> <C> <C>
Capital Growth.............. 5.73% 5.07% 8.71%
Dividend Growth............. 17.98% 13.42% 16.87%
Equity...................... 6.53% 11.11% 18.52%
European Growth............. 23.92% 19.28% 16.33%
Global Dividend Growth...... 11.69% N/A 11.03%
High Yield.................. 6.15% 11.39% 15.27%
Money Market................ N/A N/A N/A
Pacific Growth.............. (1.83)% N/A (1.79)%
Quality Income Plus......... (4.13)% 5.97% 8.27%
Strategist.................. 9.16% 7.49% 11.07%
Utilities................... 2.90% 8.98% 11.16%
(WITH AN OPTIONAL DEATH BENEFIT PROVISION)
<CAPTION>
SUB-ACCOUNT ONE-YEAR SINCE INCEPTION**
- ---------------------------- -------- --------------------
<S> <C> <C> <C>
Capital Growth.............. 5.58% 11.51%
Dividend Growth............. 17.82% 22.18%
Equity...................... 6.39% 9.83%
European Growth............. 23.76% 22.67%
Global Dividend Growth...... 11.53% 15.58%
High Yield.................. 6.01% 6.76%
Money Market................ N/A N/A
Pacific Growth.............. (1.96)% 0.74%
Quality Income Plus......... (4.26)% (0.31)%
Strategist.................. 9.01% 10.04%
Utilities................... 2.76% 7.75%
</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 Income Builder and Capital
Appreciation Sub-Accounts commenced operation on January 21, 1997.
** All Sub-Accounts, except the Income Builder and Capital Appreciation
Sub-Accounts, commenced operation on October 30, 1995. The Income Builder and
Capital Appreciation Sub-Accounts commenced operation on January 21, 1997.
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 AN OPTIONAL DEATH BENEFIT PROVISION)
<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****....... 5.73% 5.07% 8.71%
Dividend Growth***....... 17.98% 13.42% 11.96%
Equity*.................. 6.53% 11.11% 11.52%
European Growth****...... 23.92% 19.28% 16.33%
Global Dividend
Growth*****............. 11.69% N/A 11.04%
High Yield*.............. 6.15% 11.39% 5.77%
Money Market*............ N/A N/A N/A
Pacific Growth*****...... (1.83)% N/A (1.79)%
Quality Income Plus**.... (4.13)% 5.97% 7.20%
Strategist**............. 9.16% 7.49% 8.45%
Utilities***............. 2.90% 8.98% 9.83%
</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 AN OPTIONAL DEATH BENEFIT PROVISION)
<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****....... 5.58% 4.93% 8.57%
Dividend Growth***....... 17.82% 13.27% 11.81%
Equity*.................. 6.39% 10.97% 11.37%
European Growth****...... 23.76% 19.13% 16.18%
Global Dividend
Growth*****............. 11.53% N/A 10.89%
High Yield*.............. 6.01% 11.23% 5.63%
Money Market*............ N/A N/A N/A
Pacific Growth*****...... (1.96)% N/A (1.92)%
Quality Income Plus**.... (4.26)% 5.83% 7.06%
Strategist**............. 9.01% 7.35% 8.31%
Utilities***............. 2.76% 8.83% 9.69%
</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 AN OPTIONAL DEATH BENEFIT PROVISION)
<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****........ 10.04% 5.28% 8.86%
Dividend Growth***........ 22.29% 13.58% 12.01%
Equity*................... 10.85% 11.28% 11.57%
European Growth****....... 28.24% 19.42% 16.45%
Global Dividend
Growth*****.............. 16.00% N/A 12.07%
High Yield*............... 10.47% 11.55% 5.84%
Money Market*............. N/A N/A N/A
Pacific Growth*****....... 2.49% N/A (0.50)%
Quality Income Plus**..... 0.19% 6.16% 7.25%
Strategist**.............. 13.47% 7.67% 8.50%
Utilities***.............. 7.22% 9.15% 9.88%
</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 AN OPTIONAL DEATH BENEFIT PROVISION)
<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****....... 9.90% 5.14% 8.72%
Dividend Growth***....... 22.13% 13.44% 11.86%
Equity*.................. 10.70% 11.14% 11.43%
European Growth****...... 28.07% 19.26% 16.29%
Global Dividend
Growth*****............. 15.85% N/A 11.92%
High Yield*.............. 10.33% 11.39% 5.70%
Money Market*............ N/A N/A N/A
Pacific Growth*****...... 2.35% N/A (0.63)%
Quality Income Plus**.... 0.06% 6.03% 7.11%
Strategist**............. 13.33% 7.53% 8.36%
Utilities***............. 7.08% 9.01% 9.73%
</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.
SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE PLANS)
Sections 408(p) and 401(k) of the Code allow employers with 100 or fewer
employees to establish SIMPLE retirement plans for their employees. SIMPLE
plans may be structured as a SIMPLE retirement account using an employee's
IRA to hold the assets or as a Section 401(k) qualified cash or deferred
arrangement. In general, a SIMPLE plan consists of a salary deferral program
for eligible employees and matching or nonelective contributions made by
employers. Employers intending to use the contract in conjunction with SIMPLE
plans should seek competent tax and legal advice.
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 (the "Company") as of December 31, 1996 and 1995, and the
related Statements of Operations, Shareholder's Equity and Cash Flows for each
of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 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.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
February 21, 1997
F-1
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
------------ ------------
($ IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments
Fixed income securities, at fair value (amortized cost $65,500 and $59,142)....... $ 67,479 $ 63,229
Short-term........................................................................ 6,590 8,049
------------ ------------
Total investments............................................................. 74,069 71,278
Reinsurance recoverable from Allstate Life Insurance Company........................ 2,480,034 2,636,981
Cash................................................................................ -- 87
Net receivable from Allstate Life Insurance Company................................. 4,505 6,183
Other assets........................................................................ 2,639 2,164
Separate Accounts................................................................... 4,354,783 3,354,910
------------ ------------
Total assets.................................................................. $ 6,916,030 $ 6,071,603
------------ ------------
------------ ------------
LIABILITIES
Reserve for life-contingent contract benefits....................................... $ 143,346 $ 139,509
Contractholder funds................................................................ 2,336,296 2,497,278
Income taxes payable................................................................ 814 233
Deferred income taxes............................................................... 2,085 2,798
Separate Accounts................................................................... 4,354,783 3,354,910
------------ ------------
Total liabilities............................................................. 6,837,324 5,994,728
------------ ------------
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........................................................ 1,286 2,657
Retained income..................................................................... 18,320 15,118
------------ ------------
Total shareholder's equity.................................................... 78,706 76,875
------------ ------------
Total liabilities and shareholder's equity.................................... $ 6,916,030 $ 6,071,603
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
F-2
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Net investment income.............................................................. $ 4,888 $ 4,782 $ 2,881
Realized capital gains and losses.................................................. (20) 67 (193)
--------- --------- ---------
INCOME BEFORE INCOME TAX EXPENSE..................................................... 4,868 4,849 2,688
INCOME TAX EXPENSE................................................................... 1,666 1,686 955
--------- --------- ---------
NET INCOME........................................................................... $ 3,202 $ 3,163 $ 1,733
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C>
COMMON STOCK..................................................................... $ 2,500 $ 2,500 $ 2,500
--------- --------- ---------
ADDITIONAL CAPITAL PAID-IN
Balance, beginning of year..................................................... 56,600 56,600 31,600
Capital contribution........................................................... -- -- 25,000
--------- --------- ---------
Balance, end of year........................................................... 56,600 56,600 56,600
--------- --------- ---------
UNREALIZED NET CAPITAL GAINS
Balance, beginning of year..................................................... 2,657 (1,553) 747
Net (decrease) increase........................................................ (1,371) 4,210 (2,300)
--------- --------- ---------
Balance, end of year........................................................... 1,286 2,657 (1,553)
--------- --------- ---------
RETAINED INCOME
Balance, beginning of year..................................................... 15,118 11,955 10,222
Net income..................................................................... 3,202 3,163 1,733
--------- --------- ---------
Balance, end of year........................................................... 18,320 15,118 11,955
--------- --------- ---------
Total shareholder's equity............................................... $ 78,706 $ 76,875 $ 69,502
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
($ IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................................. $ 3,202 $ 3,163 $ 1,733
Adjustments to reconcile net income to net cash provided by (used in)
operating activities
Amortization and other non-cash items..................................... 782 903 640
Realized capital losses (gains)........................................... 20 (67) 193
(Decrease) increase in life-contingent contract benefits and
contractholder funds.................................................... (198) 113 (58)
Change in deferred income taxes........................................... 24 608 (114)
Changes in other operating assets and liabilities......................... 864 (2,705) (3,835)
---------- ---------- ----------
Net cash provided by (used in) operating activities................... 4,694 2,015 (1,441)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed income securities
Proceeds from sales....................................................... 3,522 5,423 1,256
Investment collections.................................................... 5,770 7,108 7,626
Investment purchases...................................................... (15,532) (9,843) (36,071)
Change in short-term investments, net....................................... 1,459 (4,675) 3,475
---------- ---------- ----------
Net cash used in investing activities................................. (4,781) (1,987) (23,714)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution........................................................ -- -- 25,000
---------- ---------- ----------
Net cash provided by financing activities............................. -- -- 25,000
---------- ---------- ----------
NET (DECREASE) INCREASE IN CASH............................................... (87) 28 (155)
CASH AT BEGINNING OF YEAR..................................................... 87 59 214
---------- ---------- ----------
CASH AT END OF YEAR........................................................... $ -- $ 87 $ 59
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
1. GENERAL
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Northbrook
Life Insurance Company (the "Company"), a wholly owned subsidiary of Allstate
Life Insurance Company ("ALIC"), which is wholly owned by Allstate Insurance
Company ("AIC"), 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"). These financial statements have been
prepared in conformity with generally accepted accounting principles.
To conform with the 1996 presentation, certain items in the prior years'
financial statements and notes have been reclassified.
NATURE OF OPERATIONS
The Company markets life insurance contracts and various annuity products in
the United States through Dean Witter Reynolds Inc. ("Dean Witter") (see Note
4), a wholly owned subsidiary of Dean Witter, Discover & Co. ("Dean Witter
Discover"). Life insurance contracts sold by the Company include universal life
and other interest-sensitive life products. Annuities include deferred
annuities, such as variable annuities and fixed rate single and flexible premium
annuities, and immediate annuities.
Annuity and life insurance 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 ALIC (see Note
3), which invests premiums and deposits to create cash flows that will fund
future benefits and expenses. In order to support competitive credited rates,
ALIC adheres to a basic philosophy of matching assets with related liabilities
to limit interest rate risk, while maintaining adequate liquidity and a prudent
and diversified level of credit risk.
The Company monitors economic and regulatory developments which have the
potential to impact its business. There continues to be proposed federal
legislation and regulation which would allow banks greater participation in
securities and insurance businesses, which could present an increased level of
competition for sales of the Company's annuity contracts. Furthermore, the
market for deferred annuities and interest-sensitive life insurance is enhanced
by the tax incentives available under current law. Any legislative changes which
lessen these incentives are likely to negatively impact the market for these
products.
The Company is authorized to sell life and annuity products in all states
except New York, as well as the District of Columbia and Puerto Rico. The top
geographic locations for statutory premiums earned are California, Florida,
Texas and Pennsylvania for the year ended December 31, 1996. No other
jurisdiction accounted for more than 5% of statutory premiums. All premiums and
contract charges are ceded to ALIC under reinsurance agreements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
Fixed income securities include bonds and mortgage-backed securities. All
fixed income securities are carried at fair value and may be sold prior to their
contractual maturity ("available for sale"). The difference between amortized
cost and fair value, net of deferred income taxes, is reflected as a component
of shareholder's equity. Provisions are recognized for declines in the value of
fixed income securities that are other than temporary. Such writedowns are
included in realized capital gains and losses.
F-6
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. Accrual
of income is suspended for fixed income securities that are in default or when
the receipt of interest payments is in doubt. Realized capital gains and losses
are determined on a specific identification basis.
RECOGNITION OF PREMIUM REVENUES AND CONTRACT CHARGES
Revenues on interest-sensitive life insurance contracts are comprised of
contract charges and fees, and are recognized when assessed against the
policyholder account balance. Revenues on annuities, which are considered
investment contracts, include contract charges and fees for contract
administration and surrenders. These revenues are recognized when levied against
the contract balances.
REINSURANCE
The Company and ALIC have reinsurance agreements under which all premiums
and deposits are transferred to ALIC. Premiums, contract charges, credited
interest and policy benefits are ceded and reflected net of such cessions in the
statements of operations. The amounts shown in the Company's statements of
operations relate to the investment of those assets of the Company that are not
transferred to ALIC under reinsurance agreements. Reinsurance recoverable and
the related reserve for life-contingent contract benefits and contractholder
funds are reported separately in the statements of financial position. The
Company continues to have primary liability as the direct insurer for risks
reinsured.
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
regulations. Deferred income taxes also arise from unrealized capital gains or
losses on fixed income securities carried at fair value.
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 capital gains and losses of the Separate Accounts accrue
directly to the contractholders and, therefore, are not included in the
Company's statements of operations. Revenues to the Company from the Separate
Accounts consist of contract maintenance fees, administration fees and mortality
and expense risk charges, which are ceded to ALIC.
RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS
The reserve for life-contingent contract benefits, which relates to
structured settlement annuities and supplemental contracts 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
F-7
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
generally vary by such characteristics as type of coverage, year of issue and
policy duration. Reserve interest rates ranged from 3.96% to 11.00% during 1996.
CONTRACTHOLDER FUNDS
Contractholder funds arise from the issuance of individual or group
contracts that include an investment component, including most annuities and
interest-sensitive life insurance contracts. Payments received are recorded as
interest-bearing liabilities. Contractholder funds are equal to deposits
received and interest credited to the benefit of the contractholder less
withdrawals, mortality charges and administrative expenses. During 1996,
credited interest rates on contractholder funds ranged from 3.10% to 9.51% for
those contracts with fixed interest rates and from 3.25% to 7.86% for those with
flexible rates.
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. RELATED PARTY TRANSACTIONS
REINSURANCE
Premiums and contract charges ceded to ALIC were $3,024 and $60,744 in 1996,
$2,284 and $52,348 in 1995, and $1,886 and $38,306 in 1994. Credited interest,
policy benefits and expenses ceded to ALIC amounted to $207,752, $229,525 and
$243,326 in 1996, 1995 and 1994, respectively. Investment income earned on the
assets which support contractholder funds is not included in the Company's
financial statements as those assets are owned and managed by ALIC under the
terms of reinsurance agreements.
BUSINESS OPERATIONS
The Company utilizes services and business facilities owned or leased, and
operated by AIC in conducting its business activities. The Company reimburses
AIC for the operating expenses incurred by AIC on behalf of the Company. 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 $8,074, $5,341 and $5,483 in 1996, 1995 and 1994, respectively. Of these
costs, the Company retains investment related expenses. All other costs are
ceded to ALIC under reinsurance agreements.
4. EXCLUSIVE DISTRIBUTION AGREEMENT
The Company and ALIC have formed a strategic alliance with Dean Witter to
develop, market and distribute proprietary annuity and life insurance products
through Dean Witter account executives. Dean Witter provides a portion of the
funding for these products through loans to an affiliate of the Company.
Under the terms of the strategic alliance, which is cancelable by either
party, the Company has agreed to use Dean Witter as an exclusive distribution
channel for the Company's products. Dean Witter Discover's wholly owned
subsidiary, Dean Witter Intercapital Inc., is the investment manager for the
Dean Witter Variable Investment Series, the fund in which the assets of the
Separate Accounts are invested.
On February 5, 1997, Dean Witter Discover and Morgan Stanley Group Inc.
announced that they had entered into an agreement and plan of merger, with the
combined company to be named Morgan Stanley,
F-8
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
4. EXCLUSIVE DISTRIBUTION AGREEMENT (CONTINUED)
Dean Witter, Discover & Co. The parties to the merger anticipate that the
transaction will close in mid-1997. The Company does not expect the merger to
have a significant impact on its business.
5. INVESTMENTS
FAIR VALUES
The amortized cost, gross unrealized gains and losses and fair value for
fixed income securities are as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------------- FAIR
AT DECEMBER 31, 1996 COST GAINS (LOSSES) VALUE
- ------------------------------------------------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
U.S. government and agencies........................... $ 8,629 $ 193 $ (54) $ 8,768
Municipal.............................................. 873 48 -- 921
Corporate.............................................. 16,902 260 (69) 17,093
Mortgage-backed securities............................. 39,096 1,883 (282) 40,697
----------- --------- ----- ---------
Total fixed income securities...................... $ 65,500 $ 2,384 $ (405) $ 67,479
----------- --------- ----- ---------
----------- --------- ----- ---------
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------------- FAIR
AT DECEMBER 31, 1995 COST GAINS (LOSSES) VALUE
- ------------------------------------------------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
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
----------- --------- ----- ---------
Total fixed income securities...................... $ 59,142 $ 4,315 $ (228) $ 63,229
----------- --------- ----- ---------
----------- --------- ----- ---------
</TABLE>
SCHEDULED MATURITIES
The scheduled maturities for fixed income securities are as follows at
December 31, 1996:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------- ---------
<S> <C> <C>
Due in one year or less.................................................... $ 60 $ 60
Due after one year through five years...................................... 3,416 3,525
Due after five years through ten years..................................... 15,706 15,958
Due after ten years........................................................ 7,222 7,239
----------- ---------
26,404 26,782
Mortgage-backed securities................................................. 39,096 40,697
----------- ---------
Total.................................................................. $ 65,500 $ 67,479
----------- ---------
----------- ---------
</TABLE>
Actual maturities may differ from those scheduled as a result of prepayments
by the issuers.
F-9
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
5. INVESTMENTS (CONTINUED)
NET INVESTMENT INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Fixed income securities.............................................. $ 4,675 $ 4,633 $ 2,735
Short-term........................................................... 390 215 192
--------- --------- ---------
Investment income, before expense................................ 5,065 4,848 2,927
Investment expense............................................... 177 66 46
--------- --------- ---------
Net investment income............................................ $ 4,888 $ 4,782 $ 2,881
--------- --------- ---------
--------- --------- ---------
</TABLE>
REALIZED CAPITAL GAINS AND LOSSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Fixed income securities.............................................. $ (20) $ 67 $ (193)
Income tax benefit (expense)......................................... 7 (23) 68
--------- --------- ---------
Realized capital losses and gains, after tax......................... $ (13) $ 44 $ (125)
--------- --------- ---------
--------- --------- ---------
</TABLE>
PROCEEDS FROM SALES OF FIXED INCOME SECURITIES
Proceeds from sales of investments in fixed income securities were $3,522,
$5,423 and $1,256 in 1996, 1995 and 1994, respectively. Gross losses of $32 and
$179 were realized on sales of fixed income securities during 1996 and 1994,
respectively, and gross gains of $67 were recognized during 1995.
UNREALIZED NET CAPITAL GAINS
Unrealized net capital gains on fixed income securities included in
shareholder's equity at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
COST/
AMORTIZED FAIR UNREALIZED
COST VALUE NET GAINS
----------- --------- -----------
<S> <C> <C> <C>
Fixed income securities........................................ $ 65,500 $ 67,479 $ 1,979
----------- ---------
----------- ---------
Deferred income taxes.......................................... (693)
-----------
Unrealized net capital gains............................... $ 1,286
-----------
-----------
</TABLE>
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
5. INVESTMENTS (CONTINUED)
CHANGE IN UNREALIZED NET CAPITAL GAINS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Fixed income securities........................................... $ (2,108) $ 6,477 $ (3,539)
Deferred income taxes............................................. 737 (2,267) 1,239
--------- --------- ---------
Change in unrealized net capital gains........................ $ (1,371) $ 4,210 $ (2,300)
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-10
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
5. INVESTMENTS (CONTINUED)
SECURITIES ON DEPOSIT
At December 31, 1996, fixed income securities with a carrying value of
$7,376 were on deposit with regulatory authorities as required by law.
6. FINANCIAL INSTRUMENTS
In the normal course of business, the Company invests in various financial
assets and incurs various financial liabilities. The fair value estimates of
financial instruments are not necessarily indicative of the amounts the Company
might pay or receive in actual market transactions. Potential taxes and other
transaction costs have not been considered in estimating fair value. The
disclosures that follow do not reflect the fair value of the Company as a whole
since a number of the Company's assets (including reinsurance recoverable) and
liabilities (including deferred income taxes and reserve for life-contingent
contract benefits) are not considered financial instruments and are not carried
at fair value. Other assets and liabilities considered financial instruments,
including accrued investment income and cash, are generally of a short-term
nature. It is assumed that their carrying value approximates fair value.
FINANCIAL ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------
1996 1995
-------------------------- --------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Fixed income securities.................. $ 67,479 $ 67,479 $ 63,229 $ 63,229
Short-term investments................... 6,590 6,590 8,049 8,049
Separate Accounts........................ 4,354,783 4,354,783 3,354,910 3,354,910
</TABLE>
Fair values for fixed income securities are based on quoted market prices.
Short-term investments are highly liquid investments with maturities of less
than one year whose carrying value approximates fair value. Assets of the
Separate Accounts are carried in the statements of financial position at fair
value.
FINANCIAL LIABILITIES
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------
1996 1995
-------------------------- --------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Contractholder funds on investment
contracts............................... $ 2,143,482 $ 2,118,583 $ 2,294,536 $ 2,274,053
Separate Accounts........................ 4,354,783 4,354,783 3,354,910 3,354,910
</TABLE>
The fair value of contractholder funds on 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 account balance less surrender charges. The fair value of
immediate annuities and annuities without life contingencies with fixed terms is
estimated using discounted cash flow calculations based on interest rates
currently offered for contracts with similar terms and durations. Separate
Account liabilities are carried at the fair value of the underlying assets.
F-11
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
7. INCOME TAXES
Consolidated federal income tax returns are filed by the Corporation and its
eligible subsidiaries, including the Company. Tax liabilities and benefits
realized by the consolidated group are allocated as generated by the respective
entities.
Prior to the Distribution, the Corporation and all of its domestic
subsidiaries, including the Company (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"). 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 Company 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
or similar items, which might not be recognized in a separate return, were
allocated according to the Tax Sharing Agreement.
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 Agreement with respect to the Company's federal income tax
liability.
The components of the net deferred income tax liability at December 31, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Difference in tax bases of investments....................................... $ (1,392) $ (1,368)
Unrealized net capital gains on fixed income securities...................... (693) (1,430)
--------- ---------
Total deferred liability................................................. $ (2,085) $ (2,798)
--------- ---------
--------- ---------
</TABLE>
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current.............................................................. $ 1,642 $ 1,078 $ 1,069
Deferred............................................................. 24 608 (114)
--------- --------- ---------
Total income tax expense......................................... $ 1,666 $ 1,686 $ 955
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company paid income taxes of $2,308, $1,555 and $1,393 in 1996, 1995 and
1994, respectively, to ALIC. The Company had income taxes payable to ALIC of
$814 and $233 at December 31, 1996 and 1995, respectively.
F-12
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ 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,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance per generally accepted accounting principles................. $ 3,202 $ 3,163 $ 1,733
Deferred income taxes............................................ 24 608 (114)
Non-admitted assets and statutory reserves....................... (661) (1,471) (27)
--------- --------- ---------
Balance per statutory accounting practices........................... $ 2,565 $ 2,300 $ 1,592
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDER'S EQUITY
--------------------
AT DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Balance per generally accepted accounting principles........................ $ 78,706 $ 76,875
Deferred income taxes................................................... 2,085 2,798
Unrealized gain/loss on fixed income securities......................... (1,979) (4,087)
Non-admitted assets and statutory reserves.............................. (2,503) (2,001)
Other................................................................... (1,211) (520)
--------- ---------
Balance per statutory accounting practices.................................. $ 75,098 $ 73,065
--------- ---------
--------- ---------
</TABLE>
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company prepares its statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the Illinois
Department of Insurance. 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 1997 without prior approval of both the Illinois and
California Departments of Insurance is $7,260.
F-13
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
SCHEDULE IV--REINSURANCE
($ IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
<S> <C> <C> <C>
GROSS NET
AMOUNT CEDED AMOUNT
--------- --------- ---------
Life insurance in force....................................... $ 556,242 $ 556,242 $ --
--------- --------- ---------
--------- --------- ---------
Premiums and contract charges:
Life and annuities.......................................... $ 64,519 $ 64,519 $ --
--------- --------- ---------
--------- --------- ---------
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
GROSS NET
AMOUNT CEDED AMOUNT
--------- --------- ---------
<S> <C> <C> <C>
Life insurance in force....................................... $ 610,478 $ 610,478 $ --
--------- --------- ---------
--------- --------- ---------
Premiums and contract charges:
Life and annuities.......................................... $ 54,632 $ 54,632 $ --
--------- --------- ---------
--------- --------- ---------
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
GROSS NET
AMOUNT CEDED AMOUNT
--------- --------- ---------
<S> <C> <C> <C>
Life insurance in force....................................... $ 661,356 $ 661,356 $ --
--------- --------- ---------
--------- --------- ---------
Premiums and contract charges:
Life and annuities.......................................... $ 40,192 $ 40,192 $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-14
<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, 1996, and the related
Statement of Operations for the year then ended and the Statement of Changes in
Net Assets for each of the two years in the period ended December 31, 1996 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, 1996. 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, 1996, the
results of its operations for the year then ended, and the changes in net assets
for each of the two years in the period then ended, of each of the portfolios
comprising the Account, in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
February 21, 1997
F-15
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENT OF NET ASSETS
DECEMBER 31, 1996
(Dollars and Shares in Thousands)
- --------------------------------------------------------------------------------
ASSETS
Investments in the Dean Witter Variable Investment Series:
Money Market Portfolio, 300,916 shares (cost $300,916) $ 300,916
High Yield Portfolio, 36,933 shares (cost $238,336) 228,247
Equity Portfolio, 17,101 shares (cost $401,135) 451,307
Quality Income Plus Portfolio, 40,076 shares (cost $425,662) 415,585
Strategist Portfolio, 25,243 shares (cost $315,597) 346,335
Dividend Growth Portfolio, 62,166 shares (cost $842,485) 1,143,858
Utilities Portfolio, 25,269 shares (cost $331,419) 387,619
European Growth Portfolio, 12,587 shares (cost $193,626) 271,379
Capital Growth Portfolio, 4,722 shares (cost $62,230) 78,616
Global Dividend Growth Portfolio, 23,423 shares (cost $255,692) 307,549
Pacific Growth Portfolio, 13,089 shares (cost $128,986) 130,362
------------
Total assets 4,061,773
LIABILITIES
Payable to Northbrook Life Insurance Company:
Accrued contract maintenance charges 1,116
------------
Net assets $ 4,060,657
------------
------------
See notes to financial statements.
F-16
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(Dollars in Thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
DEAN WITTER VARIABLE INVESTMENT SERIES
----------------------------------------------------------------------
QUALITY
MONEY HIGH INCOME DIVIDEND
MARKET YIELD EQUITY PLUS STRATEGIST GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 12,626 $ 21,341 $ 48,010 $ 28,672 $ 13,209 $ 44,220
Charges from Northbrook Life Insurance Company:
Mortality and expense risk (3,182) (2,164) (4,682) (5,232) (3,988) (11,609)
Administrative expense (252) (171) (371) (417) (318) (923)
---------- ---------- ---------- ---------- ---------- ----------
Net investment income (loss) 9,192 19,006 42,957 23,023 8,903 31,688
REALIZED AND UNREALIZED (LOSSES) GAINS
ON INVESTMENTS
Realized (losses) gains from sales of investments:
Proceeds from sales 78,519 9,054 11,146 52,282 28,096 9,025
Cost of investments sold (78,519) (9,414) (9,523) (53,914) (26,884) (5,967)
---------- ---------- ---------- ---------- ---------- ----------
Net realized (losses) gains - (360) 1,623 (1,632) 1,212 3,058
---------- ---------- ---------- ---------- ---------- ----------
CHANGE IN UNREALIZED (LOSSES) GAINS - (1,795) (7,081) (21,855) 30,151 152,104
---------- ---------- ---------- ---------- ---------- ----------
Net (losses) gains on investments - (2,155) (5,458) (23,487) 31,363 155,162
---------- ---------- ---------- ---------- ---------- ----------
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS $ 9,192 $ 16,851 $ 37,499 $ (464) $ 40,266 $ 186,850
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
See notes to financial statements.
<PAGE>
DEAN WITTER VARIABLE INVESTMENT SERIES
----------------------------------------------------------------------
GLOBAL
EUROPEAN CAPITAL DIVIDEND PACIFIC
UTILITIES GROWTH GROWTH GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO TOTAL
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 15,752 $ 10,568 $ 1,386 $ 10,995 $ 1,280 $ 208,059
Charges from Northbrook Life Insurance Company:
Mortality and expense risk (4,994) (2,610) (885) (3,073) (1,577) (43,996)
Administrative expense (398) (207) (70) (244) (125) (3,496)
---------- ---------- ---------- ---------- ---------- ----------
Net investment income (loss) 10,360 7,751 431 7,678 (422) 160,567
REALIZED AND UNREALIZED (LOSSES) GAINS
ON INVESTMENTS
Realized (losses) gains from sales of investments:
Proceeds from sales 70,129 7,707 8,337 1,395 17,345 293,035
Cost of investments sold (61,647) (5,796) (6,447) (988) (17,165) (276,264)
---------- ---------- ---------- ---------- ---------- ----------
Net realized (losses) gains 8,482 1,911 1,890 407 180 16,771
---------- ---------- ---------- ---------- ---------- ----------
CHANGE IN UNREALIZED (LOSSES) GAINS 8,559 43,165 3,981 28,418 449 236,096
---------- ---------- ---------- ---------- ---------- ----------
Net (losses) gains on investments 17,041 45,076 5,871 28,825 629 252,867
---------- ---------- ---------- ---------- ---------- ----------
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS $ 27,401 $ 52,827 $ 6,302 $ 36,503 $ 207 $ 413,434
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
See notes to financial statements.
F-17
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1996
(Dollars and Units in Thousands, Except Value per Unit)
- -----------------------------------------------------------------------------------------------------------------------------------
DEAN WITTER VARIABLE INVESTMENT SERIES
----------------------------------------------------------------------
QUALITY
MONEY HIGH INCOME DIVIDEND
MARKET YIELD EQUITY PLUS STRATEGIST GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss) $ 9,192 $ 19,006 $ 42,957 $ 23,023 $ 8,903 $ 31,688
Net realized (losses) gains - (360) 1,623 (1,632) 1,212 3,058
Net change in unrealized (losses) gains - (1,795) (7,081) (21,855) 30,151 152,104
---------- ---------- ---------- ---------- ---------- ----------
Change in net assets resulting from operations 9,192 16,851 37,499 (464) 40,266 186,850
FROM CAPITAL TRANSACTIONS
Deposits 167,498 83,674 131,579 52,568 42,708 266,005
Benefit payments (8,807) (2,069) (3,092) (7,512) (4,219) (9,022)
Payments on termination (37,294) (11,121) (23,766) (31,874) (23,127) (66,865)
Contract maintenance charges (109) (94) (207) (195) (172) (565)
Transfers among the portfolios and
with the Fixed Account - net (39,281) 18,476 23,390 (37,007) (10,465) 38,681
---------- ---------- ---------- ---------- ---------- ----------
Change in net assets resulting from capital
transactions 82,007 88,866 127,904 (24,020) 4,725 228,234
---------- ---------- ---------- ---------- ---------- ----------
INCREASE (DECREASE) IN NET ASSETS 91,199 105,717 165,403 (24,484) 44,991 415,084
Net assets at beginning of period 209,635 122,467 285,780 439,955 301,248 728,460
---------- ---------- ---------- ---------- ---------- ----------
Net assets at end of period $ 300,834 $ 228,184 $ 451,183 $ 415,471 $ 346,239 $1,143,544
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
CONTRACTS WITHOUT THE
ENHANCED DEATH BENEFITS
Net asset value per unit at end of period $ 12.08 $ 24.15 $ 28.67 $ 16.40 $ 19.20 $ 26.30
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Units outstanding at end of period 21,477 7,989 13,438 24,233 17,132 38,903
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
CONTRACTS WITH THE
ENHANCED DEATH BENEFITS
Net asset value per unit at end of period $ 12.07 $ 24.11 $ 28.63 $ 16.38 $ 19.17 $ 26.26
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Units outstanding at end of period 3,424 1,463 2,303 1,096 904 4,587
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
See notes to financial statements.
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
DEAN WITTER VARIABLE INVESTMENT SERIES
----------------------------------------------------------------------
GLOBAL
EUROPEAN CAPITAL DIVIDEND PACIFIC
UTILITIES GROWTH GROWTH GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO TOTAL
----------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss) $ 10,360 $ 7,751 $ 431 $ 7,678 $ (422) $ 160,567
Net realized (losses) gains 8,482 1,911 1,890 407 180 16,771
Net change in unrealized (losses) gains 8,559 43,165 3,981 28,418 449 236,096
---------- ---------- ---------- ---------- ---------- ----------
Change in net assets resulting from operations 27,401 52,827 6,302 36,503 207 413,434
FROM CAPITAL TRANSACTIONS
Deposits 37,371 54,928 18,649 76,120 37,469 968,569
Benefit payments (5,738) (1,847) (736) (2,137) (1,002) (46,181)
Payments on termination (32,116) (15,391) (5,821) (14,070) (7,379) (268,824)
Contract maintenance charges (217) (127) (39) (151) (74) (1,950)
Transfers among the portfolios and
with the Fixed Account - net (49,309) 16,815 1,244 26,476 14,897 3,917
---------- ---------- ---------- ---------- ---------- ----------
Change in net assets resulting from capital
transactions (50,009) 54,378 13,297 86,238 43,911 655,531
---------- ---------- ---------- ---------- ---------- ----------
INCREASE (DECREASE) IN NET ASSETS (22,608) 107,205 19,599 122,741 44,118 1,068,965
Net assets at beginning of period 410,121 164,100 58,995 184,723 86,208 2,991,692
---------- ---------- ---------- ---------- ---------- ----------
Net assets at end of period $ 387,513 $ 271,305 $ 78,594 $ 307,464 $ 130,326 $4,060,657
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
CONTRACTS WITHOUT THE
ENHANCED DEATH BENEFITS
Net asset value per unit at end of period $ 19.30 $ 24.33 $ 16.42 $ 13.84 $ 9.86
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Units outstanding at end of period 19,259 10,007 4,278 19,847 11,811
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
CONTRACTS WITH THE
ENHANCED DEATH BENEFITS
Net asset value per unit at end of period $ 19.27 $ 24.30 $ 16.40 $ 13.82 $ 9.84
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Units outstanding at end of period 823 1,144 509 2,364 1,412
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
See notes to financial statements.
F-18
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1995
(Dollars and Units in Thousands, Except Value per Unit)
- -----------------------------------------------------------------------------------------------------------------------------------
DEAN WITTER VARIABLE INVESTMENT SERIES
----------------------------------------------------------------------
QUALITY
MONEY HIGH INCOME DIVIDEND
MARKET YIELD EQUITY PLUS STRATEGIST GROWTH
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 (losses) gains - (279) 286 (756) (510) 932
Net change in unrealized gains (losses) - 1,677 71,559 57,216 467 149,094
---------- ---------- ---------- ---------- ---------- ----------
Change in net assets resulting from operations 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
---------- ---------- ---------- ---------- ---------- ----------
Change in net assets resulting from capital
transactions (11,704) 31,018 50,525 23,350 (6,772) 95,633
---------- ---------- ---------- ---------- ---------- ----------
(DECREASE) INCREASE IN NET ASSETS (3,276) 43,823 121,835 101,692 15,661 265,318
Net assets at beginning of period 212,911 78,644 163,945 338,263 285,587 463,142
---------- ---------- ---------- ---------- ---------- ----------
Net assets at end of period $ 209,635 $ 122,467 $ 285,780 $ 439,955 $ 301,248 $ 728,460
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
CONTRACTS WITHOUT THE
ENHANCED DEATH BENEFIT
Net asset value per unit at end of period $ 11.65 $ 21.86 $ 25.86 $ 16.37 $ 16.92 $ 21.51
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Units outstanding at end of period 17,484 5,536 10,835 26,736 17,718 33,515
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
CONTRACTS WITH THE
ENHANCED DEATH BENEFIT
Net asset value per unit at end of period $ 11.54 $ 21.66 $ 25.61 $ 15.60 $ 16.13 $ 21.03
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Units outstanding at end of period 511 67 216 142 92 367
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
See notes to financial statements.
<PAGE>
- ----------------------------------------------------------------------------------------------------------------------------------
DEAN WITTER VARIABLE INVESTMENT SERIES
----------------------------------------------------------------------
GLOBAL
EUROPEAN CAPITAL DIVIDEND PACIFIC
UTILITIES GROWTH GROWTH GROWTH GROWTH
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 (losses) gains 2 1,629 597 86 (384) 1,603
Net change in unrealized gains (losses) 75,255 24,572 12,700 25,883 3,987 422,410
---------- ---------- ---------- ---------- ---------- ----------
Change in net assets resulting from operations 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)
---------- ---------- ---------- ---------- ---------- ----------
Change in net assets resulting from capital
transactions 4,188 3,768 7,253 34,975 17,643 249,877
---------- ---------- ---------- ---------- ---------- ----------
(DECREASE) INCREASE IN NET ASSETS 90,325 34,368 20,172 62,739 20,918 773,575
Net assets at beginning of period 319,796 129,732 38,823 121,984 65,290 2,218,117
---------- ---------- ---------- ---------- ---------- ----------
Net assets at end of period $ 410,121 $ 164,100 $ 58,995 $ 184,723 $ 86,208 $2,991,692
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
CONTRACTS WITHOUT THE
ENHANCED DEATH BENEFIT
Net asset value per unit at end of period $ 18.00 $ 18.98 $ 14.92 $ 11.93 $ 9.62
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Units outstanding at end of period 22,626 8,588 3,918 15,326 8,866
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
CONTRACTS WITH THE
ENHANCED DEATH BENEFIT
Net asset value per unit at end of period $ 17.40 $ 18.38 $ 14.72 $ 11.67 $ 9.46
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Units outstanding at end of period 165 62 36 155 98
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
See notes to financial statements.
</TABLE>
F-19
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
NOTES TO FINANCIAL STATEMENTS
TWO YEARS ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
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"). The assets of the Account are
legally segregated from those of Northbrook Life. Northbrook Life 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 direction of the contractholder. Contractholders primarily
invest in units of the portfolios comprising the Account, for which they
bear all of the investment risk, 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"), a wholly owned subsidiary of
Dean Witter, Discover and Co., is the sole distributor of Northbrook Life's
flexible premium deferred variable annuity contracts and certain single and
flexible premium annuities. Dean Witter InterCapital, Inc.
("InterCapital"), a wholly owned subsidiary of Dean Witter, Discover and
Co., 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. InterCapital 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.
RECOGNITION OF 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 represent the
difference between the proceeds from sales of shares by the Account and the
cost of such shares, which is determined on a weighted average basis.
CONTRACTHOLDER ACCOUNT ACTIVITY - Account activity is reflected in
individual contractholder accounts on a daily basis.
F-20
<PAGE>
FEDERAL INCOME TAXES - Net investment income and realized gains and losses
on investments of the Account are taxable to contractholders generally upon
distribution. Accordingly, no provision for income taxes has been recorded.
ACCOUNT VALUE - Certain calculations that could be made in the financial
statements may differ from published amounts due to truncation of actual
Account values.
3. CONTRACT MAINTENANCE, MORTALITY AND EXPENSE RISK, ADMINISTRATIVE EXPENSE,
AND ENHANCED DEATH BENEFIT CHARGES
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.
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.
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 administrative expense.
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. FINANCIAL INSTRUMENTS
The investments of the Separate Accounts are carried at fair value, based
upon quoted market prices. Accrued contract maintenance charges are of a
short-term nature. It is assumed that their carrying value approximates
fair value.
F-21
<PAGE>
5. UNITS ISSUED AND REDEEMED
Units issued and redeemed by the Account during 1996 for contracts with and
without Enhanced Death Benefit were as follows:
<TABLE>
<CAPTION>
DEAN WITTER VARIABLE INVESTMENT SERIES
------------------------------------------------------------------------------------
(UNITS IN THOUSANDS) QUALITY
MONEY HIGH INCOME DIVIDEND
MARKET YIELD EQUITY PLUS STRATEGIST GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONTRACTS WITHOUT THE
ENHANCED DEATH BENEFITS
Units outstanding at
beginning of period 17,484 5,536 10,835 26,736 17,718 33,515
Unit activity during 1996:
Issued 15,619 3,600 4,291 2,634 2,370 9,492
Redeemed (11,626) (1,147) (1,688) (5,137) (2,956) (4,104)
------- ------- ------- ------- ------- -------
Units outstanding at
end of period 21,477 7,989 13,438 24,233 17,132 38,903
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
CONTRACTS WITH THE
ENHANCED DEATH BENEFITS
Units outstanding at
beginning of period 511 67 216 142 92 367
Unit activity during 1996:
Issued 5,950 1,521 2,177 1,074 858 4,387
Redeemed (3,037) (125) (90) (120) (46) (167)
------- ------- ------- ------- ------- -------
Units outstanding at
end of period 3,424 1,463 2,303 1,096 904 4,587
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Units redeemed include units deducted for accrued contract maintenance charges.
<PAGE>
<CAPTION>
DEAN WITTER VARIABLE INVESTMENT SERIES
---------------------------------------------------------------------
(UNITS IN THOUSANDS)
GLOBAL
EUROPEAN CAPITAL DIVIDEND PACIFIC
UTILITIES GROWTH GROWTH GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONTRACTS WITHOUT THE
ENHANCED DEATH BENEFITS
Units outstanding at
beginning of period 22,626 8,588 3,918 15,326 8,866
Unit activity during 1996:
Issued 1,523 2,637 1,309 6,189 5,803
Redeemed (4,890) (1,218) (949) (1,668) (2,858)
------- ------- ------- ------- -------
Units outstanding at
end of period 19,259 10,007 4,278 19,847 11,811
------- ------- ------- ------- -------
------- ------- ------- ------- -------
CONTRACTS WITH THE
ENHANCED DEATH BENEFITS
Units outstanding at
beginning of period 165 62 36 155 98
Unit activity during 1996:
Issued 759 1,131 501 2,279 1,455
Redeemed (101) (49) (28) (70) (141)
------- ------- ------- ------- -------
Units outstanding at
end of period 823 1,144 509 2,364 1,412
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
Units redeemed include units deducted for accrued contract maintenance charges.
* * * * * *
F-22
<PAGE>
PART C
OTHER INFORMATION
24A. FINANCIAL STATEMENTS
Northbrook Life Insurance Company Financial Statements and Financial
Schedule and Northbrook Variable Annuity Account II Financial Statements
are included in Part B of this Registration Statement.
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
(14) Financial Data Schedule*****
(99) Powers of Attorney*
</TABLE>
- ------------------------
* Previously filed in Form N-4 Registration Statement No. 33-35412 dated
December 31, 1996 and incorporated by reference.
** Previously filed in Form N-4 Registration Statement No. 33-35412 dated
February 28, 1997 and incorporated by reference.
*** Previously filed in Form N-4 Registration Statement No. 33-35412 dated
April 30, 1996 and incorporated by reference.
**** Previously filed in Form N-4 Registration Statement No. 33-35412 dated
June 14, 1990 and incorporated by reference.
***** Previously filed in Depositor's Form 10-K, filed March 31, 1997.
<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 A. 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 February 28, 1997 there were in force 10,691 qualified and 65,552
non-qualified contracts. The Registrant began operations on October 25, 1990.
28. INDEMNIFICATION
The General Agency 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, Jr. 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, III 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
David Diaz 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
Linda M. Butler Assistant Secretary
Marilyn Cranney Assistant Secretary
Sheldon Curtis Assistant Secretary
Barry Fink Assistant Secretary
Sabrina Hurley Assistant Secretary
Barbara B. Kiley 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. $53,617,941
</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 the aggregate,
are reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by Northbrook Life.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 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 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 28th day of
April, 1997.
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
As required by the Securities Act of 1933, this Registration Statement has
been duly signed below by the following Directors and Officers of Northbrook
Life Insurance Company on the 28th day of April, 1997.
*/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
- ---------------------- (Principal Financial Officer)
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 A. HAUSCHILDT Assistant Vice President and Controller
- ---------------------- (Principal Accounting Officer)
Keith A. Hauschildt
*/ By Michael J. Velotta, pursuant to Power of Attorney, previously filed.
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 15 to Registration
Statement No. 033-35412 of Northbrook Variable Annuity Account II of Northbrook
Life Insurance Company on Form N-4 of our report dated February 21, 1997
relating to the financial statements and financial statement schedule of
Northbrook Life Insurance Company and our report dated February 21, 1997
relating to the financial statements of Northbrook Variable Annuity Account II
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
May 1, 1997
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NLIC VAII HIGH YIELD
NO. YEARS 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 21.859326 45.74706
FEE 31-Dec-96 0.669 24.148290 0.02770
RESULTING VALUE 31-Dec-96 24.148290 45.71936 1104.0444
1.000
FORMULA: 1000*(1+T)= 1104.0444 - (0.85 * 1000 * 0.05)
= 1061.5444
Standardized Return = T = 6.15%
R = 6.15%
NLIC VAII EQUITY
NO. YEARS 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 25.863867 38.66398
FEE 31-Dec-96 0.669 28.669371 0.02334
RESULTING VALUE 31-Dec-96 28.669371 38.64064 1107.8029
1.000
FORMULA: 1000*(1+T)= 1107.8029 - (0.85 * 1000 * 0.05)
= 1065.3029
Standardized Return = T = 6.53%
R = 6.53%
NLIC VAII QUALITY INCOME
NO. YEARS 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 16.373027 61.07606
FEE 31-Dec-96 0.669 16.403816 0.04078
RESULTING VALUE 31-Dec-96 16.403816 61.03528 1001.2115
1.000
FORMULA: 1000*(1+T)= 1001.2115 - (0.85 * 1000 * 0.05)
= 958.7115
Standardized Return = T = -4.13%
R = -4.13%
<PAGE>
NLIC VAII STRATEGIST
NO. YEARS 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 16.919048 59.10498
FEE 31-Dec-96 0.669 19.198700 0.03485
RESULTING VALUE 31-Dec-96 19.198700 59.07013 1134.0698
1.000
FORMULA: 1000*(1+T)= 1134.0698 - (0.85 * 1000 * 0.05)
= 1091.5698
Standardized Return = T = 9.16%
R = 9.16%
NLIC VAII DIVIDEND GROWTH
NO. YEARS 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 21.504641 46.50159
FEE 31-Dec-96 0.669 26.298448 0.02544
RESULTING VALUE 31-Dec-96 26.298448 46.47615 1222.2506
1.000
FORMULA: 1000*(1+T)= 1222.2506 - (0.85 * 1000 * 0.05)
= 1179.7506
Standardized Return = T = 17.98%
R = 17.98%
NLIC VAII UTILITIES
NO. YEARS 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 17.998758 55.55939
FEE 31-Dec-96 0.669 19.297511 0.03467
RESULTING VALUE 31-Dec-96 19.297511 55.52472 1071.4889
1.000
FORMULA: 1000*(1+T)= 1071.4889 - (0.85 * 1000 * 0.05)
= 1028.9889
Standardized Return = T = 2.90%
R = 2.90%
<PAGE>
NLIC VAII EUROPEAN GROWTH
NO. YEARS 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 18.975848 52.69857
FEE 31-Dec-96 0.669 24.334840 0.02749
RESULTING VALUE 31-Dec-96 24.334840 52.67108 1281.7422
1.000
FORMULA: 1000*(1+T)= 1281.7422 - (0.85 * 1000 * 0.05)
= 1239.2422
Standardized Return = T = 23.92%
R = 23.92%
NLIC VAII CAPITAL GROWTH
NO. YEARS 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 14.922750 67.01178
FEE 31-Dec-96 0.669 16.421498 0.04074
RESULTING VALUE 31-Dec-96 16.421498 66.97104 1099.7648
1.000
FORMULA: 1000*(1+T)= 1099.7648 - (0.85 * 1000 * 0.05)
= 1057.2648
Standardized Return = T = 5.73%
R = 5.73%
NLIC VAII PACIFIC GROWTH
NO. YEARS 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 9.619002 103.96089
FEE 31-Dec-96 0.669 9.858203 0.06786
RESULTING VALUE 31-Dec-96 9.858203 103.89303 1024.1985
1.000
FORMULA: 1000*(1+T)= 1024.1985 - (0.85 * 1000 * 0.05)
= 981.6985
Standardized Return = T = -1.83%
R = -1.83%
<PAGE>
NLIC VAII GLOBAL DIVIDEND GROWTH
NO. YEARS 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 11.934841 83.78830
FEE 31-Dec-96 0.669 13.844714 0.04832
RESULTING VALUE 31-Dec-96 13.844714 83.73998 1159.3560
1.000
FORMULA: 1000*(1+T)= 1159.3560 - (0.85 * 1000 * 0.05)
= 1116.8560
Standardized Return = T = 11.69%
R = 11.69%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NLIC VAII HIGH YIELD
NO. YEARS 5.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-91 1000.00 13.981604 71.52255
FEE 31-Dec-92 0.669 16.335603 0.04095
FEE 31-Dec-93 0.669 20.022205 0.03341
FEE 31-Dec-94 0.669 19.314985 0.03464
FEE 31-Dec-95 0.669 21.859326 0.03060
FEE 31-Dec-96 0.669 24.148290 0.02770
RESULTING VALUE 31-Dec-96 24.148290 71.35524 1723.1070
5.000
FORMULA: 1000*(1+T)= 1723.1070 - (0.85 * 1000 * 0.01)
= 1714.607
Standardized Return = T = 11.39%
R = 71.46%
NLIC VAII EQUITY
NO. YEARS 5.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-91 1000.00 16.799149 59.52682
FEE 31-Dec-92 0.669 16.599155 0.04030
FEE 31-Dec-93 0.669 19.604447 0.03412
FEE 31-Dec-94 0.669 18.189346 0.03678
FEE 31-Dec-95 0.669 25.863867 0.02587
FEE 31-Dec-96 0.669 28.669371 0.02334
RESULTING VALUE 31-Dec-96 28.669371 59.36642 1701.9978
5.000
FORMULA: 1000*(1+T)= 1701.9978 - (0.85 * 1000 * 0.01)
= 1693.4978
Standardized Return = T = 11.11%
R = 69.35%
<PAGE>
NLIC VAII QUALITY INCOME
NO. YEARS 5.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-91 1000.00 12.163222 82.21506
FEE 31-Dec-92 0.669 12.993017 0.05149
FEE 31-Dec-93 0.669 14.486819 0.04618
FEE 31-Dec-94 0.669 13.311063 0.05026
FEE 31-Dec-95 0.669 16.373027 0.04086
FEE 31-Dec-96 0.669 16.403816 0.04078
RESULTING VALUE 31-Dec-96 16.403816 81.98549 1344.8748
5.000
FORMULA: 1000*(1+T)= 1344.8748 - (0.85 * 1000 * 0.01)
= 1336.3748
Standardized Return = T = 5.97%
R = 33.64%
NLIC VAII STRATEGIST
NO. YEARS 5.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-91 1000.00 13.266070 75.38027
FEE 31-Dec-92 0.669 14.034777 0.04767
FEE 31-Dec-93 0.669 15.285892 0.04377
FEE 31-Dec-94 0.669 15.687325 0.04265
FEE 31-Dec-95 0.669 16.919048 0.03954
FEE 31-Dec-96 0.669 19.198700 0.03485
RESULTING VALUE 31-Dec-96 19.198700 75.17181 1443.2010
5.000
FORMULA: 1000*(1+T)= 1443.2010 - (0.85 * 1000 * 0.01)
= 1434.701
Standardized Return = T = 7.49%
R = 43.47%
<PAGE>
NLIC VAII DIVIDEND GROWTH
NO. YEARS 5.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-91 1000.00 13.910969 71.88572
FEE 31-Dec-92 0.669 14.844196 0.04507
FEE 31-Dec-93 0.669 16.746027 0.03995
FEE 31-Dec-94 0.669 16.068087 0.04164
FEE 31-Dec-95 0.669 21.504641 0.03111
FEE 31-Dec-96 0.669 26.298448 0.02544
RESULTING VALUE 31-Dec-96 26.298448 71.70252 1885.6649
5.000
FORMULA: 1000*(1+T)= 1885.6649 - (0.85 * 1000 * 0.01)
= 1877.1649
Standardized Return = T = 13.42%
R = 87.72%
NLIC VAII UTILITIES
NO. YEARS 5.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-91 1000.00 12.454330 80.29336
FEE 31-Dec-92 0.669 13.840391 0.04834
FEE 31-Dec-93 0.669 15.797759 0.04235
FEE 31-Dec-94 0.669 14.189948 0.04715
FEE 31-Dec-95 0.669 17.998758 0.03717
FEE 31-Dec-96 0.669 19.297511 0.03467
RESULTING VALUE 31-Dec-96 19.297511 80.08369 1545.4159
5.000
FORMULA: 1000*(1+T)= 1545.4159 - (0.85 * 1000 * 0.01)
= 1536.9159
Standardized Return = T = 8.98%
R = 53.69%
<PAGE>
NLIC VAII EUROPEAN GROWTH
NO. YEARS 5.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-91 1000.00 10.020452 99.79590
FEE 31-Dec-92 0.669 10.280422 0.06508
FEE 31-Dec-93 0.669 14.289849 0.04682
FEE 31-Dec-94 0.669 15.296029 0.04374
FEE 31-Dec-95 0.669 18.975848 0.03526
FEE 31-Dec-96 0.669 24.334840 0.02749
RESULTING VALUE 31-Dec-96 24.334840 99.57752 2423.2031
5.000
FORMULA: 1000*(1+T)= 2423.2031 - (0.85 * 1000 * 0.01)
= 2414.7031
Standardized Return = T = 19.28%
R = 141.47%
NLIC VAII CAPITAL GROWTH
NO. YEARS 5.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-91 1000.00 12.697352 78.75658
FEE 31-Dec-92 0.669 12.731456 0.05255
FEE 31-Dec-93 0.669 11.682455 0.05727
FEE 31-Dec-94 0.669 11.322270 0.05909
FEE 31-Dec-95 0.669 14.922750 0.04483
FEE 31-Dec-96 0.669 16.421498 0.04074
RESULTING VALUE 31-Dec-96 16.421498 78.50211 1289.1222
5.000
FORMULA: 1000*(1+T)= 1289.1222 - (0.85 * 1000 * 0.01)
= 1280.6222
Standardized Return = T = 5.07%
R = 28.06%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NLIC VAII HIGH YIELD
25-Oct-90
TO NO. YEARS 6.185
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 25-Oct-90 1000.00 10.000000 100.00000
1 FEE 25-Oct-91 0.669 13.900601 0.04813
2 FEE 25-Oct-92 0.669 16.311352 0.04101
3 FEE 25-Oct-93 0.669 19.350163 0.03457
4 25-Oct-94 0.669 19.319826 0.03463
5 25-Oct-95 0.669 21.533545 0.03107
6 25-Oct-96 0.669 23.660974 0.02827
7 31-Dec-96 0.669 24.148290 0.02770
RESULTING VALUE 31-Dec-96 24.148290 99.75461 2408.9033
6.185
FORMULA: 1000*(1+T)= 2408.9033
= 2408.9033
Standardized Return = T 15.27%
R = 140.89%
NLIC VAII EQUITY
25-Oct-90
TO NO. YEARS 6.185
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 25-Oct-90 1000.00 10.000000 100.00000
1 FEE 25-Oct-91 0.669 14.558444 0.04595
2 FEE 25-Oct-92 0.669 15.176037 0.04408
3 FEE 25-Oct-93 0.669 19.940376 0.03355
4 25-Oct-94 0.669 18.441703 0.03628
5 25-Oct-95 0.669 24.167120 0.02768
6 25-Oct-96 0.669 27.938718 0.02395
7 31-Dec-96 0.669 28.669371 0.02334
RESULTING VALUE 31-Dec-96 28.669371 99.76518 2860.2048
6.185
FORMULA: 1000*(1+T)= 2860.2048
= 2860.2048
Standardized Return = T 18.52%
R = 186.02%
<PAGE>
NLIC VAII QUALITY INCOME
25-Oct-90
TO NO. YEARS 6.185
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 25-Oct-90 1000.00 10.000000 100.00000
1 FEE 25-Oct-91 0.669 11.516999 0.05809
2 FEE 25-Oct-92 0.669 12.659574 0.05285
3 FEE 25-Oct-93 0.669 14.651036 0.04566
4 25-Oct-94 0.669 13.141206 0.05091
5 25-Oct-95 0.669 15.793355 0.04236
6 25-Oct-96 0.669 16.148615 0.04143
7 31-Dec-96 0.669 16.403816 0.04078
RESULTING VALUE 31-Dec-96 16.403816 99.66793 1634.9343
6.185
FORMULA: 1000*(1+T)= 1634.9343
= 1634.9343
Standardized Return = T 8.27%
R = 63.49%
NLIC VAII STRATEGIST
25-Oct-90
TO NO. YEARS 6.185
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 25-Oct-90 1000.00 10.000000 100.00000
1 FEE 25-Oct-91 0.669 12.364170 0.05411
2 FEE 25-Oct-92 0.669 13.521220 0.04948
3 FEE 25-Oct-93 0.669 15.087496 0.04434
4 25-Oct-94 0.669 15.588566 0.04292
5 25-Oct-95 0.669 16.438719 0.04070
6 25-Oct-96 0.669 18.442834 0.03627
7 31-Dec-96 0.669 19.198700 0.03485
RESULTING VALUE 31-Dec-96 19.198700 99.69734 1914.0593
6.185
FORMULA: 1000*(1+T)= 1914.0593
= 1914.0593
Standardized Return = T 11.07%
R = 91.41%
<PAGE>
NLIC VAII DIVIDEND GROWTH
25-Oct-90
TO NO. YEARS 6.185
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 25-Oct-90 1000.00 10.000000 100.00000
1 FEE 25-Oct-91 0.669 13.078903 0.05115
2 FEE 25-Oct-92 0.669 14.344140 0.04664
3 FEE 25-Oct-93 0.669 16.443098 0.04069
4 25-Oct-94 0.669 16.165797 0.04138
5 25-Oct-95 0.669 20.140294 0.03322
6 25-Oct-96 0.669 24.878626 0.02689
7 31-Dec-96 0.669 26.298448 0.02544
RESULTING VALUE 31-Dec-96 26.298448 99.73459 2622.8650
6.185
FORMULA: 1000*(1+T)= 2622.8650
= 2622.865
Standardized Return = T 16.87%
R = 162.29%
NLIC VAII UTILITIES
25-Oct-90
TO NO. YEARS 6.185
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 25-Oct-90 1000.00 10.000000 100.00000
1 FEE 25-Oct-91 0.669 11.620536 0.05757
2 FEE 25-Oct-92 0.669 12.997689 0.05147
3 FEE 25-Oct-93 0.669 16.219874 0.04125
4 25-Oct-94 0.669 14.343211 0.04664
5 25-Oct-95 0.669 17.023609 0.03930
6 25-Oct-96 0.669 18.520112 0.03612
7 31-Dec-96 0.669 19.297511 0.03467
RESULTING VALUE 31-Dec-96 19.297511 99.69298 1923.8264
6.185
FORMULA: 1000*(1+T)= 1923.8264
= 1923.8264
Standardized Return = T 11.16%
R = 92.38%
<PAGE>
NLIC VAII EUROPEAN GROWTH
01-Mar-91
TO NO. YEARS 5.837
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 01-Mar-91 1000.00 10.000000 100.00000
1 FEE 01-Mar-92 0.669 10.306403 0.06491
2 FEE 01-Mar-93 0.669 10.744210 0.06227
3 FEE 01-Mar-94 0.669 14.776559 0.04527
4 01-Mar-95 0.669 15.668384 0.04270
5 01-Mar-96 0.669 19.936189 0.03356
6 31-Dec-96 0.669 24.334840 0.02749
RESULTING VALUE 31-Dec-96 24.334840 99.72380 2426.7628
5.837
FORMULA: 1000*(1+T)= 2426.7628
= 2418.2628
Standardized Return = T 16.33%
R = 141.83%
NLIC VAII CAPITAL GROWTH
01-Mar-91
TO NO. YEARS 5.837
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 01-Mar-91 1000.00 10.000000 100.00000
1 FEE 01-Mar-92 0.669 12.141744 0.05510
2 FEE 01-Mar-93 0.669 11.843745 0.05649
3 FEE 01-Mar-94 0.669 11.745794 0.05696
4 01-Mar-95 0.669 12.152051 0.05505
5 01-Mar-96 0.669 15.739179 0.04251
6 31-Dec-96 0.669 16.421498 0.04074
RESULTING VALUE 31-Dec-96 16.421498 99.69316 1637.1111
5.837
FORMULA: 1000*(1+T)= 1637.1111
= 1628.6111
Standardized Return = T 8.71%
R = 62.86%
<PAGE>
NLIC VAII PACIFIC GROWTH
22-Feb-94
TO NO. YEARS 2.856
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 22-Feb-94 1000.00 10.000000 100.00000
1 FEE 22-Feb-95 0.669 8.627411 0.07754
2 FEE 22-Feb-96 0.669 10.401149 0.06432
3 FEE 31-Dec-96 0.669 9.858203 0.06786
RESULTING VALUE 31-Dec-96 9.858203 99.79027 983.7528
2.856
FORMULA: 1000*(1+T)= 983.7528
= 949.75278
Standardized Return = T -1.79%
R = -5.02%
NLIC VAII GLOBAL DIVIDEND GROWTH
22-Feb-94
TO NO. YEARS 2.856
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 22-Feb-94 1000.00 10.000000 100.00000
1 FEE 22-Feb-95 0.669 9.976816 0.06706
2 FEE 22-Feb-96 0.669 12.277775 0.05449
3 FEE 31-Dec-96 0.669 13.844714 0.04832
RESULTING VALUE 31-Dec-96 13.844714 99.83013 1382.1197
2.856
FORMULA: 1000*(1+T)= 1382.1197
= 1348.1197
Standardized Return = T 11.03%
R = 34.81%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NLIC VAII DB HIGH YIELD
NO. YEARS 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 21.854658 45.75684
FEE 31-Dec-96 0.669 24.111603 0.02775
RESULTING VALU 31-Dec-96 24.111603 45.72909 1102.6017
1.000
FORMULA: 1000*(1+T)= 1102.6017 - (0.85 * 1000 * 0.05)
= 1060.1017
Standardized Return = T = 6.01%
R = 6.01%
NLIC VAII DB EQUITY
NO. YEARS 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 25.858344 38.67224
FEE 31-Dec-96 0.669 28.625797 0.02337
RESULTING VALU 31-Dec-96 28.625797 38.64887 1106.3546
1.000
FORMULA: 1000*(1+T)= 1106.3546 - (0.85 * 1000 * 0.05)
= 1063.8546
Standardized Return = T = 6.39%
R = 6.39%
NLIC VAII DB QUALITY INCOME
NO. YEARS 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 16.369534 61.08909
FEE 31-Dec-96 0.669 16.378885 0.04085
RESULTING VALU 31-Dec-96 16.378885 61.04825 999.9022
1.000
FORMULA: 1000*(1+T)= 999.9022 - (0.85 * 1000 * 0.05)
= 957.4022
Standardized Return = T = -4.26%
R = -4.26%
<PAGE>
NLIC VAII DB STRATEGIST
NO. YEARS 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 16.915435 59.11760
FEE 31-Dec-96 0.669 19.169540 0.03490
RESULTING VALU 31-Dec-96 19.169540 59.08271 1132.5883
1.000
FORMULA: 1000*(1+T)= 1132.5883 - (0.85 * 1000 * 0.05)
= 1090.0883
Standardized Return = T = 9.01%
R = 9.01%
NLIC VAII DB DIVIDEND GROWTH
NO. YEARS 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 21.500050 46.51152
FEE 31-Dec-96 0.669 26.258516 0.02548
RESULTING VALU 31-Dec-96 26.258516 46.48604 1220.6545
1.000
FORMULA: 1000*(1+T)= 1220.6545 - (0.85 * 1000 * 0.05)
= 1178.1545
Standardized Return = T = 17.82%
R = 17.82%
NLIC VAII DB UTILITIES
NO. YEARS 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 17.994919 55.57124
FEE 31-Dec-96 0.669 19.268190 0.03472
RESULTING VALU 31-Dec-96 19.268190 55.53652 1070.0883
1.000
FORMULA: 1000*(1+T)= 1070.0883 - (0.85 * 1000 * 0.05)
= 1027.5883
Standardized Return = T = 2.76%
R = 2.76%
<PAGE>
NLIC VAII DB EUROPEAN GROWTH
NO. YEARS 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 18.971796 52.70982
FEE 31-Dec-96 0.669 24.297886 0.02753
RESULTING VALU 31-Dec-96 24.297886 52.68229 1280.0683
1.000
FORMULA: 1000*(1+T)= 1280.0683 - (0.85 * 1000 * 0.05)
= 1237.5683
Standardized Return = T = 23.76%
R = 23.76%
NLIC VAII DB CAPITAL GROWTH
NO. YEARS 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 14.919563 67.02609
FEE 31-Dec-96 0.669 16.396546 0.04080
RESULTING VALU 31-Dec-96 16.396546 66.98529 1098.3274
1.000
FORMULA: 1000*(1+T)= 1098.3274 - (0.85 * 1000 * 0.05)
= 1055.8274
Standardized Return = T = 5.58%
R = 5.58%
NLIC VAII DB PACIFIC GROWTH
NO. YEARS 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 9.616944 103.98314
FEE 31-Dec-96 0.669 9.843217 0.06797
RESULTING VALU 31-Dec-96 9.843217 103.91517 1022.8596
1.000
FORMULA: 1000*(1+T)= 1022.8596 - (0.85 * 1000 * 0.05)
= 980.3596
Standardized Return = T = -1.96%
R = -1.96%
<PAGE>
NLIC VAII DB GLOBAL DIVIDEND GROWTH
NO. YEARS 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 11.932293 83.80619
FEE 31-Dec-96 0.669 13.823682 0.04840
RESULTING VALU 31-Dec-96 13.823682 83.75779 1157.8411
1.000
FORMULA: 1000*(1+T)= 1157.8411 - (0.85 * 1000 * 0.05)
= 1115.3411
Standardized Return = T = 11.53%
R = 11.53%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NLIC VAII DB HIGH YIELD
30-Oct-95
TO NO. YEARS 1.172
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 30-Oct-95 1000.00 21.461642 46.59476
1 FEE 30-Oct-96 0.669 23.663736 0.02827
2 FEE 31-Dec-96 0.669 24.111603 0.02775
RESULTING VALUE 31-Dec-96 24.111603 46.53874 1122.1236
1.172
FORMULA: 1000*(1+T)= 1122.1236
= 1079.62363
Standardized Return = T = 6.76%
R = 7.96%
NLIC VAII DB EQUITY
30-Oct-95
TO NO. YEARS 1.172
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 30-Oct-95 1000.00 24.677205 40.52323
1 FEE 30-Oct-96 0.669 27.614775 0.02423
2 FEE 31-Dec-96 0.669 28.625797 0.02337
RESULTING VALUE 31-Dec-96 28.625797 40.47563 1158.6472
1.172
FORMULA: 1000*(1+T)= 1158.6472
= 1116.1472
Standardized Return = T = 9.83%
R = 11.61%
<PAGE>
NLIC VAII DB QUALITY INCOME
30-Oct-95
TO NO. YEARS 1.172
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 30-Oct-95 1000.00 15.746204 63.50737
1 FEE 30-Oct-96 0.669 16.295863 0.04105
2 FEE 31-Dec-96 0.669 16.378885 0.04085
RESULTING VALUE 31-Dec-96 16.378885 63.42547 1038.8385
1.172
FORMULA: 1000*(1+T)= 1038.8385
= 996.338498
Standardized Return = T = -0.31%
R = -0.37%
NLIC VAII DB STRATEGIST
30-Oct-95
TO NO. YEARS 1.172
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 30-Oct-95 1000.00 16.489661 60.64406
1 FEE 30-Oct-96 0.669 18.470982 0.03622
2 FEE 31-Dec-96 0.669 19.169540 0.03490
RESULTING VALUE 31-Dec-96 19.169540 60.57294 1161.1554
1.172
FORMULA: 1000*(1+T)= 1161.1554
= 1118.65544
Standardized Return = T = 10.04%
R = 11.87%
<PAGE>
NLIC VAII DB DIVIDEND GROWTH
30-Oct-95
TO NO. YEARS 1.172
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 30-Oct-95 1000.00 20.067848 49.83095
1 FEE 30-Oct-96 0.669 24.941321 0.02682
2 FEE 31-Dec-96 0.669 26.258516 0.02548
RESULTING VALUE 31-Dec-96 26.258516 49.77865 1307.1136
1.172
FORMULA: 1000*(1+T)= 1307.1136
= 1264.61356
Standardized Return = T = 22.18%
R = 26.46%
NLIC VAII DB UTILITIES
30-Oct-95
TO NO. YEARS 1.172
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 30-Oct-95 1000.00 16.971765 58.92139
1 FEE 30-Oct-96 0.669 18.604938 0.03596
2 FEE 31-Dec-96 0.669 19.268190 0.03472
RESULTING VALUE 31-Dec-96 19.268190 58.85071 1133.9467
1.172
FORMULA: 1000*(1+T)= 1133.9467
= 1091.44671
Standardized Return = T = 7.75%
R = 9.14%
<PAGE>
NLIC VAII DB EUROPEAN GROWTH
30-Oct-95
TO NO. YEARS 1.172
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 30-Oct-95 1000.00 18.486379 54.09388
1 FEE 30-Oct-96 0.669 22.686629 0.02949
2 FEE 31-Dec-96 0.669 24.297886 0.02753
RESULTING VALUE 31-Dec-96 24.297886 54.03686 1312.9815
1.172
FORMULA: 1000*(1+T)= 1312.9815
= 1270.48146
Standardized Return = T = 22.67%
R = 27.05%
NLIC VAII DB CAPITAL GROWTH
30-Oct-95
TO NO. YEARS 1.172
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 30-Oct-95 1000.00 13.894611 71.97035
1 FEE 30-Oct-96 0.669 16.003295 0.04180
2 FEE 31-Dec-96 0.669 16.396546 0.04080
RESULTING VALUE 31-Dec-96 16.396546 71.88774 1178.7107
1.172
FORMULA: 1000*(1+T)= 1178.7107
= 1136.2107
Standardized Return = T = 11.51%
R = 13.62%
<PAGE>
NLIC VAII DB PACIFIC GROWTH
30-Oct-95
TO NO. YEARS 1.172
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 30-Oct-95 1000.00 9.352146 106.92733
1 FEE 30-Oct-96 0.669 9.531050 0.07019
2 FEE 31-Dec-96 0.669 9.843217 0.06797
RESULTING VALUE 31-Dec-96 9.843217 106.78917 1051.1490
1.172
FORMULA: 1000*(1+T)= 1051.1490
= 1008.649
Standardized Return = T = 0.74%
R = 0.86%
NLIC VAII DB GLOBAL DIVIDEND GROWTH
30-Oct-95
TO NO. YEARS 1.172
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 30-Oct-95 1000.00 11.250341 88.88619
1 FEE 30-Oct-96 0.669 13.114288 0.05101
2 FEE 31-Dec-96 0.669 13.823682 0.04840
RESULTING VALUE 31-Dec-96 13.823682 88.78679 1227.3603
1.172
FORMULA: 1000*(1+T)= 1227.3603
= 1184.8603
Standardized Return = T = 15.58%
R = 18.49%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NLIC VAII HIGH YIELD
NO. YEARS 10.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-86 1000.00 13.691118 73.04005
FEE 31-Dec-87 0.669 13.096508 0.05108
FEE 31-Dec-88 0.669 14.344391 0.04664
FEE 31-Dec-89 0.669 12.370554 0.05408
FEE 31-Dec-90 0.669 8.932412 0.07490
FEE 31-Dec-91 0.669 13.981604 0.04785
FEE 31-Dec-92 0.669 16.335603 0.04095
FEE 31-Dec-93 0.669 20.022205 0.03341
FEE 31-Dec-94 0.669 19.314985 0.03464
FEE 31-Dec-95 0.669 21.859326 0.03060
FEE 31-Dec-96 0.669 24.148290 0.02770
RESULTING VALUE 31-Dec-96 24.148290 72.59820 1753.1223
10.000
FORMULA: 1000*(1+T)= 1753.1223 - (0.85 * 1000 * 0)
= 1753.1223
Standardized Return = T = 5.77%
R = 75.31%
<PAGE>
NLIC VAII EQUITY
NO. YEARS 10.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-86 1000.00 9.592718 104.24575
FEE 31-Dec-87 0.669 8.875325 0.07538
FEE 31-Dec-88 0.669 9.600033 0.06969
FEE 31-Dec-89 0.669 11.259460 0.05942
FEE 31-Dec-90 0.669 10.705807 0.06249
FEE 31-Dec-91 0.669 16.799149 0.03982
FEE 31-Dec-92 0.669 16.599155 0.04030
FEE 31-Dec-93 0.669 19.604447 0.03412
FEE 31-Dec-94 0.669 18.189346 0.03678
FEE 31-Dec-95 0.669 25.863867 0.02587
FEE 31-Dec-96 0.669 28.669371 0.02334
RESULTING VALUE 31-Dec-96 28.669371 103.77854 2975.2655
10.000
FORMULA: 1000*(1+T)= 2975.2655 - (0.85 * 1000 * 0)
= 2975.2655
Standardized Return = T = 11.52%
R = 197.53%
NLIC VAII QUALITY INCOME
01-Mar-87
TO NO. YEARS 9.837
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 01-Mar-87 1000.00 8.238541 121.38072
1 FEE 01-Mar-88 0.669 8.695110 0.07694
2 FEE 01-Mar-89 0.669 8.870390 0.07542
3 FEE 01-Mar-90 0.669 9.637676 0.06942
4 01-Mar-91 0.669 10.650845 0.06281
5 01-Mar-92 0.669 12.054293 0.05550
6 01-Mar-93 0.669 13.681550 0.04890
7 01-Mar-94 0.669 14.172290 0.04720
8 01-Mar-95 0.669 14.013269 0.04774
9 01-Mar-96 0.669 16.003448 0.04180
10 31-Dec-96 0.669 16.403816 0.04078
RESULTING VALUE 31-Dec-96 16.403816 120.81420 1981.8140
FORMULA: 1000*(1+T)= 1981.8140
= 1981.814
Standardized Return = T = 7.20%
R = 98.18%
<PAGE>
NLIC VAII STRATEGIST
01-Mar-87
TO NO. YEARS 9.837
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 01-Mar-87 1000.00 8.603048 116.23788
1 FEE 01-Mar-88 0.669 9.255602 0.07228
2 FEE 01-Mar-89 0.669 9.673689 0.06916
3 FEE 01-Mar-90 0.669 10.442418 0.06407
4 01-Mar-91 0.669 11.703423 0.05716
5 01-Mar-92 0.669 13.382400 0.04999
6 01-Mar-93 0.669 14.370807 0.04655
7 01-Mar-94 0.669 15.429109 0.04336
8 01-Mar-95 0.669 15.819738 0.04229
9 01-Mar-96 0.669 17.436111 0.03837
10 31-Dec-96 0.669 19.198700 0.03485
RESULTING VALUE 31-Dec-96 19.198700 115.71981 2221.6698
FORMULA: 1000*(1+T)= 2221.6698
= 2221.6698
Standardized Return = T = 8.45%
R = 122.17%
NLIC VAII DIVIDEND GROWTH
01-Mar-90
TO NO. YEARS 6.836
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 01-Mar-90 1000.00 12.106959 82.59712
1 FEE 01-Mar-91 0.669 12.465782 0.05367
2 FEE 01-Mar-92 0.669 13.986372 0.04783
3 FEE 01-Mar-93 0.669 15.361467 0.04355
4 01-Mar-94 0.669 16.523177 0.04049
5 01-Mar-95 0.669 17.014605 0.03932
6 01-Mar-96 0.669 22.803449 0.02934
7 31-Dec-96 0.669 26.298448 0.02544
RESULTING VALUE 31-Dec-96 26.298448 82.31749 2164.8222
6.836
FORMULA: 1000*(1+T)= 2164.8222
= 2164.8222
Standardized Return = T = 11.96%
R = 116.48%
<PAGE>
NLIC VAII UTILITIES
01-Mar-90
TO NO. YEARS 6.836
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 01-Mar-90 1000.00 10.131279 98.70422
1 FEE 01-Mar-91 0.669 10.811481 0.06188
2 FEE 01-Mar-92 0.669 12.003716 0.05573
3 FEE 01-Mar-93 0.669 14.879112 0.04496
4 01-Mar-94 0.669 15.003655 0.04459
5 01-Mar-95 0.669 14.738506 0.04539
6 01-Mar-96 0.669 18.115984 0.03693
7 31-Dec-96 0.669 19.297511 0.03467
RESULTING VALUE 31-Dec-96 19.297511 98.38007 1898.4905
6.836
FORMULA: 1000*(1+T)= 1898.4905
= 1898.4905
Standardized Return = T = 9.83%
R = 89.85%
NLIC VAII EUROPEAN GROWTH
01-Mar-91
TO NO. YEARS 5.837
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 01-Mar-91 1000.00 10.000000 100.00000
1 FEE 01-Mar-92 0.669 10.306403 0.06491
2 FEE 01-Mar-93 0.669 10.744210 0.06227
3 FEE 01-Mar-94 0.669 14.776559 0.04527
4 01-Mar-95 0.669 15.668384 0.04270
5 01-Mar-96 0.669 19.936189 0.03356
6 31-Dec-96 0.669 24.334840 0.02749
RESULTING VALUE 31-Dec-96 24.334840 99.72380 2426.7628
5.837
FORMULA: 1000*(1+T)= 2426.7628
= 2418.2628
Standardized Return = T = 16.33%
R = 141.83%
<PAGE>
NLIC VAII CAPITAL GROWTH
01-Mar-91
TO NO. YEARS 5.837
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 01-Mar-91 1000.00 10.000000 100.00000
1 FEE 01-Mar-92 0.669 12.141744 0.05510
2 FEE 01-Mar-93 0.669 11.843745 0.05649
3 FEE 01-Mar-94 0.669 11.745794 0.05696
4 01-Mar-95 0.669 12.152051 0.05505
5 01-Mar-96 0.669 15.739179 0.04251
6 31-Dec-96 0.669 16.421498 0.04074
RESULTING VALUE 31-Dec-96 16.421498 99.69316 1637.1111
5.837
FORMULA: 1000*(1+T)= 1637.1111
= 1628.6111
Standardized Return = T = 8.71%
R = 62.86%
NLIC VAII PACIFIC GROWTH
23-Feb-94
TO NO. YEARS 2.853
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 23-Feb-94 1000.00 10.000000 100.00000
1 FEE 23-Feb-95 0.669 8.627411 0.07754
2 FEE 23-Feb-96 0.669 10.401149 0.06432
3 FEE 31-Dec-96 0.669 9.858203 0.06786
RESULTING VALUE 31-Dec-96 9.858203 99.79027 983.7528
2.853
FORMULA: 1000*(1+T)= 983.7528
= 949.75278
Standardized Return = T = -1.79%
R = -5.02%
<PAGE>
NLIC VAII GLOBAL DIVIDEND GROWTH
23-Feb-94
TO NO. YEARS 2.853
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0INIT DEPOSIT 23-Feb-94 1000.00 10.000000 100.00000
1FEE 23-Feb-95 0.669 9.976816 0.06706
2FEE 23-Feb-96 0.669 12.277775 0.05449
3FEE 31-Dec-96 0.669 13.844714 0.04832
RESULTING VALUE 31-Dec-96 13.844714 99.83013 1382.1197
2.853
FORMULA: 1000*(1+T)= 1382.1197
= 1348.1197
Standardized Return = T = 11.04%
R = 34.81%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NLIC VAII DB HIGH YIELD
NO. YEAR 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 21.854658 45.75684
FEE 31-Dec-96 0.669 24.111603 0.02775
RESULTING VALUE 31-Dec-96 24.111603 45.72909 1102.6017
1.000
FORMULA: 1000*(1+T)= 1102.6017 - (0.85 * 1000 * 0.05)
= 1060.1017
Standardized Return = T = 6.01%
R = 6.01%
NLIC VAII DB EQUITY
NO. YEAR 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 25.858344 38.67224
FEE 31-Dec-96 0.669 28.625797 0.02337
RESULTING VALUE 31-Dec-96 28.625797 38.64887 1106.3546
1.000
FORMULA: 1000*(1+T)= 1106.3546 - (0.85 * 1000 * 0.05)
= 1063.8546
Standardized Return = T = 6.39%
R = 6.39%
NLIC VAII DB QUALITY INCOME
NO. YEAR 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 16.369534 61.08909
FEE 31-Dec-96 0.669 16.378885 0.04085
RESULTING VALUE 31-Dec-96 16.378885 61.04825 999.9022
1.000
FORMULA: 1000*(1+T)= 999.9022 - (0.85 * 1000 * 0.05)
= 957.4022
Standardized Return = T = -4.26%
R = -4.26%
<PAGE>
NLIC VAII DB STRATEGIST
NO. YEAR 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 16.915435 59.11760
FEE 31-Dec-96 0.669 19.169540 0.03490
RESULTING VALUE 31-Dec-96 19.169540 59.08271 1132.5883
1.000
FORMULA: 1000*(1+T)= 1132.5883 - (0.85 * 1000 * 0.05)
= 1090.0883
Standardized Return = T = 9.01%
R = 9.01%
NLIC VAII DB DIVIDEND GROWTH
NO. YEAR 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 21.500050 46.51152
FEE 31-Dec-96 0.669 26.258516 0.02548
RESULTING VALUE 31-Dec-96 26.258516 46.48604 1220.6545
1.000
FORMULA: 1000*(1+T)= 1220.6545 - (0.85 * 1000 * 0.05)
= 1178.1545
Standardized Return = T = 17.82%
R = 17.82%
NLIC VAII DB UTILITIES
NO. YEAR 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 17.994919 55.57124
FEE 31-Dec-96 0.669 19.268190 0.03472
RESULTING VALUE 31-Dec-96 19.268190 55.53652 1070.0883
1.000
FORMULA: 1000*(1+T)= 1070.0883 - (0.85 * 1000 * 0.05)
= 1027.5883
Standardized Return = T = 2.76%
R = 2.76%
<PAGE>
NLIC VAII DB EUROPEAN GROWTH
NO. YEAR 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 18.971796 52.70982
FEE 31-Dec-96 0.669 24.297886 0.02753
RESULTING VALUE 31-Dec-96 24.297886 52.68229 1280.0683
1.000
FORMULA: 1000*(1+T)= 1280.0683 - (0.85 * 1000 * 0.05)
= 1237.5683
Standardized Return = T = 23.76%
R = 23.76%
NLIC VAII DB CAPITAL GROWTH
NO. YEAR 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 14.919563 67.02609
FEE 31-Dec-96 0.669 16.396546 0.04080
RESULTING VALUE 31-Dec-96 16.396546 66.98529 1098.3274
1.000
FORMULA: 1000*(1+T)= 1098.3274 - (0.85 * 1000 * 0.05)
= 1055.8274
Standardized Return = T = 5.58%
R = 5.58%
NLIC VAII DB PACIFIC GROWTH
NO. YEAR 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 9.616944 103.98314
FEE 31-Dec-96 0.669 9.843217 0.06797
RESULTING VALUE 31-Dec-96 9.843217 103.91517 1022.8596
1.000
FORMULA: 1000*(1+T)= 1022.8596 - (0.85 * 1000 * 0.05)
= 980.3596
Standardized Return = T = -1.96%
R = -1.96%
<PAGE>
NLIC VAII DB GLOBAL DIVIDEND GROWTH
NO. YEAR 1.000
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 29-Dec-95 1000.00 11.932293 83.80619
FEE 31-Dec-96 0.669 13.823682 0.04840
RESULTING VALUE 31-Dec-96 13.823682 83.75779 1157.8411
1.000
FORMULA: 1000*(1+T)= 1157.8411 - (0.85 * 1000 * 0.05)
= 1115.3411
Standardized Return = T = 11.53%
R = 11.53%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NLIC VAII DB DB HIGH YIELD
31-Dec-91
TO NO. YEARS 5.000
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-91 1000.00 14.057226 71.13779
FEE 31-Dec-92 0.669 16.402580 0.04079
FEE 31-Dec-93 0.669 20.069886 0.03333
FEE 31-Dec-94 0.669 19.337970 0.03460
FEE 31-Dec-95 0.669 21.854658 0.03061
FEE 31-Dec-96 0.669 24.111603 0.02775
RESULTING VALUE 31-Dec-96 24.111603 70.97072 1711.2178
5.000
FORMULA: 1000*(1+T)= 1711.2178 - (0.85 * 1000 * 0.01)
= 1702.71779
Standardized Return = T = 11.23%
R = 70.27%
NLIC VAII DB EQUITY
31-Dec-91
TO NO. YEARS 5.000
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-91 1000.00 16.883076 59.23091
FEE 31-Dec-92 0.669 16.660353 0.04016
FEE 31-Dec-93 0.669 19.651076 0.03404
FEE 31-Dec-94 0.669 18.210988 0.03674
FEE 31-Dec-95 0.669 25.858344 0.02587
FEE 31-Dec-96 0.669 28.625797 0.02337
RESULTING VALUE 31-Dec-96 28.625797 59.07074 1690.9469
5.000
FORMULA: 1000*(1+T)= 1690.9469 - (0.85 * 1000 * 0.01)
= 1682.44687
Standardized Return = T = 10.97%
R = 68.24%
<PAGE>
NLIC VAII DB QUALITY INCOME
31-Dec-91
TO NO. YEARS 5.000
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-91 1000.00 12.223939 81.80669
FEE 31-Dec-92 0.669 13.040873 0.05130
FEE 31-Dec-93 0.669 14.521285 0.04607
FEE 31-Dec-94 0.669 13.326890 0.05020
FEE 31-Dec-95 0.669 16.369534 0.04087
FEE 31-Dec-96 0.669 16.378885 0.04085
RESULTING VALUE 31-Dec-96 16.378885 81.57741 1336.1470
5.000
FORMULA: 1000*(1+T)= 1336.1470 - (0.85 * 1000 * 0.01)
= 1327.64697
Standardized Return = T = 5.83%
R = 32.76%
NLIC VAII DB STRATEGIST
31-Dec-91
TO NO. YEARS 5.000
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-91 1000.00 13.332302 75.00580
FEE 31-Dec-92 0.669 14.086481 0.04749
FEE 31-Dec-93 0.669 15.322262 0.04366
FEE 31-Dec-94 0.669 15.705992 0.04260
FEE 31-Dec-95 0.669 16.915435 0.03955
FEE 31-Dec-96 0.669 19.169540 0.03490
RESULTING VALUE 31-Dec-96 19.169540 74.79760 1433.8357
5.000
FORMULA: 1000*(1+T)= 1433.8357 - (0.85 * 1000 * 0.01)
= 1425.33565
Standardized Return = T = 7.35%
R = 42.53%
<PAGE>
NLIC VAII DB DIVIDEND GROWTH
31-Dec-91
TO NO. YEARS 5.000
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-91 1000.00 13.980397 71.52873
FEE 31-Dec-92 0.669 14.898860 0.04490
FEE 31-Dec-93 0.669 16.785885 0.03985
FEE 31-Dec-94 0.669 16.087197 0.04159
FEE 31-Dec-95 0.669 21.500050 0.03112
FEE 31-Dec-96 0.669 26.258516 0.02548
RESULTING VALUE 31-Dec-96 26.258516 71.34579 1873.4346
5.000
FORMULA: 1000*(1+T)= 1873.4346 - (0.85 * 1000 * 0.01)
= 1864.93456
Standardized Return = T = 13.27%
R = 86.49%
NLIC VAII DB UTILITIES
31-Dec-91
TO NO. YEARS 5.000
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-91 1000.00 12.516525 79.89438
FEE 31-Dec-92 0.669 13.891409 0.04816
FEE 31-Dec-93 0.669 15.835375 0.04225
FEE 31-Dec-94 0.669 14.206834 0.04709
FEE 31-Dec-95 0.669 17.994919 0.03718
FEE 31-Dec-96 0.669 19.268190 0.03472
RESULTING VALUE 31-Dec-96 19.268190 79.68499 1535.3854
5.000
FORMULA: 1000*(1+T)= 1535.3854 - (0.85 * 1000 * 0.01)
= 1526.88544
Standardized Return = T = 8.83%
R = 52.69%
<PAGE>
NLIC VAII DB EUROPEAN GROWTH
31-Dec-91
TO NO. YEARS 5.000
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-91 1000.00 10.070539 99.29955
FEE 31-Dec-92 0.669 10.318344 0.06484
FEE 31-Dec-93 0.669 14.323885 0.04671
FEE 31-Dec-94 0.669 15.314253 0.04368
FEE 31-Dec-95 0.669 18.971796 0.03526
FEE 31-Dec-96 0.669 24.297886 0.02753
RESULTING VALUE 31-Dec-96 24.297886 99.08153 2407.4717
5.000
FORMULA: 1000*(1+T)= 2407.4717 - (0.85 * 1000 * 0.01)
= 2398.97169
Standardized Return = T = 19.13%
R = 139.90%
NLIC VAII DB CAPITAL GROWTH
31-Dec-91
TO NO. YEARS 5.000
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-91 1000.00 12.760744 78.36534
FEE 31-Dec-92 0.669 12.778358 0.05235
FEE 31-Dec-93 0.669 11.710240 0.05713
FEE 31-Dec-94 0.669 11.335731 0.05902
FEE 31-Dec-95 0.669 14.919563 0.04484
FEE 31-Dec-96 0.669 16.396546 0.04080
RESULTING VALUE 31-Dec-96 16.396546 78.11119 1280.7538
5.000
FORMULA: 1000*(1+T)= 1280.7538 - (0.85 * 1000 * 0.01)
= 1272.25379
Standardized Return = T = 4.93%
R = 27.23%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NLIC VAII DB HIGH YIELD
31-Dec-86
TO NO. YEARS 10.000
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-86 1000.00 13.854994 72.17614
FEE 31-Dec-87 0.669 13.236034 0.05054
FEE 31-Dec-88 0.669 14.478385 0.04621
FEE 31-Dec-89 0.669 12.469928 0.05365
FEE 31-Dec-90 0.669 8.992388 0.07440
FEE 31-Dec-91 0.669 14.057226 0.04759
FEE 31-Dec-92 0.669 16.402580 0.04079
FEE 31-Dec-93 0.669 20.069886 0.03333
FEE 31-Dec-94 0.669 19.337970 0.03460
FEE 31-Dec-95 0.669 21.854658 0.03061
FEE 31-Dec-96 0.669 24.111603 0.02775
RESULTING VALUE 31-Dec-96 24.111603 71.73668 1729.6864
FORMULA: 1000*(1+T)= 1729.6864 - (0.85 * 1000 * 0)
= 1729.6864
Standardized Return = T = 5.63%
R = 72.97%
NLIC VAII DB EQUITY
31-Dec-86
TO NO. YEARS 10.000
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-86 1000.00 9.703545 103.05512
FEE 31-Dec-87 0.669 8.966171 0.07461
FEE 31-Dec-88 0.669 9.685706 0.06907
FEE 31-Dec-89 0.669 11.345229 0.05897
FEE 31-Dec-90 0.669 10.773270 0.06210
FEE 31-Dec-91 0.669 16.883076 0.03963
FEE 31-Dec-92 0.669 16.660353 0.04016
FEE 31-Dec-93 0.669 19.651076 0.03404
FEE 31-Dec-94 0.669 18.210988 0.03674
FEE 31-Dec-95 0.669 25.858344 0.02587
FEE 31-Dec-96 0.669 28.625797 0.02337
RESULTING VALUE 31-Dec-96 28.625797 102.59057 2936.7367
FORMULA: 1000*(1+T)= 2936.7367 - (0.85 * 1000 * 0)
= 2936.7367
Standardized Return = T = 11.37%
R = 193.67%
<PAGE>
NLIC VAII DB QUALITY INCOME
01-Mar-87
TO NO. YEARS 9.837
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0INIT DEPOSIT 01-Mar-87 1000.00 8.331860 120.02123
1FEE 01-Mar-88 0.669 8.782177 0.07618
2FEE 01-Mar-89 0.669 8.947571 0.07477
3FEE 01-Mar-90 0.669 9.708903 0.06891
4 01-Mar-91 0.669 10.715633 0.06243
5 01-Mar-92 0.669 12.111924 0.05523
6 01-Mar-93 0.669 13.729014 0.04873
7 01-Mar-94 0.669 14.202982 0.04710
8 01-Mar-95 0.669 14.025392 0.04770
9 01-Mar-96 0.669 15.996448 0.04182
10 31-Dec-96 0.669 16.378885 0.04085
RESULTING VALUE 31-Dec-96 16.378885 119.45751 1956.5808
FORMULA: 1000*(1+T)= 1956.5808
= 1956.5808
Standardized Return = T = 7.06%
R = 95.66%
NLIC VAII DB STRATEGIST
01-Mar-87
TO NO. YEARS 9.837
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0INIT DEPOSIT 01-Mar-87 1000.00 8.700501 114.93591
1FEE 01-Mar-88 0.669 9.348286 0.07156
2FEE 01-Mar-89 0.669 9.757868 0.06856
3FEE 01-Mar-90 0.669 10.519604 0.06360
4 01-Mar-91 0.669 11.774633 0.05682
5 01-Mar-92 0.669 13.446392 0.04975
6 01-Mar-93 0.669 14.420671 0.04639
7 01-Mar-94 0.669 15.462526 0.04327
8 01-Mar-95 0.669 15.833424 0.04225
9 01-Mar-96 0.669 17.428490 0.03839
10 31-Dec-96 0.669 19.169540 0.03490
RESULTING VALUE 31-Dec-96 19.169540 114.42043 2193.3870
FORMULA: 1000*(1+T)= 2193.3870
= 2193.387
Standardized Return = T = 8.31%
R = 119.34%
<PAGE>
NLIC VAII DB DIVIDEND GROWTH
01-Mar-90
TO NO. YEARS 6.836
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 01-Mar-90 1000.00 12.196449 81.99108
1 FEE 01-Mar-91 0.669 12.541618 0.05334
2 FEE 01-Mar-92 0.669 14.053222 0.04760
3 FEE 01-Mar-93 0.669 15.414746 0.04340
4 01-Mar-94 0.669 16.558979 0.04040
5 01-Mar-95 0.669 17.029327 0.03929
6 01-Mar-96 0.669 22.793486 0.02935
7 31-Dec-96 0.669 26.258516 0.02548
RESULTING VALUE 31-Dec-96 26.258516 81.71222 2145.6415
6.836
FORMULA: 1000*(1+T)= 2145.6415
= 2145.6415
Standardized Return = T = 11.81%
R = 114.56%
NLIC VAII DB UTILITIES
01-Mar-90
TO NO. YEARS 6.836
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 01-Mar-90 1000.00 10.206178 97.97987
1 FEE 01-Mar-91 0.669 10.877260 0.06150
2 FEE 01-Mar-92 0.669 12.061128 0.05547
3 FEE 01-Mar-93 0.669 14.930771 0.04481
4 01-Mar-94 0.669 15.036174 0.04449
5 01-Mar-95 0.669 14.751266 0.04535
6 01-Mar-96 0.669 18.108068 0.03694
7 31-Dec-96 0.669 19.268190 0.03472
RESULTING VALUE 31-Dec-96 19.268190 97.65658 1881.6655
6.836
FORMULA: 1000*(1+T)= 1881.6655
= 1881.6655
Standardized Return = T = 9.69%
R = 88.17%
<PAGE>
NLIC VAII DB EUROPEAN GROWTH
01-Mar-91
TO NO. YEARS 5.837
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 01-Mar-91 1000.00 10.060892 99.39477
1 FEE 01-Mar-92 0.669 10.355745 0.06460
2 FEE 01-Mar-93 0.669 10.781544 0.06205
3 FEE 01-Mar-94 0.669 14.808589 0.04518
4 01-Mar-95 0.669 15.681955 0.04266
5 01-Mar-96 0.669 19.927472 0.03357
6 31-Dec-96 0.669 24.297886 0.02753
RESULTING VALUE 31-Dec-96 24.297886 99.11917 2408.3863
5.837
FORMULA: 1000*(1+T)= 2408.3863
= 2399.8863
Standardized Return = T = 16.18%
R = 139.99%
NLIC VAII DB CAPITAL GROWTH
01-Mar-91
TO NO. YEARS 5.837
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0 INIT DEPOSIT 01-Mar-91 1000.00 10.060832 99.39536
1 FEE 01-Mar-92 0.669 12.199795 0.05484
2 FEE 01-Mar-93 0.669 11.884830 0.05629
3 FEE 01-Mar-94 0.669 11.771223 0.05683
4 01-Mar-95 0.669 12.162557 0.05500
5 01-Mar-96 0.669 15.732296 0.04252
6 31-Dec-96 0.669 16.396546 0.04080
RESULTING VALUE 31-Dec-96 16.396546 99.08907 1624.7184
5.837
FORMULA: 1000*(1+T)= 1624.7184
= 1616.2184
Standardized Return = T = 8.57%
R = 61.62%
<PAGE>
NLIC VAII DB PACIFIC GROWTH
23-Feb-94
TO NO. YEARS 2.853
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0INIT DEPOSIT 23-Feb-94 1000.00 10.021919 99.78129
1FEE 23-Feb-95 0.669 8.635090 0.07747
2FEE 23-Feb-96 0.669 10.396899 0.06435
3FEE 31-Dec-96 0.669 9.843217 0.06797
RESULTING VALUE 31-Dec-96 9.843217 99.57150 980.1039
2.853
FORMULA: 1000*(1+T)= 980.1039
= 946.10391
Standardized Return = T = -1.92%
R = -5.39%
NLIC VAII DB GLOBAL DIVIDEND GROWTH
23-Feb-94
TO NO. YEARS 2.853
31-Dec-96
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
0INIT DEPOSIT 23-Feb-94 1000.00 10.021914 99.78134
1FEE 23-Feb-95 0.669 9.985700 0.06700
2FEE 23-Feb-96 0.669 12.272756 0.05451
3FEE 31-Dec-96 0.669 13.823682 0.04840
RESULTING VALUE 31-Dec-96 13.823682 99.61144 1376.9968
2.853
FORMULA: 1000*(1+T)= 1376.9968
= 1342.9968
Standardized Return = T = 10.89%
R = 34.30%
</TABLE>
<PAGE>
NLIC VAII Non-Standardized Performance
Dates:
Current: 12/31/96
3 Months Ago: 09/30/96
End of Last Year: 12/29/95
One Yr Ago: 12/29/95
Five Yrs Ago: 12/31/91
Ten Yrs Ago: 12/31/86
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception Inception Ten Yr Five Yr One Yr Today's Inception Inception
Fund Date AUV AUV AUV AUV AUV Total Average
High Yield 03/09/84 N/A 13.69111799 13.981604 21.859326 24.14829 N/A N/A
Equity 03/09/84 N/A 9.592717566 16.799149 25.863867 28.669371 N/A N/A
Quality Income 03/01/87 8.238540817 N/A 12.163222 16.373027 16.403816 99.11% 7.25%
Managed Assets 03/01/87 8.60304762 N/A 13.26607 16.919048 19.1987 123.16% 8.50%
Dividend Growth 03/01/90 12.10695932 N/A 13.910969 21.504641 26.298448 117.22% 12.01%
Utilities 03/01/90 10.13127915 N/A 12.45433 17.998758 19.297511 90.47% 9.88%
European Growth 03/01/91 10 N/A 10.020452 18.975848 24.33484 143.35% 16.45%
Capital Growth 03/01/91 10 N/A 12.697352 14.92275 16.421498 64.21% 8.86%
Pacific Growth 02/23/94 10 N/A N/A 9.619002 9.858203 -1.42% -0.50%
Global Div Growth 02/23/94 10 N/A N/A 11.934841 13.844714 38.45% 12.07%
<CAPTION>
<S> <C> <C> <C> <C> <C>
Ten Years Ten Years Five Years Five Years One Year
Fund Total Average Total Average
High Yield 76.38% 5.84% 72.71% 11.55% 10.47%
Equity 198.87% 11.57% 70.66% 11.28% 10.85%
Quality Income N/A N/A 34.86% 6.16% 0.19%
Managed Assets N/A N/A 44.72% 7.67% 13.47%
Dividend Growth N/A N/A 89.05% 13.58% 22.29%
Utilities N/A N/A 54.95% 9.15% 7.22%
European Growth N/A N/A 142.85% 19.42% 28.24%
Capital Growth N/A N/A 29.33% 5.28% 10.04%
Pacific Growth N/A N/A N/A N/A 2.49%
Global Div Growth N/A N/A N/A N/A 16.00%
</TABLE>
<PAGE>
NLIC VAII DB Non-Standardized Performance
Non-Standardized Calculations
Dates:
Current: 12/31/96
3 Months Ago: 09/30/96
End of Last Year: 12/29/95
One Yr Ago: 12/29/95
Five Yrs Ago: 12/31/91
Ten Yrs Ago: 12/31/86
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception Inception Ten Yr Five Yr One Yr Today's Inception Inception
Fund Date AUV AUV AUV AUV AUV Total Average
High Yield 03/09/84 N/A 13.8549939 14.057226 21.854658 24.111603 N/A N/A
Equity 03/09/84 N/A 9.70354504 16.883076 25.858344 28.625797 N/A N/A
Quality Income 03/01/87 8.3318596 N/A 12.223939 16.369534 16.378885 96.58% 7.11%
Managed Assets 03/01/87 8.7005009 N/A 13.332302 16.915435 19.16954 120.33% 8.36%
Dividend Growth 03/01/90 12.196449 N/A 13.980397 21.50005 26.258516 115.30% 11.86%
Utilities 03/01/90 10.206178 N/A 12.516525 17.994919 19.26819 88.79% 9.73%
European Growth 03/01/91 10.060892 N/A 10.070539 18.971796 24.297886 141.51% 16.29%
Capital Growth 03/01/91 10.060832 N/A 12.760744 14.919563 16.396546 62.97% 8.72%
Pacific Growth 02/23/94 10.021919 N/A N/A 9.616944 9.843217 -1.78% -0.63%
Global Div Gro 02/23/94 10.021914 N/A N/A 11.932293 13.823682 37.93% 11.92%
<CAPTION>
<S> <C> <C> <C> <C> <C>
Ten Years Ten Years Five Years Five Years One Year
Fund Total Average Total Average
High Yield 74.03% 5.70% 71.52% 11.39% 10.33%
Equity 195.00% 11.43% 69.55% 11.14% 10.70%
Quality Income N/A N/A 33.99% 6.03% 0.06%
Managed Assets N/A N/A 43.78% 7.53% 13.33%
Dividend Growth N/A N/A 87.82% 13.44% 22.13%
Utilities N/A N/A 53.94% 9.01% 7.08%
European Growth N/A N/A 141.28% 19.26% 28.07%
Capital Growth N/A N/A 28.49% 5.14% 9.90%
Pacific Growth N/A N/A N/A N/A 2.35%
Global Div Gro N/A N/A N/A N/A 15.85%
</TABLE>
